Edward Pitoniak kept it real during VICI Properties’ first-quarter earnings call Friday. The real estate investment trust’s CEO told analysts and journalists that the best way to handle the market-disrupting coronavirus pandemic is by acknowledging it and acting accordingly.
The real estate investment trust, which was spun off from Caesars Entertainment in October 2017 as part of Caesars’ two-year bankruptcy reorganization, helped sell off a casino as officials said they kept in close contact with tenants.
Meanwhile, the REIT had adjusted funds from operation, a key cash flow measure, that topped Wall Street forecasts.
In a statement, VICI said adjusted funds from operation, a cash flow measure, was $180 million, or 38 cents per share, for the three months ended March 31, up 18.8% from $151.5 million, or 37 cents per diluted share, a year earlier. The latest result topped the 32-cents-per-share average funds from the operation forecast of analysts surveyed by Seeking Alpha.
Funds from the operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization.
VICI shares dropped almost 5% on the news Friday on the New York Stock Exchange and closed Monday at $16.38, down 18 cents, or 1.09%. VICI’s share price has dipped by 33.3% in 2020.
VICI Properties had a net loss of $24 million for the quarter, or 5 cents per diluted share, reversing year-earlier net income of $150.8 million, or 37 cents per share.
Revenue rose 19.2% to $255 million from $214 million but missed the $255.7 million forecast of Seeking Alpha-polled analysts.
In a conference call, Pitoniak said tenant rents are paid through April and the REIT expects all rents to be paid this month, despite all the casinos in VICI’s portfolio closed due to the COVID-19 coronavirus pandemic. Meanwhile, he said, VICI is taking the coronavirus crisis as it comes.
“We don’t deny reality. We don’t fight reality. We manage our business so that we make the best we can of reality,” Pitoniak said. “There are many different scenarios for when our assets could reopen and many different scenarios for what the recovery paid to the American regional and Las Vegas gaming could be.
“We are modeling all of those scenarios and digging deep into what the implications of each scenario could be for VICI and for our tenants,” he added. “But it’s too early to commit to any strategy that only works if a certain scenario prevails because we don’t know which scenario will prevail.”
In stability-bolstering moves in April, Caesars Entertainment and VICI sold off Bally’s Atlantic City to Twin River Worldwide Holdings for $25 million in cash. VICI will get $19 million from the sale; Caesars Entertainment will receive $6 million.
VICI officials said they were optimistic about the planned $17.3 billion merger of Caesars Entertainment and Eldorado Resorts, the closing of which was pushed from April to June.
VICI Chief Financial Officer David Kieske said the REIT put $2 billion of the net proceeds into escrow pending the deal’s confirmation; the money is subject to mandatory redemption if the transaction doesn’t close.
VICI’s pandemic mitigation has impressed Union Gaming. Analysts there this week called the stock an attractive investment.
“While it’s still early and the recovery timeline is uncertain, VICI has so far navigated and avoided negative impact from the crisis as well as or better than anyone, with no rent concessions or dividend changes to date,” analyst John DeCree wrote in an investors’ note.
Seeking Alpha further reported that DeCree has argued that concerns about the Caesars-Eldorado merger are overdone Union Gaming’s price target of $25 on VICI represents a more than 50% upside potential for shares.
Less optimistically, Fitch Ratings on March 22 downgraded its ratings outlook on the REIT to “negative” from “stable,” noting the closed casinos and pending recovery. Fitch kept its BB rating on VICI Properties and its subsidiaries.
“There is a real risk that tenants may look to their rent obligations to conserve cash, while their facilities are closed or are operating with minimal business volumes,” Fitch wrote in a statement. “Longer-term there is a risk that tenants may seek bankruptcy protection and/or more permanent rent concessions if the recovery is weaker than what is currently projected.”
Pitoniak said he’s optimistic the casino business will recover and endure. January and February were among the best months many casinos had posted in decades and the industry has bounced back in previous economic cycles.
“The gaming industry has an extremely loyal customer base,” he said. “And we believe customers are eager to return to our facilities, particularly at the local level upon reopening.”
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