Jul. 5 at 4:21 PM
Is it possible for a REIT that has a total return of over 23% over the last year to still be undervalued?
The answer is absolutely yes.
This chart shows how cheap U.S. REITs are relative to the S&P 500 based on earnings multiples.
The blue line = REITs vs. equities multiple spread
The purple line = 20-year median
Right now, REITs are trading at a -3.8x spread (one of the deepest discounts in 20 years)
Historically, when REITs have traded at a -2.0x discount or more, they’ve delivered returns that outperform the S&P 500.
On top of this, REITs have a short term catalyst on the horizon.
With rates coming down, the high yielding REITs become more attractive to income investors.
So why
$VICI?
To start, the REIT has great dividend metrics:
- Current dividend yield: ~5.3%
- 5-year dividend CAGR: ~6.4%
- Dividend growth every year since 2018 (even during 2020)
That’s rare for a REIT and speaks to the strength of VICI’s tenant base.
In their most recent earnings report in April, FFO came in at
$0.58, missing expectations by
$0.10.
At first glance, that looks bad, but the miss was driven by a non-cash accounting adjustment due to CECL (loan loss reserves). It didn’t reflect real business deterioration.
In fact:
- Adjusted FFO rose 5.4%
- AFFO per share rose 3.6%
- Moody’s upgraded their credit rating
- 2025 guidance was increased
One of the biggest threats (particularly for REITs) is inflation.
However,
$VICI investors don’t have to be concerned with this.
- 42% of rent is CPI-linked today
- Expected to be 90% by 2035
This helps protect purchasing power and supports sustainable dividend growth.
$VICI also has built one of the better balance sheets in the REIT sector, and that matters, especially in a high-rate environment.
- 99% of debt is fixed-rate:
This shields them from rising interest costs and locks in lower rates from previous years.
- 83% of debt is unsecured:
No specific properties are pledged as collateral, giving them more flexibility to raise capital or refinance.
- 6.7 years average maturity:
Debt is spread out over time, with no near-term pressure to refinance.
- Staggered maturity ladder:
Debt is evenly spaced over future years, reducing risk during tighter credit conditions.
As for the valuation, if we run
$VICI through a dividend discount model assuming 3.75% dividend growth, we come to a fair value of
$37.02.
This gives
$VICI 13% upside.
