High-Yield Vici Properties Is Aging Well: Why Investors Should Take Note

Vici Properties (NYSE: VICI) is a real estate investment trust (REIT) that is focused on owning casinos. That's a pretty specific niche but one that has proven, so far anyway, to be fairly attractive. Here's why this relatively young REIT and its 5.3% dividend yield is worth taking note of today.

What does Vici Properties do?

At the most basic level, Vici Properties is a landlord, owning physical properties that it leases out to tenants. What sets it apart from other REITs is its focus on experiential properties, which today largely means casinos. These are giant assets that contain gaming, hotels, retail, dining, and convention businesses within them. You can argue that this provides a lot of diversification. But you have to juxtapose that against the reality that none of the other businesses in the property would likely be viable without the gaming component.

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In addition to the gaming focus, Vici Properties also uses a net lease model. This means that the REIT's tenants are responsible for most of the costs of the property. That's a good thing for both parties. Vici Properties reduces its costs and the risk it might face from rising operating costs. Its casino tenants effectively retain operational control of what is a vital asset within their businesses.

Vici Properties held its initial public offering (IPO) in early 2018. So it is a fairly young company. However, it has grown from around 20 properties at the time of its IPO to 93 assets at the end of 2024. Of that 93, 54 are gaming properties with the rest being classified as "other experiential properties." That "other" category makes up around 2% of rents, so it is the much larger gaming properties that remain the most important business for Vici Properties. Still, the REIT has grown quickly and produced impressive results.

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Vici Properties passed the big test

From the beginning, Vici Properties focused on producing consistent results backed by long-term leases. When the coronavirus pandemic hit, however, the company's tenants were largely shut down because they weren't essential businesses. This was a severe test of Vici Properties' business model. It didn't skip a beat and, in fact, increased its dividend in 2020 despite the pandemic.

But that outcome actually makes sense. A casino operator needs to maintain access to its casino properties if it wants to remain in business. So paying the rent even during difficult periods is a necessity. But this isn't the only positive thing that has taken shape as Vici Properties has matured.

Vici Properties has very long leases. Its average lease length is a huge 40 years -- most net lease REITs are pretty happy to have something around 10 years. The problem is that long leases expose Vici Properties to the risk that inflation eats away the value of its rent roll.

Vici Properties isn't ignoring this risk. At present 42% of its rent is protected by inflation-linked rent escalators. That's not bad, but it leaves a lot of the rent roll still exposed to inflation. Which is why it is so exciting that Vici Properties has created contracts that will increasingly turn into inflation-linked lease structures. By 2035 the company believes at least 90% of its leases will be inflation-linked.

There are decades of slow and steady growth ahead for Vici Properties

To be fair, there are only so many casinos Vici Properties can buy. At some point, it will reach a limit where it has no choice but to focus mostly on non-casino assets. But the increasing role of inflation-linked leases in the core casino property segment is a valuable foundation. The rent roll from casinos may not grow quickly, but it will grow reliably year in and year out. And that means dividend investors have a long runway for dividend growth ahead of them with Vici Properties. This REIT is getting better and better with age, and that doesn't appear likely to stop anytime soon.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.