Video summary
The VICI Properties stock presents an attractive investment opportunity currently offering a dividend yield of approximately 7%, which stands out significantly against the backdrop of rising interest rates where the ten-year Treasury yield has climbed to nearly 4.7%. The company's underlying assets are robust, comprising a portfolio of 63 gaming properties in Las Vegas and 40 other experiential venues, including major brands like Caesars Palace and the MGM Grand. Financially, the entity appears stable with a reported 100% occupancy rate, long-term leases, and an equity base of $29 billion that suggests investors are effectively purchasing assets below their book value. Despite Moody's rating reflecting some concentration risk due to reliance on major tenants, the company's ability to survive the pandemic and its strong balance sheet provide a foundation of safety that is often overlooked in real estate investing.
A primary reason for the stock's current valuation and lower share price lies in the macroeconomic environment rather than fundamental business deterioration. As interest rates have risen from historical lows, the cost of debt for VICI has increased, with effective rates hovering around 4.5% and expected to rise further upon repricing. Additionally, the company faces inflation escalators on leases that are capped at 3.5%, which is below true inflation rates, meaning revenue growth may lag slightly in the short term. The market also penalizes the stock because its parent entity, Caesars Entertainment, is facing acquisition talks and potential bankruptcy proceedings, which introduces uncertainty about future reporting and tenant health, even though the real estate assets themselves remain secure and operational.
For investors considering this asset, the decision ultimately hinges on how a 7% yield fits within their specific portfolio goals and tax situation, particularly since dividend income may be taxed differently depending on individual circumstances. The analysis suggests that while immediate growth might be limited due to these economic headwinds, the long-term outlook improves if interest rates eventually decline, which would likely boost both the stock price and the dividend yield. The speaker emphasizes a contrarian approach where falling stock prices driven by high rates could actually present buying opportunities to accumulate more shares, potentially pushing the yield even higher should rates climb further to 6.7% or beyond. Ultimately, VICI is positioned as a medium-risk investment with a likely return of 7%, offering inflation protection over time through its property portfolio and lease structures, making it a viable option for those seeking stable cash flow in a volatile market.
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a lot of comments about VC properties
and I must say it looks good with a 7
plus% yield. If you look at VC, you own
the gaming properties, Las Vegas, 63
gaming properties, 40 other experiential
properties, Caesar Palace, Las Vegas,
MGM Grand, all interesting situations.
You look at the stock price, it is close
to a few years lows. the dividend yield
is 7%. But when it comes to investing in
real estate, yes, it is about owning
those properties, but it is also the
question, how do you own that and what
is the price you're paying for that?
Let's discuss. If we look at the
company, the last earnings, everything
looks very good. 100% occupancy rate,
long-term leases, everything stable,
planned, loan to net leverage ratio
below five, which is on the better side
of some reads that I have seen. Equity
29 billion. Then if we look at the
numbers, very stable. If we look at the
dividend, stable over the last few
quarters, earnings also stable.
everything like real estate should be
stable and safe. If we look at the
balance sheet, 29 billion equity,
compare it to the market cap, we are
practically buying below book value of
the properties. Everything is really
nicely and this is something I like
shown every deal, every real estate
property looks stable, partnerships, 16
tenants, okay, Caesars and MGMs, they
cannot default on one property. they
have to default on all the properties.
So that is something that helps the
guidance there is for some or no growth
stable we can say for stability. Now
because of the concentration with one
customer Moody's cannot give it better
than a lower investment grade. But okay,
the debt is not even that crazy and all
the debt is discussed in detail. 44
4.5 effective rate. However, something
when it comes to interest rates and why
the stock is down. It's not 4.5. The
next repricing will be at 5.5, 5.7
depending on where interest rates go.
Okay. But there is both the gaming
pipeline, Caesar's forum, something
building. This is something very
important. They have an annual escalator
for inflation, but it is not crazy. They
need to wait a few years to renegotiate
that and it's a little bit below true
inflation, a little bit below true
interest rates. So that is another
reason why the stock is down. A third
reason is that this is a spin-off from
when Caesar's Entertainment went
bankrupt. The value in the real estate
remained. They also survived the
pandemic. Very important. So
interesting. There have been they have
their history. But okay, now Caesar's
Entertainment will be acquired, which is
another negative for Wall Street because
it will not need to report numbers. So
we will not know the health of the
tenants but that is something then it's
more levered more risky but the real
estate is not going anywhere. The thing
that explains what's going on is
interest rates up, interest costs up.
There might go to growth over the next
few years. Two tenants. Okay. Inflation
escalators are too low and capped at
three 3.5%.
Private tenants traffic down in Las
Vegas in 2025. You let me know in the
comments if traffic is up, you gambler.
But okay, what's there to like? The key
question is what it's worth to you.
dividend 7%. Will it grow? Maybe not
next year. Maybe not the next few years.
Over the long term, especially if
interest rates go down, then it will
keep on growing. Keep in mind, some of
you have to pay taxes on the dividends.
Some don't. That's a very important
factor when it comes to analyzing this.
If the stock goes lower, you can always
reinvest and build more of the stream of
cash flows of the long term. If good
times come, low interest rates and then
keep on paying. When it comes to four,
five% yield, you sell. You play around
that given the stability, given
everything. I'll put it here in the
quadrant. 7% likely return, medium risk,
why not? And then you have to see how it
fits you. Inflation protection is not
immediate, but there are the properties.
There is the escalator. The key risk is
Vegas gambling lever tenants that has to
work all the time but the value is
there. Just another explanation of why
the stock is down. The dividend yield
was 4% now it's 7%.
The 10-year treasury was 1% now it's
4.7%.
So plus 300 basis points the yield went
up treasury went up and consequently the
required yield went up. We cannot
predict interest rates. Not even Wars
knows. But what we have to know is how
does real investing this 7% fit your
portfolio, your financial goals and then
you see how much of it to add at this
price to your portfolio. Keep in mind if
interest rates on the 10-year Treasury
go from 4.7 to 6.7,
dividend yield on VC goes from 7 to 9
10%. The stock goes down another 30%.
That's a given. But you have to invest.
Okay. If that happens, I will be buying
more, accumulating more. That's
something to think about when it comes
to investing. What do you think? Let me
know in the comments. Check what I do.
Check my research platform. I'll see you
in the next video.