Q1 2024 Earnings Summary
- Strong Growth Opportunities with Existing Partners and Assets: VICI is capitalizing on its relationships with operators who are expanding and seeking to enhance their properties, particularly in Las Vegas, leading to potential growth through reinvestment and development projects.
- VICI's Large and Diversified Real Estate Portfolio Positions It for Continued Growth: As the largest owner of hotel room real estate and one of the largest owners of convention space in America, with approximately 130 million square feet, VICI has significant opportunities for reinvestment and incremental returns within its existing asset base.
- Resilient Business Model with Stable Rent Collection Regardless of Market Conditions: VICI has a track record of collecting 100% of rent on time and in cash, even during economic downturns or periods of consumer pullback, demonstrating the stability and reliability of its revenue streams.
- VICI remains highly concentrated in the gaming sector, with 98% of rent coming from gaming assets , potentially exposing the company to sector-specific risks and lack of diversification.
- Potential weakening of lower-end consumer spending in regional gaming markets could negatively impact VICI's tenants' revenues, posing a risk to VICI's rental income stability. Executives acknowledge stress among lower-income consumers and less liquidity compared to a year or two ago.
- VICI's recent investment in The Venetian offers a lower-than-targeted return and not a significant accretive spread, indicating challenges in finding higher-yield opportunities and pressures on return requirements.
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Impact of Interest Rates on Pipeline
Q: How are higher rates affecting your pipeline?
A: Higher interest rates are having a chilling effect on trading activity across asset classes, making asset transactions more difficult. However, we value having levers to generate growth during these periods, such as our property partner growth fund, credit book, and expansion of existing relationships. -
The Venetian Investment and Returns
Q: Can you discuss the $700 million investment in The Venetian and future opportunities?
A: We've invested $700 million into The Venetian, a rare asset, maintaining an accretive spread that creates value for shareholders. Future opportunities may bring our total investment up to half of the $1.5 billion planned improvements, showcasing our ability to invest significant capital into prime assets with solid returns. -
Consumer Health and Tenant Impact
Q: Any concerns about consumer weakness affecting tenants?
A: We are monitoring the disparity between lower-income and higher-end consumers. While there may be some stress on lower-end consumers, our tenants continue to perform well, and we've historically collected 100% of our rent on time, even during downturns like the pandemic. -
Preference for CapEx over M&A
Q: Why are operators favoring CapEx over M&A, and how does it affect you?
A: Operators may be hesitant to engage in M&A due to low trading valuations and strong post-COVID performance. They prefer investing in existing properties, which aligns with our ability to support their growth through capital investments, enhancing our assets' value. -
Non-Gaming Initiatives' Durability
Q: How do you view the durability of non-gaming assets?
A: We assess new experiential categories for durability, ensuring they've succeeded over decades and economic cycles. We prefer asset classes with healthy supply-demand balance and low secular threat, avoiding trends that may lack long-term viability. -
Return Requirements and Cost of Capital
Q: How do you approach return levels and cost of capital?
A: We aim for blended yields on investments, matching capital deployment into assets like The Venetian with other opportunities offering more substantial yields. This ensures we maintain an accretive spread and create shareholder value despite market conditions. -
Potential Sale of MGM Springfield
Q: What is your role if MGM sells Springfield operations?
A: While we don't comment on our operators' sale transactions, if MGM were to sell the operating business, we would retain the asset and enter into a lease with the new operator, as we've successfully done in similar situations before. -
Pipeline Depth for Growth Investments
Q: How deep is the pipeline for growth investments?
A: We have significant opportunities across our 130 million square feet of properties. Investing even 1% to 2% translates to substantial growth. Our partners continually seek ways to enhance their assets, and we're excited about future investments. -
Las Vegas Exposure and Investment Comfort
Q: Are you comfortable with your Las Vegas exposure?
A: We are very comfortable, owning 10 assets on the Las Vegas Strip. We see additional growth opportunities in regional and downtown markets and continue to evaluate further investments without setting a specific ceiling. -
Option to Purchase Centaur Assets
Q: What's the timing on the Centaur assets option?
A: We're going through the regulatory process in Indiana. Should we elect to exercise the option, we'll follow all rules and regulations, but we have no specific timing to share at this moment. -
Negotiations and Yields for The Venetian
Q: How did negotiations for The Venetian deal transpire?
A: Discussions began during the initial lease amid the pandemic. We focus on creating beneficial deals for both sides, reaching a price we both feel good about, leading to win-win outcomes. -
Development Financing and Market Conditions
Q: Any headwinds or tailwinds in development financing?
A: We closely monitor our tenants and loan investments and aren't seeing any headwinds in development completion or asset performance where we have loan investments. -
Homefield Partnership and Growth Potential
Q: What's the status and potential growth of the Homefield partnership?
A: We've started funding an 18-month development build for the Margaritaville Hotel. Homefield is a best-in-class youth sports operator, and while they have no immediate plans to grow, they may have future expansion opportunities. -
Competitive Environment for Deals
Q: Has the competitive environment for deals changed?
A: The competitive environment remains the same as before; we continue to engage with partners and explore opportunities across our sectors.
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