Posted on: June 28, 2024, 03:41h.
Last updated on: June 28, 2024, 03:41h.
Fitch Ratings reaffirmed VICI Properties’ (NYSE: VICI) credit grade at “BBB-“ with a “stable” outlook in a report out Thursday.
The research firm said the rating — the lowest on the investment-grade spectrum — is supported by VICI’s status as one of the largest domestic real estate investment trusts (REITs) by enterprise value, earnings before interest, taxes, depreciation, and amortization (EBTIDA) capabilities, and its ability to access capital. VICI is the largest owner of gaming real estate.
The ratings also incorporate the company’s stable occupancy and ownership of large, strategic assets with regulatory barriers to access and contractual protections, as well as material tenant concentration with high-yield counterparties and potentially weaker contingent liquidity compared to other more traditional commercial real estate (CRE) property types,” noted Fitch.
New York-based VICI owns the property assets of iconic Las Vegas Strip casino hotels such as Caesars Palace and the Venetian, among others.
VICI Focusing on Deleveraging
One of the reasons VICI shares slid 7.58% over the past year and are lower by 10.13% year-to-date is because the operator took on more leverage at a time when interest rates are high. Alone, high borrowing costs weigh on REITs, but when more debt is factored into the situation, it can be a significant headwind, but VICI is working to delever.
Much of the landlord’s recent debut accumulation stems from the $17.2 billion acquisition of rival MGM Growth Properties in 2022. With that deal, VICI added Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, New York New York, and Park MGM, as well as various regional casinos operated by MGM Resorts International (NYSE:MGM) to its portfolio.
“VICI’s leverage has returned to its long-term financial policy (5.0x-5.5x net debt/operating EBITDA) on an MRQ basis with MRQ annualized REIT leverage of 5.4x as of March 31, 2024. Leverage was elevated in 2022-2023 as a result of its merger with MGM Growth Properties (MGP) and its acquisition of minority interests in the MGM Grand/Mandalay Bay joint venture,” added Fitch.
The research firm believes the REIT will drive leverage below 5.5x by the end of this year. Fitch added that non-traditional owners, including private equity firms, gobbling up Las Vegas Strip real estate is compressing cap rates, thus bringing a potential long-term positive catalyst forth for VICI.
Watch for Indiana Transactions
As was reported here earlier this week, it’s possible VICI will soon provide an update on its outlook for Centaur Holdings — the holding company of Harrah’s Hoosier Park and Horseshoe Indianapolis, both of which are operated by Caesars Entertainment (NYSE: CZR).
By way of Eldordado Resorts’ 2020 acquisition of Caesars, Eldorado and VICI reached an agreement under which the gaming company could put those properties to the REIT or the landlord could call them away by the end of this year. Caesars has previously indicated it’s not planning to use its put rights, but VICI could decide to use its call rights, which could lead to higher-leverage over the near-term.
“Were either party to exercise its rights, the ensuing transaction would represent material capital allocation for VICI. Depending on the company’s funding mix for the transaction, leverage could be elevated in the near term, though we expect the company would be able to manage leverage within its sensitivities within a reasonable amount of time post-acquisition,” concludes Fitch.
