All right, welcome back everyone. I'm Eli, and today we have a very special guest with us. We have the CEO of VICI Properties, Ed Pitoniak, joining us. Ed, thanks so much for being on the show.
Eli, delighted to be here.
Yeah, we're really excited. So Ed, there's obviously a lot that we want to cover in a short amount of time, so we want to be respectful of your time. So let's just go ahead and dive into it. You know, VICI stock price over the last five years is down about 12%. Obviously, it's not including total returns. You could tell better than I could, but I think there's a few primary concerns. Obviously, we have some tenant concerns, the rise of online gaming, and then Las Vegas tourism. And I'd love to get into all three of those here in just a moment, but before we really dive in, for anyone who's just discovering VICI for the first time, maybe give them just a little bit of background on the REIT.
Sure. Yeah, happy to do so. Eli, so VICI came into being in late 2017. It emerged from Caesars as a REIT spin, and it was a REIT spin that was a result of an agreement between creditors of Caesars and the two main sponsors behind Caesars at that point, Apollo and DBG. And it was agreed that a lot of the credit would get satisfied by conveying real estate to the creditors. And I was then asked to create a REIT out of this. And I was very excited to do so because though I was new to gaming, I was from the get-go very excited about the quality and characteristics of gaming real estate. So we got to work putting our REIT together. But we also began putting together an investment thesis that went beyond gaming. And from the very beginning we identified and declared VICI to be an experiential REIT. Not only a gaming REIT but an experiential REIT. And that was based upon our conviction in the secular tailwinds behind the seeking of experiences versus the purchase of things. And we certainly believe that secular thesis is still a very strong one.
And it's really been the guiding principle by which we've grown the company since we emerged in 2017. We began life with about $7 billion of enterprise value and have grown the company now to the point where depending on the day and the stock price it's between 45 and up to $50 billion of enterprise value. We began growing right away in 2018, growing away from Caesars by initiating relationships with Penn and then Jack Entertainment and then Hard Rock. But our really transformational year came in 2021, and that was the year in which we announced the acquisition of the Venetian in partnership with Apollo and the acquisition of the MGM controlled REIT known as MGP, MGM Growth Properties. Those acquisitions not only had the effect of doubling our size, they significantly accelerated our transition to two things: becoming an investment grade company for credit purposes and inclusion in the S&P 500.
And so we really just kind of roared out of the gate in that way. In fact, we were the fastest rate to S&P 500 inclusion from IPO of any REIT in history. In the years since 2022 when we closed the Venetian and MGP transactions we've continued to grow, continued to diversify within experiential, and have significantly grown our earnings and our dividend. I know this is Dividendology, so I'm very proud to say that our dividend CAGR, the rate at which we've grown our dividend since our base year of 2018, is close to 7%. And we can get into some of the factors affecting our stock price at the very moment. But if you want to understand VICI, it's most important I believe as a seeker of total return to understand the dividend power and solidity of what we offer. We offer a dividend right now that frankly has I think close to a 7% yield. But it's a very well-covered dividend at about 75% payout ratio, and it comes out of a balance sheet that has leverage only 4.9 times debt to EBITDA. So we're a very rock-solid dividend story, and I look forward to exploring that story with you here today.
Yeah, I think that was very well said. One of the things that I always think is interesting when looking at VICI. Obviously, when you pull up your software of choice, you look at VICI, you see the share price and it's choppy. But I always preach that you really need to be looking at the sources of returns because adjusted funds from operations per share has been growing every single year. You know, the yield has been between five and 7% and growing. So really all of the decline, the source of that is the valuation multiple. So fundamentally speaking, VICI's performed very well over the last few years. Obviously, we can get into some of the potential concerns that I mentioned a moment ago, but I think you're spot on that the dividend story has been quite strong. And if I recall correctly, I think the payout ratio is somewhere around 75% right now.
That's right. That's right. That's been our target from the beginning. We feel it's a very good payout ratio for us as a net lease REIT because we do not have recurring capex obligations of any real significance. And compared to say office REITs and multi-res REITs and even industrial REITs which can have meaningful capex obligations in respect to their buildings, because we are a net lease REIT and because the tenant is responsible for ongoing capital maintenance and expansion of the building, we have really no meaningful annual capex obligations. So with a 75% payout ratio, not only is the dividend very well covered, but given the magnitude that we have achieved economically, that means we have about $650 million of retained cash flow each year now after paying our debt service and after paying our dividend.
