On January 28, Deutsche Bank hosted an investor dinner with unnamed executives of real estate investment trust Vici Properties. “Overall, we felt the tone of the dinner was constructive, with volatility in the interest rate markets serving as the primary source of ambiguity when looking at the outlook for the company,” reported analyst Carlo Santarelli.
Vici’s focus, according to Santarelli, is on pushing toward an eight percent to 10 percent annual yield on its properties. An additional boost might come through transactions, “be it through traditional real estate acquisitions, the partner growth fund, or credit extensions.”
Management of Vici was asked about rival Gaming & Leisure Properties Inc.’s financing of a California tribal casino. GLPI is underwriting the Ione Tribe, in a deal announced last autumn.
Santarelli’s impression was that Vici “remains skeptical of the feasibility of the traditional sale-leaseback model on land in trust, with management noting a meaningfully heightened risk profile.” He added that, if many such deals were struck with many tribes, the sheer scale of the operation might work to Vici’s advantage, lessening or amortizing the risk posed by a single defaulting tribe.
Moving on to Vici’s primary tenant, Caesars Entertainment, Santarelli noted that Vici has a call option on Caesars Forum on the Las Vegas Strip. It also holds the right of first refusal on five Strip casinos, on Horseshoe Casino Baltimore, and on the recently opened Caesars Virginia permanent casino-resort in Danville.
Reviewing those assets, Santarelli concluded there is no meaningful opportunity for Vici in any of them save a purchase of Caesars Forum. The asking price for the Forum is 13 times the annual (undetermined) rent, if the deal is consummated before the end of 2028.
Vici was also described as “patiently awaiting the conclusion of the New York downstate casino license process.” Its skin in that game is its ownership of MGM’s Empire City Casino just outside the city limits in Yonkers. MGM Resorts International, another major Vici tenant, plans to invest $2 billion in Empire City if it is awarded one of up to three Class III casino licenses authorized by New York state for the NYC area. (Empire City is presently restricted to video lottery terminals.)
Should that happen, Santarelli thought, “it is logical to conclude that VICI would participate in the financing of the development, with a transaction, in our view, that is structured akin to the Park MGM development.” In the latter deal, MGM Resorts upgraded the former Monte Carlo-branded resort, then sold a $50 million interest in it to Vici.
The real estate investment trust also has a $350 million stake in Fontainebleau Las Vegas, a percentage it purchased in 2022, prior to opening. “While the performance of the asset to date, from an anecdotal perspective, has been challenged, management remains confident in the quality of the credit, given the project backing, as well as the early stage nature of the operations,” Santarelli wrote.
He continued that Fontainebleau was looking at a crucial 2025-26 period. It is attempting to compensate for a nascent casino-player database by pursuing convention business. This, Santarelli said, is being done aggressively.
The analyst noted that “given the delays in the project, meeting planners had been reticent to contract with the facility until it actually opened.” Allowing for this, Santarelli said, the effect of Fontainebleau on Las Vegas’ group-booking business had yet to be seen.
