VICI Steady Hand Among Gaming REITs, Dividend Hike Could be Coming, Says Analyst

VICI Properties (NYSE:VICI) reported second-quarter results on Wednesday that narrowly beat Wall Street forecasts. That prompted one analyst to say the Caesars Palace owner exhibits “stability in the midst of uncertainty.”

The gaming real estate investment trust (REIT) said it collected 100 percent of rent in the June quarter — no small feat when considering US casinos were closed for all of April and many were shuttered for significant portions of May and June. VICI said that positive trend is continuing, as it’s collected all of owed July lease obligations.

VICI remains our top idea of the gaming REITs, a space where we are bullish,” said Wolfe Research analyst Jared Shojaian.

“We see attractive value and a path to multiple re-rating from gaming REIT convergence to the triple-net REIT average, improvement to its key tenant, Caesars and record low interest rates,” he continued.

In late June, Shojaian initiated coverage of VICI with an “outperform” rating. He maintains a price target of $29 on the owner of several Harrah’s properties, implying an upside of 33.5 percent from Friday’s close.

Neighborly Support

In what is a rough climate for gaming companies, VICI is showing a willingness to work with tenants. For example, in June, the real estate firm helped Caesars, then Eldorado Resorts, monetize the Caesars Forum Convention Center at Caesars Palace on the Las Vegas Strip. They did that while buying 23 acres of unused land on the Strip from the casino giant.

Those deals were worth a combined $503.5 million and were pivotal in helping Eldorado complete its quest to acquire Caesars. The buyer subsequently took the seller’s name.

Shojaian said the deal with JACK is another example of VICI exchanging “value for value,” and that could facilitate more growth down the road.

Other Fringe Benefits

Although VICI owns Caesars Palace and Harrah’s on the Las Vegas Strip — an area that’s struggling mightily because of the coronavirus pandemic — the largest US gaming center accounts for just 30 percent of the real estate firm’s annual rental income, a favorable trait in today’s challenging climate.

Shojaian noted that VICI’s payout ratio based on a run-rate of acquired funds from operations (AFFO) is 64 percent, well below the 80 percent average on its peers. That could put a dividend increase on the table next month, according to the analyst. The REIT last boosted its payout in September 2019.

“If VICI increases the dividend prior to its 75 percent target ratio, then the yield would jump to 6.4 percent,” said the analyst. “We find that to be attractive value, particularly against other alternatives and the risk-free rate.”