Is VICI Properties Inc. (VICI) a Top Hospitality Stock for Hedge Funds?

In the ever-evolving landscape of hospitality stocks, VICI Properties Inc. (VICI) has emerged as a beacon of stability and growth. As hedge funds scour the market for the next big investment, VICI stands out with its robust financial performance, strategic investments, and a dividend yield that's hard to ignore. But is it truly among the best hospitality stocks to buy? Let's dive in.



The Financial Fortress

VICI's financial performance is nothing short of impressive. In the fourth quarter of 2024, the company reported total revenues of $976.1 million, a 4.7% year-over-year increase. This growth is underpinned by a strong balance sheet and significant income from long-term triple net leases. The company's net income attributable to common stockholders decreased by 17.8% year-over-year to $614.6 million, but this was largely due to the impact of the change in the CECL allowance for the quarter ended December 31, 2024. Despite this, VICI's Adjusted Funds From Operations (AFFO) increased by 5.4% year-over-year to $601.3 million, showcasing its ability to generate and sustain profitability.



Strategic Investments and Partnerships

VICI's proactive approach to capital investment is a key driver of its success. The company allocated $700 million for the enhancement of the Venetian Resort Las Vegas, a strategic move that is expected to yield incremental rent and bolster its income. This investment reflects VICI's commitment to maintaining and elevating property value, positioning it favorably for long-term growth. Additionally, VICI's strategic relationships with key operators in the hospitality sector, such as The Venetian Resort Las Vegas, Homefield team, and Great Wolf, provide opportunities for capital investment with exceptional operators. These relationships contribute to total 2024 capital commitments of $1.1 billion at a weighted average initial yield of 8.1%.

Investment-Grade Credit Rating and Liquidity

VICI Properties Inc. achieved an investment-grade credit rating across all three major agencies, enhancing its financial standing. This credit rating upgrade from Moody's to ‘Baa3’ from ‘Ba1’, with a stable outlook, enables VICI to achieve investment grade credit ratings across all three rating agencies. This financial standing allows VICI to secure better financing terms and lower borrowing costs, providing a competitive advantage over peers who may not have the same credit rating. Additionally, VICI has a robust liquidity position with approximately $3.3 billion in total liquidity, supporting future growth initiatives. This liquidity includes $525 million in cash and $2.4 billion available under the revolving credit facility.

The Dividend Appeal

One of the most attractive features of VICI Properties Inc. is its dividend yield. With an annual dividend of $1.73 per share and a yield of 5.49%, VICI offers a well-covered dividend yield over 5%, despite flat share price performance. This makes it a compelling investment post-share price pullback, especially in a market where growth stocks are historically expensive and value stocks offer better risk/reward ratios.

The Competitive Edge

In comparison to its competitors, VICI Properties Inc. stands out due to its diversified revenue streams, strategic property investments, strong financial performance, investment-grade credit rating, strategic relationships, and robust liquidity position. These advantages make VICI an attractive investment for hedge funds, as they provide a stable and growing income stream, long-term growth potential, and a competitive edge in the hospitality sector.

The Ethical Dilemma

However, VICI's success is not without its challenges. The company faces tenant concentration risk, with a significant portion of its revenue derived from a limited number of tenants. This concentration poses a risk, as any financial instability or operational challenges faced by these tenants could adversely affect VICI's revenue streams and overall financial health. Additionally, the company has a significant amount of forward equity, which could lead to dilution if not managed carefully.

The Verdict

In conclusion, VICI Properties Inc. is indeed among the best hospitality stocks to buy according to hedge funds. Its robust financial performance, strategic investments, investment-grade credit rating, and attractive dividend yield make it a compelling investment option. However, investors should be mindful of the tenant concentration risk and the potential for dilution due to forward equity. As the hospitality industry continues to evolve, VICI's strategic advantages position it well for long-term growth and success.