With consistent income generation and assets that stand to benefit from reversion to pre-pandemic lifestyles, Gaming and Leisure Properties, Inc. (GLPI) could be a suitable investment this month. However, given the stretched valuation of Realty Income Corporation (O), it might be best avoided now.
While inflation has slightly dipped in February, macroeconomic uncertainties and tail risk don’t look like they would let the economy and markets catch a break anytime soon.
With market sentiments weighing heavily to jeopardize returns from asset price appreciation, Real Estate Investment Trusts (REITs) are well placed to outperform other asset classes due to stable and rising rental incomes. With a mandate to pay at least 90% of their taxable income as dividends, REITs are ideal all-weather investment vehicles for long-term income investors when subscribed to at attractive valuations.
Let’s take a closer look at the featured stocks.
REIT To Buy:
Gaming and Leisure Properties, Inc. (GLPI)
GLPI primarily acquires, finances, and owns real estate property to be leased to gaming operators in triple-net lease arrangements as a self-administered and self-managed real estate investment trust.
On February 23, GLPI announced its 2023 first-quarter dividend of $0.72 per share and a special dividend of $0.25 per share related to the sale of the Tropicana Las Vegas building. The dividends will be payable on March 24, 2023, to shareholders of record on March 10, 2023.
GLPI pays $2.88 annually as dividends, which translates to a forward yield of 5.73% at the current price. The stock’s 4-year average dividend yield is 6.3%.
On January 3, GLPI announced its previously announced acquisition of the land and real estate assets of Bally’s Corporation (BALY), Tiverton Casino & Hotel in Tiverton, RI, and Hard Rock Hotel & Casino Biloxi in Biloxi, MS, for $635 million in total consideration, inclusive of $15 million in the form of OP units.
With this acquisition, which marks the company’s entry into Rhode Island, these properties were added to the Company’s existing Master Lease with Bally’s. The initial rent for the lease was increased by $48.5 million annually, subject to contractual escalations based on the Consumer Price Index, with a 1% floor and 2% ceiling, subject to CPI meeting a 0.5% threshold.
For the fourth quarter of the fiscal year that ended December 31, 2022, GLPI’s total revenue increased 12.8% year-over-year to $336.39 million. During the same period, the trust’s adjusted EBITDA and income from operations increased 12.6% and 34.7% year-over-year to $312.01 million and $275.46 million, respectively.
As a result, GLPI’s adjusted FFO increased 16.5% and 4.7% year-over-year to $239.14 million or $0.89 per unit.
Analysts expect GLPI’s revenue for fiscal 2023 (ending December 2023) to increase 6.4% year-over-year to $1.40 billion. During the same period, the trust’s FFO per unit is expected to increase 8.2% year-over-year to $3.68. Both revenue and FFO per unit are expected to increase to $1.44 billion and $3.81 in the fiscal ending December 2025.
The stock has gained 3.6% over the past six months and 12.9% over the past year to close the last trading session at $50.22.
GLPI’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which equates to a Buy in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GLPI also has B grades for Growth, Stability, Sentiment, and Quality. The stock is ranked #4 among 47 stocks in the REITs – Diversified category.
Click here for additional ratings for GLPI’s Value and Momentum.
REIT To Sell:
Realty Income Corporation (O)
O is a real estate investment trust engaged in acquiring and managing single-unit freestanding commercial properties under a long-term net lease agreement with its commercial clients. The company’s property types include retail, gaming, industrial, and other types, such as agriculture and office.
For the fourth quarter of the fiscal year that ended December 31, 2022, O’s total revenue increased 29.7% year-over-year to $888.65 million. During the same period, its Adjusted Fund From Operation (AFFO) increased 30.4% and 6.4% year-over-year to $633.97 million and $1.00 per share, respectively.
On March 14, O announced an increase in its monthly dividend from 25.45 cents to 25.50 cents per share of common stock. The dividend is payable on April 14, 2023, to stockholders of record as of April 3, 2023.
However, this announcement has also led to an oversubscription in the company’s shares which has lowered its forward dividend yield to 4.90% at the current price, also comparable to its modest 4-year average dividend yield of 4.23%.
O has lost 4.9% over the past month to close the last trading session at $62.43.
O’s POWR Ratings reflect its weakness. The company has an overall rating of D, which translates to a Sell in our proprietary rating system. It has an F grade for Value.
O is ranked #24 among 30 stocks In the REITs – Retail category.
Beyond what we’ve stated above, we have also given O grades for Growth, Momentum, Stability, Sentiment, and Quality. Get all O ratings here.
What To Do Next?
Get your hands on this special report:
What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low-priced companies with the most upside potential in today’s volatile markets.
But even more important is that they are all top Buy rated stocks according to our coveted POWR Ratings system, and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks that could double or more in the year ahead.
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O shares were trading at $61.88 per share on Friday afternoon, down $0.55 (-0.88%). Year-to-date, O has declined -1.70%, versus a 2.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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