VICI Properties Inc. — 2024 Q1

John, do you want to start?

I will start, and I'll start first in our portfolio in Las Vegas because I think that's been a real center of where we've grown our company, and we have great operators there. We obviously announced The Venetian today, and you heard in my opening remarks that I believe, and maybe I'm a little bit biased, but this is the fastest-growing or the best city in hospitality in the world as it continues to attract a wide variety of consumers. So that provides opportunities for our partners, whether that's MGM, Caesars, we announced with Venetian. We've got a partner in Hard Rock that owns the Mirage that are all studying ways to continue to reinvent their business and add additional amenities to these amazing assets.

I would only add, John, and Caitlin, good to hear from you, that obviously, depending on the outcome of the New York gaming licensing process, were the MGM asset in Yonkers, which we own the real estate of, to gain one of the full licenses, that would obviously be an opportunity for us to invest substantial capital in the recreation of that asset.

David?

Yes, Caitlin, we started funding that upon an announcement. And so that's an 18-odd-month development builds, but it's really the proceeds that are going into the Margaritaville Hotel to use to build the Margaritaville Hotel, excuse me. As John mentioned, the team was out there a week or so ago and saw the sports facilities that are ultimately part of our real estate that we do have the option to call in the future once everything is up and running and stabilized. But they are a best-in-class youth sports operator, and while there's no immediate intentions to grow, they are realizing the benefits of what they're creating and may have opportunities in the future to expand what they are successfully building in Kansas City.

Yes. Tony, good to hear from you. The starting point is that, over time, we are obviously solving for blended yield on our investments. When we have the opportunity to put capital into an asset as rarefied as The Venetian and still maintain an accretive spread, to the point of your note, not a vast accretive spread and not our targeted blended rate of return. But if we can match an investment like The Venetian with investments, whether acquisitions or property or lending investments that give us more substantial yields, more substantial spreads, we feel, on a net-net basis, we're creating a lot of value for shareholders.

Tony, I don't think that's necessary. It's funny. First of all, it's funny we still call them the Centaur assets. It is Harrah's Hoosier Park and Horseshoe Indianapolis. We do the same the same thing. But no, Tony, I mean we're going through the process with the appropriate Indiana regulatory agencies. And should we elect to execute this option, we will make sure that we follow all the rules and the regulations. But to your question about timing, really no position on that other than we're going through and spending the appropriate time with those agencies.

Yes. So I think as a starting point, Barry, it's valuable to remember that from what we can determine, we are the largest owner of hotel room real estate in America. We're the largest private sector owner of convention space in America, one of the largest owners of restaurants, theaters, other kinds of entertainment spaces. What are we right now, David, about 130 million square feet?

Just under that. That's right.

Yes. So Barry, when you think about having 130 million square feet of existing property, 1% and 2% of that number as potential reinvestment opportunities is a pretty compelling opportunity unto itself. As John mentioned, The Strip obviously represents a very compelling opportunity. We're particularly excited about the opportunities that could be at the south end of The Strip. We're in partnership with MGM. We own 5 assets, I believe it is. And that is an end of The Strip that, as you know, Barry, has taken on a vitality in recent years that it didn't have before.

Barry, can I add just one thing to that. Not only are -- do I agree 100% with Ed on the assets, it's also the operators that run these assets, that they are constantly looking at ways to attract more consumers and to generate more business. So you can have a great asset, but if the operator doesn't want to change it and wants to sit on their hands, the gaming operators, particularly in Las Vegas, are the best in the world in the hospitality space, and they are constantly looking at ways to build, reinvent their business. And so those 2 things combined, not only the assets are incredible, but having operators that want to change and grow and innovate is a formula for us to be able to continue to grow with the Property Growth Fund.

And Barry, before we move to your second question, Samantha wants to clarify an assumption that you made in your question that, in fact, isn't quite right.

Yes. Thanks, Barry. So you asked if we will have the opportunity to convert that via sale leaseback. And we actually don't need to do that because we own the capital improvement and that reverts to us via rent. So it's not something that we need to then, in the future, convert via sale leaseback. That's one of the benefits we think of the Property Growth Fund.

