MGM Growth Properties (NYSE: MGP) is a net lease real estate investment trust (REIT) that owns casino properties. It is getting taken over by peer VICI Properties (NYSE: VICI) in an all-stock deal. If you own MGM Growth, you need to know about VICI -- and you'll probably love it. But if you don't, then here's another easy-to-love net lease REIT to consider owning instead.
Casino REIT MGM Growth owns 15 properties. Seven of its casinos are in Las Vegas, including some of the premier nameplates on the strip. The rest of its assets are in regional markets around the country. MGM Resorts, which spun out the REIT, is its only tenant.
After being bought by VICI, investors will own a casino REIT with 43 properties spread around the country, including a still-notable presence in Las Vegas (accounting for about 45% of rents). MGM Resorts will contribute just 40% of rents, with fellow gambling giant Caesars Entertainment coming in at 41%. So the deal vastly improves the REIT's tenant diversification.
It will also materially increase VICI's scale, which should make it easier for the REIT to tap capital markets and take on additional acquisitions. And the merger, which is projected to close in 2022, is expected to be immediately accretive to funds from operations (FFO). If you own MGM Growth today, you will likely be even happier after the merger is consummated.
Same approach, different property types
That said, perhaps you don't want to have so much exposure to the gaming space or were enamored of the tight connection to MGM Resorts. If that's the case, you might want to look at a nongambling net lease REIT like W.P. Carey (NYSE: WPC). This REIT helped to popularize the sale-leaseback model that MGM Growth and VICI have used.
Like the casino landlords, WPC owns properties where the lessees are responsible for most of the operating costs of the assets they occupy. It's a fairly low-risk way to own real estate, basically leaving W.P. Carey able to sit back and collect rent checks.
What's particularly interesting about W.P. Carey is its diversification. Its portfolio is spread mostly across the industrial (25% of rents), warehouse (23%), office (21%), retail (18%), and self-storage spaces (5%). It also generates around 36% of its rents from outside the United States, primarily from Europe. It is easily one of the most diversified REITs you'll find.
It also has a record of success. The best demonstration of this is that W.P. Carey has increased its dividend every year since its IPO in 1998. It is quickly closing in on Dividend Aristocrat status, which is a very exclusive group. Even better, its 5.3% yield is higher than the 4.6% on offer from VICI. In many ways, W.P. Carey is a more attractive net lease REIT than VICI or MGM Growth, neither of which have been public companies for nearly as long.
Maybe own both?
If you own MGM Growth, or are looking at it, you probably want a casino REIT in your portfolio. The merger of MGM Growth and VICI looks like it will create a larger, more desirable option in the space. However, with just one property type, there are concentration risks to consider beyond tenants and locations.
W.P. Carey, which uses the same net lease model, has a great track record, a higher yield, and one of the most diversified portfolios you'll find in the REIT sector. It would be a great complement to MGM Growth (or VICI) and might even be a better option for more conservative types looking at a merger "windfall," given the nearly 16% premium VICI offered for MGM Growth.
All in, you'll probably love VICI (perhaps even more than MGM Growth) and W.P. Carey. You might even want to own them both.