VICI Properties: Dividend & Upside Potential Nonetheless Makes Them A Purchase (NYSE:VICI)

Introduction

VICI Properties (NYSE:VICI) is a REIT that has dissatisfied many readers and merchants proper right here on Looking for Alpha. For the upper part of two years the share price has spent an extreme period of time in a wide range of $27 – $29.

Nonetheless, there have been fairly a couple of buy articles praising the stock, and in my view, for good goal. The REIT owns iconic properties and is principally sound whereas offering a superb dividend yield at current.

And whatever the present share price appreciation on account of anticipated lower charges of curiosity in September, VICI stays among the many greatest REITs your money can at current buy.

On this text I speak concerning the company’s present quarterly earnings, fundamentals, and why income merchants are nonetheless getting this stock at a superb price.

Earlier Buy Rating

VICI Properties has prolonged been actually considered one of my favorite REITs and I’ve printed plenty of articles overlaying them, with the most recent once more in May.

I understand merchants frustration with VICI, and that’s the reason I titled it: Upside May Require Persistence, Nevertheless Purchase A 6% Yield Whereas You Wait. Since, the stock is up over 8.73% and delivered a whole return of double-digits in comparison with the S&P who’s up virtually 4%.

I discussed the REIT’s Q1 earnings that observed revenue, FFO, and AFFO all ship robust improvement from the prior yr. Earnings and FFO every grew double-digits, up 10.3% and 13.41% respectively whereas AFFO moreover delivered robust improvement, up 8.4%.

So, no matter their lagging share price effectivity, VICI confirmed why they’re among the many greatest REITs your money can buy. Furthermore, even with the present share price appreciation, I really feel VICI continues to be a superb bargain for long-term merchants.

I discussed the present mortgage the REIT provided to actually considered one of their tenants, The Venetian, to conduct intensive upgrades to their property. I moreover touched on their dividend that was well-covered with a payout ratio of 74%.

Latest Quarter

VICI recently reported their Q2 earnings and delivered one different sturdy quarter with FFO of $0.71 and revenue of $957 million. As well as they managed to beat analysts’ estimates on every its prime & bottom traces with estimates of $953.7 million and FFO of $0.66.

This was a quite a bit higher report than anticipated as VICI was anticipated to disappoint on earnings as a consequence of capital commitments and pressures from the macro environment.

Instead, VICI did the opposite and delivered one different sturdy quarter which they’ve been doing for the upper part of six years since their IPO.

Some identify the stock overhyped, an beneath performer, and plenty of others. Nevertheless in my view, searching for a stock at a cheap price that repeatedly delivers robust earnings, and pays you a dividend that’s well-covered is a no brainer in my view.

When you may have a short-term funding horizon, then VICI won’t be the stock for you. Nonetheless, if in case you may have a long-term funding horizon, then attempt to be rejoicing for the likelihood to buy at current ranges.

Inside the chart beneath, you probably can see the enlargement VICI observed year-over-year. That’s the reason I mentioned how they’re a number of the principally sound REITs instantly. Earnings grew 6.55% whereas FFO & AFFO grew 7.33% and 9.63% respectively. Adjusted EBITDA moreover grew impressively by 7.26% over the equivalent interval.

Click on on to enlarge

VICI moreover devoted capital to their companions. Inside the second quarter they provided $950 million to The Venetian and a few of their Good Wolf Lodge Resorts.

As beforehand talked about, VICI provided a $750 million mezzanine mortgage to The Venetian via the primary quarter. Some merchants observed this as very Medical Properties Perception (MPW) like, providing capital to their struggling tenants.

And can view this as financial problem from VICI’s tenants on account of the extreme fee of curiosity environment. Nonetheless, VICI provided capital due to the repute of The Sphere (SPHR), which continues to draw in visitors from all over the place on the planet.

And The Venetian is taking advantage of this by conducting intensive upgrades to its property. These investments are anticipated to be accretive and generate a blended yield of seven.9%.

In May, worldwide visitation elevated by double-digits year-over-year to 23%. And on account of the popularity of the city, officers are anticipating together with a second airport as well-known by VICI’s CFO all through Q2 earnings. So, it’s safe to say Las Vegas will proceed to develop and revenue from an rising inhabitants and tourism for the foreseeable future.

