Remember Randy Newman’s song “Short People”? The lyrics, though seemingly offensive, actually convey a message about prejudice and the importance of not judging based on physical traits. The same concept applies to investing in companies: size alone should not be the determining factor. It’s essential to evaluate each business on its merit, considering factors such as leadership, industry stability, customer base, and market share.
The Benefits of Small-Cap Stocks
While larger companies may seem more appealing, small-cap stocks can offer significant profit potential. For example, STAG Industrial, a small-cap industrial REIT, has shown substantial growth since November 2011. Investing in up-and-coming companies can complement a portfolio when handled correctly. Warren Buffett, known for his success in the market, has emphasized the advantages of focusing on smaller companies.
The Advantage of Scale in Larger Companies
On the other hand, larger companies often possess scale advantage, which can lead to cost efficiencies and increased market share. As a real estate investment trust (REIT) like Realty Income, for instance, expands its portfolio, it can benefit from economies of scale, lowering costs and potentially increasing profits. Scale advantage can be advantageous in various aspects, including operations, accounting, technology, and marketing.
Realty Income: A Testament to Scale Advantage
Realty Income, a publicly traded REIT, has experienced substantial growth, diversifying its business model and increasing its annual revenue from $49 million to over $3.8 billion. The company’s fortress balance sheet and disciplined leadership contribute to its track record of growing dividends for over 29 consecutive years. With the current attractive valuation and growth prospects, Realty Income presents a compelling investment opportunity.
VICI Properties: Harnessing Opportunity through Scale and Growth
VICI Properties, a relatively new public company, has achieved investment grade ratings and inclusion in the S&P 500 within a short period. The company, formed as a spin-off from Caesars Entertainment, now owns an impressive portfolio of properties in the gaming and hospitality industry. VICI’s focus on unique opportunities, such as expanding into the European market, demonstrates its potential for growth. The company’s solid balance sheet and consistent dividend increases make it an attractive investment option.
The Potential of Sale-Leaseback Financing
The net lease sector offers a vast opportunity for sale-leaseback transactions, with billions of dollars’ worth of properties available. Realty Income and VICI Properties, as dominant players in this sector, provide compelling platforms for sale-leaseback financing due to their expertise, scale advantage, and cost of capital convergence. As companies face debt maturities and elevated costs, the attractiveness of sale-leaseback financing continues to grow, presenting sustainable growth opportunities for these REITs.