Yes. I mean it's in essence what we're doing, yes, exactly. We're investing incremental capital and in return for incremental capital, we get incremental rent.

It continues to remain -- it's the same, Barry.

Ed, do you want me to take that?

Yes. Yes, he was asking you, John.

Yes. John, so let's talk a little bit about all the different areas of Las Vegas. So today, we have an incredible amount of assets in -- on The Strip. We have 10 assets on the Las Vegas Strip that we're very excited about. Where we do not have any investments yet, where we see potential for growth is in the regional market of Las Vegas and in the downtown market of Las Vegas. So you could see VICI continue to grow in the Las Vegas market, and it could be on The Strip, but it also could be in these other areas. And those are great segments of the business that we simply don't have real estate or partners yet along the way.

And just so we're clear, John DeCree, here's being about M&A among the gaming operators themselves? Are you speaking more narrowly about the trading of assets?

Yes. Yes, you're right. And honestly, you probably have -- you'd have to ask the operators as to why they believe there isn't more M&A right now. I could speculate, and that's all I'm doing. Obviously, the operators, so many of them are trading so cheaply right now, bafflingly, bafflingly so, however you want to measure the valuation, including obviously, free cash flow yield. And so it could be a time when people say, I'm not going to sell, not at this point.

Yes. No, it's a very good question, David. And it's an essential question we're continually asking ourselves as we investigate new experiential categories. And you've heard us talk in the past about our 4 key criteria of healthy supply/demand balance, low to no secular, threat the durability of the end-user experience and lower-than-average cyclicality.

Yes, Smedes, good to talk to you. Probably a better question for the operating side of our business or the operators, but I'll give it a go here a little bit. In my comments, we're about in the regional markets, like you said, the middle and the high-end consumers are still coming in their frequency based on the information from our tenants. I think you're asking or do we believe that those lower segments will come back. I think that really depends on the operator. Is the operator pulling back incentives to those consumers and they've elected not to come because they find more ways to spend their marketing dollars in a more efficient way? So again, more an operator conversation.

John, do you want to take that? Or do you want Samantha to take that?

Samantha.

Yes. As you know, obviously, we wouldn't comment on any of our operators' sale transactions. But to the extent they were to sell an operating business, we obviously retain the asset and would enter into a lease with any transferring of that asset.

And you've seen that happen in a few -- yes, and Smedes, I'll just add that you've seen that in a few instances with our assets, Southern Indiana being one, Gold Strike being another. So we have definitely figured out how to work through those processes with existing tenants and new.

I wouldn't say, Daniel, it's so much about particular assets or even particular geographies. But I do think it goes back to the question Smedes asked a moment ago, which is what kind of behaviors you're seeing for consumer segment and their income and their spending power. And I do think one of the more -- one of the elements of cognitive dissonance right now is this disparity between lower-income consumers and higher-end consumers and the degree to which you are seeing some degree of stress and/or at least less liquidity for these lower-end consumers than you might have a year or 2 ago when we were seeing the benefits of so many of the stimulus plans that came out of COVID.

Yes, Dan, it's David. Good to hear from you. No, we have a very thorough asset management loan administration process and we monitor both our tenants and our loan investments very closely. And we talk to, as John mentioned, we talk to the operators and we also talk to our borrowers, and they are not seeing any headwinds in terms of development completion or asset performance where we do have these loan investments.

Sure. Yes, Michael, good question. John?

Michael, it's nice to talk to you this morning. And we agree that this is a win-win for both companies. You initially asked when did these discussions started. They actually started when we initially did the lease back in -- during the pandemic. And when we bought the real estate with Apollo or we bought the real estate and they bought the operation of Venetian, we knew that they were going to grow the business. We didn't know they were going to grow it as fast as they hadn't been so successful there, and we're very, very proud of them. But we talked about the Property Growth Fund and where there could be opportunities for us to grow. So the discussion started, and we do this often when we're doing deals to not only think about the deal that's in front of us, but where there are opportunities for us to grow, particularly with great assets like The Venetian.

