VICI Properties Inc. (NYSE:VICI) Q1 2024 Earnings Call Transcript May 2, 2024

VICI Properties Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone and thank you for standing by. Welcome to the VICI Properties First Quarter 2024 Earnings Conference Call. At this time all participants are in listen only mode lines. Please note that this conference call is being recorded today, May 2, 2024. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Samantha Gallagher: Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2024 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them.

I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and our first quarter 2024 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and our counterparties discussed on this call, please refer to the respective company's public filings with the SEC.

Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Move McCluskey, Senior Vice President of Capital Markets. Ed and team will provide some opening remarks, and then we'll open the call to questions. With that, I'll turn the call over to Ed.

Ed Pitoniak : Thank you, Samantha, and good morning, everyone. The first quarter of 2024 was, shall we say, an interesting quarter in the American equity marketplace. A fair part of the S&P 500 packed into our house and held a magnificent party. One Wall Street shop went so far as to say the party reached the rarified state of euphoria. Euphoria, that sounds kind of fun. But to be clear, American REITs were not invited to this party. Those of us who work within REITs were out in the curve outside that party house. From the outside, one could wonder if this was a party in which new Monarchs were being coronated for perpetual rule or the kind party that eventually ends with ambulances and/or cops being called and a few of the partygoers, fleeing naked down the street out of their mines like Will, Ferrell and Old School.

The first quarter of 2024 is now over. The ambulances or cops haven't necessarily showed up yet, but the party inside that magnificent house seems to be running out of steam. The Move Index, which measures U.S. treasury market volatility was relatively high but relatively steady through much of the first quarter and even fell a bit in late March and a flight to safety. But in early April, started acting routing again. And it's much the same to the VICI's equity volatility index, which having slipped through much of the magnificent party recently spiked almost 50% since the start of the year before settling back down. Amidst all this noise, the general investment marketplace is having a hard time focusing on the income and capital appreciation dynamics of good REITs. At VICI, we can deal with all of this.

We don't spend a lot of time standing on curves, wondering or complaining about parties we're not invited to. We just keep doing what we do at VICI and that's working within our resources and capabilities to keep improving and growing our company for the long-term benefit of our stakeholders. That's what we did in Q1 2024. The first quarter of 2024 was a quarter in which we produced 6.1% growth in AFFO per share over Q1 2023 and continue to flow our revenue growth through to the EBITDA line and what we believe is one of the higher rates among S&P 500 REITs. The first quarter of 2024 was also a quarter in which we focused on three key strategic imperatives: imperative number one, expanding our scope and TAM and investment with our investment in Homefield, Kansas City, a market-leading sports training complex that will also soon feature a Margaritaville resort.

This is an investment that builds on our initial entry into the sports and recreation sector with a late 2023 acquisition of the primary leasehold interest in Chelsea Piers, an investment that validates the use of our lending platform to ultimately acquire a real estate interest. In this case, 780,000 magnificent square feet of New York recreational and entertainment space on the Hudson River. Imperative number two, being ready to refinance our maturing 2024 debt at an opportune time, debt that would have come due on May 1 yesterday, in other words. During Q1, May 1 seemed a fair way off, but given the volatility of market conditions, we didn't want to wait too long. We went to market on March 7, and did so when turned out to be second lowest point in the March for U.S. 10 year yields.

Yes, our timing was fortunate but our good fortune relied on us being ready to go. Imperative number three, which we've just announced, capitalizing on the scale and rarity of our existing assets by working throughout Q1 with our partners at Apollo to develop a property enhancement plan for the Venetian, which gives VICI the opportunity to invest up to $700 million of capital into this magnificent Las Vegas Strip asset. In a moment, John and David will give you more color on each of these three Q1 2024 imperatives. I'll close out my opening remarks by saying the obvious. The first 16 or so weeks of 2024 haven't been a lot of fun for REIT investors. It's not clear at this point when the marketplace will recognize what we believe to be the total return value that REITs can and do represent at this point.

