Posted on: June 24, 2024, 10:28h.
Last updated on: June 24, 2024, 10:41h.
Shares of VICI Properties (NYSE: VICI) rallied Monday after Jefferies analyst David Katz reiterated a bullish view on the real estate investment trust (REIT) ahead of its second-quarter earnings report.
Katz said he and his team updated their models on VICI to reflect rent escalations at Caesars Palace on the Las Vegas Strip, as well as rental income at the Venetian tied to the $700 million in financing the landlord is extending to operator Apollo Global Management (NYSE: APO) to enhance the venue. Jefferies now expects VICI to post 2025 revenue of $3.98 billion.
We are valuing the company on the same blended multiples on 2024/2025 of 18x enterprise value/earnings before interest, taxes, depreciation, and amortization (EBITDA), 19x price/acquired funds from operations (AFFO), and 16x price/free cash flow, which are peer-level multiples vs. triple net REITs with longer track records, absent the growth and future outlook of VICI. As the company diversifies its tenant base and pursues accretive deals, we expect the gap to continue compressing over time,” observed Katz.
Katz reiterated a $43 price target on the REIT, implying upside of 53% from the June 21 close. VICI’s estimated second-quarter earnings date is July 24.
VICI Could Provide Update on Caesars’ Indiana Options
Katz also told clients that VICI could use the second-quarter earnings report to update investors on the possibility of exercising its call option to acquire Caesars Entertainment’s (NASDAQ: CZR) Centaur Holdings, the holding company of Harrah’s Hoosier Park and Horseshoe Indianapolis, formerly known as Indiana Grand.
When Eldorado Resorts announced its $17.3 billion takeover offer for the “old Caesars” in June 2019, it struck an agreement with VICI whereby the gaming company could sell or the REIT could acquire those assets between Jan. 1, 2022, and Dec. 31, 2024.
With Caesars looking to reduce outstanding debt and management previously hinting at selling assets it views as noncore, there has been some speculation that this could be in the year in which VICI acquires the real estate assets of those venues or Caesars puts those properties to the REIT.
Harrah’s Hoosier Park and Horseshoe Indianapolis, which are two of the operator’s four Indiana casinos, joined the old Caesars by way of that company’s $1.7 billion purchase of Centaur Holdings in November 2017. The company’s other Indiana properties are Horseshoe Hammond and Caesars Southern Indiana. Caesars and MGM Resorts International (NYSE: MGM) are VICI’s two largest tenants.
VICI Could Discuss Other Opportunities
Beyond the possibility of VICI telling analysts and investors what it plans for Centaur Holdings, Katz noted the REIT could also provide updates on its nongaming activities, including its relationship with bowling alley operator Bowlero and the Kansas City sports center.
Katz also expects that VICI will update market participants on acquisition plans in the gaming and experiential spaces, as well as the possibility of more financing deals comparable to the Venetian emerging.
Owing to the interest rate sensitivity of the real estate sector, it’s possible VICI management will also comment on its rate outlook on the earnings call.
