VICI, Largest Las Vegas Strip Landlord, Not Sweating Recession

Posted on: July 29, 2022, 12:54h. 

Last updated on: August 1, 2022, 01:45h.

Corey Levitan Read More
Expertise: Commercial Gaming, Entertainment, Expert Insight, Las Vegas.

VICI Properties, Inc. — which owns Caesars Palace, the MGM Grand, The Venetian and eight other Las Vegas Strip properties — said it does not fear the effects of a recession. During a conference call with analysts Thursday to discuss second-quarter earnings, company executives said the resiliency of gaming customers would see it through all short-term shortfalls.

The MSG Sphere
The MSG Sphere is currently being constructed on 18 acres owned by VICI Properties, the Las Vegas Strip’s largest landowner. (Image: msgsphere.com)

VICI posted a net loss of $57.7 million, compared to $300.7 million in the second quarter of 2021. The New York-based real estate investment firm attributed part of the loss to its $17.2 billion buyout of MGM Growth Properties, MGM Resorts International’s real estate spinoff, in April 2002.

The gaming customer has proven to be more resilient through both garden-variety recessions and full-blown crises than just about any other discretionary consumer out there,” said VICI CEO Ed Pitoniak. “That was proven through both the great financial crisis and throughout the COVID-19 pandemic.”

Two months earlier, VICI purchased the real estate of The Venetian and Palazzo casino hotels and the Sands Expo Convention Center from Las Vegas Sands for $4 billion.  Its Q2 revenue was $662.6 million, up 76% from $376.4 million in the same quarter last year.

Largest Strip Landowner

VICI’s 660 acres along Las Vegas Boulevard generates approximately 45% of its portfolio income, Pitoniak said on the call. VICI owns the MGM Grand, Mirage, Mandalay Bay, Excalibur, New York-New York, Park MGM and Luxor — which it leases to MGM Resorts International.

The Mirage, which is changing hands, will soon be leased to Hard Rock International for an annual base rent of $90 million. Vici also owns Caesars Palace and Harrah’s, which it leases to Caesars Entertainment, and the Venetian and Palazzo, which it leases to Apollo Global Management.

VICI was created in 2017 when Caesars Entertainment Corporation spun it off as part of its Chapter 11 bankruptcy reorganization.

Safety (Triple) Net

“While many of you enjoy asking questions about on the ground operating trends, I would like to remind you that we are a triple-net lease landlord,” VICI President and Chief Operating Officer John Payne told analysts on the call.

Triple-net leases require tenants to pay property taxes, utilities, insurance premiums and maintenance expenses in addition to rent. The main advantage of triple-net leases to tenants is lower rent.

We collect fixed rent streams with annual escalations over very long periods of time,” Payne said. “Those who have followed our story will recall that we continued to collect 100 percent of cash rent when every one of our properties was forced to close due to the government-mandated restrictions in response to COVID-19.”

Pitoniak said VICI’s future plans include continuing to densify its properties, identifying “either unoccupied acreage or acreage that is otherwise not being put to its highest and best use.” As an example, he cited the MSG Sphere at The Venetian, a 17,500-seat auditorium currently being built on 18 acres it owns behind the Sands Expo and Convention center. That formerly served as a parking lot.

VICI shares on the New York Stock Exchange closed Thursday at $33.80, up 0.9%.