VICI Properties completed a full year of business in the third quarter, and the real estate investment trust’s leaders touted its continued growth Friday.
But an impairment charge linked to vacant land holdings muddled the celebration. Third-quarter funds from operation fell from a year earlier and missed Wall Street forecasts.
In a statement, VICI, spun off from Caesars Entertainment Corp. on Oct. 6, 2017, as part of the company’s two-year bankruptcy reorganization, said funds from operation were $129.9 million, or 35 cents per share, for the three months ended Sept. 30, down from funds from operation of $381.1 million, or $1.06 per share, a year earlier.
VICI said a $12.3 million noncash loss on impairments on nonoperating vacant land parcels — all outside Las Vegas and all excluded from the operations of VICI’s regional property portfolio — dampened results. The latest funds from operation fell short of the 39 cents per share estimate of analysts polled by Yahoo Finance.
Funds from operation are a closely watched fiscal yardstick for real estate investment trusts; they take out net income and add back depreciation and amortization.
VICI’s third-quarter revenue fell 65 percent to $232.7 million from $671.9 million but beat the $230.9 million revenue estimate of Yahoo Finance-polled analysts.
New York-based VICI is a triple-net lease REIT; its tenants, casino operators here, maintain the properties and pay real estate taxes and building insurance. REITs must pay at least 90 percent of their taxable income to shareholders.
VICI’s portfolio includes 19 properties, including Caesars Palace and Harrah’s on the Las Vegas Strip.
During a conference call with analysts, CEO Edward Potoniak reflected on the REIT’s first full year of business. VICI’s February initial public stock offering raised $2.4 billion, he said, and the REIT has refinanced more than $2 billion of debt, eliminated over $1 billion of debt and closed or announced $2.1 billion in acquisitions.
Potoniak said VICI’s tenant mix, 40 percent Las Vegas properties, 60 percent regional properties, offered stability and strength.
President and Chief Operating Officer John Payne said VICI Properties will keep working aggressively to increase its revenue and broaden its tenant base.
“We have no intention of slowing down,” he said. “And as you’ve seen from the transactions we’ve announced over the past year, there is no shortage of external growth opportunities currently out in the marketplace,” he said. “While we are the new guy in the market, we have long-standing relationships within the industry that have allowed us to make progress towards our goals.”
Deutsche Bank gaming analyst Carlo Santarelli told investors VICI sees additional opportunities in both Las Vegas and Reno for acquisitions.
“Management believes there is still a lot of (mergers and acquisition) activity taking place in the sector,” Santarelli told investors. “VICI intends to use cash on the balance sheet to fund the transactions.”
VICI’s earnings call took place a day after Caesars Entertainment CEO Mark Frissora said he was leaving the casino operator on Feb. 9
Santarelli added VICI executives don’t a believe a change in control at Caesars would trigger any changes to its structure or landlord-tenant relationship.
In July, VICI closed its previously announced transaction to acquire Caesars Palace’s Octavius Tower for $507.5 million from Caesars Entertainment and lease it back to the casino operator. In its earnings announcement. VICI said the lease has an initial term expiring Oct. 31, 2032 and provides for $35 million in annual rent. The lease has four five-year renewal options.
In June, VICI agreed to acquire the real estate of Harrah’s Philadelphia for $241.5 million. Under the deal, which VICI expects to close in the fourth quarter, the Harrah’s Philadelphia lease will have total annual rent of $23.2 million and a 15-year initial term. There are four five-year renewal options.
John Payne said he expects total cash outflow of $344 million from the Octavius Tower and Harrah’s Philadelphia deals and related lease modifications.
Pitoniak noted that the Octavius Tower deal gives VICI full ownership of Caesars Palace in Las Vegas and lets the REIT collect $200 million in yearly rent, before annual lease escalators.
Potoniak said VICI continues to work to close its deal to acquire the Margaritaville Resort Casino, in Bossier City, Louisiana, by year’s end.
Under the deal, announced in July, VICI will buy Margaritaville for $261 million in cash from Penn National Gaming and Penn National will buy the Margaritaville casino’s operating assets for $115 million. Penn National and Margaritaville then will become a VICI lease tenant, yielding the REIT $23 million in annual rent. The lease deal has a 15-year initial term with four five-year renewal options.
VICI Properties shares fell 39 cents, or 1.79 percent, Friday to close at $21.43 on the New York Stock Exchange. The shares are up 6.1 percent for 2018 and 15.5 percent since they started trading in November 2017.
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