New Laws Mean New Opportunities In The Casino Gaming Sector

VICI Properties Inc. (NYSE: VICI), a real estate investment trust with a focus on the entertainment sector, has lost more than 12% of its market value this year but the outlook is continuing to improve. The company owns some of the most iconic properties in the Las Vegas strip, including Caesars Palace, MGM Grand, and the Venetian Resort. VICI’s portfolio includes 93 properties spread across various types of entertainment venues such as casinos, racetracks, golf courses, and even bowling alleys. Collectively, these properties were set to pay just over $3 billion in annual rent to VICI as of Q1 2024. Trading at a reasonable price-to-AFFO ratio of around 13 and a dividend yield of close to 6%, VICI Properties seems to be an attractive bet for investors looking to gain exposure to the real estate sector. The favorable regulatory landscape will act as a catalyst for VICI’s growth in the foreseeable future.

What's Changed?

Gambling laws in the U.S. have changed in favor of the industry in the last five years, enabling not only gambling companies but also real estate developers who own entertainment properties to grow earnings. The Supreme Court decision in 2018 that lifted the Federal ban on sports betting has paved the way for state governments to legalize betting, which is likely to drive the demand higher for prime entertainment properties. New York and Kentucky’s decision to explore the legalization of online casinos is another step in the right direction for the industry. However, the industry faces several challenges as well. For instance, Illinois recently decided to hike the tax rate on casino revenue to up to 40%, a notable increase from just 15% previously.

Generally, regulatory decisions can have a major impact on the financial performance of entertainment companies and REITs that own entertainment properties, which is why investors need to keep a close eye on new developments. DraftKings’ (DKNG) rise since 2018 serves as a classic example. The company’s revenue increased from just $191.8 million in 2017 to $3.6 billion in 2023 with DraftKings emerging as a big winner of the Supreme Court decision in 2018.

A Different Perspective

Jefferies analyst David Katz recently wrote in a research note that he is optimistic of what the future holds for VICI Properties as second-quarter earnings approach. According to the analyst, the company will benefit from variable rent escalation agreements with Caesars Entertainment (CZR) and the newfound financial stability of The Venetian. Jefferies has assigned a $43 price target for VICI. CBRE Equity Research also issued a bullish rating on the company last month after a meeting with the company management. According to analyst Colin Mansfield, VICI’s strong balance sheet position and its decision to focus on financially sound clients will help earnings growth in the next few quarters. Based on the ratings of 11 Wall Street analysts, the average price target for VICI is $33.64, which implies an upside potential of more than 20% from the current market price.

Neither Dilantha DeSilva nor Stocks.News have positions in this company.