I've talked about real estate investment trusts (REITs) and their track record against the rest of the stock market before - they basically destroyed the S&P 500 in 2021. They remain one of my favorite classes of investment, frequently paying out uncommonly high dividends in addition to their consistent gains.
But as the light at the end of the pandemic tunnel gets closer, there's one class of REITs that stands to outperform even the best REITs in this group.
The profit catalyst here is nothing less than the natural human response to being cooped up for entirely too long: getting out and partying.
So let's talk about casinos.
Casino REITs are among the highest-yielding sectors in this particular class of assets, and I don't see that changing anytime soon.
Why? Because they're what we call "triple net REITs," meaning the tenants are responsible for maintenance, taxes, and insurance. The cash that the REIT collects is all income. Only the expenses of operating the corporation have to be paid out of the money collected. All the leases are very long-term and contain rent escalators that keep the cash flows increasing at a reasonable rate.
Higher cash flows usually mean higher dividends. Higher dividends mean more money in an investor's pocket. See why I like them?
Following their very impressive rebound off of 2020 lows, casino REITs have flattened out a bit, and the current market is offering a solid entry point.
My two favorites raised their payouts in 2021, and I expect a hike from both of them again this year. Now's the time to get in on these before they make another run higher, and I'll tell you why...
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For several years now, VICI Properties Inc. (NYSE: VICI) has been my favorite casino REIT. It currently owns 27 gaming facilities comprising over 46 million square feet, which collectively feature approximately 17,800 hotel rooms and more than 200 restaurants, bars, nightclubs, and sportsbooks. The properties include such well-known hospitality brands as Caesars Entertainment Inc. (NASDAQ: CZR) and Century Casinos Inc. (NASDAQ: CNTY).
VICI also owns four championship golf courses and 34 acres of undeveloped land adjacent to the Las Vegas Strip.
Thanks to its aggressive acquisition strategy, its real estate portfolio is still growing. For example, in 2021, it announced deals to buy MGM Growth Properties LLC (NYSE: MGP), which holds all 15 of the properties managed by MGM Resorts International in Las Vegas.
When this deal closes, it will make VICI the king of Sin City landlords. The deal will add seven leading casinos to its existing holdings of Caesar's Palace and Harrah's. Add in its planned acquisition of the Venetian, the largest hotel in Vegas, and it will have a dominant and uncontested stake in the market.
Outside of the City of Second Chances, it also has an extensive portfolio of regional gaming parlors. After the two latest deals close this year, 55% of rents will come from markets outside Las Vegas.
VICI's average lease lasts over 40 years until it expires, and the rent escalator is 1.8% annually. And none of its world-class tenants missed a single rent payment during the pandemic, giving investors some of the most consistent, steadiest growing cash flows anywhere.
And finally, VICI Properties shares are yielding over 5%. The stock is incredibly undervalued at around $29 as of this writing, so there's substantial upside potential to go along with its market share growth.
This REIT Offers High Yield for a Discounted Price
I also like Gaming and Leisure Properties Inc. (NASDAQ: GLPI) shares at the current price.
It owns 51 hotels and casinos in 17 states, with tenants including well-known industry operators like Penn National Gaming Inc. (NASDAQ: PENN), Boyd Gaming Corp. (NYSE: BYD), and Bally's Corp. (NYSE: BALY).
Instead of trying to muscle in on VICI's Vegas action, Gaming and Leisure has concentrated on buying regional properties in the northeast United States to take advantage of the dense population concentration in that part of the country.
It's also been active an acquirer in the last year. In December, it announced that it had purchased three branches of the popular Live! Casino chain: Maryland, Philadelphia, and Pittsburgh. The casinos were automatically leased back to the Cordish Companies, which staffs the operations side of those properties.
The lease is for 39 years and includes rent escalators of 1.75% annually, adding to cash flows for GLPI, and is accretive to earnings from day one.
Further, the two companies have agreed to collaborate on future casino projects, so we're likely to see a large amount of development here in the next few years. States have found that casino gambling is a lucrative and growing source of tax dollars, and a sale and leaseback arrangement with a REIT like Gaming and Leisure makes cash available to add amenities that attract gamblers.
And of course, the kicker: Its shares are currently yielding over 6%, and it's showing the same low valuation as VICI, trading at around $45 right now. It's a no-brainer, especially given the expected huge wave of post-pandemic travel.
While I love REITs, there are a lot of other opportunities for savvy investors out there, and one of them has the potential to build lasting, generational wealth.
I'm talking about startups. Remember: Big names like Amazon, Apple, and Facebook all started as entrepreneurial ventures. And all of them have become so huge that there's literally a category of stocks (the FAANGs) named for them. They didn't do that on their own. Angel investors played a huge part in helping those companies achieve enormous success.
I know an angel investor on a bold mission to find the Apples and Amazons of tomorrow, and guide investors like you to the best potential opportunities for literally life-long returns.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.