VICI, O or IRM: Which REIT is more attractive in the midst of a looming recession?

Real estate investment trusts, or REITs, are an attractive investment option amid the current turmoil. REITs generate steady cash flow from rental income. They are required to return at least 90% of their taxable income as dividends, making them attractive to income-oriented investors. We will discuss three REITs – VICI Properties (NYSE:VICI), real income (NYSE: O), and Iron Mountain (NYSE: MRI) – and use TipRanks’ stock comparison tool to choose which one can generate the best returns.

VICI properties (VICI)

VICI Properties has one of the largest portfolios of gaming, hospitality and entertainment properties, including Caesars Palace Las Vegas and the MGM Grand. The company’s triple net leases with top tenants ensured 100% rental collection during the COVID-19 pandemic. Under triple net leases, the tenant is responsible for paying all property expenses related to ongoing maintenance and operation, including taxes and insurance.

This week, VICI released its third quarter results. Revenue grew 100% year-over-year to $751.5 million, while adjusted funds from operations (AFFO) per share increased 8.5% to $0.49 . The results reflect the impact of the company’s acquisitions of MGM Growth Properties LLC and the land and real estate assets of The Venetian Resort Las Vegas. VICI has slightly revised its 2022 AFFO guidance per share to the range of $1.91 to $1.92, from the previous guidance range of $1.89 to $1.92.

Last month, VICI increased its quarterly dividend per share by 8.3% to $0.39. The company offers an annual dividend yield of 4.79%.

Is VICI a good stock to buy?

Following the third quarter results, Deutsche Bank analyst Carlo Santarelli reiterated a buy rating on VICI stock, but cut his price target to $37 from $39 to reflect a multiple lower target valuation. Santarelli believes that in the current environment, VICI is “more compelling” to REIT investors based on the historical stability of lease payments.

VICI Properties stock earns Street’s Strong Buy Consensus Rating based on 10 unanimous buys. VICI’s average stock price target of $36.43 implies 13.4% upside potential. Shares are up 6.7% year-to-date.

Property income (O)

Realty Income’s portfolio includes 11,427 properties located in 50 US states, Puerto Rico, the UK and Spain. It primarily focuses on independent single-unit commercial properties under long-term net lease agreements with leading global operators, such as Walgreens (WBA), General dollar (CEO), Dollar tree (LTRD) and FedEx (FDX).

Realty continues to strengthen its portfolio with acquisitions of high quality real estate. After investing more than $3.2 billion in the first half of 2022, the company raised its full-year acquisition guidance to more than $6 billion.

Also known as “The Monthly Dividend Company,” Realty recently declared its 628th consecutive monthly dividend ($0.25) and has increased its dividend 117 times since going public in 1994. The annual dividend yield of this dividend aristocrat stands at 4.87%.

Realty Income is well positioned to support its attractive dividends. In the second quarter, the company’s AFFO per share rose 10.2% to $0.97.

What is the target price of real estate income?

Recently, Mizuho analyst Handel St. Juste downgraded Realty Income stock to Hold from Buy and lowered the price target from $76 to $61. The analyst cited lower investment spreads relative to peers, high acquisition expectations and increased currency headwinds as reasons for his ratings upgrade.

Overall, the Street is cautiously bullish on Realty Income stocks, with a moderate buy consensus rating based on seven buys and three takes. The average Realty Income stock price target of $70.85 implies approximately 14% upside potential. The shares are down 13% since the start of the year.

Iron Mountain (MRI)

Iron Mountain is a specialty REIT that provides information storage and management services. Its real estate network includes nearly 1,380 establishments in 59 countries (at the end of Q2). Its wide range of services includes digital transformation, data centers, secure records storage, information management, artwork storage and logistics, and asset lifecycle management.

In the second quarter, Iron Mountain’s revenue rose 15.2% to $1.29 billion. The company’s storage rental revenue accounted for 58.4% of overall second-quarter revenue, while service revenue contributed the rest. Notably, the company’s services revenue is growing at a faster rate than its storage rental revenue. AFFO per share rose 9.4% to $0.93.

The company expects full-year revenue growth of between 14% and 17% and AFFO growth per share of 6% to 10%.

At its September Investor Day event, Iron Mountain revealed plans to grow revenue at a CAGR of around 10% to $7.3 billion in 2026. The company plans $4 billion in spending in capital over the 2023-2026 period to support its growth plan.

With a quarterly dividend per share of $0.62, the company’s annual dividend yield is 5.02%.

Is MRI a purchase?

Iron Mountain earns the consensus strong street buy rating based on four unanimous buys. The average Iron Mountain stock price forecast of $60.50 implies nearly 21% upside potential. IRM stock is down 4.2% so far this year.

Conclusion

The three REITs we discussed offer comparable dividend yields. However, currently, Wall Street sees greater upside potential in Iron Mountain shares than in VICI Properties and Realty Income.

Unlike the other two REITs, Iron Mountain is not known for its dividend increases. The company is investing aggressively in its growth initiatives. With rapid digitalization and the transition to the cloud, strong demand for data centers is expected to drive Iron Mountain’s future growth.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.