VICI Makes Jump to IG Status Following Moody’s Upgrade

Casino landlord VICI Properties (NYSE: VICI) landed another investment-grade credit rating after Moody’s Investors Service upgraded the real estate investment trust (REIT) on Monday.

In a report out on Monday, the agency lifted its rating on the Caesars Palace owner to “Baa3” from “Ba1” with a “stable” outlook. The “Baa3” mark is the lowest investment-grade rating on Moody’s scale, but it’s undoubtedly a step in the right direction for VICI, which like many REITs, depends on access to capital markets to finance important acquisitions.

We have used each transformational transaction along the way to improve our balance sheet and to best position ourselves for credit rating improvements. This rating upgrade solidifies our investment grade status across all three rating agencies,” said CFO David Kieske in a statement.

The Moody’s upgrade arrived less than three weeks after VICI delivered third-quarter results, which included a second increase to the REIT’s 2024 adjusted funds from operations (AFFO) guidance.

Why Moody’s VICI Upgrade Matters

Moody’s upgrade of VICI is important on multiple levels. Following that move, the REIT carries investment-grade ratings from all three major ratings agencies, with the other two being Fitch Ratings and S&P Global Ratings.

Moody’s is constructive on VICI’s efforts to reduce its net debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.

“VICI’s credit profile benefits from its dominant size and scale, resilient operating cash flow, good liquidity, and disciplined financial policy,” added the research firm. “This results in VICI’s very strong fixed charge coverage of 4.5x and improved Moody’s-adjusted Net Debt/EBITDA over the past two years to 4.7x for LTM September 30, 2024, even as the REIT continues to grow.”

Need for Tenant Diversification Mentioned

Something that’s frequently mentioned by analysts and ratings agencies in relation to VICI and rival Gaming and Leisure Properties (NASDAQ: GLPI) is tenant diversification. Moody’s mentioned as much in its VICI report.

Despite these credit positives, tenant concentration remains a significant credit challenge. VICI’s top two tenants, Caesars Entertainment, Inc. and MGM Resorts International, represent approximately 39% and 35% of VICI’s total annual cash rent, respectively,” observed Moody’s.

Owing to its relationships with Caesars and MGM, a significant portion of VICI’s revenue and AFFO are generated on the Las Vegas Strip, but the REIT has signaled it is interested in acquisitions outside of Las Vegas. VICI has also made investments in nongaming leisure properties in other parts of the US, confirming a willingness to look beyond the casino space.