VICI Properties (NYSE:VICI) is a REIT that may put off some investors due to its peculiar characteristics, such as its high dependence on certain tenants like Caesars Entertainment (NASDAQ:CZR) and the gaming business, which also has different characteristics from the real estate industry in general.

As it turns out, the particularity of this REIT can also be a benefit for diversification and exposure to a growing industry.

Warning! GuruFocus has detected 5 Warning Signs with VICI. High Yield Dividend Stocks in Gurus' Portfolio This Powerful Chart Made Peter Lynch 29% A Year For 13 Years How to calculate the intrinsic value of a stock?

Other than that, VICI's fundamentals are also very attractive, with a price-to-FFO below 12x and a dividend yield of almost 6%.

These multiples tend to be even more attractive when the stock is around or below $30, as the projected dividend per share of just over $1.70 makes this dividend yield reach something close to 6%.

VICI Is a Reliable REIT

Generally, when investing in REITs or real estate companies we look for characteristics that allow for a more predictable and reliable income, such as wide moats, good tenants, an interesting business model, and so on. Although VICI is a little different from the industry average, it still manages to deliver these characteristics with robust fundamentals, a triple-net lease model, and a strong track record.

The characteristics say a lot, but the track record says even more and proves the company's ability to deliver shareholder value. VICI has gone from an EBITDA adj. of $690 million in 2017 to $3.1 billion in 2024, reflecting good capital allocation, contract readjustments, acquisitions, and property upgrades.VICI Properties: A Unique REIT With Reliable Dividends

Source: VICI Investor Presentation

Gaming exposure can also be interpreted positively. Gaming is a growing market, even with the shift in consumer preference to online bets, the physical experience remains very strong, as shown by the increase in Las Vegas visitors, which in 2024 grew by 2.1% YoY. In addition, both Las Vegas and the VICI properties are not just about gaming, but also about experiences, sports, retail outlets, music, and leisure events.

Apart from the market that can grow organically and the contracts that are adjusted (linked to inflation and similars), VICI has a robust pipeline, with potential investments for expansion, acquisition, and development of properties linked to resorts and other types of experiences, as shown in the table below. This becomes more reliable as VICI's capital allocation trajectory is positive.VICI Properties: A Unique REIT With Reliable Dividends

Source: VICI Investor Presentation

Story Continues

Diversification also occurs geographically, with the company owning gaming properties in 15 states and 1 Canadian Province, with Las Vegas accounting for 48% of this share, and other experiential properties in 17 states. This portfolio totals more than 60,000 hotel rooms, more than 500 F&B outlets, around 500 retail outlets, more than 50 entertainment venues, not to mention gaming, which has more than 4.2 million square feet. This translates into competitive advantages and a unique position in these industries and geographies.

Therefore, for the future we can expect VICI to be able to maintain the trend shown in the chart below. A growing revenue and consequently continue to be able to remunerate shareholders well via dividends and growth in fundamentals.VICI Properties: A Unique REIT With Reliable Dividends

Source: GuruFocus

There Are Risks To VICI's Thesis

Because it has these characteristics, VICI also has specific risks. In my opinion, the main one is the large exposure to certain tenants. Ceasars is one of the leading names in the casino market, and can even be considered one of VICI's strengths since this partnership brings considerable brand power. The problem is that in % of Annualized Cash Rent Caesars represents 39% of the total, followed by 35% for MGM Resorts.

In addition to this over-concentration, Caesars is a healthy company overall, but its balance sheet is not the most solid. For example, the company has a debt to EBITDA of 7x, and a revenue that has decreased YoY. Although far from being considered insolvent, it's an important thing to keep an eye on, as it could have a major impact on VICI properties until it finds another tenant should something happen.

The same goes for MGM Resorts International (NYSE:MGM), which although healthy overall, has a financial strength of 3/10, with a debt to EBITDA of 13x.

In addition to this main risk, it is possible to mention industry regulation, which increases the level of future uncertainty, especially when considering potential expansions. Despite this, this factor can also be considered an entry barrier, as it also decreases competition and makes VICI's positioning even more unique.

Some other industry factors should also be monitored, such as the trend towards online gaming, which can take a share of the tenants' growth, but which can also be seen as complementary, since physical experiences should not be left aside.

A less specific risk is macroeconomic factors, since like any REIT, VICI is sensitive to interest rates both because of its leveraged balance sheet due to its business model and because treasury rates are an alternative to income investing. Even so, VICI has a very reasonable debt profile, with leverage of just over 5x and a very long debt amortization schedule.

VICI Offers Good Dividend Yield

In view of the above factors, I see the REIT as a good alternative for an income portfolio. The company has unique properties, competitive advantages, and risks which, although they must be monitored, do not pose an immediate danger. This makes its cash flow and prospects for this indicator attractive.

The historical CAGR of VICI's annualized dividend per share since 2018 is 7%, while that of other REITs operating with triple net leases has been much lower, at around 2%. While this growth rate may not be sustainable indefinitely, considering that the last few years have seen more aggressive acquisitions and expansions, it is already a good indication to illustrate that VICI has generated value in recent years.VICI Properties: A Unique REIT With Reliable Dividends

Source: VICI Investor Presentation

This $1.7 per share is even better when analyzed together with the payout, which was 66%, i.e. a very healthy payout that leaves room for both increased distribution and debt management and possible acquisitions.

It's worth mentioning that the dividend yield of 5.5% over the last 12 months is both higher than the average for the last 5 years, which was 5%, and the average for the REIT industry.VICI Properties: A Unique REIT With Reliable Dividends

Source: Koyfin

The Bottom Line

In short, VICI is an alternative that allows you to get exposure to the gaming and experience market through well-positioned properties in the sector and a company with a track record of generating positive shareholder value, which ultimately translates into a reliable option for dividend investing.

But it's not without risks, so it's necessary both to keep the risks of dependence on certain tenants in mind and to follow the development of the thesis closely.

This article first appeared on GuruFocus.

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