Most, not all, but most REIT categories currently offer dividend yields that are materially in excess of current inflation rates. And REIT dividends, unlike money market or bond interest payments have the potential to grow over time as VICI says with VICI posting a dividend growth CAGR of 7.9% since the first quarter of 2018 following our IPO. We've been living through a period in the equity marketplace in which the power of compounding has been somewhat ignored or forgotten. REITs can be powerful compounding tools. As a VICI shareholder, I haven't forgotten or ignored that compounding dynamic can benefit. I look forward to answering your questions, but first, a few words from John and David. John?

John Payne : Thanks, Ed, and good morning to everyone. Relationships are at the core of what we do at VICI and the quality of the relationships we have sets us apart. Our team works hard to strengthen existing ones and develop new ones so that we are best positioned for future growth opportunities, whether or not we are invited to what Ed is called the party. Our focus on trust in finding mutually beneficial solutions with our partners multiplies the beneficial impact of each relationship and we believe lays the groundwork for future growth through both good and bad market environments. One of the best examples of this is our relationship with Apollo and the team at the Venetian. The opportunity to acquire the Venetian originated during the COVID pandemic, another period of uncertainty with a challenging market backdrop.

Since that time, the team at the Venetian has outperformed all expectations as Las Vegas has continued solidify itself as the entertainment center of the world. We are thrilled to further expand our close relationship with Apollo and announced our opportunity to invest up to $700 million at the Venetian through VICI's Partner Property Growth Fund. This capital investment will fund several projects that seek to improve the overall guest experience and enhance the value of the property. The impact of our increasingly dynamic Las Vegas has continued to accrue to the benefit of the Venetian since we acquired the property together with Apollo in 2022, particularly with the neighboring sphere events like F1 and Super Bowl and an active convention schedule.

The Venetian is set to celebrate its 25 anniversary this Saturday, and we're thrilled to partner with Apollo once again in their efforts to maximize the economic potential of this amazing iconic script asset. Gaming remains at VICI's core with over 98% of rent coming from our gaming partners, and the sector remains broadly healthy from a tenant credit perspective. Las Vegas continues to enjoy healthy growth with GGR up low single digits following the Super Bowl this quarter, and that is on top of an already impressive baseline, given gaming revenue increased 12% in the first quarter of 2023 over 2022. Since the market emerged from the pandemic, there has been 12 straight quarters. I'm going to repeat that. There has been 12 straight quarters of GGR growth in Las Vegas.

Additionally, Las Vegas visitation numbers were up 4.2% in the first quarter, demonstrating the continued diversity of the revenue streams and the vast array of consumers enjoying this amazing city. In fact, based on a recent study from the University of Toronto, that evaluated North American cities pre and post pandemic, Las Vegas is the only city that has surpassed pre-pandemic unique visitation numbers. In the regional gaming markets, while we recognize idiosyncratic weather headwinds this winter, we believe fundamentals remain sound, and we see steady consumer discretionary spend driven by the middle and high-end consumers on the casino floor. Although interest rate volatility has impacted transaction volume in the gaming market, we are active in dialogue around real estate opportunities in the gaming sector.

Outside of our embedded growth pipeline, our relationships and gaming focus put us in a strong position when transactions or opportunities to invest in our existing properties arise. We continue to monitor the performance of Harrah's Horse Hoosier Park and Horseshoe Indianapolis, for which we have a call right to acquire the real estate and buildings of these unique assets. This call right expires at the end of 2024 and we continue to work through the process with the appropriate Indiana regulatory agencies to gain the necessary gaming approvals should we elect to execute this option. VICI is also well positioned for incremental opportunities outside the gaming space as we've continued to expand our scope and our TAM of investments. We are committed to ensuring that each experiential sector and potential partner meets our investment criteria of low cyclicality, low secular threat, improving track record of growth and favorable supply and demand dynamics.

