With the broader real estate sector rallying, VICI Properties (NYSE: VICI) is standing out for the wrong reasons, but some professional investors see opportunity in the stock.
On Monday, LRT Capital founder Lukasz Tomicki took to X to reveal a long position in VICI, noting that “the stock, however, is priced more like a challenged bond proxy.” Shares of the largest owner of casino real estate are down 6.1% year-to-date while the Dow Jones U.S. Real Estate Capped Index is higher by 11.35%. The portfolio manager praised the real estate investment trust (REIT) for growing acquired funds from operations (AFFO).
“The underlying business continues to compound. Q2 revenue grew 5.7% and AFFO/share grew 4.6% year-over-year to $0.62. Management also raised the low end of 2026 AFFO/share guidance to $2.46,” Tomicki wrote on X.
VICI and rival Gaming and Leisure Properties (NASDAQ: GLPI) operate with triple-net structures, meaning casino operator clients not only pay rent to the REITs, but the gaming companies are also responsible for enhancements and maintenance of the leased properties.
LRT Capital Acknowledges Some VICI Risks
Tomicki is practical in his assessment of the Caesars Palace owner, noting there are some risks associated with the stock. Those include difficulties in making equity-fueled acquisitions “accretive” and the specter of a higher for longer interest rate environment, which could keep VICI’s “growth engine suppressed.”
Though he highlighted increasing tenant diversification, the portfolio manager also points out that Caesars Entertainment (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM) combine for 72% of VICI’s lease revenue with nearly half that tally attributable to the Las Vegas Strip where the REIT is the largest real estate owner.
The investor did not opine about ongoing talks between Caesars and VICI regarding the regional casino master lease discussions between the two companies. That issue is widely viewed as an overhang on both stocks, but second-quarter earnings season came and went with neither company providing much clarity on the talks.
It’s believed the two parties are hammering out solutions that benefit both of them, but the wildcard may be the fact that Caesars is now the target of a $17.6 billion takeover by Fertitta Entertainment.
‘Heroic Growth’ Not Required
Tomicki makes a case for VICI as an undervalued real estate name, citing the 10.5x AFFO ratio. If the stock were to command an AFFO multiple of 12x to 14x, it could trade up to $29.50 to $34.50, according to the investor. Those are significant premiums to the Aug. 18 closing price of $25.92.
Factor in a dividend yield of nearly 7%, and VICI doesn’t need to deliver epic growth in order to generate upside for investors.
“The valuation is especially interesting because we don’t need heroic growth. Collect a ~7% yield, grow AFFO/share a few percent annually through rent escalators and selective investment, and even modest multiple normalization can generate attractive total returns,” concludes Tomicki.