2023-07-03 13:00:00 ET
Summary
- I rate VICI a buy as the stock is trading close to its 52-week low of $29.28.
- VICI owns Class A properties throughout the United States and has recently began to diversify outside the United States with recent acquisitions into Canada.
- VICI has no debt maturing in 2023 making them well-prepared to navigate the current high interest rate environment.
Introduction
"Las Vegas is the only place I know where money really talks, it says goodbye," Frank Sinatra once said this and having visited Las Vegas every year the last 9 years, I would have to say I agree. But in this case, your money says hello. I've visited Las Vegas multiple times a year since 2014. My first time visiting, I instantly fell in love with Sin City. There was just an aura of looseness among the travelers there. Everyone was there to have fun and let off some steam. Lots of it! Whether it was gambling, partying, or a combination of both. My family and friends seem to think that I'm a huge gambler or partier. While I do like to hit the casinos and bars from time to time, I usually spend my time by the pool, enjoying conversations with random strangers, and occasionally attending the shows. In 2014, I noticed how much money people were spending there. People were really saying goodbye to their money and didn't seem to care one bit. The city of Las Vegas knows this, and that's why they will offer avid gamblers free rooms. Once you're there, they know you're going to spend lots of money! I will admit that since traveling to Vegas since the COVID-19 pandemic, things do seem a bit different. There doesn't seem to be as much foot-traffic as pre-COVID, but that hasn't stopped VICI Properties ( VICI ) down one bit. So, let's dive into why I'm buying more VICI.
Why I'm Buying Now
Since February of this year, VICI Properties has seen its share price drop from a high of almost $35 to a current price of $31.40 at the time of writing. Back in March, the stock touched a low of near $30, less than a dollar from its 52-week low. Although some REITs have dropped more than 30%, VICI fared well during the banking crisis, dropping a total of nearly 6% before bouncing back closer to its 52-week high of nearly $36. Since VICI normally trades in a short price window of $33-$35, I think the stock is a buy under $32. Investors who already own the stock should consider dollar cost averaging in at this price, picking up more shares at a good entry point, in my opinion.
Gaming 5 YR Total Return
Here you can see VICI's total return against its closest competitor Gaming and Leisure Properties ( GLPI ):
Although both are in the gaming sector, VICI considers itself more of an experiential REIT. And this is apparent in their recent acquisitions and partnerships into other areas.
Quant Says Hold
As seen here, the Quant rating system had assigned a Buy rating for VICI on the 23rd of June. It recently dropped to a hold on June 26th. For the whole month of June, Quant had a strong buy/buy rating for the stock until recently. The last hold rating was back on February 2nd when the stock was trading much closer to its 52-week high at $34.55.
In the last three months, the r evisions grade has dropped from an A- to a D. This could be due to VICI's astronomical growth in the last 5 years. Maybe Quant thinks VICI's growth will slow in the near future, to which I disagree. I think VICI will continue to expand its portfolio outside of the U.S., specifically in the U.K. in the near future. Or possibly acquire a stake in one of the last premiere properties on the Vegas Strip, the Bellagio hotel and casino. As recent as June 26th, 2023, it was reported that Blackstone ( BX ) was considering offers for half its stake in the real estate in the luxury casino. This acquisition would elevate their already exceptional portfolio that includes the likes of Caesar's Palace and Venetian. Below are Seeking Alpha FFO estimates for 2024 through 2026.
Total Return vs. SPY
Here is a look at VICI's total return vs. SPY. Since their IPO in 2018, VICI has almost doubled the total return of the S&P. The REIT became the fastest ever to go from IPO to S&P inclusion in a little under 5 years.
Balance Sheet
Aside from being a growth machine, VICI is also well-prepared for the current state of the economy. In Q1 VICI managed to grow its AFFO by 18.6% year-over-year compared to nearly 4% negative for many S&P companies. AFFO came in at $0.53 for the quarter, covering the dividend of $0.39 easily.
Ninety-nine percent of VICI's debt is fixed rate, with 82% of unsecured debt and a weighted average of almost 7 years. Good thing that VICI has no debt maturing in 2023. Management also stated during its Q1 earnings call that it had approximately $650 million in cash.
Risks
Although VICI has no debt maturing this year, they do have a decent amount maturing in 2024 and double that going into 2025. As investors can see below, Alreits.com gives VICI an 89/100, the two detractors being debt and years since IPO. Being that VICI listed in 2018, the detraction for this is understandable.
If I were a betting man, my bet would be that the FED will continue high interest rates going into next year. They may start to slash rates starting in the first half of 2024. Depending on if they cut rates as fast as they raised them, which is not likely, VICI may not feel the impact of the high rates as much.
Conclusion
With VICI trading $2 above its 52-week low, I rate VICI a buy. Investors get a safe, and growing dividend from an investment grade REIT that owns iconic hotels. Although there are talks of a recession, VICI has proven their resilience during economic downturns with 100% rent collection during the COVID-19 pandemic. My opinion is that VICI will continue to expand its portfolio and diversify outside of the United States, creating long-term value for shareholders.
For further details see:
Why I Think VICI Is A Buy Right Now Despite Quant Disagreeing