In January of this year, VICI expanded investment in the youth sports sector, with the announcement of the up to $105 million construction loan agreement with affiliates of Home field, Kansas City to fund the development of a Margaritaville Resort that will be embedded within Homefield's broader youth sports complex. The youth sports training center hosted 115 teams this last weekend for a basketball tournament and the baseball facility is open and in use. The Margaritaville Resort is expected to be completed in 2025. Having visited the area a few weeks ago, I can tell you all the facilities are truly amazing. The Homefield partnership adds to our eSports investment, as Ed said, which we initiated with our 2020 mortgage loan to Chelsea Piers in New York City.

And at the end of 2023, we acquired the leasehold interest in the property and converted the initial loan into real estate ownership. While reach were broadly excluded from this output at the party that took place in the first quarter of 2024. The effects of the transactions and relationships announced at the end of last year and the beginning of this year contributed to our 6.1% growth in AFFO per share. As I stated earlier, our relationships are at the foundation of our business and drive our growth. Our standard for prudent underwriting gives us confidence in our roster of existing partners with whom we believe we have many growth opportunities. We look forward to developing new relationships with best-in-class operators so that VICI can continue to grow its quality experiential real estate portfolio.

Now I will turn the call over to David, who will discuss our financial results and guidance. David?

David Kieske : Thanks, John. It's great to speak with everyone today, and we greatly appreciate your time. Starting with our balance sheet, as Ed mentioned, in the first quarter, we successfully -- I'll say, very successfully executed our first refinancing of the $1.50 billion May 2024 notes that came -- that would have come due yesterday. On March 7, we launched a bond offering and at its peak, we are 12x oversubscribed. We ultimately issued $550 million of 10 year notes at a coupon of 5.75% and $500 million of 30 year notes at a coupon of 6.25% for a blended yield of 5.9% before the impact of our forward interest rate swaps. When compared to the coupon of 5.625% that we refinanced, we feel really good about the all-in coupon we were able to achieve and at the same time, extend the duration of our maturity profile.

During the quarter, we also bolstered our liquidity and sold 9.7 million shares, raising $305 million in gross proceeds under our ATM via the forward. Currently, we have approximately $3.5 billion in total liquidity comprised of $515 million in cash, cash equivalents and short-term investments as of March 31, $683 million of estimated proceeds available under our outstanding forwards and $2.3 billion of availability under our revolving credit facility. In addition, our revolving credit facility has an accordion option, allowing us to request additional lender commitments of up to $1 billion. As we sit here today, we believe we are well positioned to navigate the current macro environment and do not need to raise any incremental capital. In terms of leverage, our total debt is currently $17.1 billion.

Our net debt to annualized first quarter adjusted EBITDA, excluding the impact of unsettled forward equity is approximately 5.4x within our target leverage range of 5 to 5.5x. We have a weighted average interest rate of 4.36% taking into account our hedge portfolio and a weighted average 6.8 years to maturity. Touching on the income statement, AFFO per share was $0.56 for the quarter, an increase of 6.1% compared to the $0.53 for the quarter ended March 31, 2023. Our results once again highlight our highly efficient triple net model given the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue our margins continue to run strong in the high 90% range when eliminating non-cash items. Our G&A was $16.2 million for the quarter and as a percentage of total revenues was only 1.7% and continues to be one of the lowest ratios in not only the triple net sector but across all REITs. Turning to guidance, we are reaffirming AFFO guidance for 2024 in both absolute dollars as well as on a per share basis.

As we originally highlighted on our Q4 earnings call, AFFO for the year ending December 31, 2024 is expected to be between $2.32 billion and $2.355 billion or between $2.22 and $2.25 per diluted common share. As a reminder, our guidance does not include the impact on operating results from any transactions that have not yet closed, interest income from any loans that do not have final draw structures, possible future acquisitions or dispositions, capital markets activity or other non-recurring transactions or items. And as we have previously mentioned, we recorded non-cash CECL allowance on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused, and we believe AFFO represents the best way of measuring the productivity of our equity investments in evaluating our financial performance and ability to pay dividends.

With that, operator, please open the line for questions.

See also

15 Best Perfumes For Teenage Girls and

25 Richest Billionaires in Real Estate Industry.

To continue reading the Q&A session, please click here.