Posted on: November 18, 2024, 06:11h.
Last updated on: November 18, 2024, 06:11h.
Casino real estate owner VICI Properties (NYSE: VICI) received an upgraded credit rating from Moody’s Investors Service today, solidifying its status as an investment-grade real estate investment trust (REIT).
The ratings agency raised VICI’s rating to “Baa3” from “Ba1” with a “stable” outlook, indicating an improvement in the company’s creditworthiness. This upgrade is essential for VICI as it relies on access to capital markets for financing its acquisitions and operations.
By strengthening our balance sheet through strategic transactions, we have positioned ourselves for credit rating enhancements. This upgrade reinforces our investment-grade status across all major rating agencies,” said CFO David Kieske.
This positive rating change follows VICI’s recent third-quarter results announcement, which included an increase in the REIT’s 2024 adjusted funds from operations (AFFO) guidance.
Significance of Moody’s VICI Upgrade
Moody’s upgrade of VICI is significant as it gives the REIT investment-grade ratings from all three major rating agencies, including Fitch Ratings and S&P Global Ratings.
Companies with investment-grade ratings benefit from lower financing costs compared to those with junk ratings. This upgrade can lead to lower interest rates for VICI on its corporate borrowings, including bonds issuance.
Moody’s acknowledges VICI’s efforts to reduce its net debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.
According to the research firm, VICI’s credit profile is strong due to its size, operating cash flow, liquidity, and financial discipline. The REIT has a very strong fixed charge coverage and improved Net Debt/EBITDA ratio over the past two years.
Importance of Tenant Diversification
Analysts and rating agencies often highlight tenant diversification as a key factor for companies like VICI and rival Gaming and Leisure Properties (NASDAQ: GLPI). Moody’s also mentioned this in its report on VICI.
Despite its credit strengths, VICI faces a credit challenge due to tenant concentration, with its top two tenants accounting for a significant portion of its annual cash rent.
While VICI generates revenue from Caesars Entertainment, Inc. and MGM Resorts International, the REIT is exploring acquisitions outside of Las Vegas to diversify its tenant base. VICI has also invested in non-gaming leisure properties in other parts of the US to expand its portfolio beyond casinos.