At first blush, there would seem to be very little in common between casino real estate investment trust (REIT) Vici Properties (VICI 0.42%) and net lease bellwether Realty Income (O 0.24%). But there are a few important similarities that could lead investors looking at one to consider the other. Here's why one of these giant REITs might be better than the other for your portfolio.
Net lease core
The first important similarity between Vici and Realty Income is that both of the REITs use the net lease approach. Essentially, they lease each of their properties to a single tenant that is contractually responsible for most of the property's operating expenses. This materially reduces the impact of inflation on the REITs because the tenants have to absorb the higher costs associated with things like property maintenance. However, the more important takeaway is that they both have similar approaches.
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The next important similarity is size. Vici has a market cap of around $32 billion. Realty Income's market cap is roughly $42 billion. In the REIT industry, these companies are big; Realty Income's next largest net lease competitor is W.P. Carey, with a market cap of $15 billion. Being large generally provides greater access to capital on the debt and equity fronts. That's a material advantage over smaller peers.
The last commonality is that both Vici and Realty Income own casinos. Casinos are Vici's specialty, so nobody should be surprised by its role in the industry. However, Realty Income's focus is primarily on retail assets, which make up about 75% of its portfolio. It bought a Boston casino in 2022, entering into a new property category. It's just one asset, but it sets an important precedent.
Which one is a better fit?
Realty Income isn't about to become a casino-focused REIT, but the big takeaway from the 2022 casino purchase is that it had, and still has, the ability to act on what are usually pretty massive deals in the casino market. Indeed, these properties are huge -- the casino it bought cost $1.7 billion. Not many REITs could have pulled off that transaction alone. It is highly likely that Realty Income will do more casino deals, but only if it can find properties that it likes.
But that will essentially augment a portfolio that is really built to be a slow and steady dividend-growing machine. The dividend has been increased annually for 29 consecutive years at a 4.4% compound annual rate. If you like the idea of casinos, but are a more conservative dividend investor, then Realty Income could be your ticket to ride.
Vici is a much younger REIT, having only come public in 2017. But it has moved aggressively to expand in the casino market, with more opportunities for acquisitions ahead. Longer term, it is likely that Vici will start to branch out into other areas with a focus on experiential property types. Still, growth seems to be a keen focus.
That's shown up on the dividend front, with a dividend hike every year since it came public. Notably, four of the last five dividend increases have been at least in the high single digit percentages. So still-young Vici might be a better call for dividend investors who are focused on dividend growth stocks.
More risk, more reward
That said, Vici comes with added risks. For starters, it is largely focused on a highly concentrated industry in a limited number of locations. Realty Income has a lot more tenant and location options, which helps to keep risks in check. Also, Vici's dividend streak is on the short side compared to Realty Income, which has a proven track record of rewarding investors. What you give up in dividend growth opportunities could easily be made up for by being able to sleep better at night. But Realty Income will never wow you with dividend growth because that isn't its goal.
Realty Income's 4.9% dividend yield is just a touch higher than the 4.7% you'd get from Vici, so the real question investors need to ask themselves is whether they want proven, reliable dividends or higher dividend growth. More conservative investors will probably go with Realty Income, while the more adventurous will likely favor Vici.
