LRT Capital Goes Long on VICI Properties, Calling Gaming REIT Mispriced as ‘Challenged Bond Proxy’

While the broader real estate sector rallies, VICI Properties (NYSE: VICI) continues to lag—but some professional investors view the underperformance as a buying opportunity.

On Monday (Aug. 17), 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).

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.”

Although he highlighted increasing tenant diversification, the portfolio manager noted that Caesars Entertainment (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM) still account for 72% of VICI’s lease revenue. Nearly half of that total is tied to the Las Vegas Strip, where the REIT stands as the largest real estate owner.

The investor did not opine about ongoing talks between Caesars and VICI regarding 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 negotiations.

It is believed the two parties are hammering out solutions that benefit both sides, though an added variable is Fertitta Entertainment’s agreed $17.6 billion acquisition of Caesars.

‘Heroic Growth’ Not Required

Tomicki makes a case for VICI as an undervalued real estate name, citing its 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 figures represent significant premiums to the Aug. 18 closing price of $25.92.

Factor in a dividend yield of nearly 7%, and VICI does not need to deliver epic growth to generate substantial 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.