For VICI Properties, the second quarter brought answers, and Wall Street-gladdening numbers.
VICI Properties CEO Edward Pitoniak on Wednesday recalled how a fistful of unanswered questions dogged his company’s first-quarter earnings call in May.
When would the casinos the real estate investment trust counts on for rent reopen from the coronavirus infection-curve flattening shutdown? Would the casinos surge or stagger? Would they pay all the rents they owed? Also, when would the $17.3 billion Caesars Entertainment-Eldorado Resorts deal close? When could VICI focus on growth again?
In his company’s second-quarter report, Pitoniak said the queries had cleared. Almost all the casinos were back and open. Business at regional casino tenants was humming. Eldorado and Caesars were at last merged, which, he said, will bring annual incremental rent of $253 million at a 7.8% capitalization rate.
And, oh yes, second-quarter cash flow and revenue topped forecasts.
The Las Vegas-based REIT, which serves as landlord to more than two dozen properties including Caesars Palace and Harrah’s in Las Vegas, said adjusted funds from operation, a cash flow measure, were $176.3 million, or 63 cents per share, for the three months ended June 30, a 12.4% rise from $156.8 million, or 38 cents per share, a year earlier.
The latest result topped the 35 cents-per-share average funds from operation forecast by 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 $229.4 million, or 47 cents per share for the quarter, up from net income of $152.million, or 37 cents per share, a year earlier.
Revenue rose 16.9% to $257.9 million from $220.7 million. Seeking Alpha-polled analysts had expected, on average, $255.7 million in revenue.
In a statement, Pitoniak said VICI collected 100% of cash rent from all of its tenants in the second quarter and July. He expects the trend to continue.
Pitoniak also said VICI has announced $503.5 million of acquisition and investment activity. In the Caesars-Eldorado deal, VICI Properties acquired the land and real estate assets of Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Atlantic City for about $1.8 billion.
VICI planned to buy Las Vegas Strip-adjacent land that Pitoniak predicted will poise the REIT to grow for years.
“With the closure of the Eldorado-Caesars transaction and the associated VICI deals having taken place on July 20, we see limited distractions for investors, as it pertains to the VICI story from here,” said Deutsche Bank gaming analyst Carlo Santarelli. “Further, we see the balance sheet as well-positioned to take advantage of situations that could arise as the realistic demand dynamics in regional markets becomes more clear over time.”
Pitoniak showed the coronavirus some respect, saying COVID-19’s potential resurgence will have VICI moving cautiously, managing its portfolio and relationships to preserve long-term value.
“The COVID-19 crisis is not over,” he said in a conference call with analysts. “We cannot rule out the resurgence of the virus could depress demand for, or potentially lead to reclosures of, casinos. But in what we’ve seen so far for our gaming tenants and for VICI, this crisis may ultimately provide strong proof of the strength and quality of the gaming REIT business model, which is built in turn on the strength and quality of our tenants’ businesses.”
Although the short-term might deliver shocks as the pandemic plays out, VICI President and COO John Payne said the REIT believes in its long-term prospects because it believes in Las Vegas, which he said has repeatedly readjusted and rebounded.
“I’ve been very loud about this … we really are long-term investors,” Payne said. “Yes, in short-term, Vegas has some hurdles that they need to get over, but this is a city that even during this time and even with the restrictions that are on it consumers are going to enjoy what they have to offer. And we believe over … 2022, 2023, and moving on, this business is going to rebound.
“You heard a lot about the short-term of Las Vegas, but we talk a lot more about the long-term in this, how resilient this city has been,” Payne added, “and how resilient the operators are to continue to reinvent themselves and be successful with the properties that they have.
VICI Properties shares rose 24 cents, or 1.12%, Thursday to close at $21.66 on the New York Stock Exchange. The share price has dropped 13.4% in 2020.
Follow Matthew Crowley on Twitter @copyjockey
