VICI Properties: A Class Of Its Own
VICI Properties (VICI) has sold off recently as many investors have grown concerned about its casino properties.
I believe that these fears are misplaced, which is why we initiated a new position. You can read our trade alert by clicking here.
In my view, VICI owns some of the most exceptional real estate in the entire net lease sector, with assets that are far superior to those of most peers. To illustrate this, I want to share an excerpt from my book in which I explain why VICI stands out so clearly within the net lease universe.
As new cash becomes available, we plan to continue accumulating shares in our Retirement Portfolio.
As a reminder, you can get a free copy of the book by clicking here.
VICI Properties: Real Estate Analysis
VICI Properties (VICI) stands out in the net lease REIT sector due to the quality of its portfolio.
Most net lease REITs target conventional assets, such as Walgreens pharmacies and Dollar General stores, and face steep competition from family offices, private equity firms, and high-net-worth individuals, which drives up prices and weakens their negotiating power.
In contrast, VICI targets casino net lease properties and secures its deals through deep relationships with casino operators. With fewer competing buyers, VICI can negotiate more favorable terms. This strategy boosts returns, lowers risk, and gives VICI a clear edge in the net lease space.
The following seven advantages highlight why VICI’s portfolio stands in a league of its own. It serves as a compelling example of how a REIT can set itself apart within the net lease sector.
Advantage 1: VICI’s properties are durable, while most net lease properties are not.
Net lease investors often focus more on the quality of the lease than the underlying real estate. This makes sense, as these leases typically run 10 years or more, with rents locked in and tenants covering most property expenses. As a result, net lease properties provide bond-like income, and the real estate often becomes a secondary concern.
However, this strategy only holds while the lease is active. Once it expires and the property sits vacant, the real estate component becomes far more important. This is a key risk in net lease investing, as many properties are not built to last. For example, a Dollar General property may cost as little as $500,000 to build and often lasts just 30 years before needing to be torn down or redeveloped.
This means that if you own traditional net lease properties, you will almost certainly face significant CapEx at some point. The tenant will not tear down and rebuild the property for you. When the time comes, negotiations will be critical, and the tenant will likely pressure you into constructing a new building, or they may walk away, leaving you with an aging, unattractive structure. At best, they might agree to a double-net lease instead of a triple-net one, shifting responsibility for the roof, structure, and parking lot back to you.
You might try to sell the property before this happens, but the market is not naive. As the building ages, buyers will likely discount it. Simply put, CapEx can only be ignored for so long when you invest in traditional net lease properties. Eventually, these properties age, and landlords must deal with structural wear and tear.
Now compare that to VICI’s net lease casino properties.
Unlike Dollar General stores, most high-quality casinos are built to last much longer, potentially indefinitely. Take the Caesars Palace, VICI’s crown jewel. Built in the 1960s, it is more viable today than ever. It is built like a fortress and could last forever.
Similarly, the Venetian was built like the “pyramids of Egypt,” as VICI’s CEO put it. To give you a sense of the investment behind these properties, the lobby of the Venetian features 25-foot columns made from solid Botticino marble imported from Italy. Compare that to the typical net lease property, which is designed to be as cheap and efficient as possible.
As a result, VICI is far less likely to face major CapEx needs in the future. Its properties were built to last, setting it apart from other net lease REITs based on physical quality. This strengthens long-term return potential and lowers risk, since VICI is unlikely to face the same need to rebuild or sell properties at a discount as its peers.
