VICI touts 2018 progress but misses Street forecasts for fourth quarter

February 15, 2019 7:30 PM
  • Matthew Crowley, CDC Gaming Reports
February 15, 2019 7:30 PM
  • Matthew Crowley, CDC Gaming Reports

VICI Properties celebrated 2018 on Thursday, marking deals both in progress and past. But the real estate investment trust’s funds from operation and revenue were less fizzy, missing Wall Street forecasts.

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VICI, which was spun off from Caesars Entertainment Corp. in October 2017 as part of the company’s two-year bankruptcy reorganization, said in a statement its adjusted funds from operations, a cash flow measure, was $139.9 million, or 36 cents per diluted share for the quarter ended Dec. 31. The number, which filters out nonrecurring items, missed the 38 cents-per-share estimate of Yahoo Finance-polled analysts.

The company issued the statement after stock markets closed Thursday.

VICI had year-earlier adjusted funds from operations of $84.1 million, or 37 cents per diluted share. Funds from operation is a key a fiscal yardstick for real estate investment trusts that takes out net income and adds back depreciation and amortization.

Fourth-quarter net income was $142.5 million, or 37 cents per diluted share, up from net income of $42.7 million, or 19 cents per diluted share, a year earlier.

Revenue rose 20.5 percent $226 million from $187.6 million but missed the $233.6 million estimate of Yahoo Finance-polled analysts.

In the release, VICI highlighted its growth in 2018 and beyond, including the acquisition of a Detroit casino’s real estate and a $1.4 billion initial public stock offering.

Deutsche Bank gaming analyst Carlo Santarelli told investors VICI management believes there is plenty of merger and acquisition activity still available in the gaming sector, noting the company “remains quite busy.”

Santarelli said VICI management reinforced its view of maintaining a strong capital structure.

On Nov. 13, VICI agreed to buy the land and real estate assets of Greektown in downtown Detroit, for $700 million in cash. Penn National Gaming will acquire Greektown’s operating assets for $300 million in cash. The deal is expected to close at midyear. Penn will enter a 15-year triple-net lease agreement with the VICI that will yield annual rent of $55.6 million. The deal includes four five-year renewal options.

Under VICI’s lease agreements, casino operator tenants maintain the properties and pay real estate taxes and building insurance. REITs must pay at least 90 percent of their taxable income to shareholders.

In January, VICI closed its deal to acquire the Margaritaville Resort Casino, in Bossier City, Louisiana, for $261 million in cash from Penn National Gaming. Penn National bought the Margaritaville casino’s operating assets for $115 million. Penn National and Margaritaville became a VICI lease tenant, yielding the REIT $23 million in annual rent in a 15-year initial term lease deal with four five-year renewal options.

“Since formation, we have raised approximately $3.1 billion in equity capital to fortify our balance sheet and fund accretive acquisitions,” VICI CEO Edward Pitoniak said in a statement. “We have announced or closed on approximately $2.7 billion of transactions adding over $220 million in rent accretively, all while preserving the three call option properties for additional future growth.”

As of Dec. 31, Vici had $4.1 billion in debt and approximately $1.5 billion in liquidity.

“Our balance sheet is in great shape, with one of the lowest leverage levels in the triple net sector, and our strategy and execution have been well received by the capital markets,” Pitoniak said. “As we begin 2019, we are well capitalized and excited about our growth prospects.”

For the 12 months ended Dec. 31, Vici had adjusted funds from operation of $525.6 million, or $1.43 per diluted share and net income of $523.6 million, or $1.43 per diluted share. Full-year revenue was $898 million.

VICI, which named Danny Valoy as vice president of finance Jan. 28, paid a cash dividend of 28.75 cents per share Jan. 10 to stockholders of record as of Dec. 28. The REIT said it expects $1.47 to $1.50 per diluted share in adjusted funds from operation in 2019, trailing the Zacks consensus estimate of $1.63 per share.

Shares of VICI, traded on the New York Stock Exchange, closed at $21.36, down 30 cents or 1.36 percent.

Follow Matthew Crowley on Twitter @copyjockey