VICI Properties Inc. is an S&P 500® experiential real estate investment trust that owns one of the largest portfolios of market-leading gaming, hospitality and entertainment destinations, including Caesars Palace Las Vegas, MGM Grand and the Venetian Resort Las Vegas, three of the most iconic entertainment facilities on the Las Vegas Strip. VICI Properties owns 93 experiential assets across a geographically diverse portfolio consisting of 54 gaming properties and 39 non-gaming experiential properties across the United States and Canada. The portfolio is comprised of approximately 127 million square feet and features approximately 60,300 hotel rooms and over 500 restaurants, bars, nightclubs and sportsbooks.
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NewsTranscript
00:00 - You know, before we kick off, you know,
00:01 do you mind just giving the viewers kind of a rundown of,
00:05 you know, what Vechey Properties is exactly?
00:09 - Yeah, so as a starting point, Kevin,
00:11 Vechey Properties is a real estate investment trust.
00:15 And with the theme of the show you have today,
00:17 which is, you know,
00:18 how can your community invest in real estate?
00:21 One of the key ways to invest in real estate in America
00:25 as a retail investor, for example,
00:28 or as a non-institutional investor,
00:31 is through real estate investment trusts.
00:33 Real estate investment trusts really began to emerge
00:35 in the early 90s.
00:37 And it was IRS legislation
00:40 that enabled real estate investment trusts to be formed
00:44 and distribute their income to their investors
00:49 without the imposition of any corporate income tax, okay?
00:53 So if a real estate investment trust realizes
00:57 a dollar of distributable profit,
00:59 it can distribute that dollar with, again,
01:04 with no corporate income tax imposed upon it.
01:08 That dollar gets distributed
01:10 to the retail investors of the REIT,
01:12 or whichever investors might own the REIT,
01:14 institutional and retail.
01:16 And then they might pay a tax on the dividend,
01:20 but it doesn't get taxed twice
01:22 in the way that conventional corporate dividends do.
01:25 And so through real estate investment trusts,
01:27 you can own a whole bunch
01:30 of different categories of properties.
01:32 You can own offices like the one you're in today.
01:35 You can own retail.
01:36 You can own residential,
01:38 like apartment buildings and single-family rental homes.
01:43 And as of late, you can own assets like Caesar's Palace
01:47 or the Venetian or MGM Grand or Mandalay Bay,
01:50 which happen to be among the assets we, Veche, own.
01:54 Prior to the creation
01:56 of gaming real estate investment trusts,
01:59 retail investors never would have had any chance
02:02 of owning a casino on Las Vegas Strip, but now you do.
02:07 - Yeah, I mean, to me, investing in a REIT,
02:11 it just seems like such an easier way to diversify
02:16 than putting everything into one property,
02:20 hoping that goes well, adding another and another,
02:23 which I think is why,
02:25 the things that so many people don't get started
02:27 in the real estate, even though it's hard to argue
02:30 that it is such a great asset class.
02:32 So getting into the REIT,
02:35 you can, yeah, any type of property that you believe in.
02:39 So as you mentioned,
02:42 the Venetian and MGM Grand
02:46 and these iconic casino properties,
02:51 you are primarily in the Las Vegas market, correct?
02:55 - Almost half of our rent comes from the Las Vegas Strip.
03:02 The other half comes from regional gaming properties
03:04 across the US from Lake Tahoe in the West,
03:07 all the way through Atlantic City in the East.
03:09 As well, we're now collecting rent and/or interest income
03:13 from a variety of non-gaming operators like Valero,
03:17 like Great Wolf and North Water Park Resorts,
03:19 like Cabot, the high-end golf resort creator
03:24 and operator and Canyon Ranch.
03:27 - Okay, so would you say like your focus is,
03:33 it seems like more on like the experiential properties,
03:38 places where people can go and do things.
03:41 What is it about that, I guess, particular asset class
03:48 that you find attractive that you think is the best
03:53 for the future of VG?
03:55 - One of the, I think one of the key elements
03:59 of experiential real estate, Kevin,
04:01 is that very often you leave experiential real estate
04:06 with nothing in your hands, right?
04:09 You haven't gone there to buy a good.
04:12 You might end up buying a good,
04:14 you might end up buying a T-shirt
04:17 or some other memento of your trip,
04:19 but you've gone there to have an experience.
04:23 And that really helps reduce the obsolescence risk
04:27 or the secular threat of experiential real estate
04:31 versus other categories of real estate
04:33 that have the risk of being literally
04:36 and figuratively displaced.
