VICI Properties holds the cards – and 50 acres – in future Las Vegas Strip development By Howard Stutz, Executive Editor, CDC Gaming Reports August 4, 2020 at 8:00 pm The real estate investment trust VICI Properties will have a loud voice in the post-pandemic recovery of the Las Vegas Strip. Ahead of the official closing of Eldorado Resorts’ $17.3 billion acquisition of Caesars Entertainment last month, VICI provided the newly combined company – now simply called Caesars – $400 million through a five-year mortgage loan on the Caesars Forum Convention Center. The 500,000-square-foot facility sits just east of the Strip behind the Linq Promenade and in the shadow of the High Roller Observation Wheel. VICI paid Caesars $103.5 million for 23 acres of undeveloped land parcels adjacent to the Caesars Forum and behind Harrah’s Las Vegas, Linq Resort, and Flamingo Las Vegas. The acquisition, when paired with an additional 27 acres of undeveloped land behind Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood, gives VICI a clean 50-acre slate for potential development. The REIT’s consolidation of so much prime land caught the investment community’s attention. The vacant parcels run alongside the western length of the Las Vegas Monorail, which carries 4.6 million passengers annually and soon may be purchased by the Las Vegas Convention and Visitors Authority. The High Roller attracts 1.5 million visitors annually. Caesars Forum was scheduled to be center stage for last April’s three-day NFL Draft until COVID-19 halted the festivities. VICI Properties CEO Ed Pitoniak VICI CEO Ed Pitoniak told analysts last week that the 50 acres cover “the only large-scale opportunity to deepen the Las Vegas Strip at its center and to participate in the potential for long-term growth that this land represents.” What is eventually built on the site is, for now, up to everyone’s imagination. As a REIT, VICI is a landowner, not a developer. Pitoniak said the best use for the site will be determined in five or 10 years as the economic recovery from the pandemic takes hold. He expects the land will be central in the “long-term growth” of Las Vegas as both a tourist destination and a global city. “We see this as a way of capitalizing on what we still very strongly believe to be the long-term growth of Las Vegas,” Pitoniak said on VICI’s second-quarter earnings conference call. “We see that land as giving us a chance to participate, not only in the growth of Las Vegas tourism but in the growth of Las Vegas as a place where people choose to work and live as well as to play.” Union Gaming Group analyst John DeCree is bullish on the 50 acres and the site’s potential. “Although some analysts have taken issue with no direct income being associated with the $103 million Strip land purchase, we see immediate value creation due to the purchase price that was below normalized market value and the long-term optionality it provides for future growth in Las Vegas,” DeCree said on VICI’s investment. VICI was created out of the former Caesars Entertainment’s bankruptcy reorganization in October 2017. The company took ownership of the land and buildings associated with some 20 Caesars, Horseshoe, and Harrah’s properties across the U.S. As of this week, VICI owns the real estate of 31 gaming properties in nine states, which are leased back to five casino operators – Caesars, Hard Rock International, Jack Entertainment, Century Casinos, and Penn National Gaming. The company is also not done acquiring casinos. Some casino operators might be willing to part with their physical and retain management as a way to bring down costs and recover financial losses due to COVID-19. “Management expects to remain active in mergers and acquisitions and believes sale-leaseback may be a more attractive capital source for operators,” Jefferies gaming analyst David Katz said in a research note. Shutterstock/Linq’s High Roller Observation Wheel behind Caesars Palace VICI was a factor early in the Eldorado-Caesars merger. The REIT paid $1.8 billion to acquire three Harrah’s branded casinos in Atlantic City, New Orleans, and Laughlin, Nevada, and is leasing the resorts back to the new Caesars for $154 million in total annual rent. In the last quarter, VICI said its total revenues grew almost 17% to $257.9 million, which would equate to more than $1 billion annually. Prior to the Eldorado-Caesars merger, VICI owned the land and buildings associated with Caesars Palace and Harrah’s Las Vegas, two center-Strip landmarks. DeCree didn’t think the REIT was done with Caesars, either. The former Eldorado management team, which is now in charge of the gaming industry’s largest casino operator, is looking to sell a Strip resort and has been mandated by Indiana gaming regulators to part with three of its five properties in the state. “These are all opportunities for VICI to execute on a potential right of first refusal and/or expand its tenant roster, which historically has led to future deals with new tenants,” DeCree said. “While deal volume has inevitably slowed, we do believe VICI can find unique transaction opportunities.” Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.