Summary
- This is a quick look at three very diverse real estate investment trusts.
- One is the largest REIT in the NAREIT FTSE All REITs Index, with a market capitalization of over $100 billion. It owns the critical infrastructure of 181,000 wireless tower sites.
- One is a 3-year-old owner of gaming and recreational properties whose tenants have adapted and prospered during the pandemic, demonstrating the industry’s resilience.
- One is a relatively small REIT that owns grocery-anchored suburban strip malls in the metro New York City area.
AMERICAN TOWER
American Tower Corporation (AMT) is the largest real estate investment trust by equity market capitalization in the entire NAREIT FTSE All REITs Index, with a market cap of $100.790 billion as of 1/31/21. It is in the Infrastructure REIT sub-sector. AMT’s strengths include size and a global strategy.
AMT’s vision is: We make wireless communication possible everywhere.
AMT’s mission is: (1) Lead wireless connectivity around the globe; (2) Innovate for a mobile future; (3) Drive efficiency throughout the industry; (4) Grow our assets and capabilities to meet customer needs.
The 40,000 U.S. towers are part of AMT’s global portfolio of 181,000 tower sites “in advanced, evolving and developing wireless markets, in various stages of wireless network deployment.” The company has “selectively expanded internationally to complement … core U.S. operations” because AMT believes that “the network development trajectory we have seen in the U.S. will ultimately be replicated overseas.”
AMT has been the leader in wireless towers for over two decades. It has a relatively low credit rating of BBB-, though higher than its competitors. This is a capital intensive business. AMT has maintained the BBB- rating since 2013. From 2000 to 2013, the rating ranged from B- to BB+. This history reveals a weakness in AMT’s heavy reliance on debt. However, the company has used leverage wisely to build their network of towers.
AMT’s core business is its network of U.S. macro towers. One opportunity is to continue to build smaller “edge” assets that drive data to their macro towers. Another opportunity is to continue to grow their international exposure. In the 2020 Q3 earnings call, AMT CEO Tom Bartlett said most of AMT’s international markets “are at least five years behind the U.S., in terms of deployed network technology. As a result, the edge … and other potential 5G enabled business models are … down the road. (Our) strategic advantage …, similar to what we did with our core tower business, is the ability to prove out these models in the United States first, and then export them internationally when the time is right.”
In markets with weak power supply, AMT uses diesel generators to provide power. They will transition to solar and lithium batteries as that technology becomes more cost effective. This will require continued investment and it will improve their environmental sustainability.
A threat to AMT is the growing “crossover” between tower providers, data centers, and providers of software and systems. The “lanes” between these sectors is blurring. AMT has a strong history of bolt-on acquisitions and adaptation to technological change. Cybersecurity and physical security are ongoing threats.
AMT has grown the dividend for 11 consecutive years. The 5-year dividend growth rate has been 19.1%. AMT’s average high yield for the past 6 years was 2.47%, with the highest yield of 2.6% reached in 2016, 2017 and 2020. That steadiness reflects the market’s strong support for AMT.
The current quarterly dividend is $1.21, or $4.84 annualized. This represents a dividend yield of 2.15% at the 2/16/21 closing price of $224.98.
AMT’s 2020 Q4 earnings call date is 2/25/21, at 8:30 am ET
F.A.S.T. Graph
The graph below shows the premium valuation awarded to AMT by the market. Earnings (total green area) and dividends (dark green area) have grown steady, but the price (black line) has risen faster, even with the recent dip from the highs of July 2020.
VICI PROPERTIES
VICI Properties Inc (OTC:VICI) is an “experiential” triple net REIT. It is one of the largest U.S. owners of gaming, hospitality and entertainment properties. Its tenants offer customers enjoyable experiences. VICI is the largest REIT in the Speciality sub-sector, with an equity market capitalization of $13.491 billion as of 1/31/21, ahead of Iron Mountain (IRM) at $9.693 billion and Gaming and Leisure Properties (GLPI) at $9.456 billion.
VICI (pronounced VEE chee) was founded in October 2017, as part of the bankruptcy reorganization of Caesars Entertainment Inc (CZR). The name is from a Latin saying attributed to Julius Caesar, “veni, vidi, vici,” “I came, I saw, I conquered.” Caesars is still VICI’s largest tenant. Others include PENN National Gaming Inc (PENN), JACK Entertainment, Hard Rock, and Century Casinos.
| Tenant | CZR | PENN | JACK | HardRock | Century |
| % Annual Rent | 83% | 6% | 5% | 3% | 2% |
As of the 11/9/20 Investor Presentation, 100% of 2020 rent had been collected through November. VICI’s plan is to achieve greater diversity by growing the percentage of income from non-Caesars properties.
Strengths include VICI’s management. CEO Edward Pitoniak has extensive experience in REITs and in the hospitality industry. President and COO John Payne is a “recovering (casino) operator,” with many years in various roles at Caesars Entertainment. CFO David Kieske has over 25 years experience in real estate and lodging. The pandemic has demonstrated the ability of VICI’s gaming tenants to adjust their business. One example was to outsource in-room food delivery from operators to numerous nearby restaurants, with less staff, lower risk, higher margins and greater variety for customers.
Weaknesses include VICI’s heavy reliance on one tenant for 83% of annual rent and a relatively low BB credit rating from S&P. In the 2020 Q3 earnings call on 10/29/20, an analyst asked whether a possible investment-grade (BBB- or better) credit rating “could be helpful to your cost of capital in any way?” The analyst noted VICI’s strong performance: “… just in your leverage and liquidity and the resiliency of your rental strength throughout this pandemic, what do you think the rating agencies would want to see to make that move?” CFO David Kieske said an upgrade would reduce the cost of capital and referenced a major collateralized term loan. “The term loan is secured by all but one of our assets and that’s prohibiting us for having a traditional REIT unencumbered asset pool. And that’s the catalyst … which would allow for the flip into investment grade.”
