VICI Properties Stock: Inflation-Crushing Sin Stock Has 29% Upside
January 8, 2024
Why VICI Stock Could Be a Winner
In 2021, when the Federal Reserve merely hinted that it was thinking of raising interest rates, many real estate investment trust (REIT) stocks started to trade lower.
Why? Higher interest rates make it more expensive to borrow capital and service debt, and REITs need to borrow a lot of money to build up their portfolios.
On the reverse side, lower interest rates create a more favorable borrowing environment. That’s why recent comments by the Fed about cutting rates have helped juice the share prices of REITs like VICI Properties Inc (NYSE:VICI).
VICI Properties is one of the largest owners of gaming, hospitality, and entertainment destinations in North America, including Caesars Palace, The Mirage, and the Venetian Resort. (Source: “Investor Presentation,” VICI Properties Inc, November 9, 2023.)
As of this writing, the company’s national footprint includes 93 “experiential assets” consisting of 54 gaming properties and 39 non-gaming properties across the U.S. and Canada.
The REIT’s real estate portfolio, which comprises about 127 million square feet (the size of 2,204 NFL fields), features roughly 60,300 hotel rooms and 500 restaurants, bars, nightclubs, and sportsbooks.
The company’s properties are occupied by industry-leading gaming, leisure, and hospitality operators under long-term, triple-net leases. VICI Properties Inc also has a growing array of real estate and financing partnerships with leading non-gaming experiential operators, including Canyon Ranch, Chelsea Piers, and Great Wolf Resorts, Inc.
VICI Properties also owns four championship golf courses and 33 acres of undeveloped and underdeveloped land that’s adjacent to the Las Vegas Strip.
Management Raised Guidance
They say you can’t beat the house, and that helps VICI Properties Inc report excellent financial results.
For the third quarter ended September 30, the company announced that its total revenues jumped by 20.3% year-over-year to $904.3 million. Its net income went up by 68% year-over-year from $330.9 million, or $0.34 per share, to $556.3 million, or $0.55 per share. (Source: “VICI Properties Inc. Announces Third Quarter 2023 Results,” VICI Properties Inc, October 25, 2023.)
The REIT’s funds from operations (FFO) climbed in the third quarter of 2023 by 63% year-over-year to $556.3 million, or $0.55 per share. Its adjusted funds from operations (AFFO) grew by 16.4% year-over-year to $547.6 million and—on a per-share basis—by 10.7% year-over-year to $0.54.
The strong third-quarter results led VICI Properties Inc’s management to increase its AFFO guidance for full-year 2023 to the range of $2.17 billion to $2.18 billion, or $2.14 to $2.15 per share.
The company’s growing FFO, which drives dividends, has been great for dividend hogs.
In early September 2023, VICI Properties’ board declared a regular quarterly cash dividend of $0.415 per share, for a yield of 5.24% (as of this writing). That represented a 6.4% increase over the $0.39 per share that VICI Properties stock paid out in the previous quarter. It also represented the sixth consecutive year in which the REIT has raised its dividend. (Source: “Common Equity Dividends,” VICI Properties Inc, last accessed December 29, 2023.)
In early December, the company announced that it would be maintaining that $0.415-per-share payout in January.
For those who are concerned that the company’s high-yield dividend may not be safe, it is. VICI stock’s payout is well below the REIT’s third-quarter FFO of $0.55 per share.
Fed’s Comments Helped Juice VICI Properties Stock
I last wrote about VICI Properties Inc in November, and a lot has changed since then—at least from an economic standpoint.
As you can see in the chart below, nothing really happened to VICI stock immediately after the company reported tremendous third-quarter results and increased its full-year guidance in October. But on November 1, the price of VICI Properties stock (and other REIT stocks) got a boost after the Fed announced it was holding its key lending rate and hinted that rate cuts could be on the horizon.
That momentum was further energized in mid-December after the Fed held its key lending rate pat again and penciled in a target range of 4.5% to 4.75% by the end of 2024, pointing to three 25-basis-point cuts. Analysts, however, think the Fed could be even more aggressive in cutting its rates in 2024.
Investors liked what they heard. After all, lower interest rates create a more borrower-friendly environment, which should help improve profits.
Before the Fed made its announcement on November 1, shares of VICI Properties Inc were down by 13% year-to-date and 11.5% year-over-year. Since then, though, VICI stock has climbed by 15% and has gone up by 2.1% year-over-year.
That year-over-year gain isn’t earth-shattering, but VICI Properties Inc’s share price is certainly at a better level than where it was in late October, which was its lowest trading level since June 2022.
Chart courtesy of StockCharts.com
Despite VICI Properties stock’s recent big upward move, its outlook is still bright. Wall Street analysts have provided a 12-month average forecast of $34.82 per share and a high forecast of $41.00. This points to upside in the range of 9.8% to 29.3%.
The Lowdown on VICI Properties Inc
My opinion on VICI Properties hasn’t changed since I wrote about it in November. If anything, the outlook for VICI stock’s price and dividends has become more robust since then.
The company continues to expand its gaming real estate empire, its rent escalations protect it from inflation, and about 80% of its rent comes from operations that report to the U.S. Securities and Exchange Commission (which provides transparency into the health and performance of its tenants).
VICI Properties Inc’s tenants have been doing quite well, which helps explain the REIT’s high revenue, earnings, FFO, and AFFO growth.
Even before the Fed announced it would be introducing interest rate cuts in 2024, VICI Properties’ management said the company’s financial momentum would continue in 2024. The Fed’s recent announcements should further juice VICI Properties stock’s still-undervalued share price and high-yield dividends.