04:38 We saw a lot of stress in retail over the last 20 years
04:41 because of the emergence of e-commerce.
04:44 Suddenly, I didn't need to go to a store
04:46 to buy a good.
04:48 We saw it emerge recently with office.
04:51 People don't necessarily need to go to an office to work.
04:55 When something can be put in a box
04:57 or shipped through a wire,
04:59 the real estate it might've been historically associated
05:01 with is under threat.
05:03 People do not go to our assets to acquire goods
05:08 that can be put in a box
05:10 and/or services that can be shipped through a wire.
05:12 They go to our real estate to have an experience,
05:15 which we think ends up constituting
05:17 the long-term durability of our real estate
05:20 and the lack of risk or threat from obsolescence.
05:24 - Okay, so I mean, we're, I guess,
05:29 facing like kind of an uncertain economic times.
05:32 You know, there's, you know,
05:33 have some people are saying that economy is in great shape.
05:36 Look at the market, things are good.
05:38 Other people are, you know, expecting a crash.
05:41 A lot of people have said it's gonna be
05:44 the worst we've seen in decades.
05:45 I guess, regardless of, you know,
05:48 where you land with that, you know,
05:52 what is this experiential real estate?
05:56 So, I mean, casinos, particularly the bowling.
06:00 I mean, how durable is that if, you know,
06:03 the economy, you know, does go south
06:07 as some are anticipating?
06:08 - So when we invest in real estate, Kevin,
06:12 whether it's gaming or non-gaming,
06:13 we look at the real estate through four key lenses.
06:16 Number one, lower than average cyclicality
06:19 versus consumer discretionary at large.
06:21 We'll come back to that in a moment.
06:23 We don't want secular threat.
06:25 We want a healthy supply-demand balance
06:27 and we want proven durability of the end-user experience
06:30 because that ends up constituting
06:32 the durability of the real estate.
06:34 When you look at gaming as an example,
06:36 it has historically shown surprisingly lower cyclicality
06:41 than consumer discretionary at large.
06:43 An example of that came during the great financial crisis
06:46 when same-store regional gaming was down only 3% to 4%.
06:50 That was at a time when the revenues of the S&P 500
06:53 were down 18%,
06:55 when even conventional retail and food service was down 11%.
06:59 Vegas did take a bit bigger hit during the GFC,
07:02 but that was principally because a whole bunch of new supply
07:05 came at exactly the wrong time.
07:08 What we've certainly seen in Vegas
07:10 over the last couple of quarters
07:12 is a continuing resilience
07:14 to the consumer spending in Vegas,
07:16 even as other certain consumer categories
07:19 have started to see a slowdown.
07:21 So the proven durability, the weather-proving of gaming
07:25 is pretty well established over the last few decades.
07:28 - Now, what do you see, I guess,
07:33 as some of the greatest opportunity
07:37 in what are you most optimistic about right now?
07:39 I mean, you're looking at, you know,
07:41 hopefully interest rates coming down next year,
07:45 you know, the Las Vegas market in general
07:47 or other markets you're in.
07:49 - Well, if we first look at it at a secular level,
07:54 we're so excited, and we have been from the beginning,
07:57 about the secular trend around experiences
08:00 of which we've already spoken this morning.
08:03 We really see cultural and demographic factors
08:06 that are continue to really support the growth
08:09 of the experiential economy.
08:11 That's the secular level.
08:12 At the specific level of Las Vegas,
08:14 Las Vegas is developing into an experiential ecosystem
08:19 driven by entertainment, hospitality, leisure,
08:21 recreation, professional sports.
08:24 This, frankly, unlike anything else in the world.
08:27 If you look at what's been going on in Vegas
08:30 just the last few months,
08:31 you obviously have the opening of the sphere,
08:34 which has revolutionized what a concert experience can be.
08:39 You had the first F1 go off in Vegas in November,
08:42 and despite all the negativity of the media going into it,
08:47 by the end of it all, the racers, the fans,
08:51 and Liberty Media, the owner of F1,
08:53 were proclaiming it the best race of the year.
08:56 We just hosted the NBA in-season tournament Final Four.
09:00 We've got the Super Bowl coming up in February.
09:03 We've already got the Stanley Cup champion Golden Knights.
09:05 We've got the Raiders.
09:07 We will have the A's,
09:08 and everybody, including LeBron,
09:11 is proclaiming that Las Vegas is the next city
09:13 that ought to have an NBA franchise.
