Vici Properties (VICI +0.09%) is a net-lease gaming real estate investment trust (REIT). This highly focused approach has so far worked out very well for income investors, with the company steadily increasing its dividend. However, management continues to make commitments that show it knows that diversification is important, including a recent extension of its relationship with Great Wolf Lodge.
Vici's casino focus has paid off
Vici held its initial public offering (IPO) in early 2018. The company was created to own and invest in gaming properties, including casinos in destination locations like Las Vegas and in properties that are meant to serve a regional market. It has largely grown via the acquisition of casino assets.
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Vici has rewarded shareholders as it has expanded with a steadily increasing dividend. In 2018, it paid out $1.05 per share for the year, and in 2023, the full-year dividend totaled $1.56 per share. If you annualize the quarterly dividend paid in Q1 2024, the full-year payment in 2024 will be $1.66 per share, which equates to a roughly 7.9% compound annual growth rate since its IPO. That's a pretty attractive outcome, noting that the rate of dividend growth is more than twice the historical rate of inflation growth.
There's only one problem, and that is its heavy focus on one property type that is economically sensitive. To be fair, Vici made it through the coronavirus pandemic without skipping a beat, even though its lessees were forced to shut down by the economic closures used to slow the spread of the illness. And then it took a while for customer traffic to pick back up again. This period shows the resilience of Vici's net-lease business model (net leases require tenants to pay most property-level operating costs). But that doesn't change the fact that Vici is still largely a one-trick pony.
Vici is trying to learn new tricks
That said, Vici has been slowly branching out. In May, for example, it provided Great Wolf Lodge a $250 million loan. That is an extension of its existing relationship with Great Wolf Lodge, which operates a chain of indoor water parks and hotels. At this point, Vici has provided around $720 million to Great Wolf Lodge.
Only this is just one example of the game-changing moves Vici is making. In January, it provided a $105 million loan to Homefield Kansas City to help the company build a Margaritaville resort. That loan included a right to buy Homefield properties at some point in the future if Vici wants to do so.
NYSE: VICI
Key Data Points
There have been other diversification efforts as well, including the purchase of properties from bowling alley operator Bowlero and the acquisition of the Chelsea Peers sports complex in New York City. To date, these are the two largest non-casino property investments Vici has made. However, together, they still make up less than 2% of the real estate investment trust's rent roll. And two large casino operators still account for a huge 70%-plus of rents.
In other words, Vici is an experiential REIT, but one that remains highly focused on casino properties. And yet it continues to show through its actions that it is looking to change the game it is playing by broadening its reach. It is attempting to build a two-pronged approach, which will take time. But diversification is the right move for Vici and its shareholders. Management is clearly dedicated to making it work.
Vici is working to assuage investor concerns
There is a risk/reward trade-off with Vici Properties given its highly focused portfolio. That has worked out well for investors so far, as evidenced by the steady dividend growth. But this is a REIT that's more appropriate for investors who are willing to watch their portfolio closely. However, if you do that, you'll collect a hefty 5.5% yield and likely see this gaming REIT continue to change its property mix over time as it looks to become more than just a casino REIT. And recent moves like the ones with Great Wolf Lodge and Homefield Kansas City are likely to be the types of game-changing steps Vici needs to take to attract more conservative dividend investors.
