Last week we completed repositioning the portfolio into stagflation beneficiaries. The portfolio is now focused on oil ($SHEL (Shell PLS (ADR)), $BP.L (BP), $SU (Suncor Energy Inc.)) and real estate ($STOR (Store Capital Corp.), $SRC (Spirit Realty Capital Inc), $GRI.L (Grainger PLC), $AT1.DE (Aroundtown SA), $CAPC.L (Capital & Counties Properties PLC), $VICI (VICI Properties Inc), $HR (Healthcare Realty Trust Inc)). There are also defensive positions in agriculture ($BAYN.DE (Bayer AG)), Healthcare ($NVS (Novartis ADR), $MRK (Merck & Co.)) and Financials ($RNR (RenaissanceRe Holdings Ltd), $IBKR (Interactive Brokers Group)).
All the stocks in the portfolio are Value stocks. A good example is recent addition to the portfolio, Vici Properties ($VICI).
Vici is a US Real Estate Investment Trust (REIT). It owns casino buildings including Caesars Palace Las Vegas, Harrah’s Las Vegas, and the Venetian Resort.
Casino buildings as a class appear to have been undervalued by the market for a long time, but recent transactions are helping to reset values higher.
Vici acquired the Venetian Resort, a large entertainment property in Las Vegas, last year for $4 billion. Judging by prices paid for other similar assets in the last 12 months, this now looks like a good deal for a trophy property.
Vici was earlier this month upgraded to an investment grade credit rating by Fitch. Notes Fitch: “[N]on-traditional owners have increasingly been purchasing Las Vegas real estate […] which has led to cap rate compression and is a longer term positive as it relates to the attractiveness of Las Vegas gaming real estate.“
Vici’s properties are worth around $31 per share on the private market, while the shares are changing hands for $29.5. We can thus buy the properties at a 5% discount on the stock market.
Vici shares traded above $30 last year, and we believe a return to that level is warranted. While we wait, a 5% dividend is being paid, which provides an attractive yield in an environment where interest rates still hover close to zero.