09:15 So we really see the continuing growth of Las Vegas
09:20 greatly benefiting our operators
09:22 and the assets that they occupy for us.
09:24 We think there is no city in the world
09:27 that threatens the primacy of Las Vegas
09:30 as an experiential ecosystem.
09:33 - So, all that sounds really exciting.
09:36 It sounds like it's gonna be great for,
09:37 like you said, your operators and the assets you have,
09:40 but is there still room for you to grow in Vegas?
09:44 I mean, are there more opportunities
09:45 for you to capitalize on there?
09:48 - Yeah, there certainly are.
09:50 Obviously, as an example,
09:51 you just saw the opening of the Falcon Blue Resort
09:54 just last week in Las Vegas,
09:56 a magnificent new resort
09:57 that we're involved in the financing of.
09:59 Beyond that, what we're really getting excited
10:01 about with our partner MGM
10:05 is the fact that MGM operates,
10:07 and we own virtually all of the real estate
10:11 that sits within what we've come to call
10:13 the sporting triangle of Las Vegas.
10:16 With where the A's stadium will go,
10:18 if you draw a line from there to T-Mobile Arena,
10:22 where the Golden Knights play,
10:23 and then from there to Allegiant,
10:25 where the Raiders play,
10:26 and where you saw more activity
10:29 than any other major stadium on earth last year, 2022,
10:34 you form a triangle.
10:35 And again, MGM operates,
10:37 and we own virtually all the real estate
10:39 within that triangle.
10:40 And we see, along with MGM,
10:43 a chance to continue to intensify and intensify
10:47 both the assets and the experiences
10:49 that can take place within that triangle.
10:51 So yes, there's room to grow.
10:53 - All right, that's exciting.
10:56 Yeah, I mean, everybody loves Vegas, right?
11:01 So to see more coming to the city,
11:04 I just can't imagine what it's gonna look like
11:08 in the next 10 years.
11:09 So to speak about Veche a little more specifically,
11:16 just full disclosure to everybody,
11:21 I mean, I own shares in Veche
11:23 and bought more recently.
11:26 - Proud to work for you, Kevin.
11:29 - Actually, I'm the worst at timing the market.
11:32 I never try.
11:33 Usually I buy something just before it goes down
11:35 or sell it before it goes up.
11:37 And I lucked out this time.
11:39 I think I last re-upped the end of October.
11:42 So I've seen some good growth since then.
11:44 So thank you for that.
11:46 - No, no, thank you.
11:48 It's your buying that's important.
11:50 But one thing that I noticed with Veche,
11:54 it seemed to be a little more durable this year.
11:56 This has been a tough year for REITs,
11:58 no question about it.
12:00 And everybody has taken some hits,
12:02 but you haven't taken nearly the hits, I think,
12:06 as some of the other companies.
12:09 And the dividend is really solid.
12:12 And I mean, you've seen some pretty steady growth
12:14 over the past few years.
12:17 And the dividend has remained attractive.
12:21 Is that, I mean, how do you see yourself as a company?
12:27 I mean, more as a growth or income play,
12:30 or are you think you're gonna be able to continue
12:35 riding that line of both?
12:37 - Yeah, well, I would say both, Kevin.
12:42 I think we are growth at a very reasonable price.
12:45 If you look at our track record since our IPO,
12:48 the compound annual growth rate of our earnings
12:51 has been just under 8%.
12:53 The compound annual growth rate of our dividend
12:56 has been just about 8%.
12:59 Our total return over the period since our IPO
13:02 is around 120%.
13:05 That would still be about 30 points ahead of the S&P 500,
13:09 and probably 70 or 80 points ahead of the REIT index.
13:13 And that total return is a function
13:15 of both the price appreciation of the stock
13:17 and critically important, the dividend that we pay you.
13:21 And I think as an investor,
13:23 you always wanna be very focused
13:25 on the degree to which historically dividend
13:28 represents a significant percentage
13:31 of long-term total return,
13:33 even for groupings of stocks like the S&P 500,
13:37 where the current dividend yield is only about 1.5%.
13:41 We currently offer about a 5% dividend yield.
13:44 And when you look at that dividend yield
13:46 together with stock appreciation,
13:48 you have a shot at getting 10% total return year after year.
13:53 And if your audience knows the rule of 72,
13:56 they would know all you have to do is take that,
14:01 what you presume to be long-term growth rate
14:03 or return rate of 10% divided in 72,
14:06 that tells you how soon you'll double your money,
14:08 which in that case would be 7.2 years.