Opportunities include the growing popularity of sports betting, expansion of VICI’s portfolio beyond gaming and its four golfing properties, and replacement of the big term loan with unsecured debt.
The trend has been toward more relaxed gaming regulation. A potential threat is a possible reversal of this trend. Conversely, if gaming becomes more unregulated and the casinos’ “moat” is narrowed by universal gaming availability, a threat could be competition from more casinos. Can online gaming do to casinos what Netflix has done to movie theaters?
VICI has raised the dividend four times in three years of operation. The VICI Website reports the quarterly dividend by the record dates: $1.00 for 2018; $1.17 for 2019; and $1.255 for 2020. The highest yield achieved was in March 2020, at 12.1%. If 2020 is an outlier, the 2018 high yield of 5.7% and the 2019 high yield of 6.4% averages 6.1%.
The 2020 Q3 earnings release stated that the $.33 quarterly dividend was a 10.9% year-over-year increase. The current quarterly dividend of $.33, or $1.32 annualized, represents a dividend yield of 4.86% at the 2/16/21 closing price of $27.18.
VICI’s 2020 Q4 earnings will be released after the market close on Thursday, February 18. The earnings call will be Friday, February 19, at 10 am ET.
F.A.S.T. Graph
URSTADT BIDDLE
Urstadt Biddle Properties Inc (UBA) is the 20th largest of the 21 REITs in the Shopping Centers sub-sector, with an equity market capitalization of $120.3 million as of 1/31/21. UBA’s strength is its regional market position. It is “the premier grocery anchored shopping center REIT in the suburban New York Metro area.” It has enjoyed a long history of steady management.
A weakness was revealed by UBA’s lack of geographic diversification. Metro New York City was the first U.S. area to be hit hard by the pandemic in the Spring of 2020. UBA cut the dividend last summer.
Like other businesses that have responded creatively to the pandemic, UBA’s tenants have the opportunity to find new ways to serve customers, such as grocery delivery and pick up service. Federal Realty Trust (FRT) touts the shopping center as a model for pick-up service and has created designated spaces for tenants to provide that service.
An ongoing threat to retail bricks and mortar is the growth of online e-commerce. Walmart (WMT), the largest U.S. grocer, is an ongoing threat.
UBA’s fiscal year ends on October 31, so the FY2020 Annual Report is available for download from the UBA Website. Even though UBA’s streak of 26 consecutive years of dividend increases ended with the June 2020 announcement of a dividend cut, the Annual Report cover reminds investors that the company has achieved “51 years of uninterrupted dividends.”
The Q2 earnings release on June 8, 2020 described the impact of the COVID-19 pandemic and included this announcement of the dividend cut:
“As a result of COVID-19 and the economic uncertainties resulting from the COVID-19 pandemic, the company’s Board of Directors reduced the dividend on its … Class A Common … stock to $0.07 per Class A Common share … a reduction of approximately 75% from second quarter dividends of … $0.28 per Class A Common share, which will preserve $8.2 million of cash in the third quarter. … The company’s Board of Directors will continue to monitor the company’s financial performance and economic outlook and intends … (to pay) at least the amount required to maintain compliance with its REIT taxable income distribution requirements.”
The UBA website states that the REIT’s “assets are poised for future growth with strong demographic characteristics, diverse tenant mix and high barriers to entry.” Urstadt-Biddle’s properties are located in four states: New York (32), Connecticut (32), New Jersey (19) and New Hampshire (1).
UBA’s average high yield for the past 5 years was was 6.6%, with the highest yield of 9.4% reached in 2020 (before the dividend cut). The current quarterly dividend is $.07, or $.28 annualized. This represents a dividend yield of 1.85% at the 2/16/21 closing price of $15.16. The question for investors is whether, or how soon, UBA will be able to restore the dividend to at least the prior level of $1.12 annualized. If Urstadt-Biddle raised the dividend to its prior level, the yield would jump to 7.4% at the current price.
F.A.S.T. Graph
In the table below, Price is the closing price on February 16, 2021. Yield is the dividend yield at that price. Rating is the S&P credit rating, where available. Years is the number of consecutive years of dividend increases.
| Company | Price | Yield | Rating | Years | 52-Week Price Range |
| AMT | 224.98 | 2.15% | BBB- | 11 | 174.32-272.20 |
| VICI | 27.18 | 4.86% | BB | 2 | 9.85-28.75 |
| UBA | 15.16 | 1.85% | Not Rated | 0 | 8.22-23.51 |
CONCLUSION
Through aggressive acquisitions and a willingness to expand globally, American Tower Corporation has grown its macro tower business and is now embracing 5G technology to provide increasingly complex products for its customers. AMT’s long term contracts with wireless networks provides a stable stream of income to help fund its growth.
VICI Properties came into being with the emergence of Caesars Entertainment from bankruptcy. VICI provided capital to Caesars through the common sale/leaseback REIT strategy. VICI has aggressively grown its dividend in its first three years. It intends to diversify its gaming portfolio so that Caesars isn’t its overwhelmingly dominant tenant.
Urstadt-Biddle Properties has been a longtime favorite among dividend investors. It owns grocery-anchored shopping centers in the metro New York City area. After 26 years of dividend growth, the dividend was cut in June 2020 due to the COVID-19 pandemic. Investors will want to watch the company for signs of a restoration of the dividend.
