Casino landlord VICI Properties, listed on the NYSE as VICI, secured another significant milestone by earning an investment-grade credit rating from Moody’s Investors Service. The real estate investment trust (REIT), known for owning prominent properties such as Caesars Palace on the Las Vegas Strip, saw its rating upgraded to “Baa3” from “Ba1” with a “stable” outlook, as detailed in a report released Monday. Although “Baa3” represents the lowest tier of investment-grade ratings on the Moody’s scale, this advancement is a positive development for VICI, which relies on capital market access to fund crucial acquisitions.
“We have used each transformational transaction along the way to improve our balance sheet and to best position ourselves for credit rating improvements. This rating upgrade solidifies our investment grade status across all three rating agencies,” stated CFO David Kieske.
The upgrade from Moody’s comes shortly after VICI released its third-quarter results, highlighting a second increase in the REIT’s adjusted funds from operations (AFFO) guidance for 2024. This timing underscores the importance and positive impact of Moody’s rating on multiple facets of VICI’s financial strategy. Now carrying investment-grade ratings from all three major agencies, including Fitch Ratings and S&P Global Ratings, VICI stands to benefit from reduced financing costs. As its credit rating improves, the interest rates on VICI’s borrowings, including corporate bonds, are likely to decrease, bolstering its financial health.
Moody’s highlighted VICI’s efforts to lower its net debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio as a favorable factor. “VICI’s credit profile benefits from its dominant size and scale, resilient operating cash flow, good liquidity, and disciplined financial policy,” the report noted. This robust financial standing is reflected in VICI’s strong fixed charge coverage of 4.5 times and improved Moody’s-adjusted Net Debt/EBITDA ratio, which stood at 4.7 times for the last twelve months ending September 30, 2024, even as the REIT continues its growth trajectory.
However, Moody’s also pointed out a notable challenge: tenant concentration. “VICI’s top two tenants, Caesars Entertainment, Inc., and MGM Resorts International, represent approximately 39% and 35% of VICI’s total annual cash rent, respectively,” Moody’s observed. This concentration underscores the importance of diversification for VICI.
To address this, VICI has expressed interest in expanding its portfolio beyond the Las Vegas Strip and has already made investments in non-gaming leisure properties across the United States. This strategic move indicates VICI’s willingness to explore opportunities beyond its traditional casino space, aiming to mitigate risks associated with tenant concentration and ensure sustained growth in the future.
