VICI And NexPoint: Still Cheap In A World Of Expensive

VICI Properties trades at 11x forward AFFO despite stable long-term leases and resilient cash flow, while NexPoint Residential trades at 65% of NAV and 11x AFFO. The article argues both REITs are undervalued relative to fundamentals, with VICI supported by tenant transitions and NXRT positioned for AFFO/share growth as Sunbelt supply peaks and operating conditions improve.

Analysis

The cleaner way to think about both names is that they are not levered to macro growth so much as to the market re-rating stranded cash flows as balance-sheet and operating fear fades. VICI’s opportunity is less about the tenant mix headline and more about the fact that long-duration contractual rent streams are being priced like cyclical credit despite limited near-term refinancing sensitivity; if credit markets remain orderly, the discount can compress without any need for visible NOI acceleration. NXRT is a classic supply-cycle inflection: once new deliveries crest, even modest improvement in retention and concessions can produce outsized AFFO/share leverage because operating expense growth is already slowing while rent resets lag by a quarter or two.

The second-order winner is likely the broader apartment and net-lease complex, because these are the names that can absorb capital from investors who are underweight REITs but still want duration-like income without taking office or mall risk. For NXRT specifically, peak supply should also help nearby Class B owners and resident retention, which means fewer concessions across the Sunbelt in 2H and a better setup for same-store margin expansion into next year. For VICI, the market may be missing that tenant turnover can be a feature, not a bug, if the replacement cohort is underwritten at today’s higher spreads; this can quietly improve risk-adjusted cash flow even if reported growth looks boring.

The main downside risk is timing: both theses can be right and still underperform for months if rates back up or REIT multiples compress further. VICI is most exposed to a renewed rate shock because the stock is being valued off yield math rather than growth; NXRT is more exposed to a surprise in Sunbelt supply absorption, especially if employment slows and households trade down at the same time. If either name misses on quarterly guidance, the market will likely punish the multiple first and the fundamentals later, so entry discipline matters.

Consensus is probably too focused on the current discount and not enough on the path to closing it. The better setup is not a straight valuation catch-up, but a gradual reset in investor perception as data confirms that the worst of the supply/lease-overhang is behind us. That suggests upside is likely to come in steps over the next 2-6 quarters rather than in a single catalyst-driven rerating.

Key Decisions for Investors

• Long VICI on weakness over the next 1-2 weeks; target a 10-15% rerating if rate volatility stabilizes, with downside limited by contractual cash flow durability.
• Build a starter long NXRT position into any post-earnings pullback; expect the best total return window over the next 3-6 months as Sunbelt supply rolls over and leasing spreads improve.
• Pair trade: long NXRT / short a Sunbelt apartment name with still-elevated supply exposure; thesis is relative margin reacceleration for NXRT over the next 2 quarters.
• If using options, prefer VICI call spreads 3-6 months out to express a discount-compression view with defined downside, since outright equity beta may stay choppy.
• Risk control: reduce or hedge if 10-year yields re-break higher, because both names are duration-sensitive and a 25-50 bps move can overwhelm near-term fundamental improvement.