So, one of the things we can talk about here today, Eli, is the way in which we've been able to continue to grow through investment of our free cash flow even in a period when the equity market hasn't been there for us in the way it was in the past, and thus the equity market not being our key source of funding. Our key source of funding has been and will continue to be the free cash flow that we generate after the payment of dividends and debt service.
Yeah. Well, that actually is one of the questions I had noted. If we want to go ahead and dive into that, I've noticed increasingly you've become somewhat of a real estate credit and real estate ownership business. I have a note here that at the end of the first quarter, the loans and securities portfolio had approximately $2.8 billion of principal outstanding. So, what does the capital allocation look like going forward? Are we going to see more of this? Are we looking for more opportunities for acquisitions? What should we be expecting?
Yeah, I think if you look over the past year, it's probably fairly representative of what the future will look like with perhaps one caveat. We will continue to fundamentally be a real estate property acquisition company. And certainly we've done over the past year close to $1.5 billion of either property acquisitions or investments that will turn into property ownership. As with our recent venture with Club Med, we have built the credit book. And it has been a very compelling source of income. I would tell you that going forward, we're not likely to make that credit book much bigger than it is today. There will be ebb and flows in it based on what loans get repaid, what the loan draw schedules are of our outstanding commitments.
But we've used it most fundamentally to establish relationships with in this case borrowers we believe we can grow with into the future, and Cain and Eldridge are obviously great examples of that given our partnership on One Beverly Hills, or we've used the loan book as a pathway to real estate ownership, which is for example how it was we came to be the owner, the principal leasehold interest at Chelsea Piers here in New York. That actually started with a mortgage and then became real estate ownership. So going forward, the principal investment focus will be on property acquisition, and we will again use credit but we will use it strategically and accretively to again both build relationships and build income.
Right. And I think that makes complete sense. I think a lot of REITs, and I'm sure there's exceptions to every rule, but when they start diving down that route, you don't typically see the investment grade, you know, you don't see that type of credit quality given to those types of REITs most of the time. So I think that does provide some good insight. With that being said, let's dive into a few other subjects. While we're still on the concept of capital allocation, I asked my subscribers what questions they had for you. And the caveat to this is I know this was answered in the recent earnings report, but for the sake of my subscribers, I'm going to go ahead and ask it anyway. A lot of them are curious about share buybacks. They know the valuation multiple is low, but that's not something REITs typically do. So, I know the answer. I think I heard you guys state it in the earnings report, but I'm going to step back and let you give us some guidance on whether share buybacks are in the future for VICI.
Yeah. So the quick answer is not likely. But let me spend a moment explaining what the fundamental nature of a REIT is and why share buybacks generally do not have the same benefits for REITs that they can for what are known as C-corps, your typical corporation with a common equity component. REITs do not generally generate a lot of retained earnings. They are by virtue of REIT legislation obligated to distribute a minimum 90% of net income, and optimally you distribute 100% or more of net income. Now, how you can do that and still have a respectable payout ratio is that net income does not equal distributable cash flow.
Net income is a number that contains cash and non-cash items. And you can have a 75% payout ratio as we do even though we distribute over 100% of our GAAP net income, or taxable net income I should say. So because REITs generally don't retain a whole lot of cash flow, they generally need access to the capital markets to fund growth. And in order to fund that growth, they need to go out into the equity and the credit markets for the incremental funding that allows them to buy incremental property. So when a REIT does a share buyback, it can be on the one hand an admission that well we don't actually see much that we can acquire and thus we don't see much of an opportunity to grow.
Right? That can be for many investors a concerning admission, because that calls into question, well, what is the genuine future of that REIT and will it be a slowly shrinking or melting ice cube? And so for us in our specific case, we do obviously benefit from significant retained cash flow which we're investing very accretively. In fact, that part of our free cash flow that's going into credit investments is generating a return of 9.5% on average right now, weighted average. So we don't feel share buybacks would be the best use of capital because it doesn't grow the company, and we fundamentally believe we have the opportunity to continue to grow the company. And thus whatever capital we have access to, whether it be retained cash flow or other capital, is capital that should be put to work continuing to grow the value and the income productivity of the company.
