Real estate investment trust VICI Properties has caught the attention of the investment community.
Born out of the bankruptcy reorganization of Caesars Entertainment Corp. a year ago, the REIT has since branched out beyond its relationship with Caesars to form deals with other casino operators.
In June, VICI teamed up with Penn National Gaming to acquire Margaritaville Resort Casino in Bossier City, Louisiana for a total purchase price of $376 million. Last week, the companies got together again on the $1 billion purchase of Greektown Casino-Resort in Detroit.
As with VICI’s relationship with Caesars, the company will lease the operations of Margaritaville and Greektown to Penn National through long-term management agreements.
On Monday, VICI said it raised $724.5 million through a stock sale of 34.5 million shares for $21 each. The company said the proceeds will be used for the Greektown purchase, other potential property acquisitions, and general corporate purposes.
VICI currently owns 20 resorts under the Caesars, Harrah’s and Horseshoe brands in eight states, all leased to Caesars Entertainment. The REIT is in the process of acquiring Harrah’s Philadelphia, which would give company its ninth state. Meanwhile, the deals with Penn – expected to close between December and early next year – expand VICI’s realm to include a 10th state and a new partner. VICI also owns four Caesars-operated golf courses in three states.
“We believe VICI’s cash flows are safe, stable and secure with 100 percent occupancy,” SunTrust gaming analyst Barry Jonas told investors this week when he initiated coverage of the company. “(VICI has) a meaningful growth pipeline as Caesars’ natural mergers and acquisitions partner.”
VICI President John Payne said on the company’s third quarter earnings call this month that the REIT continues to explain its business model and independence from Caesars to potential partners. Payne, a former Caesars executive, said the company still sees potential in Nevada and several untapped regional gaming markets.
“We’re making sure that we’re out there… it’s quite active,” Payne said. “We continue to look at all opportunities, hitting all the markets (where) we think there is still opportunity for us.”
Gaming and Leisure Properties, the industry’s first REIT, was carved out of Penn National in 2013. But the companies have all but exhausted potential deal possibilities following Penn’s $2.8 billion purchase of 12 Pinnacle Entertainment casinos.
GLPI has since done deals with Eldorado Resorts and Tropicana Entertainment.
In 2015, MGM Resorts International formed the MGM Growth Properties REIT. The company retains a 70 percent ownership stake.
Wall Street has grown fond of the REITs, which don’t pay income taxes but distribute 90 percent of their earnings in the form of dividends to shareholders.
In a research note, Deutsche Bank gaming analyst Carlo Santarelli said nine deals involving gaming REITs in the past 12 months have totaled $5.8 billion. He said the total also represents roughly 44 percent of all gaming REIT deals since GLPI’s first post-Penn spin-off deal in 2013.
“(VICI) management believes there is still a lot of mergers and acquisitions activity taking place in the sector,” Santarelli said. “VICI intends to use cash on the balance sheet to fund the transactions, thereby driving stronger accretion.”
The only questions about VICI involve potential changes in its operational structure given the recent uncertainty surrounding Caesars Entertainment, which has been the subject of potential activist investor activity and is a potential merger target. CEO Mark Frissora, who has headed the company since 2015, said earlier this month that he will step down in February.
Santarelli said the VICI addressed those concerns on its earnings call.
“VICI does not believe a change of control in Caesars would trigger any material changes to its structure/landlord relationship, nor would the call option assets be impacted,” he said.
Credit Suisse gaming analyst Cameron McKnight said the Caesars matters might shake out potential new operations partners for the REIT.
“Bottom line, VICI has plenty of internal and external growth options and is still trading at a meaningful medium-term discount to MGM Growth,” McKnight said. “Importantly, Caesars’ leadership news potentially gives VICI additional optionality.”
Shares of VICI, traded on the New York Stock Exchange, closed Tuesday at $21.23, down 19 cents or 0.89 percent.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
