March 19, 2018 - 3:55pm EST by
2018 2019
Price: 19.19 EPS 1.41 1.60
Shares Out. (in M): 370 P/E 13.6 12
Market Cap (in $M): 7,100 P/FCF 13.6 12
Net Debt (in $M): 3,348 EBIT 0 0
TEV (in $M): 10,448 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.



Description:  VICI is a triple net lease REIT with a portfolio of 20 gaming properties including Caesar's Palace Las Vegas, Harrah's Las Vegas and other properties in regional markets  that serve major metropolitan areas like Atlantic City, Chicago, Dallas, Kansas City, Memphis, Omaha, Nashville, New Orleans, and Louisville.  VICI recently emerged from bankruptcy as a spin-off from Caesars although it is entirely independent. In total, VICI owns more than 34M square feet of real estate with over 14,000 hotel rooms, 150 restaurants and 34 acres of undeveloped land adjacent to the Las Vegas Strip.In January of 2018, VICI IPO'ed at $20/share and raised about $1.39B which it used to retire debt and add to its war chset of cash for future acquisitions which now totals about $800M.


Thesis: VICI has a pipeline of bult-in growth opportunities via three call options at a 10% cap rate on CZR properties. They also have a call option on the forthcoming Las Vegas Convention Center that is being developed by CZR's. Additional upside from other acquisition opportunities within CZR portfolio and elsewhere. I believe sale/leaseback activity could pick up as a result of the tax reform which caps interest expense deductibility but not rent. MGP could ultimately be a buyer.


Proforma Valuation at IPO Reasonable: VICI should earn $1.41 proforma FFO/share at the outset. The current price of $19 suggests a valuation of just under 13.5x  which is in-line with the broader tripl net lease REIT peer group despite much better organic growth prospects. While VICI trades at a premium to MGP and GLPI, it is a "cleaner" story than MGM with better growth prospects. VICI has no conflict of interest with its main tenant whereas MGP is 70% owned by MGM. Also, VICI has call options at very attractive cap rates (10%) on three properties whereas MGM' ROFO doesn't have set cap rates (and includes only one property). The 5.3% div yield is well covered at 3.5x EBITDAR/rent and represents 70% payout of FFO.

Octavius Tower - potentially $.08 accretive: VICI has a right of first refusal on Octavius Tower in Las Vegas. This is a relatively new hotel part of Caesar's Palace built in 2011. Bankruptcy documents suggest the capacity for Octavius to pay $35M in rent. If VICI acquires the property for 12.5x rent using 50/50 debt and equity it's accretive by $.08/share. 


Centaur Gaming properties - potentially $.05 accretive: CZR recently acquired Centaur Gaming which consists of two high quality gaming properties in Indiana. CZR mentioned on the call that they would consider doing a sale/leaseback transaction with VICI at some point post-close. Centaur does $140M in EBITDA with CZR guidance of $190M in a couple of years. Assuming $140M though, and rent coverage of 1.67x, that equates to rent of $84M which would be $.06 accretive assuming 50/50 mix of debt and equity.


Call Option Properties potentially $.12 accretive: VICI has a call option to acquire three properties at a 10% cap rate until 10/6/22. The three properties are Harrah's Atlantic City, Harrah's New Orleans and Harrah's Laughlin (Colorado River). The agreement stipulates $130M in rent and acquisition price of $1.3B. Assuming the calls are exercised, these properties would be $.13 accretive to FFO/share assuming 50% mix of debt and equity.