Fitch Ratings, a globally recognized statistical rating organization, has reaffirmed the credit grade of VICI Properties (NYSE: VICI). On Thursday, it was reported that the real estate titan keeps holding onto its “BBB-“credit rating, painted by a “stable” outlook.
VICI Properties, the New York-based company and one of the biggest owners of gaming real estate, maintains its position in the good graces of Fitch Ratings. That is largely due to its robust business profile, most notably its status as one of America’s leading domestic real estate investment trusts (REITs) as determined by enterprise value. Other aspects that buoyed VICI’s rating are its earnings before interest, taxes, depreciation, and amortization (EBTIDA) capacities, coupled with an established ability to marshal capital.
Fitch’s affirmation of VICI’s credit grade also takes into account the firm’s consistent occupancy and an impressive portfolio of considerable strategic assets. However, Fitch also noted that the firm’s reliance on high-yield counterparties and a potentially less robust contingent liquidity in comparison to other conventional real estate property types could introduce certain vulnerabilities.
As a heavyweight in the real estate investment domain, VICI lays claim to property assets of some of the most iconic casino hotels on the Las Vegas Strip, including the Caesars Palace and the Venetian.
However, the operator has taken a hit recently with its shares dropping 7.58% over the past year and shrinking by 10.13% year-to-date. The primary culprit appears to be the company opting for more leverage at a time when interest rates are high. While this is par for the course with rising borrowing costs weighing on REITs, it becomes a significant headwind with added debt. Despite this obstacle, VICI remains committed to deleveraging.
A substantial portion of the recent debt increase is tied to the 2022 $17.2 billion acquisition of its competitor MGM Growth Properties. This strategic deal added illustrious names like the Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, New York-New York, Park MGM, and numerous regional casinos operated by MGM Resorts International (NYSE:MGM) to its burgeoning portfolio.
However, Fitch believes VICI is well on track to bring down the leverage to the desired 5.0x-5.5x net debt/operating EBITDA ratio by the end of this year. Meanwhile, the flux in Las Vegas Strip realty – with non-traditional owners such as private equity firms skewing the landscape – is compressing cap rates, potentially setting the stage for a long-term positive impact for VICI.
Another potential game-changer for VICI is around the corner, linked to Centaur Holdings. VICI could choose to flex its call rights as part of an agreement with the gaming company Eldorado Resorts originating from Eldorado’s 2020 acquisition of Caesars. Such a move, while possibly raising leverage in the short-term, could lead to an increased capital allocation for VICI, and is poised to stabilize with sound management within the woman’s post-acquisition, according to Fitch.
In the final analysis, the dynamic Las Vegas real estate landscape, combined with VICI’s strategic movements, contribute to shaping the outlook of the real estate giant. As market forces shift, Fitch Ratings predicts that VICI is well-positioned to maneuver the tricky waters leveraging their robust portfolio and strategic acumen.
