In this episode of The Lazy Landlord, Kevin Vandenboss speaks with Edward Pitoniak, CEO of VICI Properties
Kevin and Edward talk about:
- how VICI got started
- The future of gaming real estate investments
- the value of owning dividend-paying stocks
- the rule of 72
- Owning 50% of Las Vegas
- what does triple net REIT mean?
- how does the VICI model work?
- how does inflation work with gaming real estate investments?
- The new properties that will be in Las Vegas
- The Gaming Real Estate Investments
Real Estate Expert at Benzinga
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Disclaimer: All of the information, material, and/or content contained in this program is for informational purposes only. Investing in stocks, options, and futures is risky and not suitable for all investors. Please consult your own independent financial adviser before making any investment decisions.
We have Edward Pitoniak CEO of VICI Properties.VICI is a real estate investment trust that owns the real estate that some of the largest and most well-known casinos in the country operate out of, including several along the Las Vegas strip.
Kevin Vandenboss: Now you guys have. Really exploded over the past year and you just acquired the Venetian in Las Vegas and even more recently MGM Grand properties. With the market in so much chaos and so much uncertainty, what can you be certain of?
Edward Pitoniak: Owning dividend-paying stocks in times of utter turmoil, is assuming the dividends stream is secure well secured, and funded at least, you're going to get something. I don't think that has resonated as much with the retail community. Cause I think to the retail community dividend-paying stock that is boring.
And I think at a time like this, one of the questions to ask. Maybe it wouldn't kill me to actually be a little bit bored right now because the alternative is hyperventilating.
Kevin Vandenboss: Why do you think the market has been slow to figure Gaming Real Estate Investment out?
Edward Pitoniak: There are some general issues. Kevin, that can help explain that. And then there are some issues specific to VICI the general explanation for VICI what's taking place is that we are still a very new asset class in investment terms in American commercial real estate investment terms.
It was up to us VICI when we announced our first acquisition in December of 2017, to use the term cap rate to put our acquisitions in the context of other real estate investments that have been made in America over the preceding 2 years at that point.
So what we were determined to drive was the institutionalization of our category. As a retail investor, you always want to be thinking about where are the big institutions in terms of their adoption of this asset class that I, as a retail investor am considering investing in.
One of the things that really smart retail investors who do their homework, and who are far-sighted can benefit from is what I call cognitive arbitrage. Learning about a given asset class, learning about the companies in that asset class at a faster rate than the big institutions do.
Now, the good news for VICI is it institutions have come up the learning curve quickly on VICI
In fact, if you look through December, 31st 2021, we had posted a total return over the first 4 years of 87%. That outperformed the REIT Index by, I think about 20 or 30 points. It was just right there with the S&P 500 for total return over that period.
So the return has been there.It just doesn't have the velocity we might like, but I will point out a key thing. And that is that in a case like VICI, and this is generally true of REITs, but especially a VICI given our dividend yield, the good news is you get paid to wait. We have a dividend yield that as of yesterday was probably just below 5%.
And if you have faith, over time the market will truly begin to appreciate our value. You have the chance to match that dividend was maybe 4 to 5% with capital appreciation of the stock that could be around 5%. And if that adds up to 10% total return year after year you get to take advantage of the rule of 72, which I'm sure you and your audience are well aware of. And that's simply dividing that growth rate into 72 in order to learn how quickly you're going to double your money.
Needless to say, if you divide 10% into 72, you're going to double your money in 7 years. Does that sound like a rocket ship to the moon? No, but I tell you, based on what we're living through right now in the markets, you really ought to think about having in your portfolio some stocks that can enable you to double your money over a 5 to 7 year period even if everything else gets a little upside down.
It pays to remember that the NASDAQ peaked in 2000. And what did it take to get back to that 2000 peak? Didn't it take 12 or 13 years, right?
So this is the value of owning income-producing real estate, especially through a publicly-traded REIT where you have full transparency and integrity of the financials as an owner of the business is: it can be there in all kinds of weather for.
