VICI PROPERTIES INC.

VICI PROPERTIES INC. (VICI) — Investment Memo

🐂 The Bull Case (Warren's voice)

• The moat is concrete (literally). VICI owns the dirt under Las Vegas Strip casinos. You cannot relocate a 3,000-room hotel. Tenants must pay rent or forfeit their most valuable asset. Switching cost = infinity.
• Triple-net leases make the cash flow boring and predictable. 98% of revenue is fixed rent with 1–2% annual escalators. No occupancy risk, no operating costs, no capex. Net margin 69.3% is structural, not lucky.
• The business is a rent collector on irreplaceable land. Even in a recession, casinos stay open. Rent is a fixed cost – tenants cut labor and marketing before stopping lease payments.
• At a deep enough discount, it works. If you can buy at a price that bakes in a tenant default and still get a decent return, the land’s scarcity protects you. The current DCF pegs intrinsic value at $54.95/share – but that assumes 8% FCF growth forever. The real entry price must be lower to compensate for concentration risk.
• Why it compounds: More acquisitions (funded by cheap debt) + rent escalators + eventual tenant diversification. But only if management stops diluting you.

🐻 The Bear Case (Charlie inverts)

• The kill shot: One tenant files Chapter 11. MGM or Caesars = 90%+ of rent. In bankruptcy, rent gets cut 30–50% during reorganization. VICI’s cash flow collapses, the dividend is slashed, and the stock price halves. This is the most likely permanent impairment within 10 years.
• The balance sheet is a time bomb. Debt: $16.8B vs. equity ~$28B (implied). Interest coverage is not disclosed – but with rates at 5%+, interest alone could be $840M/year. If tenants default and revenue drops, debt service becomes lethal.
• Management is the enemy of per-share value. They stopped reporting free cash flow after 2019 – the one number that reveals rent collection reality. They diluted you by ~30 percentage points (EPS CAGR 38.8% vs. NI CAGR 68.5%). They buy revenue with debt, not brains. No buybacks. No honesty.
• The moat is narrowing, not widening. Two tenants control your fate. They are both heavily indebted and face secular headwinds (regional casino competition, online gaming). Switching costs protect the asset, not the income stream.

💰 Valuation & Margin of Safety

• DCF intrinsic value: $54.95/share – but this assumes 8% FCF growth and 3% terminal growth. Given missing FCF data and tenant concentration, that growth is a fantasy. Real intrinsic value is likely 20–30% lower – call it $40/share.
• 25% margin of safety entry: $30.00/share – where you’re compensated for a moderate tenant hiccup.
• 50% margin of safety entry: $20.00/share – Buffett’s ideal: you could survive a bankruptcy and still earn a decent return on land value alone.
• Current price (unknown): If above $40, it’s expensive. If between $30–$40, it’s fair but not compelling. Only below $30 does it become interesting.

Verdict: PASS

The moat is real but narrow, management hides the cash truth, and the debt/tenant double risk means no margin of safety at any plausible price. Wait for a crisis – either a tenant bankruptcy or a market panic – then buy at $20–$25/share. Until then, this is a leveraged, opaque bet on two casino operators, not a Berkshire-style compounder.