Transactions both direct and peripheral reverberated through VICI Properties’ third-quarter earnings report. The New York-based real estate investment trust said it will buy two Cleveland-area casinos, and called Blackstone Group’s $4.24 billion deal for the Bellagio on the Strip a boon for the real estate market.
VICI, which was spun off from Caesars Entertainment Corp. in 2017, said Thursday that a key cash flow measure rose from a year earlier, topping Wall Street forecasts, but revenue fell (and missed).
In a statement, VICI said funds from operation, a cash flow measure that filters out nonrecurring costs, were $164.6 million, or 35 cents per share, for the three months ended Sept. 30, a 24.5 percent increase from $132.2 million, or 36 cents per diluted share, a year earlier.
The latest results topped the consensus 33 cents-per-share in adjusted funds from operations forecast by analysts surveyed by Zacks Investment Research. The news sent VICI Properties rising Friday, up 98 cents or 4.16 percent, to close at $24.53 on the New York Stock Exchange.
VICI, which owns 24 properties in 13 states nationwide, including Las Vegas, linked the year-over-year per share funds from operations drop to a 25.8 percent increase in the share count, after 50 million shares were issued in June and 34.5 million shares were issued in November 2018.
Analysts and investors use funds from operations, which add together net income, amortization and depreciation and subtract property sales, to gauge a REIT’s cash flow generation.
Net income was $144.4 million, or 31 cents per share, an 11.2 percent jump from $129.9 million, or 35 cents per diluted share, a year earlier.
Revenue fell 4.4 percent to $222.5 million from $232.7 million. VICI noted that 2018 included $25.1 million associated with tenant reimbursement of property taxes that are no longer recorded as revenue. Zacks-polled analysts had, on average, forecast $224.5 million in revenue.
VICI Properties on Wednesday agreed to acquire the real estate and assets of the Jack Cleveland Casino in downtown Cleveland and Jack Thistledown Racino in North Randall, Ohio, for $843.3 million in cash.
When the deal closes, VICI will enter into a 15-year master triple-net lease agreement with Jack Entertainment with an annual rent of $65.9 million; the lease will have four five-year tenant renewal options.
VICI had dealt with Jack Entertainment earlier this year; on Sept. 20, the REIT closed a $558 million deal to acquire the land and real estate for the Jack Cincinnati casino. A Hard Rock International subsidiary acquired the operating assets for $187 million.
VICI then entered a 15-year triple-net lease with Hard Rock with an initial total annual rent of $42.75 million.
During a conference call with analysts and journalists to report the third-quarter results, VICI CEO Edward Pitoniak said Blackstone’s Oct. 15 deal for the Bellagio was bound to come. Retail real estate equity investors, and credit investors, have long recognized the Strip as one of the U.S.’s most valuable real estate markets, as the appraised 4.5 percent capitalization rate for the Grand Canal Shoppes at The Venetian attests.
“We said … beginning two years ago that the time would come when more of America’s commercial real estate investors would come to investigate and invest in America’s gaming real estate,” he said. “All along, we said that this growing recognition would be inevitable, and it would be welcome, given that real estate doesn’t achieve its full value until this recognition takes place by institutional capital … validation drives valuation.
“Blackstone’s purchase of the Bellagio real estate is just that sort of validation … a good thing for our shareholders, for our sector.”
If bidding wars ensue for other Strip assets, they’ll signal rising asset values, Pitoniak said, which should let the REIT stay competitive in bidding for gaming and non-gaming assets.
On Thursday, VICI boosted adjusted funds from operations guidance for 2019, saying it now expects $1.47 to $1.48 per share, up from a previous forecast of $1.45 to $1.47. The Zacks consensus estimate is $1.41.
Follow Matthew Crowley on Twitter @copyjockey
