Welcome to the third installment of my portfolio series, where I analyze all 31 stocks currently in my personal portfolio. Today, we’ll be taking a detailed look at the newest equity REIT in my portfolio, VICI Properties, ticker VICI. If you’re new to my blog, my primary focus is on income investing and dividend growth investing, with holdings that offer at least a four percent yield.
My Holdings and Dividends
Logging into my Vanguard account, where I manage all my dividend investing, I currently own 204 shares of VICI Properties. Despite being one of my newest holdings, I’ve already made a sizable investment in them. VICI Properties currently pays a quarterly dividend at a rate of 39 cents per share. Multiplying 39 cents by 204 shares comes out to approximately $79.73 every quarter in dividends. When divided by three, which is how I like to track my monthly income, that comes to roughly $26.57 per month from VICI Properties.
About VICI Properties
VICI Properties is an equity Real Estate Investment Trust (REIT) that owns one of the largest portfolios of market-leading gaming, hospitality, and entertainment destinations in Las Vegas. This includes iconic properties such as Caesar’s Palace, MGM Grand, and the Venetian Resort Las Vegas. In total, their real estate portfolio consists of 50 gaming destinations, four championship golf courses, over 450 restaurants, and 59,400 hotel rooms, spanning 15 states and Canada. Approximately 46% of their properties are located within Las Vegas.
Investment Thesis and Performance
The stock currently yields 4.82%, according to Google, which is lower than the previous stocks covered in this series but still above my minimum of four percent. Lower-yielding stocks in my portfolio, like VICI, are relied upon for long-term growth. While higher-yielding positions mainly grow through reinvesting dividends, stocks like VICI are expected to provide growth through share price appreciation and consistent dividend increases. This makes them appealing to dividend growth investors.
Historical Dividend Performance
VICI Properties has been an excellent performer since its IPO. Reviewing their dividend distribution history reveals that since their IPO in 2018, the company has more than doubled their dividend distribution rate—from an initial 16 cents per share to the current 39 cents per share. They have increased their dividend every year since their IPO, typically by about three cents per year. Additionally, the stock has seen significant share price growth, increasing by approximately 80% since 2018.
Geographic and Portfolio Diversification
Although VICI’s portfolio is heavily concentrated in Las Vegas, they also hold real estate assets across the country, including major gaming hubs like Atlantic City and various properties in the Midwest. Las Vegas remains their primary revenue driver, with 2022 marking their most profitable gaming year with $8.3 billion in revenue. This profitability is buoyed by the area’s popularity as a tourist destination, with 39 million visitors in 2022.
Their investor presentation provides a detailed map showing all the properties they own on the strip and surrounding areas. Notably, VICI owns 27 acres of undeveloped land adjacent to some of their properties. While the company has not yet disclosed plans for this land, it represents potential future development or sale opportunities.
Investment Rationale
Investing in a REIT that holds entertainment properties might seem risky given the current economic climate. However, it’s crucial not to invest based solely on passions or interests without thorough research. Despite the allure of owning properties in popular vacation spots, the key is to focus on the company’s fundamentals and performance.
VICI Properties stands out due to their solid business model and historical performance. Since their founding six years ago, they have collected 100% of their rent from tenants, even during the pandemic shutdowns. This level of rent collection is unparalleled among equity REITs and highlights the quality of their real estate assets. Moreover, VICI operates as a triple net lease REIT, meaning tenants, not landlords, cover maintenance, insurance, taxes, and other expenses. This model is highly efficient and frees up capital for further investments or dividend payments.
Competitive Advantage and Financial Transparency
VICI’s properties offer high levels of financial transparency and have significant barriers to entry, making it difficult for competitors to establish themselves and take away business. Although VICI only has 50 properties in their portfolio, the average rent they collect from each property is significantly higher due to the high-profile nature of their assets.
Their average remaining lease term is an impressive 42 years, the longest I’ve seen for an equity REIT. This extended lease term ensures predictable and stable cash flow, which is crucial for long-term planning and financial stability. Additionally, VICI has a same-store rent growth rate of 1.9%, which is higher than average, indicating their ability to grow rents with existing clients faster than most REITs.
Financial Performance and Growth
Analyzing their financials, VICI has shown consistent year-over-year growth. Their adjusted funds from operations (AFFO), a key metric for REITs, has more than tripled since 2018. On their balance sheet, the book value has also seen consistent growth, further solidifying their financial health and stability.
Comparison with Peers
When comparing VICI to other REITs, such as Gaming and Leisure Properties or EPR Properties, VICI stands out due to their quality portfolio and strong financial metrics. EPR, for example, suffered significantly during the pandemic, halting dividend payments for over a year. Although EPR offers a higher dividend yield and pays monthly dividends, their portfolio quality and financial performance do not match VICI’s.
Conclusion
Based on the analysis, VICI Properties has demonstrated strong performance and resilience, making it a compelling investment. Their consistent rent collection, extended lease terms, and financial growth set them apart from peers. Although I remain cautious about investing heavily in REITs that are sensitive to economic downturns, VICI’s metrics and strategic positioning have convinced me to make a sizable investment.
Final Thoughts
In summary, VICI Properties has shown remarkable performance, with metrics that distinguish them from other REITs in their sector. Their ability to adapt and thrive even in challenging economic conditions is a testament to their robust business model and strategic management.