REIT’s are supposed to be safe investments with no big upside but a very limited downside, as well. Not necessarily for the gaming REITs in the third quarter.
Caesars Entertainment’s VICI Properties REIT reported third quarter results dampened by an accounting charge that took a $12 million toll on a difficult three months.
The landlord for 19 Caesars resorts, including Caesars Palace on the Las Vegas Strip, disappointed Wall Street’s expectations for the period, reporting funds from operation, a closely watched measure of REIT profitability, of $129.9 million, or 35 cents per share, down from $381.1 million, or $1.06 per share, a year earlier.
Analysts polled by Yahoo Finance had forecast 39 cents per share.
The $12 million charge was a non-cash loss on impairments on non-operating vacant land parcels, all outside Las Vegas and all excluded from the operations of VICI’s regional property portfolio.
Third-quarter revenue fell 65 percent to $232.7 million from $671.9 million but beat the $230.9 million estimate of the Yahoo Finance poll.
On a conference call with analysts, CEO Edward Potoniak pointed out that since its October 2017 spin-off from Caesars the company has refinanced more than $2 billion of debt, eliminated more than $1 billion of debt and closed or announced $2.1 billion in acquisitions.
In July, VICI closed on its purchase of Caesars Palace’s Octavius Tower, giving it complete ownership of Caesars Palace and providing it with an additional $35 million in annual rent. The company also expects to close in the fourth quarter on its acquisition of Harrah’s Philadelphia, whose lease will pay it $23.2 million annually.
Potoniak said VICI also is working on closing a deal to acquire Margaritaville Resort Casino in Bossier City, La., from Penn National Gaming.
“We have no intention of slowing down,” said President and COO John Payne. “And as you’ve seen from the transactions we’ve announced over the past year, there is no shortage of external growth opportunities currently out in the marketplace. While we are the new guy in the market, we have longstanding relationships within the industry that have allowed us to make progress towards our goals.”
Meanwhile, MGM Growth Properties, the real estate investment trust spun off from MGM Resorts International, met analysts’ expectations with a strong third quarter marked by a sizable increase in earnings.
Adjusted funds from operation, the standard REIT measurement of profitability—a combination of net income, depreciation and amortization —came in at $154.8 million for the three months ended September 30, up from $134.7 million in the same period last year.
The results matched the 58 cents per share (NYSE: MGP) forecast by analysts polled by Zacks Investment Research.
Revenue rose 54.4 percent to $282.2 million, topping the Zacks consensus of $269 million.
Net income was $19.5 million, or 27 cents per share, on rental payments under its master lease with MGM of $192.6 million.
Chief Financial Officer Andy Chien said he expects rents to increase annually by $110 million, or 14 percent, in the first half of 2019 with the closing of MGM Resorts’ $1 billion acquisition of Hard Rock Rocksino in Ohio and its $850 million acquisition of Empire Casino and Raceway in Yonkers, N.Y., which is expected to close in the first quarter.
MGM Growth, which is 70 percent owned by MGM, currently is the landlord of 13 MGM casino hotels. All performed well during the quarter, management said, with cash flow at MGM Grand Detroit, the Beau Rivage and Gold Strike Tunica in Mississippi and MGM National Harbor in Maryland the highest ever for a three-month period.
The company raised its dividend during the quarter for the fifth time since its April 2016 initial public offering. The annualized dividend of $1.75 per share represents a 4.2 percent year-to-date increase and a 22.4 percent increase since the IPO, Chien said.
