• Caesars regional casino lease prompts downgrade of landlord
• Wells Fargo also voiced concern about softness in Las Vegas, regional markets
• Research firm mentioned dearth of “fee simple” deals

Shares of VICI Properties (NYSE: VICI) slumped Tuesday after Wells Fargo downgraded the casino real estate investment trust (REIT) with the familiar issue of Caesars Entertainment’s (NASDAQ: CZR) regional master lease figuring prominently in the bank’s move.

Caesars Palace on the Las Vegas Strip. Owner VICI Properties was downgraded by Wells Fargo. (Image: CNN)

In a note to clients, analysts John Kilichowski and James Feldman lowered their rating on VICI to the equivalent of a “hold” from the equivalent of “buy” while paring their price target on the real estate stock to $32 from $36.

Caesars regional lease with VICI has been a known issue, but with research indicating sustained expected weakness in regional brick & mortar gaming and VICI commentary on finding near-term solutions with Caesars gives us concern that there may be some near-term risk to the rent,” said the Wells Fargo analysts.

VICI admits that the Caesars lease, among other factors, has been a drag on the stock. Shares of the REIT are up 0.92% year-to-date while the Dow Jones U.S. Real Estate Capped Index is higher by nearly 3%.

VICI, Caesars Working on Regional Lease Resolution

Caesars’ woes are noteworthy to VICI for a simple reason: the casino operator is one of the REIT’s biggest tenants. VICI, which was spun out of Caesars in 2017, is the largest owner of the casino operator’s real estate and that includes property holdings in Las Vegas and regional markets.

“We would look across the portfolio on our own and with them determine where do they want to be, where they want to continue to be, where do we want to continue to be, what are the various levers that we can work on our side, on their side to make sure that we end up with an outcome that is a genuine win-win for both parties,” said VICI CEO Edward Pitoniak on the company’s third-quarter earnings conference call.

In addition to the Caesars regional lease, Wells Fargo cited softness on the Las Vegas Strip and regional gaming markets as well as a dearth of “fee simple” deals on high-end casino real estate as reasons for the VICI downgrade.

VICI Still Looking for Deals

While deal-making for premium casino real estate assets is slow at the moment, VICI is finding other opportunities to diversify its tenant base. Those include the $1.16 billion acquisition of Golden Entertainment’s (NASDAQ: GDEN) Nevada casino properties announced earlier this month as part of that operator’s go private plan.

Not only does that deal diversify VICI’s tenant roster, it reduces the REIT’s Nevada dependence on the Strip, where it’s the largest property owner.

VICI has also branched out into providing financing and non-gaming experiential real estate as it deals with a sluggish consolidation environment at the high end of the gaming industry.

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