VICI Properties could be triple play winner in 2024, analysts say
Triple net real estate investment trusts (REITs), including casino REITs, underperformed last year as U.S. Treasury yields rose. But VICI Properties (NYSE: VICI ) could be a winner in 2024.
Stifel analyst Simon Yarmark said the Caesars Palace owner is poised to buck the bearish triple-net trend and potentially deliver above-average growth this year. He rates the largest casino REIT a Buy with a price target of $35, representing an upside of about 9.3% from the Dec. 29 closing price.
VICI's rent increases are tied to the Consumer Price Index (CPI), which is a positive at a time when there are concerns that inflation could accelerate again.
VICI should benefit from significant rent increases in an above-average inflationary environment. Overall, we expect rent increases in 2024 to result in approximately $71 million in additional rent increases that are not reflected in 2023 results. ” Yarmark pointed out.
Of that $71 million, an estimated $39 million comes from VICI's two master leases with Caesars Entertainment Inc. (NASDAQ: CZR ).
Why VICI could rebound in 2024
VICI is the largest owner of domestic casino real estate and, like other REITs, is sensitive to changes in interest rates. That means the stock came under pressure last year as U.S. Treasury yields soared.
However, the opposite may happen in 2024. Ten-year Treasury yields have retreated from their October highs as futures markets increasingly price in the possibility of multiple rate cuts from the Federal Reserve this year. Some fixed-income experts believe one of the cuts could come before the end of the quarter.
Lower interest rates, a diversified tenant base and a steadily increasing dividend could be tailwinds that could boost VICI stock this year.
VICI, whose clients include Apollo Global Management, Century Casinos and Hard Rock International, confirmed that gaming REITs vary by region and casino size. MGM and Caesars Entertainment, the two largest operators on the Las Vegas Strip, combined accounted for 76% of VICI's adjusted revenue.
"VICI generates more than $500 million in free cash flow annually after dividends," Yarmark added. "Dividends have increased recently and historically increase in the third quarter. If they reinvest that $500 at a rate of 7.0% to 8.0%, that will provide additional funds from operations (AFFO) next year."
VICI may make more acquisitions this year
New York-based VICI has a long history of acquisitions, which allows the REIT to diversify geographically and tenant exposure. This trend is likely to continue this year.
Through multiple prior agreements, including some with Caesars, VICI has rights of first refusal (ROFR) on various gaming properties across the country should the operator decide to sell for cash this year.
"With an eye on growth through 2024, the Company has entered into a put/call agreement with Harrah's Hoosier Park and Horseshoe Indianapolis, exercisable through the end of 2024. Under the terms of the agreement, Caesars can invest assets in VICI at a cap rate of 8.0%, while VICI can terminate these assets at a cap rate of 7.7%,” Yarmark concluded. "In addition, the company has entered into put/call agreements for the Caesars Forum Convention Center and ROFR agreements for casino assets in Las Vegas and regional markets."
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Source: www.casino.org
