A Different Real Estate Angle

Few stocks can boast performance like VICI Properties (VICI)’s for 2022.

Year to date, the stock is up 12.58% before you include its hefty 4.58% dividend yield.

Now, you might be wondering why we chose to look into what our proprietary Trackstar database shows is financial pros’ #5 search for real estate investment trusts.

What made this company’s data stand out goes back to early November.

VICI announced a stock offering at an implied price of $30.90, which was fairly close to the market price at the time.

Subsequently, search volume jumped as folks looked into the deal.

They wanted to know what the company planned to do with the money – like where it would invest and who it might buy.

And more importantly, why a stock that owns gaming and entertainment properties is doing so well with a recession looming.

As we pondered these questions, another headline hit a few days ago.

Blackstone plans to sell its stakes in Las Vegas’ MGM Grand and Mandalay Bay hotels to VICI Properties (which currently owns 50.1% of these properties). 

Coincidence?

We don’t think so…

VICI Properties’ Business

VICI Properties is an experiential real estate investment trust that owns one of the largest and market-leading portfolios of gaming, hospitality, and entertainment destinations.

Its portfolio consists of 43 gaming facilities containing over 122 million square feet and features about 58,700 hotel rooms and more than 450 restaurants. 

The VICI portfolio includes Caesars Palace in Las Vegas, The Venetian Resort in Las Vegas, Harrah’s Las Vegas, and the Borgata in Atlantic City, to name a few. 

In addition, it has approximately 500 retail outlets, over 50 entertainment venues, and over 450 food and beverage outlets. 

Source: VICI Properties

In Q3 2022, the company raised its dividend 8.3%, highlighting the REIT’s commitment to growing its dividend for its shareholders.

VICI has triple-net lease agreements with its casino tenants. A triple-net lease means the tenant promises to pay all the expenses of the property. This could be the reason VICI has outperformed every other REIT YTD, gaining 12.4%. 

The share offering the company announced in early November was expected to raise $509.9 million.

The deal with Blackstone gave Blackstone $1.27 billion in cash while VICI assumed the private equity firm’s share of $3 billion in debt.

The deal is valued at $5.5 billion.

Financials

Source: Stock Analysis

Revenues for VICI increased considerably in recent years as the company’s real estate portfolio grew.

In 2019, the firm generated $895 million. That’s climbed to $2.25 billion over the last 12 months. 

According to VICI’s latest quarterly filings, adjusted funds from operations (AFFO) attributable to common stockholders rose 82.8% to $407.7 million. 

AFFO is the cash from operations plus rent increases less capital expenditures and routine maintenance.

It’s a measure investors use primarily to evaluate REITs.

Traditionally, REIT investors are concerned with dividend stability and payout since REITs get special tax treatment.

VICI pays its stockholders a quarterly dividend of $0.39 per share, giving it the 4.58% dividend yield we mentioned.

It paid out more than it earned in the last two months with a payout ratio of 136.1%. In 2021, its payout ratio was 76.7%.

Payouts tend to vary year to year based on operations.

By law, REITs must pay out 90% or more of their profits to shareholders to avoid certain taxes.

While VICI carries a lot of debt, $14.5 billion in total, the REIT has an accounts receivable balance of $34.2 billion attributable to its rental agreements.

Valuation

Source: Seeking Alpha 

Another key metric investors often use for REITs and rarely for other businesses is price-to-book ratio.

This incorporates the value of a REIT’s assets and its current share price.

VICI trades at a price-to-book ratio of 1.5x, comparatively lower than financial pros’ other top REIT searches, Digital Realty Trust (DLR) at 1.9x, SBA Communications (SBAC) NM (not meaningful), Weyerhaeuser Company (WY) at 2.2x, and Extra Space Storage (EXR) at 6.5x. 

Additionally, VICI trades at a price-to-cash-flow ratio of 19x, lower than DLR at 19.4x and SBAC at 25.1x, but more expensive than WY at 7.5x and EXR at 18.3x. 

Profitability

Source: Seeking Alpha

A well-run REIT can be very profitable. VICI is no exception. It has a gross profit margin of 98.1%, considerably higher than its peers. DLR is at 56.8%, SBAC is at 73.8%, WY is at 37.2%, and EXR is at 77%. 

VICI has an impressive net income margin of 35.1%, which is higher than DLR at 31.9%, SBAC at 16%, and WY at 21.6%. But EXR beats it at 49%. 

VICI’s EBIT margin of 55.2% tops its peers’. DLR has an EBIT margin of 13.8%, SBAC 36.4%, WY 31.7%, and EXR 55.2%. 

Growth 

Source: Seeking Alpha

VICI had explosive growth in Q3. Revenues grew 106%, and earnings grew 104%. 

Overall, the REIT’s revenues have grown 50.1% YoY, which is far more than its peers. DLR has grown revenues 0.7%, SBAC 13%, WY 5%, and EXR 22.8%. 

Our Opinion 8/10

We’re focusing on this REIT’s experience with today’s rating.

VICI has a diversified portfolio of triple-net-lease casino properties. 

An investment in VICI offers an opportunity for income through its dividend and price appreciation from its share price. 

Despite fears of a possible recession, casino revenues tend to be stable. 

We like VICI long term and believe it’s a solid investment at these levels.

Use dividend reinvestment programs to juice up your returns on this REIT.