VICI Properties expands its Las Vegas presence – and influence – through Sands deal By Howard Stutz, Executive Editor, CDC Gaming Reports March 30, 2021 at 7:00 pm At the end of February, VICI Properties President John Payne suggested the real estate investment trust was keeping its eyes firmly planted on Las Vegas. On the Strip, the New York-based company owns the land and buildings associated with Caesars Palace, Harrah’s Las Vegas, and the Caesars Forum Convention Center. VICI also has the right of first refusal should Caesars Entertainment sell Flamingo Las Vegas, Linq Hotel, Bally’s Las Vegas, Paris Las Vegas, or Planet Hollywood. In addition, VICI owns 27 acres of undeveloped land behind Bally’s, Paris, and Planet Hollywood. Venetian and Palazzo on the Las Vegas Strip/ via Shutterstock Payne, who held senior executive roles with Caesars from 2002 to 2017, said VICI’s management team consists of “big believers in Las Vegas,” including the Strip, downtown, and the locals’ casino space. “We like the market, and we’ll continue to see if there are opportunities for us,” Payne said during VICI’s fourth-quarter earnings conference call. Eleven days later, the company backed up Payne’s comments, spending $4 billion to acquire the Venetian, Palazzo, Sands Expo and the land associated with the MSG Sphere development from Las Vegas Sands Corp. The properties will be leased to Apollo Global Management, which is paying $2.25 billion for the operations. However, $1.2 billion is through seller financing from Las Vegas Sands. Under a 30-year lease, Apollo will pay VICI $250 million annually to run the Venetian-Palazzo’s 7,100 hotel rooms, 225,000 square feet of casino space, and 2.3 million square feet of convention space. The lease contains escalators that kick in after 2023. Truist Securities gaming analyst Barry Jonas estimated VICI’s annual rent collection will jump from more than $1.1 billion in 2020 to more than $1.3 billion by the end of 2021. VICI currently owns 28 gaming properties in 12 states, with its regional casinos outside of Las Vegas providing 69% of the company’s overall rent revenues. Once the Sands transaction closes at the end of the year, regional properties will make up 58% of the total rent, with Las Vegas covering 42%. Another benefit, according to Deutsche Bank gaming analyst Carlo Santarelli, is that VICI’s reliance on Caesars Entertainment – its largest tenant – reduces from 83% of all rent to 70%. “We believe the deal … represents VICI doing exactly what gaming triple-net REITS should be doing,” Santarelli said. “They are taking advantage of a healthy, and justified in our view, equity trading multiple, relative to historical levels, low interest rates, asset availability, and cash on hand to execute transactions that move the ball down the field in a nicely accretive manner.” Translation: The investment community loves VICI. “We continue to see VICI as a best-in-class REIT, consistently driving growth via accretive mergers and acquisitions with multiple tenants,” Jonas wrote in a research note after the transaction was announced. In the days following the announcement of the Sands deal, VICI CEO Edward Pitoniak made appearances on CNBC and Fox Business Network to tout the transaction. VICI Properties CEO Ed Pitoniak He told CNBC’s Contessa Brewer that VICI shouldn’t be called just a gaming REIT. The company owns four golf courses – two in Nevada and one each in Mississippi and Indiana – and made an $80 million mortgage investment in New York City’s Chelsea Piers, a 780,000-square foot sports and recreation facility on the Hudson River in Manhattan’s Chelsea neighborhood. Pitoniak said out of the 8 million square feet the company is purchasing from Las Vegas Sands, a little more than 5% involves gaming. The Sands Expo customers include “some of America’s largest corporations.” He also highlighted the MSG Sphere, which is scheduled to open in 2023, as a unique non-gaming entertainment destination. “We’re already a diversified company that owns gaming assets,” he said. In October, VICI canceled a planned $103.5 million purchase from Caesars of 23 undeveloped acres on the east side of the Las Vegas Strip. The site had entitlement and permitting issues related to the casino company’s parking obligations. Pitoniak said VICI was still eyeballing that land and could revisit the transaction. VICI was born out of the 2017 Caesars Entertainment bankruptcy reorganization when ownership of more than a dozen of the company’s gaming properties was moved into the newly created REIT. Apollo gives VICI a sixth casino operations tenant, joining Century Casinos (Missouri, West Virginia), Hard Rock Gaming (Ohio), Penn National Gaming (Michigan, Louisiana), and Jack Entertainment (Ohio). Since 2013, gaming REITs have completed more than $30.4 billion in acquisitions. VICI has accounted for 40%, or more than $12.2 billion, of those deals. “VICI – despite the shorter history relative to peers – has been the most aggressive,” Santarelli said. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.