The fourth quarter followed the 2019 theme for Las Vegas-based real estate investment trust VICI Properties — acquisitions closed, the portfolio expanded, rent agreements were sealed. While it was dealing, VICI Properties posted increases in a key cash flow measure and revenue, both of which topped Wall Street forecasts.
VICI Properties, spun off from Caesars Entertainment in 2017, on Thursday said its adjusted funds from operation, a cash flow measure excluding nonrecurring costs, rose 26.2% to $176.6 million, or 37 cents per diluted share, for the three months ended Dec. 31, up from $139.9 million, or 36 cents per diluted share, a year earlier.
Analysts polled by Seeking Alpha had forecast 31 cents of funds from operation for the REIT.
“We continue to see the gaming REIT space as stable place to be, with valuation comparables in peer industries supportive of further multiple expansion in this low rate environment,” Deutsche Bank gaming analyst Carlo Santarelli told investors. “Additionally, we see upside for VICI as it closes the valuation gap between itself and non-gaming triple net REITS, while continuing down the path of disciplined and accretive transactions.
VICI Properties’ net income was $98.6 million, or 21 cents per share for the quarter, down from $142.5 million or 37 cents per diluted share, a year earlier.
Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization. VICI, which serves as landlord to 20 properties including Caesars Palace and Harrah’s in Las Vegas, said costs associated with debt early termination pushed net income down.
Revenue rose 5.1% to $237.5 million from $226 million. Seeking Alpha-polled analysts had forecast revenue of $235.3 million.
VICI said the latest revenue result included $19.9 million associated with tenant reimbursement of property taxes that are no longer recorded as revenue.
In the quarter, VICI closed deals to acquire the Isle Casino Cape Girardeau in Cape Girardeau, Missouri; the Lady Luck Casino Caruthersville in Caruthersville, Missouri; and the Mountaineer Casino, Racetrack & Resort in New Cumberland, West Virginia, from Eldorado Resorts for $277.8 million in cash. When the deal closed, VICI entered a triple-net master lease agreement with Century Casinos Inc. for the land of the properties. Century bought the casinos’ assets for $107 million.
The master lease has an initial total annual rent of $25 million and an initial term of 15 years, with four five-year tenant renewal options.
Last month, VICI completed its acquisition of the casino-entitled land and real estate and related assets of the Jack Cleveland Casino in Cleveland and the Jack Thistledown Racino in North Randall, Ohio, for $843.3 million from Jack Entertainment.
VICI entered 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.
Also last month, VICI Properties and Caesars Entertainment agreed to sell Harrah’s Reno to a CAI Investments affiliate for $50 million; VICI Properties received 75% of the proceeds. Under the deal, Caesars will continue operating the property under a short-term lease and exit in this year’s second half. When the term expires, Caesars will cede the property to the buyer to be redeveloped into a nongaming hotel and mixed-use development.
Jefferies gaming analyst David Katz told investors the next event for VICI will be the closing this year of the $17.3 billion merger between Eldorado Resorts and Caesars.
As part of the merger, three Caesars properties under the Harrah’s brand in Atlantic City, Laughlin, Nevada and New Orleans were sold to VICI for a combined $1.8 billion. VICI will lease the operations back to Eldorado for total annual rent of $154 million.
“Looking beyond the near-term, VICI continues to pursue suitable acquisitions, both inside and outside of gaming, to mitigate concentration risk,” Katz told investors.
In a statement accompanying the fourth-quarter and year-end results, VICI Properties CEO Edward Pitoniak touted the REIT’s $4.9 billion of acquisitions in 2019, all arms-length gaming net-lease transactions among publicly traded companies. Also, he said, VICI Properties raised $2.6 billion of equity, including the largest-ever REIT follow-on offering of primary shares.
For the 12 months ended Dec. 31, VICI had adjusted funds from operation of $649.6 million, or $1.48 per diluted share, up 23.6% from $525.6 million, or $1.43 per diluted share, the previous year.
Net income was $546 million, or $1.24 per diluted share, for the 12 months ended Dec. 31, up from $523.6 million, or $1.43 per diluted share, the previous year. VICI attributed the per-share value decrease to a boost in the overall share count, swollen by the issuance of 50 million shares in June.
Twelve-month revenue fell 0.3% to $894.8 million from $898 million. The result included $81.2 million associated with tenant reimbursement of property taxes that are no longer recorded as revenue.
VICI Properties shares rose 66 cents, or 2.4% to close at $28.13 on the New York Stock Exchange in regular trading, but fell after hours, slipping 53 cents, or 1.88 percent, to reach $27.60 at 5 p.m. PST.
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