VICI Properties was born out of the 2017 bankruptcy reorganization of Caesars Entertainment, but the real estate investment trust has spent much of 2019 distancing itself from its largest tenant.
Monday’s $843 million acquisition of two Ohio casinos gave VICI a new operator, Jack Entertainment, and marked the company’s fifth deal in partnership with a casino company in the last 12 months.
“With this deal, VICI will have increased year to date acquisition volume to roughly $4.9 billion and will have expanded its tenant partnerships to five since 2017,” Union Gaming Group John DeCree told investors. “VICI has begun to create some distance between itself and its peers.”
The transaction – a sale-leaseback of Jack Cleveland and Thistledown Racetrack Casino just east of Cleveland in suburban North Randall – was the third deal between VICI and Detroit-based Jack Entertainment this year.
Jack sold Greektown Casino in Detroit to VICI this spring. The company subsequently leased the property to Penn National Gaming. The summer, after the sale of Jack Cincinnati to VICI was finalized, the REIT leased the property to Seminole Indian Tribe’s Hard Rock Entertainment, which will rebrand the resort.
The Cleveland deals leave Jack Entertainment under a 15-year lease with initial rent of $65.9 million per year.
By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders, and investors are taxed at their individual tax rate for the ordinary income portion of the dividend.
The investment community liked the latest transaction. Shares of VICI closed at $23.77 Monday on the New York Stock Exchange, up 11 cents or 0.46%. DeCree and Jefferies gaming analyst David Katz have given the REIT a $29 per share price target. SunTrust Bank gaming analyst Barry Jonas and Deutsche Bank gaming analyst Carlo Santarelli have a $27 per share price target.
“VICI gains an additional tenant and incremental exposure to the relatively higher growth Ohio market,” Jonas told investors. “We believe the announcement underscores a meaningful growth pipeline, while we believe current rent streams remain safe and stable.”
In addition to its deals with Jack Entertainment, last year VICI acquired Margaritaville Bossier City in Louisiana and leased the operations to Penn National.
The REIT is also a participant in the $17.3 billion merger between Eldorado Resorts and Caesars Entertainment. Three Caesars properties – Harrah’s New Orleans, Harrah’s Atlantic City and Harrah’s Laughlin – were sold to VICI for a combined $1.8 billion. The operations will be leased back to Eldorado for total annual rent of $154 million once the deal closes.
In June, Eldorado sold three regional casinos – Mountaineer Casino Racetrack and Resort in New Cumberland, West Virginia; Isle Casino Cape Girardeau in Cape Girardeau, Missouri; and Lady Luck Casino Caruthersville in Caruthersville, Missouri to VICI for $278 million.
Colorado-based Century Casino will pay $107 million for the operations of the three properties and sign a 15-year lease agreement with VICI for annual rent of $25 million per year. The transaction is expected to close next year.
Prior to the pending deals, VICI owned the real estate and buildings associated with 24 gaming properties in 11 states.
“VICI appears to be emerging as the REIT partner of choice,” DeCree said. “VICI may have not been the highest bid for the (Cleveland) real estate, but the company’s long-standing relationship and willingness to provide flexible solutions helped get this one to the finish line.”
VICI is one of three gaming-focused REITs. Gaming and Leisure Properties was spun off from Penn National Gaming in 2013 and now has 44 gaming and related properties. MGM Growth, which launched in 2015, has 15 properties, all managed by MGM Resorts.
Last week, MGM Resorts announced a $4.25 billion sale-leaseback of Bellagio to a REIT owned by the Blackstone Group.
“We continue to favor the active diversification for VICI with additional tenants, given recent deals,” Katz told investors. “We maintain our view that the growth from pending transactions supports a considerably higher level in the shares.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
