Las Vegas has a lot of big-name operators that grab the spotlight. Caesars Entertainment (CZR) , for example, has its name splashed across its signature property, the massive Caesars Palace. It's not subtle, which makes sense given that the casino giant wants people to stay at its resorts, gamble in its casinos and, perhaps most important, join its loyalty program.
MGM Resorts International (MGM) has a similar strategy. Its name has been used liberally across its Strip properties as it follows its rival in trying to drive customers into its loyalty program. That can help fill nights in its hotels, increase in-person gambling, and drive online sports betting in places where it's legal.
These are companies that want customers and investors to know their names. Caesars and MGM dominate the Las Vegas Strip as far as the public is concerned, but neither one is actually the leading player in that incredibly valuable stretch of real estate.
That's because while MGM and Caesars operate the most casinos on the Strip (and in Las Vegas overall), another player actually owns many more properties, even if that company does not have a big public profile.
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While Caesars and MGM operate casinos, Vici Properties (VICI) owns the actual land and buildings that those casinos operate in. That's not as public a business, but the real estate investment trust has an incredible portfolio that dominates the Las Vegas Strip.
Vici recently completed the $17.2 billion acquisition of MGM Growth Properties making it by far the largest landlord on the Strip. The deal, which followed Vici's recent acquisition of the Venetian, makes the company the owner of the majority of the casinos on the Las Vegas Strip.
"The addition of the MGP portfolio, together with the recent closing of our Venetian acquisition, elevates VICI to the top ranks of American 4-wall REITs, making VICI a Top-5 REIT by earnings before interest, taxes, depreciation, and amortization, a Top-10 REIT by enterprise value,” VICI Chief Executive Edward Pitoniak said in a news release.
The new Vici has an estimated enterprise value of $44 billion after the deal closed.
“Vici now owns 10 premier resorts on the Las Vegas Strip, consisting of 1.2 million square feet of gaming space, approximately 40,775 hotel rooms, and 5.9 million square feet of meeting and convention space," Vici Chief Operating Officer John Payne in the news release.
"We continue to believe in the strength of the Las Vegas market, bolstered by a strong post-covid recovery and robust operator outlook and continued institutionalization of this real estate asset class.”
As a landlord rather than a casino operator, Vici does not face the same volatility in its revenue that Caesars and MGM experience. The company essentially has its income locked in. Leases vary by tenant, but when the MGM Properties deal closed, MGM Resorts International signed a new deal with Vici that's fairly typical.
The MGM master lease, which commences as of today, has an initial term of 25 years, with three 10-year tenant renewal options and an initial total annual rent of $860.0 million. Rent under the MGM master lease escalates at a rate of 2.0% per annum for the first 10 years and thereafter at the greater of 2.0% per annum or the annual increase in the consumer price index ("CPI"), subject to a 3.0% cap.
That's essentially revenue without risk. For investors, that does somewhat cap the upside of buying Vici shares over owning Caesars or MGM, but it also minimizes the downside risk, which may be even more valuable in a time of very volatile markets.
Vici may keep its name off of its buildings, but it's very well positioned to grow as Las Vegas does — and, really, even if it doesn't.
The REIT also has the right of first refusal to purchase a number of Caesars properties on the Strip it does not currently own. That means it's likely to add another major property to its portfolio, as Caesars has made clear that it intends to sell one of its casinos on the Strip.
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