August 03, 2021 - 2:59pm EST by
2021 2022
Price: 30.07 EPS 0 0
Shares Out. (in M): 537 P/E 0 0
Market Cap (in $M): 16,200 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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  • REIT


We recommend an investment in VICI Properties (NYSE: VICI).  VICI is the largest triple net lease gaming REIT and one of the largest REITs not currently in the S&P 500.  VICI went public late 2017 as part of the restructuring of Caesars (CZR) and became the third pure play public gaming REIT.  The team is led by an excellent management team highlighted by CEO Ed Pitoniak and President John Payne.  Ed is a long tenured REIT executive and John has deep operating experience and industry relationships given his tenure as Caesars CEO.  We are excited about the forward pipeline and execution of the embedded growth pipeline discussed below.

VICI has done a great job transforming the portfolio by adding new tenants and lowering concentration to Caesars.  Over time, we expect VICI to continue to add partners and provide growth capital, diversifying the portfolio with new relationships and industries that fit the experiential moniker.  VICI has demonstrated that they are a trusted partner in unlocking real estate value with OpCo PropCo structures.  Recent transactions with Apollo (Venetian) and Blackstone (Great Wolf Lodge) will add further tenant diversification and hopefully drive meaningful transaction volume during the life of the relationship.


Source: VICI Transaction Overview: Venetian Resort Acquisition 3-3-2021


We think the portfolio should trade in line with best-in-class triple net REIT peers and a premium to NAV given management’s history of accretive, large scale transactions. VICI is trading at a significant discount to the triple net lease peer group, as shown below.  We argue VICI’s portfolio is much higher quality and should trade at the high end of the group, or higher. For context, management has grown rent from $870m at the end of 2019 to a run-rate of ~$1.6b today and collected 100% of rent during COVID.  We expect history to repeat itself as management is uber focused on growth for two reasons.  First, management believes industry leading growth will drive cap rate compression and close the gap to management’s view of fair value.  Second, management is compensated on total shareholder return and view growth is the best vehicle to drive total shareholder return and a cap rate compression story.  We like the management alignment.

The dividend should not be forgotten with VICI.  The current quarterly dividend is $0.33/share or ~4.1%.  Management targets a ~75% AFFO payout ratio and should be increasing the quarterly dividend in 3Q21.


We believe an investment in VICI is timely and would like to highlight the following catalysts:

  • Embedded growth pipeline to become active in the near term.  Reference Exhibit A and Exhibit B below for further details.

o    Expect CZR to execute on a Las Vegas asset sale to VICI. A second Las Vegas asset will likely follow as Las Vegas recovers. 

o    Second, we expect VICI to transition the Indiana assets in 2022 (Indiana Grand Racing & Casino // Harrah’s Hoosier Park) and execute the put / call agreements to VICI which become exercisable January 1, 2022.  More growth, further tenant diversification.

  • Gaming industry fundamentals have never been better.  Profitability across the space has improved and we think this could lead to more deals in the space as operators utilize an OpCo PropCo structures.

  • Potential for S&P 500 index inclusion in 2022. 

  • Potential for investment grade rating – management is confident that there is a path to investment grade at all three rating agencies.  They believe the portfolio is investment grade today but takes time for agencies to come around.  After term loan exit, VICI should be investment grade and we see this happening within two years.

  • TAM expansion – VICI’s management has indicated that they plan to expand their investment aperture and will actively pursue transactions in international gaming markets as well as other experiential asset classes.  We see more transaction velocity as a potential driver of a re-rating given further diversification and faster growth.

  • Expected 3Q21 dividend increase.


We think it is important to highlight that even during COVID, VICI collected 100% of their rent.  Regarding the lease structure, VICI’s Master Lease structure is helpful given the concentration of CZR.  Two master leases for CZR are separated between regional assets and Las Vegas Strip assets.  This structure protects the rental stream from being impaired when one asset is under performing or closed as some were during COVID. Another important point is that the CZR leases are guaranteed by the corporate entity and VICI leases only represent roughly half of CZR’s assets, so CZR’s owned assets are effectively incremental coverage to VICI’s master leases.  Additionally, VICI’s embedded rent growth for the majority of its portfolio is the greater of 2% or CPI, great protection in an inflationary environment (see Exhibit C).

We are excited about the growth outlook and will lay out some simple math from the announced transactions.  Collectively the embedded growth pipeline represents greater than $300m of incremental rent.  The incremental rent represents an incremental 20%+ lift to 2021 consensus EBITDA.  Building to the $300m of embedded rent growth, let’s start with the two Centar Assets in Indiana, Hoosier Park and Indiana Grand.  The Centar assets generated ~$500m of gross gaming revenue (GGR) in 2019, assuming a 35% EBITDA margin and 1.5x rent coverage will add roughly ~$115m of rent.  VICI can call the Centar Assets at 13x EBITDA or CZR can put the assets to VICI at 12.5x EBITDA.  Next, the Horseshoe Baltimore generated ~$240m of GGR in 2019, assuming 25% margin and a similar 1.5x coverage adds an incremental ~$40m of rent to VICI.  The biggest opportunities in the announced embedded growth pipeline with CZR is in Las Vegas where VICI has two ROFRs, the first becomes exercisable 1/1/2022 and CZR has been vocal about selling a Las Vegas Asset to de-lever.  CZR has the option to sell from a selection of four Las Vegas assets, see ‘Embedded Growth Pipeline’ screenshot below.  Assuming a conservative $100m of EBITDA and rent coverage of 1.3x results in ~$75m of rent to VICI.  We think each Las Vegas asset will generate well above $100m of EBITDA and collectively offer an opportunity for VICI to acquire >$200m of rent for class A assets on the Las Vegas strip.  The above assumptions of operator earnings power could prove conservative as the industry has had a margin renaissance driving substantial EBITDA growth.

The Venetian deal should close in 2022 and add an incremental $250m of annual rent as well.  Purchased at a 6.25% cap rate, the Venetian is highlighting management’s ability to secure attractive growth transactions.  We view 6.25% cap rate as grossly undervalued and believe future transactions will illustrate our point.

While we do not give credit for the land development opportunity in Las Vegas, recent development funding with Blackstone and Great Wolf Lodge highlights the loan to own vision whenever the project becomes actionable.

These growth opportunities represent visible earnings and dividend growth.  Financing costs should be between 3.5-4% and consolidated leverage should remain in the 5-5.5x range.  Executing on the pipeline and realizing organic growth, AFFO per share could approach $2.50 a few years out.  Applying a quality triple net REIT multiple of 19x AFFO gets us to ~$45 excluding dividends.



  • COVID – incremental closures could put financial stress on the operators.  Mitigant is VICI’s 100% collection of rent during property closures. 

  • Limited cap rate compression.

We have included a few exhibits below to highlight the portfolio and growth opportunities.


Exhibit A:  Source – VICI 2Q21 Supplemental Presentation

Exhibit B:  Source – VICI Investor Presentation 5/24/2021


Exhibit C: Source – VICI 2Q21 Supplemental Presentation