Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. ~ Franklin D. Roosevelt
I am bullish on Vici Properties (VICI) for the long term because: (A) It is steered by a smart management team that does business with quality brands. (B) The cash-rich company that is growing rapidly. (C.PK) The company’s work has been recognized by the industry and it has started attracting long-term cheap debt at fixed rates.
The biggest strength of Vici Properties (VICI) properties is that it invests in real estate only after it ensures that the tenant it has signed up has a brand following. The company believes in building and nurturing relationships and growing at a steady and solid rate and avoids buying real estate if the tenant is working on tight parameters.
It has been growing consistently since its inception and the future looks bright. I am bullish on VICI as a dividend, value, and growth stock, and here’s why:
Falling Cost of Debt
In early 2020, VICI improved upon its capital structure by borrowing $5 billion unsecured debt at a very low rate of interest from a fixed-income community. The low-interest debt became possible because VICI’s ambition and hard work in obtaining an investment-grade credit rank were recognized by industry players.
On Feb 5, 2020, VICI closed a $2.5 billion unsecured notes offering that got oversubscribed 4.9 times. The offering included $750 million of five-year notes at 3.5%, $750 million of seven-year notes at 3.750%, and $1 billion of 10.5-year notes at 4.125%. Of this, $500 million was used to redeem all of its outstanding 8.0% Senior Secured Second Priority Notes due 2023.
As of Feb 21, 2020, the company’s total debt is 6.85 billion, of which 69% is unsecured. The annual weighted average interest rate is 4.2%, and interest on 98% of the debt is fixed. The DE ratio too is declining steadily.
Image Source: Seeking Alpha
This smart shuffling of debt will for sure end up boosting the company’s bottom-line, allowing it to take advantage of opportunities ahead.
Acquisitions and Diversification
In Dec 2019, VICI acquired three properties with Century Casinos for $278 million. The transaction added $25 million of annual rent at 9% cap rate. This strategic transaction created a partnership with Century Casino which is known for its expertise in operating small to midsize assets.
On Jan 24, 2020, VICI acquired land, real estate, and related assets of JACK Cleveland Casino, and the racing and video lottery-authorized land, real estate, and related assets of JACK Thistledown for $843.3 million. The real estate is now leased to JACK Entertainment at a total annual rent of $65.9 million for 15 years. The tenant’s obligations are guaranteed by Rock Ohio Ventures. VICI gets two benefits out of this deal – an attractive 7.8% rate and real estate in urban Ohio, the fastest growing regional market in the U.S.
The big news is that VICI may diversify into new sectors. It is building its relationships with many operators, including NASA controllers and advisors, and is excited about other sectors as well. The company is cash-rich and is scouting for opportunities. It’s a matter of time before a new acquisition happens.
VICI’s Peers and Valuations
VICI faces competition from established players such as Caesars Entertainment (CZR), Monmouth Real Estate (MNR), Gaming and Leisure Properties (GLPI), MGM Growth Properties (MGP), and Spirit Realty Capital (SRC) – but the completion is only on paper.
Image Source: Seeking Alpha
With forward revenue growth of 84.24% and forward EBITDA growth of 97.88%, VICI outclasses the rest and looks like THE stock to own in this sector.
The company generates a net income of $4.21 million per employee, and that says a lot about how it nurtures its people.
VICI’s stock price has been climbing steadily along with its dividend distribution. It is a high-quality play from both value and dividend points of view.
Image Source: Macro Trends
The following are the risks that are specific to VICI for its current business. The company also plans to venture into other sectors and that involves a separate set of risk factors which I’ll get to at the right time:
1. VICI significantly depends on Caesars and Penn National, and their subsidiaries. The leases are structured in a way that VICI’s tenants have to pay insurance, taxes, utilities, and maintenance expenses. Also, Caesars is committed to paying about $4.2 billion to VICI over the next five years
Without accounting for the new acquisitions, it all boils down to how profitable and efficient Caesars’s and Penn National’s operations are.
2. For the year ended 2018, 36% of VICI’s revenues come from the Las Vegas Strip. That’s a significant part and though the company has started investing in other geographies, any hit to Las Vegas tourism will disrupt its financials. For example, it is possible that if the COVID-19 virus outbreak gets serious it can disrupt the casino industry.
3. VICI has entered into triple-net long leases with its tenants, which allows the tenants to sublease portions, make alterations, and terminate the lease before its expiration subject to specified circumstances. This works negatively in two ways – if the rent market appreciates, VICI loses out on making higher rental income or sell its property; if a tenant terminates the agreement, VICI has to hunt for other valuable brands that have a brand following and are credit-worthy.
4. Any unfavorable change in tax laws in case the Democrats win the 2020 elections is another factor to watch out for.
VICI is a performer that is backed by an efficient management team that nurtures and builds relations.
It is a young company that has been growing and consistently keeping its promises. For 2020, the company estimates to earn AFFO (Adjusted Funds from Operations) between $1.50 and $1.54 on diluted shareholding – and this takes into account the new acquisitions as of Feb 2020.
This is a portfolio stock and I am bullish on it as a value, growth and dividend play – for the long term.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.