Make sure you're picking a REIT that has a good, solid dividend that gets paid through thick and thin. We grew our dividend during COVID. We grew at 11% in 2020. We grew at 9% in 2021. If we may not be able to deliver that kind of dividend growth year in and year out, but we will grow the dividend. And you should think about the degree to which that buffers you against riskier investments.
In the particular case of VICI, we have made it difficult for investors and sell-side analysts to quite understand what we would look like when we grew up, because our acquisition activity of 2021, which was $21 billion, it did require an enormous amount of equity raising. We raised $5.5 billion of equity last year. It did create a whole kind of miasma of moving parts that enabled that led a bunch of people to say, I can't quite nail down exactly what beef is going to look like when all this closes and all this gets funded. You know what, I'm just going to sit back and wait.
Kevin Vandenboss: How many acres do you have on the Las Vegas strip?
Edward Pitoniak: Right now, 660. And now granted not all of it, would we be valued at this kind of price, but there's been a recent trade in Vegas where I think it was Tilman Fertitta who paid 30 million an acre.
So the land value of VICI is 660 * $30 million an acre: you end up with a whole big part of our value without giving any effect to the buildings that we own across the country. And obviously the other land we own across the country as well.
One thing I want to just make sure we don't lose track of Kevin is the value of dividends when re-invested as a dollar-cost averaging tool.
If you are an investor who invests in stocks that pay dividends. And if you have a practice, whether through a drip, a dividend reinvestment program, or some other means you're constantly using those dividends to buy more of the stock times, and times like these are the best times of all, because you're automatically buying the stock when it's cheap.
When a stock you want to own is cheap, you really ought to buy more. And the great thing about dividend re-investment is that you automatically buy more. You're not left with the incremental decision. It just happens. And you benefit by virtue of doing so.
Gaming revenue March 202, as you said, was 35% ahead of March, 2019. Occupancy for Caesars and MGM are two big tenants on the strip are >90%. I believe it was same, was true at the Venetian. We really believe there's runway here next 10, 20 years aging, the baby boom, they're going to want to travel experiences, wellness experiences, recreation experiences, life enhancement experiences.
Millennials are starting into family formation. You're going to see family travel. Your family experiences that we want to make sure we're investing in.
When we started out 4.5years ago, with this conviction that gaming real estate could be the next great institutionalization story in American commercial real estate investing.
We accepted it as absolute gospel. Institutionalization requires institutions to invest in the sector. They can either do so by buying the equity of public companies like VICI or they can invest directly and we expected this to happen. We wanted it to happen.
The assets you own as a real estate company increase in value to the extent that bidding activity for assets, like what you own establishes higher and higher values. If nobody wants to buy the assets that are like the ones you own, the ones you own aren't worth as much. So it really began in the fall of 2019 when Blackstone came in and bought the real estate of Bellagio on the Las Vegas strip. And that was obviously validating that continued into early 2020 when Blackstone went into a joint venture with MGP on ownership of the real estate of MGM Grand and Mandalay Bay. Now we are part of that joint venture by virtue of having taken over MGP. So we own 51% of MGM Grand and Mandalay Bay and Blackstone owns the other 49%.
You're starting to see other entrances and I believe you're going to continue to see real estate investment capital, whether through publicly traded REITs or through private equity funds, increasingly act on the realization that this is some of the best real estate in America, especially when you look at secular trends and how those secular trends are impacting so many other real estate asset classes.
They're really significant challenges facing office real estate. There's really significant challenges facing certain categories of retail. There are not secular challenges facing our assets. The secular demand trends for our assets are very positive. And with the triple net structures, we offer a transparency and integrity of economics that you don't find in every other asset class. So I think you can continue to expect, again, both public and private market equity to want to own these assets.
Kevin Vandenboss: How do you handle the CPI? How does that work into that? What kind of protections do you have there?
