Alex Pettee, CFA
Casino REITs: New King Of Vegas
VICI Properties is the new King of Vegas following a blockbuster $17B acquisition of fellow casino REIT MGM Growth Properties, combining to form one of the world's largest real estate owners.
The mega-merger will give the combined firm a dominant competitive position in the critical Las Vegas market and appears to be a win-win for both VICI and MGP shareholders.
Despite their strong returns since emerging in the mid-2010s and steady performance throughout the pandemic, casino REITs have traded at persistent discounts relative to their net lease REIT peers.
Thriving in a "lower for longer" environment, casino REITs' "bond-like" lease structure does result in elevated risks from inflation and interest rates, and the sector is not entirely immune from COVID risks.
With an average dividend yield above 5%, we view casino REITs as a more compelling - and perhaps "under the radar" - alternative to other seemingly "cheap" sectors facing stiffer secular headwinds.
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