Indy Gaming: VICI lends more than $1 billion to Strip operators. Is more coming?
When VICI Properties was created out of the Caesars Entertainment bankruptcy reorganization in 2018, the real estate investment trust had 20 casinos and less than $1 billion in annual rent revenue.
Six years later, VICI has become an unmitigated success story, with annual revenue having grown threefold and the company nearing ownership of 100 gaming and non-gaming properties in the U.S. and Canada.
Now, the trust is finding new ways to expand its footprint — providing more than $1 billion in loans to the operators of Las Vegas’ marquee casinos.
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VICI Properties is finding new ways to invest in Las Vegas without adding more land to the 660 acres the real estate investment trust (REIT) already owns on the Strip.
Last week, the company announced it was providing Apollo Global Management with a $700 million to partially fund a planned $1.5 billion in renovations for The Venetian, Palazzo and Venetian Expo during the next few years.
This is the second investment VICI has made to the operator of a Strip resort. In 2022, the company funded $350 million of a $2.2 billion construction financing package obtained by developers of the Fontainebleau Las Vegas, which opened last December.
VICI is the landlord for 10 Strip properties operated by MGM Resorts International, Caesars Entertainment, Hard Rock Entertainment and Apollo, including Caesars Palace, MGM Grand Las Vegas and Mandalay Bay.
VICI Chief Financial Officer David Kieske described the funds provided to Apollo as "incremental capital."
Could similar VICI-backed investments be extended to its other tenants?
“I can't give you any details that we haven't announced, but our operators have all talked about the development of their Las Vegas assets,” VICI President John Payne said during the company’s quarterly earnings call last week, adding that large spaces in several resorts are unused at this time. He suggested the REIT’s financing could provide “new concepts” that bring the areas “back to life.”
Payne said Hard Rock could be another recipient of VICI-backed financing, given the company’s plans to convert The Mirage into Hard Rock Las Vegas, which includes building a guitar-shaped hotel tower on the Strip.
“We continue to speak with the Hard Rock team on ways that we can help them grow, but we have not made any announcement on that yet,” Payne said.
The "money offered "incremental investment" to Apollo — $400 million in 2024 and an option until 2026 to draw another $300 million — will be paid back through a 2 percent increase to the operator’s annual rent payment starting in March 2029, with a second increase of 2 percent to 3 percent in March 2031.
Apollo currently pays $265.2 million in annual rent.
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Kieske told analysts during the call that The Venetian management may not need to draw on the entirety of the $300 million.
“They've got a lot of things in the hopper and things that they've already done,” Kieske said of the property’s indoor overpass connecting the resort to the Sphere in Las Vegas, Mediterranean restaurant HaSalon and Voltaire’s Belle De Nuit, a cabaret and disco show.
During the next few years, Apollo plans to remodel all 4,000 suites in The Venetian, which celebrated its 25th birthday last weekend. At the Palazzo, which opened in 2007, Apollo plans to remodel gaming areas, including adding a Yahoo-branded sportsbook. Apollo is also spending $188 million on convention center improvements and continuing to change out its restaurant offerings throughout the complex.
Apollo and VICI jointly acquired the 63-acre Venetian site for $6.25 billion in 2022 from Las Vegas Sands Corp. The REIT paid $4 billion for the land while the private equity firm paid $2.25 billion for the operations — $1.05 billion in cash and financing with Sands providing Apollo $1.2 billion of seller financing.
CBRE Equity Research gaming analyst John DeCree told investors that providing a loan to Apollo made more financial sense for VICI rather than letting Apollo seek financing from traditional banking sources.
“The investment adds meaningful value for VICI as it increases the company’s rental income and exposure to one of the most iconic casino resort properties in the world,” DeCree wrote in a research note, adding that Apollo also benefits by the transaction.
“[Apollo] is able to finance its renovation program at attractive rates with virtually no capital markets risk or transaction costs,” DeCree wrote.
According to VICI’s first-quarter earnings presentation, the company is expected to collect almost $3.1 billion in annual rent from 13 tenants covering 54 gaming properties in the U.S. and Canada and 39 non-gaming businesses. The REIT’s two largest annual rent payers are MGM Resorts (almost $1.2 billion) and Caesars (almost $1.1 billion).
Payne reiterated the REIT’s interest in growing its Las Vegas presence through acquisitions downtown or the locals market.
“Those are great segments of the business [where] we simply don't [own any] real estate or [have] partners yet,” Payne said.
Wynn Al Marjan Island taking shape in the UAE
Wynn Resorts is on track to open its $3.9 billion Wynn Al Marjan Island by 2027 — which will be the first integrated gaming resort in the Middle East.
The company released new renderings of the project, along with a photo of the beginnings of a planned 1,000-foot-tall hotel tower rising above the island’s shoreline next to the Arabian Sea. The project, which began construction in 2023 and is being developed with Marjan and RAK Hospitality Holding, is located in Ras Al Khaimah, United Arab Emirates.
The property will include multiple resort amenities, including 1,542 hotel rooms and suites and 22 high-priced villas with beachfront access. The property will have 22 restaurants and lounges and other non-gaming amenities, including 15,000 square feet of retail space and 100,000 square feet of convention and meeting areas.
What I'm reading
Sources: NBA, sportsbooks discuss changes to player props — David Purdum in ESPN.com
One worry expressed: restricting certain wagers could push bettors into the illegal market.
What’s happening with the Tropicana’s iconic stained glass? — McKenna Ross in the Las Vegas Review-Journal
One of the few items from the shuttered Tropicana worth saving.
Kentucky Derby sets new wager record — Jonathan Block in SeekingAlpha.com
Churchill Downs said more than $210.7 million was wagered on the race.
Arizona sportsbooks claim $54 million in gross revenue for February — Chris Altruda in SportsHandle.com
Super Bowl wagering in Arizona was higher this year when the game was in Las Vegas. In 2023, the game was in Phoenix.
News, notes and quotes
Primm casinos owner names Scott Butera as CEO
Longtime sports and gaming executive Scott Butera has been named CEO of Affinity Interactive, which owns the three casinos in Primm and the off-Strip Silver Sevens. Butera has held executive-level roles with MGM Resorts International and three East Coast casino companies. Illinois private equity firm Z Capital Partners owns Affinity.
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Penn Entertainment hires Disney exec to oversee ESPN Bet
Aaron LaBerge, the longtime chief technology officer for Disney Entertainment and ESPN, will take on a similar position in July for casino operator Penn Entertainment. He will have the same title heading the company’s interactive division, primarily overseeing the continued development of ESPN Bet. The sports betting business launched last fall.
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What the CEOs said during first-quarter earnings calls
“This was kind of a kitchen sink-type quarter for us. Everything that could go wrong did for us.”
- Caesars Entertainment CEO Tom Reeg after the company reported a first-quarter revenue decline of 3 percent companywide and a 9 percent decline in Las Vegas
“I think [United Arab Emirates] will come to fruition. There are enough indicators. Enough work has been done to recognize that either Abu Dhabi or one of the other Emirates will come to life.”
- MGM Resorts International CEO Bill Hornbuckle on the potential for gaming legalization in the UAE
Updated at 9:01 a.m. on 5/8/2024 to clarify the nature of the investments by VICI.