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A Trio of Recreational REITs

10/03/2018 5:00 am EST

Focus: REITS

Tim Plaehn

Lead Income Analyst, The Dividend Hunter

Confidence in the economy has people more willing to spend on recreation activities. Here are three specialty REITs focused on gaming and other recreation activities, explains Tim Plaehn, income specialist and editor of The Dividend Hunter.

VICI Properties, Inc. (VICI) is a specialty real estate investment trust focused on gaming and other recreation activities. The REIT was spun-off by Caesars Entertainment (CZR) with an October 2017 IPO.

The company’s portfolio includes 20 market-leading gaming properties in nine states, including the world-renowned Caesars Palace, and four championship golf courses. The properties are leased to Caesars Entertainment Corporation and operate under leading brands such as Caesars, Horseshoe, Harrah’s and Bally’s.

Caesars doesn’t not have an ownership position in VICI and there are no Board members common to both companies. With the spin-off, VICI is completely independent. Caesars does provide very strong 3.6 times rent coverage on the properties and contracted capex spending commitments to keep the properties at the forefront of the gaming industry.

The REIT is internally managed. For growth VICI has rights of first offer (ROFO) on properties Caesar would want to capitalize through a sale lease back. The REIT can also pursue third party acquisitions. Two dividends have been paid, with a 9.5% increase between the first and second. The shares currently yield 4.9%.

MGM Growth Properties LLC (MGP) was spun-off in April 2016 by MGM Resorts International (MGM) in April 2016. The REIT currently owns 11 properties leased to and managed by MGM.

All the properties are on a single master-lease, which gives the rental payments to MGM Growth Properties the highest level of safety. The lease has built in annual escalators and a profit-sharing component.

In contrast to VICI, MGM retains a majority ownership in MGP and pays all the operating expenses of the REIT. MGP also has ROFO on properties owned by MGM. The REIT has already made third party acquisitions. In its history, MGP has produced steady 10% per year dividend growth. The shares yield 5.9%.

EPR Properties (EPR) was founded in 1997 as a pure play owner of movie theater properties. Today the company 169 multiplex theater and family entertainment centers generating $280 million of annual net operating income, 80 golf entertainment complexes, ski areas, and other entertainment attractions producing $182 million of NOI, and 146 charter and private schools generating NOI of $115 million.

The EPR management team has great expertise in its focused property areas and helps tenants be as profitable as possible. All properties are leased to tenants on triple-net contracts. The EPR dividend has grown every year since 2010 with a 7% compound annual growth rate. Dividends are paid monthly, and the yield is 6.1%.

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