Las Vegas’ Top Landlord, Vici Properties Inc., Looks at Spas and Water Parks for Future Growth
Introduction
Born out of the casino industry’s biggest bankruptcy, Vici Properties Inc. has become one of the more surprising success stories in the gambling business. The New York-based real estate investment trust owns 54 properties across the US and Canada, including such iconic resorts as Caesars Palace in Las Vegas and the Borgata in Atlantic City, New Jersey. It’s the largest owner of casinos on the Las Vegas Strip, with more than a quarter of the city’s hotel rooms.
Historic Performance and its Evolution
Vici, which has just 26 employees, generated $2.2 billion in earnings before interest, taxes, and depreciation on revenue of $2.6 billion last year, with its market value exceeding $32 billion. The company has doubled in size over the past couple of years by gobbling up other properties, including Venetian in Las Vegas, for $4 billion and others through the acquisition of rival MGM Growth Properties. Vici shares returned 130% since they began trading in October 2017, delivering five times the return of the Bloomberg US 3000 Real Estate Index.
With interest rates up, investors have grown less enthusiastic about Vici’s 4.8% dividend. Some may also worry the company will have a difficult time finding new properties that allow it to grow at its historic rate. “They’ve gotten so big now it’s going to be harder to move the needle,” said Chad Beynon, an analyst with Macquarie Capital.
Diversification into Non-casino Business
Partly for the above reason, Chief Executive Officer Ed Pitoniak is looking beyond casinos. Vici has bought golf courses and lent $80 million to Chelsea Piers, a sports complex in Manhattan. It’s helping to finance construction of Great Wolf Resorts Inc. water parks and a Canyon Ranch spa in Texas. It has an option to buy the high-end spa’s other properties in Arizona and Massachusetts. Pitoniak, 67, is actively looking at other businesses, such as sports arenas and amusement parks, but hasn’t found a deal yet. His targets are unique destinations that don’t compete with the growing number of home entertainment options.
“Nobody’s building roller coasters and Harry Potter rides in their backyards,” he said in an interview.
Impact of Pandemic and Sustainability of REITs
The Covid-19 pandemic, which led casinos across the country to close for a few months, proved that the business could endure. Gamblers came roaring back when the resorts reopened, and Vici’s tenants never missed a rent payment. “That really struck a nerve with investors that this was one of the safest asset classes,” said Barry Jonas, an analyst with Truist Securities who recommends buying the stock.
Privately, many casino executives doubt the long-term viability of the REIT model, which requires their companies to refurbish the properties and add new attractions to keep guests coming back, even though they don’t own the buildings. Operators typically work under 15-year leases that give them options to renew. Pitoniak says they have incentive to reinvest and capture most of the upside when they do.
Conclusion
Vici has thrived in the most challenging situations and circumstances, facing some peaks and troughs. However, the company is still one of the best options for investors, with several growth prospects, such as diversification into the non-casino business, ensuring business sustainability in the long run. The ability to identify and execute such opportunities will further enhance Vici’s future and growth possibilities.
<< photo by Scott Webb >>
