The S&P 500 plunged into a bear market last year. The index peaked on January 3. It was nearly all downhill from there. The S&P 500 closed the year down 19.4% after plunging more than 20% from its peak by the fall.
Many S&P 500 subsectors performed even worse, including real estate, which was down 28.5% because of the impact of rising interest rates on the sector. However, there was a notable outlier: VICI Properties (VICI 1.17%). The experiential property REIT was the only company in its sector to deliver positive total returns last year. Here’s a look at what drove its sector-leading performance.
Big bets paid off
VICI Properties recently reported its fourth-quarter and full-year results. It was a fantastic year for the REIT. CEO Edward Pitoniak commented in the earnings release: “We are proud that VICI generated the highest–and only positive–total shareholder return of all S&P 500 REITs in 2022.” The next best-performing REIT was Iron Mountain, with a slightly negative total return. Meanwhile, the worst performance came from SL Green, which lost half its value last year.
The company’s transformational acquisitions of MGM Growth Properties and the Venetian Resort Las Vegas were big drivers of its outperformance. The company’s $17.2 billion merger with MGM and $4 billion Venetian acquisition enabled it to become “the leading real estate owner on America’s most dynamic commercial street, The Las Vegas Strip,” according to Pitoniak. Meanwhile, the company further expanded and diversified by investing another $4.5 billion in other gaming and non-gaming opportunities.
These deals helped grow its revenue by 100% in the fourth quarter to nearly $770 million. Meanwhile, its adjusted funds from operation (FFO) increased by almost 75% overall and 15.5% on a per-share basis. That helped drive revenue up more than 72% for the year to $2.6 billion, while adjusted FFO grew by nearly 62% to $1.7 billion and 6.1% on a per-share basis.
The earnings growth enabled the REIT to increase its dividend by another 8% last year. Even with its rising share price, it still yields an attractive 4.6%.
The potential to continue winning
VICI Properties has come a long way in a few short years. Pitoniak commented in the earnings press release: “In 2022, less than five years from our IPO, VICI became a Top 10 REIT in the RMZ REIT Index, a member of the S&P 500, and an investment grade issuer of credit.” It has also increased its dividend each year.
The REIT is in an excellent position to continue growing its portfolio, FFO per share, and dividend in the future. Last year’s deals will provide it with lots of momentum in 2023. The REIT expects its adjusted FFO to grow from $1.93 per share last year to a range of $2.10 to $2.13 per share in 2023, a nearly 10% increase at the midpoint.
VICI Properties has plenty of financial flexibility to continue expanding. As the CEO mentioned, it has investment-grade credit. That enhances its ability to access the capital needed to fund new deals. Meanwhile, with its share price rising over the past year, the REIT has been able to use it as currency to fund deals. It recently completed a $1 billion equity offering, giving it more flexibility to complete new deals.
The company has ample runway to continue growing its portfolio. VICI Properties has enhanced its ability to continue growing by expanding its platform over the past year. It recently made its first international investment, entering the Canadian market by acquiring four casinos in Alberta in a roughly $200 million sale-leaseback transaction. It has also expanded into new experiential property classes, including the destination golf experience sector, indoor waterpark resorts, and wellness resorts. These new platforms provide additional avenues to grow in the future beyond the gaming industry.
A winning investment
VICI Properties had a great year in 2022. It was the only REIT in the S&P 500 that delivered a positive total return in the bear market.
It’s in an excellent position to continue outperforming. Last year’s deals will provide the momentum to grow its adjusted FFO per share by nearly 10% this year. Meanwhile, it has ample financial flexibility and opportunities to continue making new investments. Add in its high-yielding and growing dividend, and VICI Properties could continue its winning ways.
Matthew DiLallo has positions in Iron Mountain, SL Green Realty, and Vici Properties. The Motley Fool has positions in and recommends Iron Mountain. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.