Spenser Allaway, net lease, gaming, and self-storage analyst at Green Street, participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (held June 2-4).

Allaway discussed the overlapping characteristics between the gaming sector and the traditional net lease space, noting that the primary commonality is the lease structure, and the primary differentiator is the tenant base.

“In the traditional net lease sector, the REIT portfolios are highly diversified, not just across property types,” but also because no one tenant accounts for more than about 5% of annual rent, she said. The REITs that dominate the gaming space though all either had initial public offerings or were spun from a major gaming operator, and as a result derive about 90% on average of their annual NOI from just one tenant.

Allaway added that because a gaming REIT’s NOI is highly dependent on one tenant, even in a healthy economic backdrop, it’s important to monitor the tenant’s health. Due to COVID though, casinos have been shuttered across the U.S. for more than two months and are only just beginning to reopen in select states.

“When Green Street currently assesses tenants’ rent-paying ability, we’re primarily focused on the operator’s liquidity in a zero-revenue environment,” she said, including their cash on hand, monthly cash burn rate, access to the debt market, and gaging how long a tenant can pay rent without revenue.

Allaway also discussed the differences between Vegas assets and regional casinos, noting that regional properties are often more resilient because they are not reliant on air and business travel.

“To the extent that business or convention travel, which is an important demand driver for Vegas, to the extent that that is hampered due to the changes in how people choose to conduct business, this could really negatively impact the Vegas recovery,” she added.