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Up 125% in the Past Year, is VICI Properties Still a Buy?

A high dividend yield and brand recognition helped VICI Properties (VICI) retain its momentum amid the economic ravages of the COVID-19 pandemic despite the slump experienced by commercial REITs. However, as the industry recovers rapidly, will VICI be able to solve its surging debt problem? Read more to find out.

VICI Properties Inc. (VICI) is a well-known name in the hospitality, gaming and entertainment real estate space. Though the initial phases of the COVID-19 pandemic were characterized by frequent and prolonged lockdowns, causing commercial REITs to suffer huge losses, VICI has gained 64% over the past year. The company has capitalized on the near-zero interest rate environment to reduce its interest burden.

Moreover, because the number of income investors has risen significantly since 2020,  REIT's high dividend yield has increased their popularity, allowing VICI to gain 13.5% over the past six months.

VICI stock has been leveraging the prevailing market conditions to gain momentum. However, the REIT’s financials are concerning. Its high debt burden and irregular cash flows put VICI at a risk for default. While the macroeconomic recovery is expected to reduce this risk to a degree as travel and demand for hospitality services pick up, its balance sheet weakness is expected to persist.

Here’s what could shape VICI’s performance in the 2021:

Attractive Yields

VICI’s forward dividend yield of 4.57% is 25% higher than the industry average  3.66%. It has a payout ratio of 67.35%. The company’s forward AFFO yield of 6.5% is 26% higher than the industry average  5.16%. And its  forward non-GAAP earnings yield of 6.78% is 261.1% higher than the industry average 1.88%.

In addition,  VICI’s one-year and three-year yields on costs of 7.33% and 6.64%,respectively, are significantly higher than their respective industry averages.

High Debt

Despite generating $1.23 billion in revenues over the past year, VICI has a trailing-12-month cash balance of $315.9 million. The company’s trailing 12-month levered free cash flow was  $4.67 billion, translating to a debt/levered free cash flow ratio of negative 1.47.

With a trailing-12-month total debt of $7.16 billion, the company's total debt to equity ratio stands at 75.42%. This implies that approximately three-fourth of the company’s capital is raised through debt.

Trading at a Premium Valuation

VICI’s trailing-12-month price/rental revenue of 608.24x is significantly higher than the industry average  7.94x. In terms of trailing 12-month ev/ebitda, VICI is currently trading at 24.47x, 11% higher than the industry average of 22.05x. The company’s trailing-12-month price/sales and price/cash flow ratios of 11.92 and 17.53 are higher than their respective industry averages.

Consensus Price Target Indicates Slight Downside

VICI is currently trading 3.4% below its 52-week high of $29.87, which it hit on March 4, 2021. Analysts expect VICI to decline further by 3% in the near term to hit $27.63 soon.

Mixed POWR Ratings

VICI has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a C grade for Value, Sentiment and Stability. VICI has a beta of 1.13, which is in sync with its  Stability grade. The stock’s relative overvaluation and projected downside justify the other grades.

Of the 22 stocks in the F-rated REITs – Hotel industry, VICI is ranked #4. You can check out additional POWR Ratings for Momentum, Growth, and Quality here.

Bottom Line

While VICI is renowned among entertainment and hospitality REITs, the company’s negative cash flows and surging debt are causes of concern. Furthermore, with rumors regarding Biden’s plans to raise the corporate tax rates in his next relief package, VICI’s cash flows and profits could decline further. Hence, it’s better to wait before betting on the stock.

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VICI shares were trading at $28.03 per share on Tuesday afternoon, down $0.83 (-2.88%). Year-to-date, VICI has gained 9.92%, versus a 5.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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