Despite a global pandemic that is still having an impact on the industry, the president of VICI Properties believes there are plenty of opportunities for gaming real estate investment trusts (REITs) to acquire casinos in foreign markets.
“There are countries that we continue to study and others in the space continue to study,” John Payne, VICI president and chief operating officer, told attendees Monday at Global Gaming Expo (G2E) in Las Vegas.
“Whether that is Canada, whether that’s in Australia, whether that’s in Singapore and whether in the future in Japan … it is going to need to be in countries where the rule of law [and] the tax rate makes sense for REITs.”
“You are going to see our company and other companies in the space continue to expand,” Payne said.
VICI, which acts as a landlord for several casino companies, including Caesars Entertainment, has announced more than $20bn worth of acquisitions this year alone.
In March, VICI spent $4bn to acquire the real-estate assets associated with the Venetian and Palazzo resorts from Las Vegas Sands.
Apollo Global Management agreed to acquire the operations for $1.2bn and changed the name of the meeting space that hosts G2E annually to The Venetian Convention and Expo Center.
VICI also has announced a deal to acquire rival MGM Growth Properties, a REIT created by MGM Resorts International in October 2015, for $17.2bn, creating a dominant owner of Las Vegas Strip real estate. When the deal closes, VICI will have an enterprise value of $45bn, making it the largest U.S. owner of experiential real estate.
Despite major activity in the past four of five years, Payne noted that the concept of REITs for casinos remains a “a very young industry,” with the first formed just eight years ago when rival Gaming and Leisure Properties was split off from Penn National Gaming.
Payne said when VICI was formed four years ago by Caesars, institutional investors did not appreciate how good the industry was, how valuable casino real estate was and how durable it is compared to many other real-estate classes.
“They hear gaming real estate, and they think this must be going up and down,” Payne said. “So, the past eight years from the start of GLPI, the formation of MGP and then the start of VICI has been a real educational journey for institutional investors.”
“You came out of COVID not only doing well but better than ever before,” Payne said of the U.S. gaming industry.
“Many hospitality industries are talking about cash burn … casino executives are talking about record EBITDA and that has helped drive the valuation of the real estate of the properties that you have.”
Payne noted that four or five years ago real estate in the gaming space was going for “10 cap, or 10 times rent multiple and for those that were following this past week The Cosmopolitan of Las Vegas real estate was sold for 4.97 cap rate or 20.1 times rent multiple.”
The resort sold for $5.65bn to a partnership of Stonepeak Partners, Cherng Family Trust and Blackstone Real Estate Income Trust. As part of the deal, MGM acquired the operations of The Cosmopolitan for $1.625bn.
Blackstone acquired the property for about $1.7bn in 2014 and spent $500m on upgrades.
“So, you see institutional investors are getting educated on this space and are realizing what great real estate it is,” Payne said.
“Think about it this way,” Payne said, “if you are a real estate investor and you are looking at gaming real estate, it is relatively cheap.”
Joining Payne on the G2E panel were: Bill Lerner, head of investment banking at Union Gaming; Kate White, vice president of business intelligence and IT at Penn National; and Michael Soll, president of The Innovation Group.
Lerner said the gaming REIT space “feels like early innings still,” noting that VICI and its peers as casino spin-offs have paved the way for private equity firms and real-estate companies such as Blackstone Group, Apollo Management and probably Starwood to advance in the segment.
Lerner reminded attendees that private equity firms face a great deal of pressure to put their investors’ money to work.
“Gaming is a sector unique in that the underlying operations produce such a huge quantum of EBITDA relative to other things like retail, office and industrial,” Lerner said. “They can get more money to work, more quickly and as it turns out it is a durable operation that is underlying all of this.”