Raised Steering

On account of VICI’s sturdy effectivity and improvement, this allowed administration to spice up steering for 2024. They now anticipate AFFO in a wide range of $2.24 – $2.26, up from $2.22 – $2.25 prior.

This represents a improvement payment of 4.7% from the prior yr. I moreover wouldn’t be shocked if the REIT raised steering inside the once more half of the yr as a result of the macro environmental picture turns additional favorable with charges of curiosity anticipated to say no in September with a attainable second decrease in December.

Sturdy Liquidity Positions VICI For Progress

VICI has moreover been bolstering its liquidity this yr. In Q1, the REIT purchased shares and entered into swap agreements for its debt that was due this earlier May. This allowed them to defer until 2025, positioning them to capitalize on improvement options. VICI purchased 4 million shares for web proceeds of $115 million.

As well as they’d a whole of $3.2 billion in liquidity and $347 million in cash & cash equivalents. As well as they’ve an accordion alternative allowing them to request an extra $1 billion in capital and had a web debt to EBITDA of 5.4x, inside their objective range of 5x – 5.5x.

That’s in comparison with experiential REIT, EPR Properties’ (EPR) 5.2x and Gaming And Leisure Properties’ (GLPI) 4.5x. Administration will also be focused on lowering this inside the coming quarters. VICI’s entire debt stood at $17.1 billion with roughly $2 billion in debt due in 2025. 99% of this was moreover fixed-rate with a weighted-average fee of curiosity of 4.36%.

Dividend

With AFFO of $0.57 this affords VICI a well-covered dividend with a payout ratio of 72.8%. Their FFO payout ratio is much lower at 58.4%. For comparability features, Gaming And Leisure Properties’ FFO payout ratio was 80.8% all through their latest quarter.

Furthermore, merchants can anticipate a dividend enhance this upcoming October if historic previous repeats itself. I anticipate a dividend enhance inside the range of $0.43 – $0.435. Analysts’ anticipate a 3.6% enhance to $0.43, giving VICI an annual dividend of $1.69.

Using their midpoint of guidance, this affords VICI a conservative payout ratio correct at administration’s objective range of 75%. Their dividend yield will also be nonetheless participating no matter their present share price appreciation sitting at 5.2%.

Valuation

On the time of writing VICI has a forward P/AFFO plenty of of 14x. Although their share price has appreciated over the earlier month, that’s nonetheless barely beneath the sector widespread of 14.91x.

That’s moreover 6.25% beneath my price objective of $34 that I had for the REIT once more in May. Although I really feel the first payment decrease is priced in already, if we get a December decrease like some anticipate, I really feel VICI’s share price will see $33 – $35, or most likely elevated by the highest of the yr.

That’s in-line with Wall Avenue’s price objective of $35.12. Using the Dividend Low value Model I’ve a price objective of $38, barely beneath their widespread price objective of $39. Whatever the present share price appreciation this nonetheless gives merchants double-digit upside of virtually 19%.

Risks & Conclusion

Charges of curiosity are anticipated to say no this yr, notably after the present FED meeting. Nonetheless, unemployment has been rising, recently climbing to 4.3%. This was elevated than the 4.1% anticipated, signaling that the financial system is beginning to sluggish.

Moreover, if we fall proper right into a recession, Las Vegas will probably see a decelerate, thus decreasing foot guests. This may moreover set off a slowdown at their totally different properties like Canyon Ranch.

This may moreover negatively have an effect on VICI’s prime two tenants Caesar’s Leisure (CZR) & MGM Resorts (MGM), who make up 39% and 35% of VICI’s annualized base lease.

Although I believe every tenants could possibly be fantastic along with VICI if we did see a recession, that’s nonetheless a hazard to consider when investing. Nevertheless with charges of curiosity extra prone to decline rapidly, I really feel VICI Properties will proceed to hold out exceptionally, most likely elevating steering inside the once more half of the yr.

Their sturdy improvement year-over-year further solidifies why they’re among the many greatest REITs your money can buy at current. At a forward P/AFFO plenty of nonetheless beneath the sector widespread, VICI’s share price hasn’t appeared to have caught as a lot as their fundamentals.

And, in the event you occur to’re a long-term investor, VICI continues to be shopping for and promoting at an excellent price even after the present rally inside the sector, with the potential for double-digit upside. On account of this and their well-covered and rising dividend, I proceed to payment VICI Properties a purchase order.