When it comes to hospitality real estate investment trusts, or REITs, one of the biggest concerns investors often have is cyclicality. For example, if a hospitality REIT owns a portfolio of hotels, revenue can drop dramatically during tough times while travel demand is weak.
VICI Properties (NYSE: VICI) is a different type of hospitality REIT. Sure, it owns properties that have thousands of hotel rooms, but its properties are leased to the tenants who operate them on a long-term basis, thereby eliminating the variable income nature of most of its peers. In this article, we'll take a closer look at VICI Properties business, how it has performed for investors in its relatively short history as a publicly traded REIT, and more.
VICI Properties company profile
As mentioned, VICI Properties is a hospitality REIT with a focus on the gaming industry. It was spun out of Caesars Entertainment in 2018.
VICI Properties owns a portfolio of 28 properties located in 17 markets. The portfolio has more than 45 million square feet of total space, including about 2 million square feet of gaming space and 18,000 hotel rooms. And while the company was spun out of Caesars Entertainment, it has been quite active in the market, acquiring a total of 13 properties in just over three years since it was formed.
As you might expect given its origin, Caesars Entertainment is VICI Properties' largest tenant, making up about 83% of the rental income. Other tenants in the portfolio include Penn National Gaming (NASDAQ: PENN), JACK Entertainment, Hard Rock, and Century Casinos. All of the properties are leased on a triple-net basis, meaning that the tenants sign long-term lease agreements, and the tenants are responsible for the variable costs of property ownership, specifically property taxes, insurance, and most maintenance expenses. None of its leases mature before 2026, so it'll be a while before lease renewal negotiations are even an issue.
The company's portfolio includes some pretty impressive gaming assets. The flagship property is the massive 8.5 million square foot Caesars Las Vegas, and it also owns Harrah's Las Vegas on the Strip. Other notable properties in the portfolio include Caesars and Harrah's in Atlantic City, Harrah's Philadelphia, and Harrah's properties in Lake Tahoe and Laughlin Nevada, just to name a few. In addition to its gaming portfolio, VICI also owns four top-quality golf course properties.
VICI's primary growth mechanism is through acquisition, and its relationship with Caesars gives it a built-in funnel of potential properties to buy. In fact, the company has right of first refusal on several top-notch properties, including Flamingo, Paris, and Planet Hollywood in Las Vegas if they are sold by Caesars.
However, its partner relationship with Caesars is only one potential growth avenue. There are 465 casinos in the U.S., and this number is likely to grow significantly in the years ahead. There's a clear trend towards legalized gaming in the United States, and VICI has the relationships and scale to take advantage of opportunities as they arise.
What's more, VICI owns some valuable land it could choose to develop in the years ahead. This includes 27 acres just off the center of the strip, as well as options on 28 additional acres.
Finally, VICI plans to eventually expand its portfolio beyond gaming and golf properties and plans to explore other types of experiential real estate. This could mean things like entertainment venues, ski parks, and waterparks, as well as service-based retail businesses.
VICI Properties news
Obviously, the COVID-19 pandemic hasn't been great for the gaming industry as a whole. However, it hasn't affected VICI Properties' income. Unlike virtually every other hospitality REIT, VICI Properties has collected 100% of its billed rent throughout the COVID-19 pandemic.
In fact, if you took one look at VICI's 2020 results, you wouldn't know there was anything out of the ordinary going on in the world. The company increased its revenue by 37% year over year, and while much of this was due to $4.6 billion of acquisitions and investments made in 2020, the per-share adjusted FFO (the REIT version of "earnings") increased by 10.8% year over year.
The company also took steps to greatly improve its balance sheet in 2020, raising $862 million in equity capital, lowering the interest rates on its debt, and was able to issue $2.5 billion in new debt at favorable costs of capital.
In other recent developments, VICI sold a noncore property (Bally's Atlantic City) in late 2020 and entered into a new lease agreement with the Eastern Band of Cherokee Indians after the EBCI acquired the operations of Caesars Southern Indiana from Caesars Entertainment.
VICI Properties stock price
VICI Properties is a relatively new REIT, completing its IPO in February 2018 in a spin-off from Caesars Entertainment. At the time it went public, VICI was the largest hotel REIT IPO of all time, raising $1.4 billion in IPO proceeds.
VICI Properties' IPO price was $20 per share, and it trades for about $28 as of late February 2020. However, since VICI pays a substantial dividend (4.7% yield as of 2/25/21), the stock price itself doesn't tell the full story. So, after just over two years on the public markets, here's how VICI Properties' total return has looked compared with that of the S&P 500: