VICI近期的抛售被过度反应；即便股息增长放缓，该股在当前水平仍具上行空间，但由于租户可见度下降，其估值倍数理应下调。

Vichy stock just officially hit another 52- week low. And not just that, they hit officially another five-year low. It's down 16.5% in the last 5 years, trading at $24.81.

And the last time the stock was trading at these prices was when we saw the 2020 crash. And the stock dipped all the way down to about $12 per share. So, with the exception of 2020, we're really in unprecedented territory.

And I'm starting to see a lot of sentiment surrounding Vichi stock shift. Investors are becoming increasingly anxious surrounding this stock. And with the recent sell-off, the stock is now yielding 7.3%, one of its highest yields in the stock's history.

Vichi Properties is trading at its lowest valuation multiple in the last 5 years. But we have to understand Vichy Properties has continued to grow AFO per share, the Northstar metric for REITs. They've continued to grow AFO per share every single year. Along with it, the dividend continues to grow every single year as a result. And in fact, AFO per share is projected to continue to grow at a healthy rate.

So what does this mean? Well, it means the source of this sell-off is not due to the fact that the company is bringing in less capital. They're still bringing in more adjusted funds from operations on a per share basis every single year. The source of this sell-off is strictly due to a change in the valuation multiple. Investors are willing to pay less for each dollar of earnings.

AFO per share is projected to grow at a rate of a little bit above 3% over the next few years. So, let's not be overly optimistic. Let's just assume 3% AFO per share growth, meaning the dividend will likely grow at a similar rate, assuming they keep their target payout ratio at 75%, which is where the stock currently is.

Well, the stock would be worth about $33 per share, implying $33.39% upside from current prices. So, this is the very base case from a valuation perspective for why Vichi looks interesting at current prices.

But so we see based on this model, Vichi is undervalued significantly assuming a dividend growth rate of 3%. And dividend growth of around 3% is what management has guided towards over the last few years and they've been guiding towards about 3% AFO per share growth as well.

Well, it's because in recent news, Vichy Properties just increased their dividend by 2.2%. 2.2%. This is really interesting for a multitude of reasons.

Now to start what we have to understand is management had recently stated that again their target payout ratio was sitting at 75%. And that's around where the stock was currently sitting. With the dividend hike coming in lower at what they're projected to grow AFO per share, it could mean number one, AFO per share guidance will be revised lower. Two, they are lowering their target AFO payout ratio, which keep in mind that's not necessarily a bad thing. And then number three, management expects AFO per share growth to slow after 2026 and is setting dividend growth based on its longerterm outlook, not just this year's guidance.

I think number one is unlikely obviously at least in the short term. Guidance has continued to remain steady over this past year and the recent earnings reports for Vichi has been relatively decent.

Vich's long-term net leverage target is sitting at about 5 to 5.5x and that's generally considered relatively healthy for REIT. That's the target for a lot of REITs in their sector. The REIT also has 99% fixed rate debt outstanding. So, there's not significant interest rate risk.

However, here's what we do have to understand. Starting in 2027, around 8.7% of their current debt is coming due. In 2028, about 11.6% and then in 2029, around 10.2%.

What we know is that from 2027 all the way through the year 2032. So 2032 approximately 13.7 billion or 79% of their current debt is coming due. That's when it matures. If that $ 13.7 billion worth of debt is refinanced at rates just one percentage point higher, their interest their annual interest expense rises by around 135 137 million. And if it's 2 percentage points higher, which is quite high, I don't know if it'll be that high, but the annual interest expense would rise to approximately 273 million.

So, it's great that 99% of the debt is fixed rate, particularly as we see rates go higher, but this is debt that's going to have to be refinanced likely down the line. That's where the increasing interest expense risk actually comes into play.

Vich Properties does have lease escalators and this should help offset part of the refinancing costs, but the refinancing cost can still slow down AFO per share.

Right now, Vichy has about 45% of its rent roll tied with CPI linked escalation and they're projecting by 2033 that'll be 78% and 2035 88%. So if there's anything a REIT investor would want, obviously they want predictable cash flows. Ideally, you don't want those cash flows to constantly be at risk of inflation. To me, that's the primary risk we would expect AFO for share growth to slow down.

If you're familiar with Vichy at all, you know the vast majority of their real estate is located in Las Vegas. And historically, this has worked exceedingly well for them. They have 100% occupancy and they've collected 100% of their rent since inception.

However, we have some major developments in regards to their top two tenants, who by the way make up around 70% of their entire rent role. So, there is some tenant concentration risk.

And so, what we know about these tenants, Caesars and MGM Resorts, is that both could be going private, but they're in somewhat different stages. For example, Caesars has actually entered into a definitive agreement to be acquired and taken private. Meanwhile, MGM Resorts is currently evaluating an offer.

Going private does not in any way terminate their leases. However, what we do have to understand what investors will lose is insights into how easily these two tenants are covering rent. What do their rent coverage ratios actually look like?

But because of these two tenants going private, we lose predictability into what future cash flows look like. Vichy Properties does deserve to trade at somewhat of a lower valuation multiple as future cash flows aren't as predictable. If we lose visibility into what rent coverage ratios look like for their two largest tenants, then there is no doubt Vichi likely deserves to trade at a somewhat lower valuation multiple.

However, the sell-off has been significant. I think there's more the market is pricing in here. And number two would be lowering their target AFO payout ratio, which historically again has been sitting at about 75%. Again, this is not a bad thing, at least in the grand scheme of Vichy pursuing total returns. For example, there's a couple of things this would obviously do, such as absorb the higher refinancing costs, the scenario we just outlined a moment ago, and it would also help protect its investment grade rating.

Vich's in a really unique situation right now because the cost of debt is starting to climb higher again and it's already high relative to the past decade. But the exact same time because their stock price has fallen by 16% in the last 5 years and 25% in the last year. The cost of equity has also increased. So all of a sudden, funding growth is becoming more expensive.

So what's the solution to this? Well, the solution would be to retain more of their adjusted funds from operation. In other words, don't grow the dividend as much so you can retain more capital to fund internal growth. This makes a lot of sense when you consider what's happening in our rate environment and also the fact that the cost of equity has increased due to the decline in share price.

So ultimately, that's the case for Vich's recent dividend increase. And as I look at this REIT again, I do want to point out that due to the fact that we're losing visibility into rent coverage from their top two tenants who make up 70% of rent roll, Vichy likely does deserve to trade at a somewhat lower valuation multiple relative to how it's historically traded. But I do continue to think that this selloff has been overstated.

Even at dividend growth moving forward in perpetuity was only 2%. You're still looking at upside from current prices. And to be honest, I think they can achieve a higher level than 2%. Even if it's reduced down to 2.5%, you'd be looking at 21 22% upside.

So Vich is a great case study right now. It's a really unique interesting scenario. Sentiment has turned negative. There's a lot of income investors who hold this in their portfolio, and I'm curious to hear your thoughts.