Yeah, that's well said. One of the things I always try to guide people towards is looking to the per-share growth for REITs. And what you'll notice a lot of the times, you know, when we were operating in a low interest rate environment, really not too long ago, there wasn't nearly as much share issuance because debt was so much more attractive. And now that rates are so much higher, potentially going higher by the end of the year, share, excuse me, not share buybacks, but issuing shares has become a lot more attractive. So some people see that and see it as a concern, but ultimately based on the guidance I'm seeing from VICI, I think for this fiscal year, AFFO per share should grow around 3.4%. I think if my math was correct, somewhere in that range. So I assume, and correct me if I'm wrong, that we'll see dividend growth somewhere in that range if you're still targeting the 75% payout ratio.
Yeah. It's generally a useful rule of thumb that we're going to match our dividend growth to both our current but also our future income growth. So as we make our dividend increase decisions, we're taking into account not only what are our earnings within the year we are in, but because we declare our annual dividend generally around late Q3, we also take into account what do we believe internally our earnings growth will be in the year following. So it's not a bad rule of thumb to use the rule you just used, which is dividend growth will roughly equal what I would call rolling earnings growth, which would be the year we're in and what we anticipate in the year to come.
Right. And that makes a lot of sense. And you know, if you run VICI through a simple dividend discount model, if you assume 3% dividend growth moving forward over the next few years, the valuation level you'll see looks quite attractive right now. So I think a lot of people obviously not just for dividend sustainability and income growth, but even from a valuation perspective, if 3% is achievable, obviously VICI looks attractive. I think that's the bottom line if that can be achieved. Now obviously the concerns we mentioned earlier, they're forward-looking concerns. Fundamentally speaking, looking backwards everything looks quite strong, even over the next year I would argue. So I guess the three potential issues which there may be more, I'd love to hear a perspective if that's the case, that's what people are concerned about. And I'd love to hear your thoughts if we start with, you know, traffic to Las Vegas. Traffic was down in 2025. I was looking at the numbers earlier today. It looks like it's stabilized quite a bit in 2026 so far. Is that still a potential concern for VICI? Obviously, at the end of the day, it's whether or not you collect rent. So, I assume it'd have to be a substantial downturn for it to truly impact VICI, but how much of a concern is declining traffic to Las Vegas right now?
Well, the key point you just made, Eli, is that traffic has stabilized. And if you look at different metrics, whether it be overall occupancy, room rate, convention attendance, airlift, and gaming activity, it's actually been a fairly good 2026 so far. One of the things Las Vegas has really benefited from is the diversity of demand drivers that it now possesses. It's long been America's leading convention, conference, and trade show destination, and that competitive superiority only continues to grow. But the arrival of sports has obviously been a really strong demand driver, whether it's the Raiders, the Golden Knights, soon to be the Oakland A's, and then evidently soon to be an NBA team as well.
But then I think most importantly, it is really the live entertainment capital of the world. And that sounds a bit grandiose, but it is true. There is no place on earth for now that has a Sphere, right? If you want to see your favorite musical artists in Sphere, you have to go to Las Vegas, and goodness knows that's what people are doing. But then you look across the strip and whether it be the residencies that take place in the Colosseum Theater at Caesars Palace, which we own. Whether it be, you know, the likes of Usher and Bruno Mars and Lady Gaga performing at our Dolby Live Theater at Park MGM. There's really nowhere else on earth that has the concentration of entertainment, leisure, and hospitality that Las Vegas does. So, we are very, very strong believers in Vegas. Is it going to go up and down? Absolutely. Does it affect our rent when there are fluctuations year-to-year? No.
And that's where I think sometimes people really lose sight of what VICI's fundamental value proposition is, which is really a stable and predictable income stream out of a marketplace that has all the dynamism of a marketplace like Las Vegas without the volatility.
Yeah, that's very well said. Is there any potential connection to the rise in online gaming with the decline in traffic to Las Vegas?
