Vici Properties Q3 Earnings Hampered by Market Headwinds, Caesars Lease Unknowns

Vici Properties’ third-quarter share price performance was hit hard amid escalating capital costs facing net-lease real estate investment trusts (REITs) and uncertainty facing a regional master lease agreement with Caesars Entertainment.

The REIT, which is focused heavily on casino and entertainment properties, reported that third-quarter funds from operations (FFO) attributable to common stockholders decreased 55.1 percent to $342 million compared to $762 million, or 71 cents per share, netted in the the year-ago period. 

The earnings were announced Thursday on the heels of Vici facing leasing unknowns as Fertitta Entertainment seeks to acquire its largest tenant, Caesars, which the firm has a regional master lease agreement with in Las Vegas. Vici recorded $458 million of current expected credit losses for the quarter, with $331 million tied to the Caesars lease agreement, which runs through 2055. 

“The Vici team is analyzing every dollar of our Vici income stream within our Caesars regional lease properties through various valuation prisms,” Edward Pitoniak, CEO of Vici, said during a third-quarter earnings call. “We are asking in relation to this asset-based income stream what income structuring model and potential related actions produce the greatest aggregate value for our stockholders.”

Pitoniak said other factors that led to its disappointing third-quarter stockholder results  were “general recent negativity” surrounding net-lease REIT stocks due to elevated interest rates, and high consumer exposure hampered by less discretionary consumer spending amid high inflation. To protect shareholders in periods of higher costs of capital, he said Vici aims to maintain its target leverage of 5.5 times earnings before interest, taxes and amortization. 

Vici’s ability to generate “accretive growth” in the current market conditions has also affected earnings, according to Pitoniak, but he stressed that the REIT has other avenues to access capital that can grow shareholders’ value. He said available capital sources include proceeds from future repayment of Vici’s outstanding loans as they are repaid in coming years, as well as  asset sales.

The company also announced just before its third-quarter earnings a $2 billion share repurchase program that expires on Sept. 30, 2029.

“If at a given time in the future we have uncommitted investable capital whether because of uncommitted retained cash flow, repaid loans or asset sales, we will rigorously examine the potential uses of that capital,” Pitoniak said. “If the best use of that capital is the repurchase of stock, we may potentially do so.”

Total revenues at Vici for the quarter were $1.07 billion, a 5.8 percent increase from the year-ago period, which beat analysts’ estimates of $1.07 billion. 

Andrew Coen can be reached at acoen@commercialobserver.com.