Caesars Entertainment (CZR 2.57%) spun off Vici Properties (VICI +0.74%) in late 2017. It was a way for Caesars to raise cash from its casino properties.
But since that point, Vici has gone on an acquisition spree, expanding its business and diversifying away from its former parent. The next step is going to be diversifying away from its founding industry.
What it owns
Some investors, taking a glass-half-full view of things, will tell you that Vici Properties is a diversified real estate investment trust (REIT). In a big-picture way, that's a true statement, because casinos are giant facilities that include gaming, retail, hotel, dining, and entertainment components.
But without the gaming piece, the exposure to all of those other asset categories would be virtually meaningless. Simply put, the casino brings in the customers.
Image source: Getty Images.
That's not terrible, but it's something that investors need to recognize. However, there's another diversification factor that's important to keep in mind. At the start of its life, Vici had one customer -- former parent Caesars. Today, just five years or so later, it has 11. That may sound small, but there really aren't that many major gaming operators. It has also gone from just a handful or so of properties to 50.
As far as diversification goes, Vici also is focused on balancing its destination market exposure (roughly 47% of the portfolio is in Las Vegas) against regional markets (most of the rest). The two types of casinos attract different customers, so they perform differently during different economic conditions. Put simply, regional casinos will probably perform better in a recession, which is when Las Vegas would likely struggle more.
Vici knows the importance of diversification. And yet, it still sees more opportunity to expand in the casino market. Notably, it has a put/call option on two assets and the right of first refusal on three others. The REIT is not done buying gaming assets.
Data source: YCharts VICI Dividend Yield
Longer term
Yet the company stresses that it is focused on experiences, which could mean everything from amusement parks to resorts to golf facilities. It actually owns a few golf courses already, but they're tied into its casino properties.
That said, Vici has been dipping its toes in a number of areas -- notably on the debt or mortgage side of the equation. If things go well, Vici is likely to turn these debt deals into asset purchases. Right now, it has relationships with BigShots Golf, Canyon Ranch, and Chelsea Piers.
NYSE: VICI
Key Data Points
None of these investments is likely to measure up to the casino investments it has in place today. But that's not a bad thing, per se. It means that Vici has a huge opportunity to build out an experiential portfolio for years into the future. In a decade, it's likely to be much more diversified on that front, though casinos will probably remain the largest piece of the portfolio.
How it gets from here to there, meanwhile, is by using its impressive portfolio of casinos as a foundation. These giant properties give it scale and access to capital. They also provide the ability to learn about tangential property types, such as the golf properties located near its casinos, without taking on much risk.
Step one was diversifying away from its former parent; step two is diversifying into new property types. And Vici looks like it's very close to making that a more material push.
A long-term investment
Vici's dividend yield is about 4.7% today. That's basically around where the yield has averaged for a number of years, suggesting it's fairly valued right now. The company has some additional built-in growth opportunities in the casino industry and the opportunity for expansion outside of gaming. For those reasons, investors might find Vici an attractive long-term growth and income play based on the steady increases in the dividend since the company came public.
