When it comes to investing in real estate investment trusts (REITs), the industry is generally broken down into property type groupings. Vici Properties (VICI -0.35%), which owns casinos, and W.P. Carey (WPC -0.23%), which owns a diversified portfolio with a heavy emphasis on industrial assets, don't often get compared to each other. But at their core, they do very similar things. So if you're looking at Vici, you might also want to consider W.P. Carey. Here's why.
2 companies that do the same thing, differently
The common thread between Vici and W.P. Carey is the use of net leases. That means these REITs own properties, but their lessees are responsible for most of the day-to-day operating costs of an asset. While any single property is high risk, given there's only one tenant, across a large enough portfolio the risk is fairly low. (More on this topic in a moment.) Although Vici's focus on casinos is vastly different from W.P. Carey's sector-diversified investment approach, they share a very common element.
Image source: Getty Images.
Sure, if all you want is exposure to casinos, then Vici is the clear choice here. But if what you really desire is a reliable and growing dividend, then it might be worth broadening your horizon, because W.P. Carey offers a number of benefits you won't find at Vici.
1. Dividend history
Vici is nowhere near as old as W.P. Carey, so this comparison is, perhaps, a bit biased. However, Vici's dividend has increased for just four consecutive years, while W.P. Carey's streak is up to 25 years. What's similar here is that both have increased their dividend each year since they started trading publicly, W.P. Carey through an initial public offering (IPO) in 1998 and Vici through a spinoff from Caesars Entertainment in 2018.
From a dividend investor's vantage point, W.P. Carey has clearly proved its commitment to rewarding investors with regular dividend increases, while Vici is still trying to prove itself. If you're a conservatively minded investor, W.P. Carey should win this point.
2. Yield
Vici's dividend yield is 4.6%. W.P. Carey's is 5.3%. If your goal is to maximize the income your portfolio generates, then W.P. Carey wins again.
However, Vici's dividend has grown much more rapidly. If you go back to 2019, the first full year of Vici's public life, it has increased its dividend by a whopping 35%, compared with W.P. Carey's 3.4%. No, the decimal isn't in the wrong place for W.P. Carey.
VICI Dividend Per Share (Quarterly) data by YCharts
Some of that difference, but not all of it, has to do with the fact that Vici is relatively young and still growing quickly. W.P. Carey is a slow and steady performer, and slow and steady dividend growth is likely to remain the norm. When you take into account dividend growth, Vici's yield on purchase price could very easily end up outpacing that of W.P. Carey. But if you believe a bird in the hand is worth two in the bush, then W.P. Carey will still win on yield. However, if you're a dividend growth investor, you'll probably find Vici the more interesting choice.
The adjusted funds from operations (FFO) payout ratios for both W.P. Carey and Vici are roughly 80%. So there's no material difference in the dividend support.
3. Diversification
Vici basically owns casinos. These are very large properties that encompass gaming, hotels, and retail. However, it wouldn't be fair to suggest that there's much diversification, since without the gaming, the hotel and retail parts of the business would be pretty undesirable to potential tenants. Casinos tend to be highly regulated assets, with a small, though increasing, number of areas allowing gambling establishments.
The biggest diversification Vici offers is between regional casinos and destination casinos. Think Las Vegas, which alone makes up around 45% of the rent roll. But here's another interesting thing: There are only so many potential casino operator tenants. All in, Vici has just 11 tenants across 50 properties. If you're a conservative investor who believes in portfolio diversification, Vici is probably not going to be a great fit for you.
W.P. Carey sits at the opposite end of the spectrum. It owns properties across the industrial (27%), warehouse (24%), office (17%), retail (17%), and self storage (4%) property types, with a fairly large "other" category rounding things out. It also gets around a third of its rent roll from Europe. This is a level of diversification that is pretty unusual in the REIT sector. Some of W.P. Carey's properties are fairly large, though, so it only has around 1,400 properties in its portfolio. Still, that's far more than Vici and makes W.P. Carey the better option for conservative types.
4. Going where the opportunities are
W.P. Carey's portfolio structure marries very well with management's opportunistic investment approach. Basically, the REIT is always looking for the most financially rewarding transactions and can try to find them across a wide spectrum of opportunities. Vici, by comparison, is simply trying to cut net lease casino property deals in a highly concentrated industry. That's not to suggest it can't keep profitably doing this, but that the opportunity to be opportunistic just isn't the same, and that increases the risk of a painful misstep. The extremely small number of customers and the very large properties involved adds to that risk.
5. Valuation
The midpoint of Vici's full-year 2023 adjusted FFO guidance is roughly $2.12 per share. Given the recent share price of around $33.50 per share, Vici's forward price-to-adjusted-FFO ratio is just under 16. W.P. Carey's adjusted FFO guidance for 2023 has a midpoint of $5.35 per share, and its stock price is around $80, leading to a forward price to adjusted FFO ratio of about 15.
W.P. Carey is slightly cheaper, but perhaps not enough to make a material difference to anyone but a true value investing diehard. This one is probably a wash.
Simple or hard: your choice
If what you want is a casino REIT, then the case is closed before it begins -- Vici is the better option than W.P. Carey, which owns no casinos at all. However, if you want a reliable dividend stock and can recognize that the net lease approach is a very important common theme between Vici and W.P. Carey, the comparison is a bit more difficult. How much do you value W.P. Carey's larger yield, longer history of dividend increases, larger and more diversified portfolio, and management's ability to invest opportunistically across property types? If you're a conservative dividend investor, it's likely that W.P. Carey looks like a pretty compelling alternative to a highly concentrated REIT with a small number of tenants and a lower yield.
