Posted on: February 27, 2023, 03:44h.
Last updated on: February 27, 2023, 03:44h.
VICI Properties (NYSE: VICI) is the largest landlord on the Las Vegas Strip and owns the property assets of a slew of regional casinos, making it a compelling real estate growth story, according to at least one analyst.
In a note to clients today, Macquarie analyst Chad Beynon reiterated an “outperform” rating and $40 price target on the Caesars Palace owner. That implies upside of 18.7% from today’s closing print of $33.68. Shares of the real estate investment trust (REIT) are up 4% year-to-date.
Compared to other corners of the publicly traded real estate universe, casino REITs are young and the group encountered some doubts from investors during the early days of the coronavirus pandemic. That scenario is changing for the better.
However, we believe it continues to gain acceptance as US Gaming post-pandemic results have highlighted strong top-line demand and improved profit margins and cash flow, the most important items for VICI. While dynamic, we expect peak to trough revenues to fare better vs. what the street is expecting for both the US regional market and Las Vegas,” wrote Beynon.
Following VICI’s 2022 acquisition of MGM Growth Properties (MGP), there are just two listed casino REITs — VICI and Gaming and Leisure Properties (NASDAQ:GLPI).
Through a series of prescient acquisitions over its life as a standalone public company, VICI developed a reputation for rapid growth.
Those moves were on full display last year as the REIT notched its first year as the landlord of the Venetian and the related convention center, closed the aforementioned purchase of MGP and bought the 49.9% of the Mandalay Bay and MGM Grand it didn’t previously own, among other transactions.
“Since its IPO, VICI has grown revenue ~300% and the company is well positioned for growth in the next few years, given several acquisitions, which include its traditional public/private opportunities in gaming, plus the more experiential opportunities like golf/resorts, both domestically and abroad,” added Beynon.
VICI was spun out of Caesars Entertainment (NASDAQ: CZR) in 2018 when the casino giant needed to raise cash. Today, the gaming operator is one of the REIT’s largest tenants.
VICI owns the property assets of 18 gaming venues operated by Caesars, including Caesars Palace and Harrah’s on the Strip and Caesars Palace on the Atlantic City Boardwalk. It’s possible that relationship will expand over time.
“VICI is one of our top gaming picks given its Vegas exposure, where we are bullish on the recovery, and growth opportunities given the ROFRs and put/call agreements with Caesars Entertainment,” according to Beynon.
“ROFR” refers to rights of first refusal, which VICI gained in 2019 when Eldorado Resorts unveiled its takeover bid for “old Caesars.” As part of that agreement, the REIT has ROFR on Horseshoe Casino Baltimore and rights to acquire the real estate of Harrah’s Hoosier Park and Indiana Grand before the end of 2024.
VICI also possesses ROFR on the Flamingo Las Vegas, Horseshoe Las Vegas, Paris Las Vegas and Planet Hollywood Resort & Casino. A second deal would include the remainders from that group and the LINQ Hotel & Casino. It could be awhile before another large-scale deal between the REIT and Caesars materializes because the gaming company said it’s unlikely to sell assets this year.