Edward Pitoniak: Yeah. And just for those of your listeners who don't know exactly what triple net means, what is basically means is that the occupant of the building pays for everything. They pay rent to VICI. They bear the cost of the real estate taxes on the asset. They bear the costs of maintaining the asset. They obviously pay the insurance. They pay all the utilities that they pay for everything.
Kevin Vandenboss: So you're not getting calls about backed up toilets?
Edward Pitoniak: Nope. It's a very clean and transparent model versus so many other asset classes where tenants and landlords are constantly getting into fights over who's going to pay for what. Our model's blazingly simple: tenant pays for everything. And I think there's a growing recognition that this is a really good model.
When it comes to inflation protection, it depends entirely on what's written into the leases. We're quite fortunate, especially compared to other triple net REITs in that the biggest part of our rent was. About 42% of our rent. Now that MGM has closed 42% of our rent coming from Caesars is uncapped CPI. The measurement period for that takes place July, August, September. You look at that three month period versus the prior year, three month period of July, August, September, and the inflation year over year is what ends up kicking out the rent increase for the following.
So if in July, August, September of 2022, we ended up with 5% year over year inflation. Our rent will grow 5% that's for the Caesars leases. Other, our other leases generally have CPI components. Some of them don't kick in for a few years. But most of those are the higher of 2% or CPI up to a capital.
So again, we do have inflation protection. It's not absolute, and it's not dollar for dollar or point for point. But it does definitely help. Our investors, navigate a period like this of inflation when it comes to ensuring the dividend grows at a rate close to, or even ideally in. Of the rate of inflation,
Kevin Vandenboss: What's that barrier to entry for anybody to come into the Las Vegas market right now?
Edward Pitoniak: Just in the last year that a very successful Asian gaming company called denting opened a new property on this.
North end of the strip called Resorts World. They got the asset opened. There's a lot of aspects to it that are spectacular. They're a focused on entertainment is very strong, just a little further up the strip from there is a project that was originally known as the Fontainebleau developed by the The developer and operator who brought the Fontainebleau in Miami beach back to the forefront.
It is once again being called the Fontainebleau. And that I think is targeted for an opening probably in 2024 or so. And what's interesting is Koch industries, home of the famous Koch brothers have put capital into that project. So there will be a new project there as well, very sizeable, one above and beyond that, I think what you're going to, you're going to see is quite a bit of activity Tilman Fertitta just closed on that land that we spoke of at the intersection of Harmon and Las Vegas Boulevard. The strip he'll be developing, I believe a high-end hotel there, a model after the beautiful hotel he built in Houston called the post. You're going to see other infilled projects along the way.
You're going to see other projects expand other properties, expand. We're very excited about the fact that our partners Hardrock with whom we already partner in Cincinnati have bought the Mirage operation from MGM. They will become our new tenant. And what has been known as the Mirage. It'll be hereafter known as Hardrock Las Vegas, I believe.
And we will be helping them by funding. A $1.5 billion development of a new guitar shaped tower. That will be very much like the one they built in Hollywood, Florida at their marquee property down there, which is just spectacular. Similarly, we have an agreement with Apollo to potentially fund a new tower at the Venetian.
So I don't, it'll be a blend of some new properties, Kevin, but it'll also be, I think infill because. The land is getting somewhat scarcer. Benefit from owning a few dozen acres of undeveloped land which we'll realize value out of at some point here. But a lot of it will be about infill and taking advantage of the fact that these parcels are so enormous.
There's another very compelling development options. As an example of the front side of Caesar's palace, Las Vegas, right along the strip.
Kevin Vandenboss: This will definitely all be exciting to see come together. Do you have any parting words of wisdom for our listeners on how they can navigate the market right now?
Edward Pitoniak: I think keep your head about you. Make sure you own some stocks that are going to pay you to own them no matter what happens. Here in the coming weeks and months, it is the blessing benefit of dividend stocks that they just keep paying you based upon economics that can whether thick and thin.