The Nevada Gaming Commission Thursday signed off on the private equity owners of the Venetian and its convention center to issue a $620 million dividend a mere nine months after the company took control of the property from Las Vegas Sands.
In an hour-long discussion, the Commission went along with Apollo Global Management’s request as recommended by the Nevada Gaming Control Board.
Sonya Vermeys, a partner and gaming attorney at Brownstein Hyatt Farber and Schreck, told the Commission that the plan is to distribute cash to the equity holders and Venetian employees. “This recapitalization plan is supported by the Venetian’s very strong financial position and a pending favorable financial transaction (with J.P. Morgan Chase Bank),” Vermeys said.
Apollo closed the sale with Las Vegas Sands, following Commission approval, in late February. LVS sold the resorts, convention center, and adjacent land where the MSG Sphere is being built for $6.25 billion. VICI Properties owns the land; Apollo owns the operations and leases the property from VICI starting at $250 million a year.
The Gaming Control Board raised concerns that the distribution might be too soon and feared it wouldn’t leave enough capital to weather a recession.
“Approving this application sends a positive message to the private-equity community and encourages continued investment in Nevada,” Vermeys said. “The whole team fully recognizes that from a regulatory standpoint, it is essential that the Venetian remain economically healthy, strong, and able to meet current and future expenses. The proposed transaction, including the distribution, will sustain the continued financial health and stability of the Venetian, while also aligning the Venetian’s capital structure with the current market.”
Robert Brimmer, CFO of the Venetian, told the Commission that the transactions are “fiscally appropriate,” make the capital structure more efficient, and don’t inhibit the ability to invest in the business.
“The financial performance has been remarkable since closing,” Brimmer said. “We’re run-rating north of $600 million of EBITDAR, versus roughly $470 million in the same 12-month period in 2019. That’s nearly 27% growth in our financial performance. It’s broad based across customer segments and business lines and in our opinion is durable and resilient. We just closed the financials in October and it’s the best single month the Venetian has had in the last 10 years. If anything, our financial performance is strengthening at the end of the year, which supports these transactions.”
Since closing, the Venetian has earned more than $300 million in cash in the business and has about $350 million in excess cash on the balance sheets, with no near-term needs for it, Brimmer said. Nor are there plans for major investments until late 2023, so the cash is only earning 2% to 3% interest income, which is below investors’ return thresholds, he added.
Brimmer said they’re “right-sizing the capital structure.” Substantial equity capital was put into the business at closing and given the strong financial performance and outlook for the business and “our needs for investment, we think this rightsizing makes sense,” Brimmer said.
If there is a slowdown in the economy, the Venetian’s financial structure can cover any investment projects. It has a $100 million revolver for extra liquidity, he said.
The enterprise was losing $1 million a day in the first quarter of 2021, Brimmer said. That drove the initial capital structure that was put in place.
“Capital markets were heavily dislocated in that time period and we over-equitized the deal to get it done,” Brimmer said. “Given the uncertainty on future outlook, it was appropriate then. But given what we’ve demonstrated in terms of performance, now we’re overly equitized.”
Since January, the business has seen a high 90% occupancy level with a high-quality customer and high level of room-rate growth, Brimmer said. Relative to 2019, the Venetian had room-rate growth of 35% in April and May and sustained growth in the mid-20s in the summer. In October, they were in excess of 40% growth compared to 2019.
Brimmer cited the opportunity to invest within the casino at the Venetian. This year, they added about 200 slot machines, with plans to add more gaming square footage, including space to target segments that are underserved on the property. “With the slot-unit growth throughout the year, we have sustained our win-per-unit,” Brimmer said. “This proves latent demand.”
Beverage sales have grown, given an investment in Tao Beach and other new food and beverage assets, he said.
“We assumed there would be a recovery from COVID, but this happened several years more quickly than we anticipated,” Brimmer said. “We’re almost fully recovered across all of our segments, other than international, which is slowly coming back.”
Brimmer said they’re optimistic about the opening of the MSG Sphere at the Venetian in 2023 that will contribute to their success.
Brimmer said they met with their board of managers in late October and went through a plan; they expect to make a $1 billion investment in the next three to four years and touch every element of the business, from hotel rooms to gaming space, theaters, meeting facilities, and food and beverage.
“With broad investment, we think this will generate very strong financial returns,” Brimmer said.