Vici Properties (VICI -1.64%) has grown faster than its peers over the years. The real estate investment trust (REIT) has raised its dividend payment at a 7% compound annual rate since its formation more than seven years ago. That's well above the 2% average annual growth rate of other REITs focused on investing in triple net (NNN) real estate.
Its focus on establishing strategic partnerships is a key factor driving its ability to deliver above-average growth. That smart strategy continues to provide the REIT with new opportunities to expand its portfolio, which allows it to increase its cash flow and dividend.
Vici Properties focuses on investing in experiential real estate like gaming, hospitality, wellness, entertainment, and leisure destinations. Unlike many real estate investors, Vici Properties sees itself as less of a landlord and more of a partner to companies that need capital to expand their businesses. The company takes "pride in our ability to build deep relationships with dynamic growth-minded operators that will help to contribute to our long-term growth goals and objectives," commented CEO Edward Pitoniak in the first-quarter earnings press release.
The REIT has several long-standing partnerships with leading operators of experiences. For example, it owns 18 casinos leased to Caesars Entertainment and 13 leased to MGM Resorts. It also owns 38 bowling entertainment centers leased to Lucky Strike. Meanwhile, the company has made real estate-backed loans to Great Wolf Lodge, Canyon Ranch, Cabot, and others.
These are two-way partnerships. The operating tenants pay rent to use properties owned by Vici Properties that are crucial to their businesses. They generate revenue from these facilities while paying the REIT steadily rising rental income.
Another aspect of these partnerships is that Vici Properties will provide tenants with additional capital to help fund their continued expansion. The capital can come via sale-leaseback transactions, loans to finance new development projects, or growth capital to fund expansions and other capital projects at existing properties. These win-win partnerships provide the REIT with new investment opportunities to grow its businesses while supporting the expansion of its existing tenants.
For example, last year, the company originated a $250 million mezzanine loan backed by a portfolio of nine Great Wolf Lodge resorts. Since starting their partnership in 2021, Vici Properties has provided over $720 million of capital to Great Wolf to support its growth. The REIT also provided up to $700 million of financing for The Venetian Las Vegas through its partner property growth fund strategy to support hotel room renovations and other projects at that property. In exchange, the REIT will receive more rental income from its investment in that iconic casino.
Vici Properties is always looking to partner with leading operators of experiences. The REIT has established two new strategic relationships this year, which will provide new sources of growth.
The first partnership is with Cain International and its affiliate, Eldridge Industries. They plan to collaborate to identify and pursue unique experiential real estate investment opportunities. The first one will see Vici make a $300 million mezzanine loan investment to help fund the development of One Beverly Hills, a landmark luxury mixed-use development featuring an all-suite hotel, a carefully curated selection of luxury retail and dining locations, and over 10 acres of botanical gardens.
Meanwhile, its newest partnership is with Red Rock Resorts, a premier regional gaming operator. The REIT has agreed to provide up to $510 million in funding for developing a tribal casino in central California that Red Rock will develop and manage. The partnership is Red Rock's first with a REIT and could lead to future investment opportunities for Vici.
The company's success in adding new partners is driving additional growth this year. That gave Vici Properties the confidence to raise its guidance for adjusted funds from operations (FFO). It now expects its adjusted FFO to rise to a range of $2.33-$2.36 per share (up from its initial forecast of $2.32-$2.35 per share). As a result, it now sees its adjusted FFO growing by 4.4% at the high end of its new guidance range.
Add that to the REIT's 5.5%-yielding dividend, and its total return could approach 10% if its stock price rises with its earnings growth rate. Meanwhile, the company's growing earnings should allow it to continue increasing its dividend at an above-average rate.
Vici Properties' strategy of partnering with leading operators of experiences continues to pay dividends for investors. It steadily provides the company with rising rental income and new investment opportunities. Adding new partners enhances its ability to grow its portfolio and shareholder value. It's a winning strategy that makes Vici Properties a great stock to buy and hold for a growing stream of passive income.
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