Michael, it's David. One of the things you should look at is the Venetian press release that they put out yesterday where they, ahead of a 25th anniversary of the asset this Saturday, actually, where they have laid out extensive value enhancement plans well in excess of $700 million actually. So it's just a little bit of timing on their side as they work through the initial $400 million this year. They've got a lot of things in the hopper and things that they've already done. And then just a bit of as that all comes together, what their pace of potentially drawing that incremental $300 million, where that falls in and how they use that capital going forward.

And Michael, just to add to that, I believe you'll see the press release talks about a total of about $1.5 billion of total investment into The Venetian, of which we may end up being about half of that. But I want to stress the point that I don't know of another REIT category where tenants put more capital into the REIT's asset than ours. If you look across our portfolio, both our Las Vegas portfolio and our regional portfolio, any given year, our tenants are putting hundreds of millions of dollars, if not billions of dollars into our assets, making our assets more valuable. That obviously doesn't get captured in the models per se, given that obviously, the transparency around the exact capital that our tenants put into each one of our assets is not necessarily there. But we can tell you, based on what we know of their investment activities, that no other REIT that we know enjoys greater benefit from tenant reinvestment into our properties.

Yes. David or John?

Greg, I can start, and John can maybe chime in. Yes, potentially, there could be more than $700 million that comes out of our agreement here. The original $1 billion announcement back in 2022, we modified that as the team worked through and got in under the hood, so to speak, of the asset and realize what they wanted to do or what they want to undertake. So there's some tweaks to the original agreement on our side. And as Ed just laid out, the announcement that The Venetian put out yesterday has up to $1.5 billion or their plan is to invest $1.5 billion into the assets. So there could be incremental capital. But what we've documented and announced with our great partners at Apollo and Patrick and team and Rob into The Venetian is this incremental $700 million investment today.

Yes, Greg, I think you should hear that we like these opportunities. And as Ed just pointed out a few minutes ago, there aren't many REITs that have this unique lever to pull to grow. I mean there aren't many REITs that are going to say, "Hey, we're going to put $700 million into an asset." There are some REITs that can't even say I want to put $700 million into my whole portfolio. We're talking one of our 93 assets. So we like this opportunity to help our partners grow, and that's one of the uniqueness that VICI has that we have the -- and we were talking earlier, we can go to M&A. We can help buy other assets, but we also have this lever that we've been talking about for years that is coming to life today with The Venetian.

No -- sorry, the first part of your -- around the draw schedules, Greg? I mean we still feel really good about our guidance -- sorry, go ahead.

Yes, it's immaterial if there were any, so we feel really good about our guidance range where we sit here today.

Yes, it's a timely question, Ron. I mean it's definitely having a fairly chilling effect on trading activity really across most all asset classes. And that's why we really value having levers to pull or tools in our toolbox where we can generate growth during periods when it would otherwise be difficult to do through conventional asset trading activity. Those obviously include things like our property partner growth fund, The Venetian being an example, through our credit book, through our expansion of existing relationships. And then again, too, having the tool in the toolbox of non-gaming and being able to do things with partners like Chelsea Piers, Homefield, Cabot and Canyon Ranch when, again, the trading of assets would otherwise be difficult -- and is difficult, frankly.

We continue to spend time...

John?

Yes, we continue to spend time in a lot of different sectors on the non-gaming side, whether that's wellness, indoor water parks, pilgrimage golf, youth sports, you've heard us make an investment. But at the same time, let's remember, as I said in my opening remarks, we get 98% of our rent from our gaming assets, and we continue to spend time with our current partners and others to grow. So for us, I know we get asked a fair amount about our non gaming, but it shouldn't be forgotten that we're also spending a lot of time in gaming. So the answer is both, spending time in both.

All right. Thanks, everybody. So I want to close out the call by just reiterating how much value we believe we're creating with the announcement we made yesterday afternoon of our investment in The Venetian with our partner, Apollo. And I'm going to actually read from somebody's note because, frankly, this note expresses it better than I ever could.