VICI Properties: A Solid Investment with Potential for Growth Despite Industry Risks
VICI Properties Inc. (VICI), a gaming and entertainment properties specialist, has seen its stock gain 12.7% year to date, outpacing the 5.5% rise in the Zacks REIT and Equity Trust - Other industry and the 2.8% growth of the S&P 500 composite over the same time frame. The company's strong performance is driven by its expansion efforts and strategic investments, including an agreement to provide up to $510 million of development funds for the development of the North Fork Mono Casino & Resort near Madera, CA. This project will be developed and managed by affiliates of Red Rock Resorts. While VICI's growth prospects may entice investors to rush to buy the stock, it is important to consider the current concerns that could significantly affect the company's long-term performance. The primary revenue driver for VICI is still gaming properties, which makes it vulnerable to industry-specific risks such as regulatory shifts, economic downturns impacting discretionary spending, and unfavorable developments within the gaming sector. VICI Properties' high-quality portfolio of gaming and experiential assets, including iconic properties such as Caesars Palace Las Vegas, MGM Grand, and the Venetian Resort Las Vegas, positions it well for growth amid the resilience of the American consumer's demand for experiential activities. The company's diverse portfolio, comprising 54 gaming and 39 experiential assets across the United States and Canada, secured by long-term triple-net leases with a weighted average lease term of 40.7 years, provides stability and reliability in rental income. VICI Properties expects a rent toll of 42% with CPI-linked escalation in 2025, which is projected to rise to 90% by 2035. This inflation-linked rent increase enables the company to maintain its purchasing power and enhance revenue growth, even in inflationary environments. Additionally, 74% of VICI's rent roll comes from S&P 500 tenants, enhancing income stability and creditworthiness. In terms of valuation, VICI Properties stock is trading at a forward 12-month price-to-FFO (Funds from Operations) of 13.68X, below the REIT-Other industry average of 15.73X but slightly higher than its one-year median of 13.60X. It is also trading at a discount to triple-net REIT peers such as Agree Realty Corporation (ADC), Four Corners Property Trust (FCPT), and Essential Properties Realty Trust (EPRT). Despite short-term headwinds such as macroeconomic uncertainty and gaming properties concentration, VICI's long-term outlook remains solid. For investors looking to gain exposure to the experiential REITs, VICI Properties' financial stability presents a compelling opportunity to invest in the stock. Existing shareholders may choose to stay invested given the company's strong track record of paying growing dividends and focusing on high-demand property sectors. At present, VICI Properties carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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