VICI Properties: A REIT Powerhouse In The Entertainment Space (NYSE:VICI)

VICI Properties (NYSE:VICI) is a REIT that owns a large portfolio of hotels and entertainment destinations. These aren’t just any old hotels; they are gaming destinations like Caesars Palace, the MGM Grand, and the Venetian in Las Vegas all sit in this portfolio. In this article, we’re going to take a look at why VICI is worth buying today.

What VICI Owns

In total, VICI owns 50 gaming facilities, encompassing more than 124 million square feet of space. Across these facilities, there are approximately 60,000 hotel rooms and more than 450 restaurants, bars, nightclubs and sportsbooks.

If you’ve ever been to Las Vegas, you’ve likely stepped foot in a VICI property as the company owns:

• Caesars Palace
• The Venetian
• MGM Grand
• Harrah’s
• The Mirage
• Excalibur
• …and more

The aforementioned list is just for Vegas. VICI also owns numerous gaming properties and hotels across the country and in Alberta, Canada.

Also, through VICI Golf, the company owns four leading courses:

• Cascata – Las Vegas
• Chariot Run – Indiana
• Grand Bear – Mississippi
• Rio Secco – Las Vegas

In the “Health & Wellness” space, VICI recently announced a $150M preferred equity investment into Canyon Ranch. The company, comprising of four locations offers spa, salon, and wellness services along with hotel stays.

VICI has an outrageously wide moat when it comes to REITs. A lot of buildings can be replicated with ease, but there’s no rebuilding Las Vegas, and that’s where the core of this business sits.

Vegas is a huge, and it’s only continuing to grow. Population wise, among the fastest growing regions in the country. Tourism is also on the up too, closing in on pre-pandemic highs.

With the NFL, NHL, Formula 1, and soon to be MLB dabbling in the Vegas market, there’s still a lot of upside here in terms of raw real estate value.

Growing Financials

From a financials point of view, VICI is doing great. First, revenues.

The company has grown revenue from $895M in 2019 to $3.34B TTM. Looking at the last quarter, revenues were $898.2M, 32.5% higher than the prior year.

FFO has been on an equally great run. Over the trailing twelve months it sits at $2.165B. The twelve months preceding June 2022? $633M.

The company has been diluting shareholders over time; share growth has been considerable. Still, on a per share basis FFO has continued to grow at a market beating pace.

Those that are strictly interested in the dividend will be happy to learn that VICI has been steadily increasing its dividend. It’s at $1.56 per share today, so you can lock in a 5% yield at these levels.

Finally, a critical aspect for REITs, especially when rates are high, is maturing debt. 99% of the company’s outstanding debt is fixed rate, and there is nothing maturing in 2023.

We start to see maturing debt in 2024, and then it’s very well balanced throughout the remainder of the decade. Considering the current macro climate for debt, VICI is in a great position here.

Risks/Flags

As mentioned above, VICI has been issuing shares at a fairly rapid rate. This money is, of course, going to new investments. As it stands, that’s been a wise choice, but it should be noted that a large risk to investing in VICI is this dilution.

Should management issue another 100M shares to go after differentiating property, that could be a value eroding event for shareholders.

To counter this risk, I’d point to the book value per share keeping pace with issuance. This shows that the investments being made are at least helping to grow the size of the pie, even if more people are getting a slice.

A second risk is concentration of assets. Las Vegas plays a critical role in VICI, and should it lose its luster, that could be a big problem. All told, the company owns 660 acres of land in the desert destination.

A slide from the company’s own materials shows that Vegas is alive and well. Another pandemic though? A large recession? Even a significant storm that could cause long-term damage (Hurricane Hilary has Vegas within its cone of uncertainty at the time of writing). All those events could put a damper on the destination and that would not bode well for long-term holders.

While there is diversification outside of Vegas, as we’ve discussed, a third potential risk worth noting is consumer spending. All of VICI’s customers rely on a healthy and spending consumer. Golf courses, casinos, and wellness retreats do not bode well in a terrible economy, and they’re easy for struggling consumers to cut from the budget.

VICI being downstream from the operators with locked-in leases offers some protection here. The lock-in is also significant with an average remaining lease term of 42 years.

Valuation

On a price/FFO basis, VICI trades at 13.49x TTM today. Its closest competitor in the gaming space, GLPI trades at 12.59x. Even with the moat that VICI sells, it is still very much in line with peers.

On a historical basis, VICI is trading at levels it last saw during the height of the pandemic in 2020/2021. The company has traded as high as 38.8x FFO, which I’d never recommend. Around these levels though, absolutely.

At a price of $30/share, investors are buying a REIT that actually carries a moat. It trades at approximately 13.5x FFO, and this FFO is still growing rapidly. It’s got some of the most recognizable names and brands as customers, and the lease lock-ins are so long they’re not even worth considering.

Better yet, those leases are mostly tied to CPI so VICI is close to being inflation proof too.

Wall Street primarily gives the name a “buy” rating with an average target of $37.48. I’ll continue adding to the name when it’s hovering around the $30 per share we’ve been seeing recently and holding for the long term.

Closing Thoughts

As I’ve mentioned throughout this article, I firmly believe VICI boasts one of the largest moats in the REIT space.

My biggest concern with the company over the long-term is the longevity of Las Vegas, but the city appears to be standing the test of time and continuing to grow rapidly. With the major sports leagues all looking to set up shop there, and new attractions like The Sphere, Vegas is good.

I already hold a significant position in VICI. Nonetheless, I’ll continue to invest more when its price dips to around the $30 (or lower) mark, as observed in recent weeks.