Posted: May 18, 2022, 9:16 a.m.
Last update: May 18, 2022, 9:52 a.m.
Baron Real Estate Income Fund, one of the best performing actively managed real estate funds, added shares of Las Vegas Sands (NYSE:LVS) in the first quarter. It remains constructive on several other casino stocks in its portfolio.
In the first three months of 2022, the fund purchased 3.2 million shares of Sands, making the name of the game one of five additions to the portfolio and joining other well-known professional investors in adding shares of the game’s fairness oppressed in the March quarter.
We believe the market-leading resorts of Las Vegas Sands in Macau and Singapore position the business for strong growth as travel and tourism spending rebounds. Las Vegas Sands maintains a liquid, investment-grade balance sheet and is currently valued at a significant discount to our replacement cost assessment,” writes portfolio manager Jeffrey Kolitch in a letter to investors.
This isn’t the fund’s first encounter with casino stocks. LVS does not currently have any nationwide integrated resorts, but Baron Real Estate has the ability to add companies that are not dedicated real estate stocks. Sands, like other game names, is classified as a consumer discretionary company.
Baron bullish on other Las Vegas casino stocks
The Baron Real Estate Income Fund has several other game names and is exposed to “cyclical REITs and other income-producing real estate stocks such as travel and hospitality related real estate stocks which had fallen sharply from share price highs of 2021, but which have the potential to appreciate significantly in the new years,” adds Kolitch.
Examples include Boyd Gaming (NYSE:BYD) – one of the fund’s top 10 holdings – and MGM Resorts International (NYSE:MGM). While MGM leases all of the properties on which its gambling halls reside, Boyd owns virtually all of its real estate. This includes an extensive portfolio of downtown and off-Strip properties in Las Vegas. Some analysts say Boyd’s real estate holdings are not adequately reflected in the stock price, indicating the stock may be undervalued.
“Trading conditions remain strong, but the stock is only valued at 7.0 times estimated 2022 cash flow and a double-digit free cash flow yield versus its long-term average of over 9 times the cash flow,” Kolitch said in reference to the Orleans operator.
As for MGM, the portfolio manager estimates the stock to be worth $60 based on the sum of the parts, implying significant upside potential from the $33 zone in which the stock currently resides. .
Baron also likes Red Rock
Red Rock Resorts (NASDAQ: RRR) is another casino stock on the Baron Real Estate list and is one of Kolitch’s views as undervalued.
“Private equity firms continue to acquire casino gaming real estate assets in Las Vegas and pay 16 to 20 times cash flow, but the Fund’s holdings in Red Rock Resorts and MGM Resorts (both with exposure important in Las Vegas) are currently rated at just 7.5. at 10 times the cash flow”, said the portfolio manager.
Red Rock’s portfolio in Las Vegas includes 10 large-scale gambling halls and 10 smaller casinos, which are within five miles of 90% of the city’s population. Like rival Boyd, Red Rock owns virtually all of its real estate. It also controls “seven highly desirable gaming development sites, comprising approximately 428 acres in Las Vegas and Reno,” according to the operator’s investor relations website.