Bullish Upside for VICI Properties Stock as U.S. Gaming Revenues Hit New Record
February 29, 2024
Why VICI Stock Could Turn Investors Into Big Winners
There are a few industry tailwinds juicing the outlook for real estate investment trusts (REITs) like VICI Properties Inc (NYSE:VICI).
First, the Federal Reserve is expected to start cutting interest rates over the coming months. That’s good news for REITs because higher interest rates make it more expensive for them to borrow capital, and REITs borrow a lot of money to expand their real estate empires.
Second, and this is especially relevant when it comes to companies like VICI Properties Inc, Americans have been spending a lot of money at casinos lately. The U.S. gambling industry’s revenues reached a record-high $66.5 billion in 2023. That was a 10% increase over its revenues in 2022 and its third straight year of record growth. (Source: “AGA Commercial Gaming Revenue Tracker,” American Gaming Association, February 20, 2024.)
When it comes to the gambling and casino sector, the biggest winner was, once again, the Las Vegas Strip. In 2023, its revenues increased by 7.2% to more than $8.8 billion.
While you might think the majority of that money came from gambling, only 26.6% of it did in 2023. The other 73.4% actually came from non-gaming amenities (i.e., hotel rooms, food, beverages, and the all-encompassing “other” category). (Source: “Nevada Casinos Break Revenue Records Across the Board in FY 2023,” CDC Gaming Reports Inc., February 17, 2024.)
Non-gaming revenues have outpaced gaming revenues in the Las Vegas Strip for the past 25 years.
About VICI Properties Inc
VICI Properties is one of the largest owners of gaming, hospitality, and entertainment destinations in North America. Its properties include Caesars Palace Las Vegas, MGM Grand, and the Venetian Resort Las Vegas. (Source: “Investors,” VICI Properties Inc, last accessed February 27, 2024.)
As of this writing, the company’s national footprint includes 93 assets consisting of 54 gaming properties and 39 non-gaming “experiential” properties across the U.S. and Canada.
Its real estate portfolio comprises about 127 million square feet (the size of 2,204 NFL fields) and features roughly 60,300 hotel rooms and approximately 500 restaurants, bars, nightclubs, and sportsbooks. The company also owns four championship golf courses and 33 acres of undeveloped and underdeveloped land adjacent to the Las Vegas Strip.
VICI Properties Inc’s properties are occupied by industry-leading gaming, leisure, and hospitality operators under long-term, triple-net lease agreements.
The company has a growing number of real estate and financing partnerships with leading non-gaming experiential operators, including Cabot, Canyon Ranch, Chelsea Piers, and Great Wolf Resorts, Inc.
While the COVID-19 pandemic undermined the top and bottom lines of many REITs, VICI Properties has been bringing in $3.0 billion in cash rent annually and achieving a rent collection rate of 100% since its formation in 2017. (Source: “VICI Investor Presentation,” VICI Properties Inc, February 26, 2024.)
On top of that, about 80% of its rent comes from U.S. Securities and Exchange Commission (SEC)-reporting operations. This provides transparency into the health and performance of its tenants.
Revenues & Net Income Surged in 2023
The record-high spending at U.S. casinos has been helping VICI Properties Inc report fantastic financial results. In 2017, the company generated total revenues of $690.0 million. Fast-forward to 2023, and the company generated record-high total revenues of $2.9 billion. (Source: Ibid.)
For the fourth quarter of 2023, VICI Properties announced that its total revenues increased by 21.0% year-over-year to $931.9 million. (Source: “Vici Properties Inc. Announces Fourth Quarter and Full Year 2023 Results,” VICI Properties Inc, February 22, 2024.)
In the fourth quarter, the company’s net income went up by 23.8% year-over-year to $747.8 million, or $0.72 per share. Its adjusted funds from operations (AFFO) increased by 17.0% year-over-year to $570.4 million, or $0.55 per share.
During the fourth quarter, VICI Properties Inc announced:
- Its acquisition of 38 bowling entertainment centers in a $432.9-million sale-leaseback transaction with Bowlero
- An agreement to provide a mezzanine loan of up to $212.2 million to Kalahari Resorts and Conventions to fund the development of an indoor waterpark resort in Thornburg, Virginia
- Its acquisition of the leasehold interest of the Chelsea Piers facility in New York City for $342.9 million
- An agreement to provide a delayed draw loan facility of up to $100.0 million for the development of Cabot Saint Lucia and a loan of £9.0 million (about $11.4 million) for the redevelopment of Cabot Highlands
For full-year 2023, VICI Properties Inc announced that its total revenues increased by 38.9% year-over-year to $3.6 billion. The company’s 2023 net income advanced 124.9% year-over-year to $2.5 billion, or 94.8% on a per-share basis to $2.47. Its full-year AFFO increased by 29.1% year-over-year to $2.2 billion, or 29.1% on a per-share basis to $2.15.
The outlook for VICI Properties in 2024 is solid, with management expecting to report AFFO in the range of $2.3 billion to $2.35 billion, or $2.22 to $2.25 per diluted share.
VICI Properties Stock’s Dividend Hiked for 6th Straight Year
To qualify as a REIT, a company has to distribute at least 90% of its taxable income. This helps explain why VICI Properties Inc has such a high dividend yield.
The company has raised its dividends for the last six consecutive years, targeting an AFFO payout ratio of 75%. Since the fourth quarter of 2018, VICI stock’s annualized cash dividend per share has expanded at a compound annual growth rate (CAGR) of 7.6%, significantly outpacing its peers. (Source: “Common Equity Dividends ($),” VICI Properties Inc, last accessed February 27, 2024.)
In October 2023, the company increased its quarterly cash dividend by 6.4% to $0.415 per share. This was VICI Properties Inc’s sixth consecutive annual dividend increase. Management has maintained VICI Properties stock’s payout at $0.415 per share since then.
As of this writing, VICI stock has a dividend yield of 5.62%.
For those concerned about whether VICI Properties stock’s high-yield dividend is sustainable, it is. The company’s payout of $0.415 per share is well below the REIT’s fourth-quarter funds from operations (FFO) attributable to common stockholders of $0.72 per share. (Source: VICI Properties Inc, February 22, 2024, op. cit.)
VICI Stock Down But Has 38% Upside
Despite VICI Properties Inc reporting high revenue, earnings, and AFFO growth and providing solid guidance for 2024, investors seem more concerned about when the Federal Reserve is going to start cutting interest rates.
As of this writing, VICI Properties stock is down by 7.2% year-to-date and 7.5% year-over-year, but Wall Street analysts see better odds ahead. They’ve provided a 12-month share-price target in the range of $34.67 to $41.00 per share. This points to potential gains of approximately 15% to 38%.
Chart courtesy of StockCharts.com
The Lowdown on VICI Properties Inc
VICI Properties is a great specialty REIT that provides investors with high long-term capital appreciation and dividend growth. Over the last five years, the company’s dividends have grown at a CAGR of 7.6% and its share price has rallied by 96.5%.
Over the course of 2023, VICI Properties Inc announced and originated about $1.8 billion worth of acquisitions and investments. The company entered the Canadian market, grew financing partnerships in Saint Lucia and the U.K., made its first real estate acquisition in the family entertainment sector, significantly expanded its partnerships with Canyon Ranch and Cabot, and converted its first loan to real estate ownership.
VICI Properties Inc’s investments in 2023 have put it in a position to forecast AFFO-per-share growth for 2024 on the high end of the consensus estimate for S&P 500 REITs’ AFFO-per-share growth.
Taking all that into consideration, plus the company’s tremendous financial performance, the outlook for VICI stock’s price and dividend is robust.
