Vici Properties (VICI) has delivered peer-leading dividend growth since its first full year of operations in 2018. The real estate investment trust (REIT) focused on experiential properties has grown its dividend at a brisk 7.9% compound annual rate, several times above its peer group average of 2.2%. A big factor driving its above-average growth is its ability to find creative ways to continue expanding.
The REIT's creativity should continue paying dividends in the future. Its strategy of partnering with property operators should enable Vici Properties to continue expanding its portfolio and high-yielding payout (currently yielding around 5.5%) for years to come.
Expanding into new experiences
Vici Properties formed in 2017 when casino operator Caesars spun off its real estate assets to create a REIT focused on experiential properties. The REIT has grown from that initial 19-property gaming portfolio to 54 gaming properties across the U.S. and Canada by acquiring other properties from casino operators in sale-leaseback transactions. It has also merged with a rival gaming REIT and bought properties from other investors. It now owns 10 trophy assets on the Las Vegas Strip, including the Venetian and Caesars Palace.
While there are still plenty of gaming properties Vici could acquire in the future, the REIT has been working to diversify into other experiential property types to continue expanding its portfolio and cash flow. For example, it acquired 38 bowling entertainment centers last year in a sale-leaseback transaction with Bowlero. The REIT also converted a loan investment into real estate ownership of Chelsea Piers, a premier sports and entertainment complex in New York City.
The initial Chelsea Piers loan is one of many the REIT has made in recent years to get in on the ground floor of other experiential property developments. It has partnered with operators by providing them with financing to build new locations.
For example, Vici recently provided Homefield with $105 million in financing for a new Margaritaville Resort development in Kansas City. It also provided development loans to Cabot, which is developing destination golf resorts in Scotland and Saint Lucia. In addition, it's funding the development of several indoor water parks and other experiential properties. These loan investments supply the REIT with interest income to support its dividend.
Built-in growth
Vici Properties' strategy is to build relationships with owners and operators of experiential real estate. That allows it to get creative and find the right solutions that benefit its partners and the REIT's shareholders. Many of its loans feature options enabling the REIT to acquire the real estate in the future, as it did with Chelsea Piers.
For example, its partnership with Homefield extends well beyond a construction loan for a Margaritaville Resort. Vici has the option to acquire that property (which will open in 2025), a new Homefield youth sports facility, a new Homefield baseball center, and an existing youth sports complex.
It also has the right of first refusal to buy properties Homefield wants to sell in the future. That deal provides it with built-in growth potential. It has similar options to acquire the real estate of other properties it's developing.
In addition to funding nongaming development projects, Vici can provide funding to existing casino operating partners to expand facilities and enhance their operations. For example, the REIT recently agreed to provide up to $700 million in funding to The Venetian Resort Las Vegas. This financing will support several projects, including room renovations, gaming floor optimization, and entertainment and convention center enhancements. Vici will receive a rental rate increase as it disburses the money to fund those projects.
The company's relationship-based approach has opened the door to other follow-on investment opportunities. For example, it has helped provide development funding for several Great Wolf Lodge resorts over the past few years. It recently deepened that relationship by participating in a $250 million mezzanine loan, which was part of a $1.55 billion financing the company secured with a portfolio of nine of its lodges. The lower-risk loan will enable Vici to invest more capital into an existing partner at an attractive rate.
Enhancing its ability to continue growing
Vici Properties already owns many of the best casinos in North America. However, it still has a lot of growth ahead, thanks to its creativity. It has been expanding into new types of experiential real estate by funding development projects. That adds future acquisition and investment opportunities as it builds and deepens its relationships with its partners. Because of that, the REIT should be able to continue growing its high-yielding dividend in the future, making it an attractive option for those seeking a steadily rising income stream.
