Big splashes had VICI Properties Chief Executive Edward Potoniak feeling smashing on Thursday.
In 2020, VICI Properties made a figurative Las Vegas-shaking splash when it announced a deal to buy The Venetian and the Sands Expo and Convention Center for $4 billion. Last week, the Las Vegas-based real estate investment trust made a sloshier splash, investing $80 million in the Great Wolf Lodge, a Perryville, Maryland, project with a $250 million resort that includes a 126,000-square-foot indoor waterpark.
Amid the deals, On Wednesday, VICI Properties said cash flow climbed and revenue zoomed up about 46% to top Wall Street forecasts.
In a Thursday conference call with analysts and journalists, Potoniak said the results reflected the power of big assets — 63 million square feet of built real estate pro forma of the deal for The Venetian.
“With 28 properties, our average property measures 2.3 million square feet. Compare that with the largest conventional triple-net REIT where the average-owned store measures 17,000 square feet,” he said. “Why does scale matter? Because large scale tends to correlate to spatial complexity, multifunctionality, abundant reprogramming capacity, and higher replacement cost. All of which add to mission criticality.”
In a statement, VICI Properties, which serves as landlord to 20 properties including Caesars Palace and Harrah’s in Las Vegas, said its funds from operation were $300.7 million, or 54 cents per share, for the three months ended June 30, up from net income $229.4 million, or 47 cents per share, a year earlier.
The latest result topped the 49-cents-per share consensus estimate of analysts surveyed by Seeking Alpha. Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization.
Net income was $300.7 million, or 54 cents per share, in the latest quarter, up from $229.4 million, or 47 cents per share, a year earlier.
Revenue rose 45.9% to $376.4 million from $257.9 million and topped the $358.6 million consensus estimate of Seeking Alpha-polled analysts. Also, total operating expenses plunged to $7.71 million from $50.7 million a year ago.
VICI also reaffirmed its 2021 earnings guidance of adjusted funds from operation, which exclude one-time costs, of $1.01 billion to $1.04 billion, or $1.82 to $1.87 per diluted share, for the year ending Dec. 31.
Before he’d answered any earnings-call questions, Potoniak seemed ready to rebut any wag who might argue that concentrating investment in big assets also concentrated risk. “We would rather have value concentrated in high-quality noncommodity assets than dispersed across conventional commodity triple-net boxes,” he said. “These big buildings and the ample land parcels around them also create an opportunity for incremental capital investment for our tenants and potentially for us. And that kind of incremental same-store capital-investment opportunity isn’t likely to be available in the typical smaller box owned by a triple-net REIT.”
Under triple-net lease deals, tenants maintain the properties and pay real estate taxes and building insurance.
The Perryville Project, which broke ground Tuesday, will include 2 million square feet of indoor and outdoor entertainment space, including the waterpark, restaurants and a 57,000-square-foot family entertainment center.
As the Baltimore Business Journal reported, Great Wolf Resorts, a Blackstone Real Estate subsidiary, had agreed to build the project in 2018, but the pandemic intervened. The park’s completion is now expected in summer 2023; VICI provided a $79.5 million mezzanine loan.
VICI Chief Financial Officer David Kieske told the Baltimore Business Journal that water parks, like casinos, provide hard-to-match, have-to-be-there thrills. “It’s experiential,” he said, “and there is no replacement for it at home.”
VICI Properties shares sank Thursday, dropping 48 cents, or 1.53%, to close at $30.99 in regular trading on the Nasdaq and shedding 22 cents, or 0.71%, to settle at $30.77 after-hours.
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