VICI warns of economic outlook and operator default risk despite successful Q3

Real estate investment trust VICI Resorts - which mostly owns properties used by Caesars and MGM - warned of increased operator default risk and “potentially negative future market conditions”, despite a successful quarter in which both revenue and profit doubled.


The REIT’s revenue doubled to $751.5m.

Of this total, $376.0m came from sales-type leases, up 28.7%. These are for properties that VICI aims to eventually sell.

On the other hand, $350.9m came from finance-type leases, five times the total from this channel in Q3 of 2021. The increase in revenue from this lease type - for properties VICI intends to continue renting in the long term - was mostly due to the acquisition of MGM Growth Properties, which leases to MGM Resorts.

However, while increases in most costs were small, it did put aside $232.8m as an allowance for credit losses.

Much of this was related to the acquisition of MGM Growth Properties, giving it control of leases for properties operated by MGM Resorts, and of the Venetian in Las Vegas.

However, VICI also said that increased “probability of default” played a role in adding this expense, as did “uncertain and potentially negative future market conditions”.

This followed the business reporting a $117m cost related to increased operator default risk in Q2.

Even despite this cost, though, and $169.4m in interest expenses, VICI still made a pre-tax profit of $337.3m. This was more than double the pre-tax profit recorded a year earlier.

After tax, net income was $330.9m, again up by more than 100%.

Chief executive Edward Pitoniak said the successful quarter showed that VICI’s bold acquisition strategy had paid off.

“VICI's strong third quarter financial performance reflects the full impact of our extensive acquisition and financing activity over the past two years, whereby VICI doubled its total revenue on a year-over-year basis,”he said. “In Q3 2022, we also increased our dividend by 8.3%, highlighting our commitment to growing the dividend for stockholders.

“Throughout the quarter, VICI also capitalized on the strength of our existing partnerships to drive incremental growth, including our announced acquisition of Rocky Gap Casino with our existing tenant, Century, and entry into two additional loan agreements with Great Wolf Resorts.

After the quarter ended, VICI also expanded out of gaming through a deal to fund a new wellness resort in Texas. This, Pitoniak said, was expected to be the first of many moves in the wellness space.

“Additionally, we are very excited to announce that subsequent to quarter end, we entered into an investment with Canyon Ranch, the global leader in place-based wellness, to fund the development of their newest wellness resort in Austin, Texas, one of the most dynamic locales in America. This transaction represents our first investment in the multi-trillion dollar place-based wellness sector and enhances our embedded growth pipeline.”