Amid hovering Treasury yields, triple-net actual property funding trusts (REITs), together with on line casino REITs, stumbled final yr. However VICI Properties (NYSE: VICI) might emerge as a winner from the group in 2024.
Caesars Palace on the Las Vegas Strip. Proprietor VICI Properties may very well be a winner amongst triple-net REIT shares this yr. (Picture: CNN)
The Caesars Palace proprietor is positioned to buck the bearish triple-net development this yr and doubtlessly ship above common progress, in accordance with Stifel analyst Simon Yarmark. He charges the biggest on line casino REIT a “purchase,” with a $35 worth goal, implying upside of about 9.3% from the December 29 shut.
VICI’s lease escalators, that are tied to the Client Value Index (CPI), are constructive attributes at a time when there’s concern inflation might once more speed up.
VICI ought to profit from significant lease escalations within the above-average inflationary atmosphere. In whole, we estimate that lease escalations ought to lead to ~$71 million of incremental lease in 2024 that was not captured in 2023 outcomes,” famous Yarmark.
Of that $71 million, an estimated $39 million is derived from VICI’s two grasp leases with Caesars Leisure (NASDAQ: CZR).
Why VICI Might Rebound in 2024
VICI, the biggest proprietor of home on line casino actual property, like different REITs, is delicate to modifications in rates of interest. Meaning the inventory was pinched final yr as Treasury yields spiked.
Nevertheless, the reverse situation may very well be at play in 2024. Ten-year Treasury yields have declined from the October highs, because the futures market has more and more priced in the potential for a number of charge cuts this yr by the Federal Reserve. Some fixed-income consultants imagine a type of reductions might arrive earlier than the tip of the present quarter.
Decrease rates of interest, a various tenant base, and a steadily rising dividend may very well be among the many tailwinds to propel VICI shares this yr.
VICI’s consumer roster consists of Apollo International Administration, Century Casinos, and Arduous Rock Worldwide, amongst others, confirming the gaming REIT is numerous throughout areas and on line casino sizes. MGM and Caesars, the 2 largest operators on the Las Vegas Strip, mix for 76% of VICI’s adjusted income.
“VICI generates over $500 million of free money circulation on an annual foundation put up the dividend,” added Yarmark. “The dividend was just lately raised and traditionally has been raised in 3Q. In the event that they had been to reinvest the $500 at a 7.0%-8.0%, this may present extra acquired funds from operations (AFFO) subsequent yr.”
VICI Might Make Extra Acquisitions This 12 months
New York-based VICI has a historical past of being acquisitive, which has enabled the REIT to diversify its geographical and tenant exposures. That development might proceed this yr.
Due to a sequence of beforehand struck agreements, together with some with Caesars, VICI has rights of first refusal (ROFR) on varied gaming property property throughout the nation, ought to operators resolve to promote this yr in bids to generate money.
“ 2024 progress, the corporate has a put/name settlement on Harrah’s Hoosier Park and the Horseshoe Indianapolis, which may be exercised till year-end 2024. Beneath the phrases of the settlement, Caesars might put the property to VICI at an 8.0% cap charge, whereas VICI might name them at a 7.7% cap charge,” concluded Yarmark. “Past that, the corporate has a put/name settlement on the Caesars Discussion board Conference Heart and ROFR agreements on on line casino property each in Las Vegas and regional markets.”
