VICI Properties, a notable casino landlord trading on the NYSE under VICI, announced on Monday its achievement of another investment grade rating from Moody’s Investors Service – marking yet another step forward for their REIT status.
Moody’s, however, upgraded VICI from its previous rating of Ba1 with an “upward trending outlook”, to Baa3; which represents the lowest investment grade rating on Moody’s scale but serves as an encouraging development for VICI as REITs rely heavily on capital market access in order to fund major acquisitions.
“Every transformational transaction we have taken steps toward has helped strengthen VICI’s balance sheet and position us for credit rating improvements, such as today’s upgrade from all three rating agencies,” noted David Kieske, Chief Financial Officer of VICI, noting the significance of such upgrades.
Moody’s upgrade came soon after VICI reported impressive third-quarter results and raised its 2024 adjusted funds of operations (AFFO) guidance, both milestones which can only be measured retrospectively.
The Significance of Moody’s Upgrade for VICI
VICI now holds investment-grade ratings from all three of the major rating agencies – Fitch Ratings and S&P Global Ratings are also among those which recognize VICI’s creditworthiness – making financing costs significantly cheaper compared to peers without such creditworthiness; better creditworthiness could reduce interest rates on borrowings as well as any corporate bonds issued by VICI.
Moody’s has recognized VICI’s efforts in lowering its net debt-to-EBITDA ratio and credits VICI’s dominant size, resilient operating cash flow, strong liquidity and disciplined financial policy for contributing significantly to improving its credit profile.
The Challenge of Tenant Diversification
Analysts and ratings agencies often highlight the need for tenant diversification among REITs such as VICI. Moody’s was no exception in stressing this aspect; noting how tenant concentration poses a substantial challenge to its growth strategy as two of VICI’s tenants (Caesars Entertainment Inc and MGM Resorts International) account for substantial percentages of annual cash rent for VICI.
Even while heavily dependent upon major Las Vegas operators, VICI has expressed interest in diversifying its portfolio by exploring acquisitions outside Las Vegas as well as investments in nongaming leisure assets across the U.S. – possibly as an attempt to protect itself against risks related to tenant concentration.
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