We recently learned that massive gaming REIT VICI Properties (VICI 0.38%) is set to acquire MGM Growth Properties (MGP) in a $17.2 billion all-stock deal. In thisFool Live video clip,recorded on August 16, Fool.com contributor Matt Frankel, CFP, andIndustry Focushost Jason Moser discuss why VICI wants to become the undisputed leader in gaming real estate.
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Jason Moser: Well, we got a listener question here from @matt_invests on Twitter (NYSE: TWTR) and Matt asks, "We would love to hear your thoughts on the monster VICI Properties' acquisition of MGM Growth Properties. I like the merger, but VICI stock performance is different." Matt, you've taken a look at this deal. What did you see?
Matt Frankel: Well, first of all, one key concept for investors to know is that when one company acquires another, what happens nine times out of 10 is that acquisition happens at a premium, which we saw here. They're paying a premium for MGM Growth Properties. The target stock goes up, but the acquire rose stock tends to dip at least at first. There are exceptions like when Square (NYSE: SQ) announced it was acquiring Afterpay, Square went up. But generally the acquire goes down a little bit. Keep that in mind whenever you see an acquisition like this. I love this acquisition from a strategic standpoint. Essentially means that the VICI Properties is going to own the Las Vegas Strip. If you're not familiar, MGM Growth Properties spun out of MGM Resorts (MGM 0.26%) a few years ago for the purpose of owning a lot of their assets. They own the Mirage, MGM Grand, Mandalay Bay. They own a lot of their regional assets like the National Harbor that's near you. They own the Borgata in Atlantic City. That's an MGM Growth Properties. VICI was spun out of Caesars (CZR -1.88%) so it's essentially the same business just coming out of the other gaming leader. They spun out of Caesars in 2018, they own Caesars Palace in Vegas. They own the Harrah's on the Las Vegas Strip and they own a lot of regional assets. They are in the process of buying the Venetian, which was formerly owned by Las Vegas Sands (LVS -2.54%), which is also on the strip. The Las Vegas Strip is essentially made a three company casinos; MGM, Caesars, and Venetian. Now, VICI Properties is going to own a big portfolio of regional assets, the biggest landowner in history on the Las Vegas Strip. This is going to create the biggest experiential real estate investment trust ever, roughly $45 billion of real estate involved in this deal. There's scale advantages to be had of controlling that much land in one area. They see financing synergies. VICI has better credit than MGM Growth Properties, sees an opportunity to refinance its debt at a lower rate. Because it's acquiring it for $17.2 billion in about a third of that is debt. That's a big potential catalyst going forward. They're also getting MGM's properties, although they're paying a premium for based on the stock price, they're getting the properties for a discount to replacement costs, which is big benefit if you're in the development space. Just to name one example, MGM Growth Properties acquired MGM Springfield up in Massachusetts earlier this year for $400 million. That property costs almost $550 million to build.
Moser: Wow.
Frankel: They've got a big discount to that. VICI estimates that on the aggregate, they're getting a 30%-40% discount to replacement cost for all of MGM Growth Properties assets. There's a lot of strategic benefits to this deal. I'm a fan of both companies. Like I said, they're essentially the same businesses. One came from MGM and one came from Caesars. It makes sense. I can't name an acquisition that would have made more sense for either company.
Jason Moserowns shares of Square.Matthew Frankel, CFPowns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool recommends MGM Growth Properties (Class A). The Motley Fool has adisclosure policy.
FAQs
There are three key reasons to invest in listed REITs right now, starting with the fact that REITs have outperformed stocks and bonds when yields and growth move lower. Demand is healthy while supply is constrained, and REIT valuations relative to the broader equity market are meaningfully below the historical median.
Why are REITs a bad investment? ›
Lack of Liquidity: Non-traded REITs are also illiquid, which means there may not be buyers or sellers in the market available when an investor wants to transact. In many cases, non-traded REITs can't be sold for at least 10 years.
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REITs and stocks can both pay dividends, usually on a monthly, quarterly, or yearly basis. Some investments will also offer special dividends, but they're unpredictable. There is a difference between the dividends paid by stocks and REITs though.
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REITs' average return
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs.
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8 Best High-Yield REITs to Buy
| REIT | Forward dividend yield |
|---|
| AGNC Investment Corp. (AGNC) | 14.7% |
| Blackstone Mortgage Trust Inc. (BXMT) | 13.6% |
| Apple Hospitality REIT Inc. (APLE) | 6.5% |
| EPR Properties (EPR) | 8.2% |
4 more rows5 days ago
According to expert panelists at the recent Nareit REITworld annual conference, 2024 could be a year of opportunity for Real Estate Investment Trusts (REITs). They added a note of caution, however, that there are still headwinds affecting investor perspectives on REITs and capital markets in general.
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Some of the main risk factors associated with REITs include leverage risk, liquidity risk, and market risk.
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There are several benefits of adding a REIT to your retirement portfolio. They can provide income, capital appreciation, diversification, inflation protection and could be considered passive investments – meaning you don't need to manage tenants or collect rent from realizing returns on your investment.
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REITs historically perform well during and after recessions | Pensions & Investments.
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Reinvesting REIT dividends can help retirement savers grow their portfolio's investment, and historically steady REIT dividend income can help retirees meet their living expenses. REIT dividends historically have provided: Wealth Accumulation. Reliable Income Returns.
The market's highest-yielding REITs
| Company (ticker symbol) | Sector | Dividend yield |
|---|
| KKR Real Estate Finance Trust (KREF) | Mortgage | 14.0% |
| Two Harbors Investment (TWO) | Mortgage | 14.0% |
| Ares Commercial Real Estate (ACRE) | Mortgage | 13.8% |
| Brandywine Realty Trust (BDN) | Office | 13.6% |
7 more rowsFeb 28, 2024
The Motley Fool has positions in and recommends JPMorgan Chase, Realty Income, Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF, and Vici Properties.
Can you build wealth with REITs? ›
But they can be a powerful tool to build your wealth over time, like a slow and steady rocket taking you towards financial freedom. Remember, the key is to invest wisely, do your research, and choose REITs that match your goals and risk tolerance.
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What is an appropriate allocation to REITs? The answer will vary based on each investor's goals, risk tolerance and investment horizon, but here are some key insights that can help: Multiple studies have found that the optimal REIT portfolio allocation may be between 5% and 15%.
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REITs. When interest rates are falling, dependable, regular income investments become harder to find. This benefits high-quality real estate investment trusts, or REITs. Strictly speaking, REITs are not fixed-income securities; their dividends are not predetermined but are based on income generated from real estate.
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AEW Capital Management forecasts total REIT returns of approximately 25% over the next two years, which also roughly translates to low double digits in 2024, according to Gina Szymanski, managing director and portfolio manager, real estate securities group for North America, with the firm.
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Interest Rates. During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.
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REIT Stock Performance and the Interest Rate Environment
Over longer periods, there has generally been a positive association between periods of rising rates and REIT returns. This is because rising rates generally reflect improvement in the underlying fundamentals.
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As the REIT industry continues to evolve, its future growth prospects remain promising. According to the reports, the global REIT market is projected to reach a staggering $5.8 trillion by 2030, growing at a CAGR of 7.1% during the forecast period of 2023-2030.
