Vici Properties (VICI -3.14%) had a great first quarter. The real estate investment trust (REIT) soared 11.7% to start the year, according to data provided by S&P Global Market Intelligence. That rally came during a period when the S&P 500 struggled. The broad market index was down 4.6%, its biggest drop since the bear market of 2022.
Here’s a look at what drove the REIT’s strong first-quarter rally and what’s ahead for the company this year.
Continued investing and raising capital
Vici Properties had a busy first quarter. The REIT reported its fourth-quarter and full-year results for 2024 in mid-February. The company reported a mid-single-digit rise in its adjusted funds from operations (FFO) per share (3.6% for the fourth quarter and 5.1% for the full year). It benefited from inflation-indexed rental rate increases in its leases and new investments.
The REIT committed to deploying over $1 billion in capital last year across several deals. It’s providing funding for an expansion of The Venetian Resort Las Vegas, financing the construction of a Margaritaville resort for Homefield, and making another debt investment in Great Wolf Resorts.
Vici Properties has continued to find new investment opportunities this year. It formed a new strategic relationship with Cain International and Eldridge Industries in the first quarter. Its first investment is a $300 million mezzanine loan to support the development of One Beverly Hills, a landmark luxury mixed-use development.
The REIT also enhanced its ability to continue investing in the quarter. It announced a new $2.5 billion credit facility that extended the maturity to 2029. It also priced $1.3 billion of senior unsecured notes late in the first quarter ($400 million of 4.75% notes due in 2028 and $900 million of 5.625% notes due in 2035). It will use those funds to repay debt maturing this year ($500 million of 4.375% notes and $800 million of 4.625% notes).
While Vici Properties is paying a higher rate on the new debt, it’s a pretty low rate compared to recent years because interest rates have been falling. The yield on the U.S. 10-year Treasury has fallen from its peak of nearly 5% to around 4.25% by the end of the first quarter.
The rate on the 10-year Treasury has a big impact on the commercial real estate sector. A falling yield makes it cheaper for REITs like Vici Properties to borrow money to refinance existing debt and make acquisitions. It also typically boosts real estate values, which benefitted the REIT during the first quarter as its stock price rose.
What’s ahead for Vici Properties?
Interest rates continued to decline in the early part of the second quarter due to concerns about the impact of tariffs on the economy, with the 10-year note falling below 4%. If rates keep falling, it would be a tailwind for REITs like Vici Properties by boosting property values and reducing borrowing costs.