VICI Properties (VICI 1.26%) provides buyers a beneficiant 4.2% dividend yield at a time when an S&P 500 Index fund will solely get you 1.5%. The actual property funding belief (REIT) is comparatively younger, nevertheless, and nonetheless has a extremely centered portfolio. However administration is already taking steps to vary the diversification difficulty because it seeks to broaden its investor enchantment.
Enjoying video games from the beginning
VICI Properties was created in late 2017 after being spun off from Caesars Leisure. The transfer was actually a method for Caesars to lift capital, because it successfully bought its properties to VICI. On the time, casino-focused REITs have been uncommon. They nonetheless are, noting that VICI closed on its acquisition of peer MGM Progress Properties in late April. The one different giant competitor at this level is Gaming & Leisure Properties.
There are a few issues with the on line casino area of interest. First off, there are solely simply so many fascinating gaming properties to purchase. That is to not recommend that the funding alternative has been exhausted, however there’s not an enormous runway for development if these REITs wish to give attention to proudly owning the highest casinos. Second, probably the most engaging casinos are large belongings that normally embody the on line casino itself, lodges, eateries, procuring, and leisure area. All of which take successful when on line casino demand falls throughout troublesome durations, similar to recessions.
That is to not recommend that casinos aren’t fascinating belongings. Simply that somewhat extra diversification would not damage the corporate’s development prospects.
The place to from right here?
At this level, VICI owns 43 properties with eight tenants unfold throughout america. It has notable publicity to destination-based Las Vegas belongings (45% of rents) and smaller regional gaming areas. Its common remaining lease time period is a big 43 years, with 96% of its leases together with common lease hikes. These are fairly spectacular numbers in comparison with different REITs that use the online lease construction. With a web lease, the tenant is chargeable for many of the working prices of the asset they occupy.
So casinos are a stable basis, however the place does development come from? The reply is both extra casinos or diversification outdoors the on line casino area. The latter gives much more alternative, even assuming that VICI continues to give attention to experiential belongings. For instance, it has a relationship with Nice Wolf Lodge, an organization that operates water park resorts.
This funding is at present within the type of two loans, one in all which was agreed to in July. However VICI additionally not too long ago inked a mortgage cope with Cabot, an organization that builds golf resorts. This specific settlement has a sale/leaseback element to it, permitting VICI to increase its property portfolio into what it describes because the “pilgrimage expertise sector.”
An important factor right here, nevertheless, is that it provides the on line casino landlord an opportunity to attempt its hand with a unique property kind. And thus, add invaluable diversification to its portfolio over time by way of a brand new development platform. There is not any telling the place these non-casino investments will ultimately lead the REIT since success right here might entice it into shopping for all the things from film theaters to amusement parks.
Larger, higher, extra alternative
When you’ve got been taking a look at VICI and have pulled again due to the extremely concentrated on line casino portfolio, it could be time to begin watching this REIT once more. Because it appears to be like to thoughtfully increase past gaming, it seems that it’ll slowly change into increasingly attractive to conservative revenue buyers. There is not any purpose but to leap aboard straight away since gaming will stay an enormous enterprise for years to return, however it’s positively a reputation value placing in your watch listing because it begins taking the steps essential to change into a far broader enterprise.