14:12 So I think that is the value of REITs.
14:14 And exactly to your point, Kevin,
14:16 the dividend gives you the opportunity to get return,
14:20 even in very tough times in the market for most stocks,
14:23 which the last couple of years have frankly been.
14:26 Everybody thinks the S&P 500 is going to the moon.
14:29 Well, it's only just getting back
14:30 to where it was two years ago, right?
14:33 If you got a dividend during that two-year period,
14:35 you at least made some money.
14:37 If you had no dividend,
14:39 depending on what stocks you picked,
14:41 and especially if you did not pick the Magnificent Seven,
14:44 you probably don't have a lot to show
14:46 in terms of return for the last two years.
14:49 - Yeah, that's one thing I always look at with dividends.
14:54 I mean, you look at stocks with some growth,
14:59 over years I hold it for 10 years and I see these gains,
15:03 but I can't do anything with those gains
15:06 during that 10 years.
15:07 Where with the dividends, I can reinvest those.
15:09 I can buy more.
15:11 So that's, to me, it's a no brainer, but.
15:15 - Yeah, exactly your point, Kevin.
15:17 You walk into a store and say,
15:18 "Hey, can I pay for this
15:20 with the unrealized gain of my stock?"
15:22 They'll say, "No."
15:25 (laughing)
15:25 - Yeah, exactly.
15:26 - Can I pay for this, whatever I'm buying?
15:29 A nice bottle of wine,
15:30 can I pay for it with my dividend income?
15:32 Sure you can.
15:33 Or you can reinvest the dividend income
15:36 and really get the benefits of compounding.
15:38 - Yeah, absolutely.
15:39 So I think across the board, not just REITs,
15:43 but some dividend stocks in general,
15:45 have gotten beaten up this year,
15:47 'cause the interest rates, that risk-free rate is so high.
15:51 As that comes back down,
15:54 I'm not asking you to predict the market here,
15:58 but typically would you expect that to have an effect
16:03 on the prices of REITs and other dividend stocks
16:08 as interest rates come back down?
16:10 - It absolutely should.
16:12 If you wanna look just across the broad lens,
16:14 and then we'll get to REITs in a moment,
16:16 right now, the earnings yield,
16:20 which is simply the inverse of the price earnings ratio,
16:24 the earnings yield of the S&P 500 is 4%,
16:29 which happens to be just about
16:31 the risk-free return rate of the US 10-year treasury.
16:34 Which means, why am I owning this stock
16:38 if I could own a risk-free instrument at the same yield?
16:41 Of course, the reality is we've learned with bonds,
16:44 especially the last couple of years,
16:45 it isn't really risk-free,
16:47 'cause the value of the bond can vary wildly
16:50 on any given day.
16:52 But to your point, yes, REITs tend to benefit
16:56 in a period of stable and/or declining interest rates.
17:00 They don't tend to do well,
17:02 as they didn't generally this year and last,
17:05 in a period where interest rates are rising markedly.
17:08 So the decline in the risk-free rate
17:13 has been beneficial for REITs,
17:14 especially over the last eight weeks or so.
17:17 You, again, you bought your Veitchie stock
17:19 in October at a very good time.
17:21 And we'll see what the coming year brings.
17:23 Obviously, there's a lot of debate and discussion,
17:26 and frankly, a bit of confusion over what we should expect
17:29 for risk-free rates in the coming year.
17:32 But as long as they can at least stay somewhat stable
17:35 and leave behind the wild volatility
17:38 that the bond market has had this year,
17:41 I think we're looking at a very good setup for 2024.
17:44 For REITs generally, and Veitchie specifically,
17:47 given the earnings growth,
17:48 we've already got baked into next year.
17:50 - Awesome.
17:52 Well, I can't wait.
17:53 I think we're probably getting just about out of time here.
17:59 Before I let you go, I mean, is there anything else
18:01 that you wanna make sure we tell our audience today
18:05 while we have you?
18:05 - Well, just again, to really look in terms
18:09 of how you build your portfolio,
18:11 where is it you're going to get,
18:15 as you referred to a moment ago, Kevin,
18:17 where are you gonna get that current income
18:19 that come hell or high water, you know will be there?
18:22 It's money you can reinvest, it's money you can spend,
18:25 it's return you can count on,
18:26 even when stocks, the value of the stock,
18:30 stocks themselves are going up and down
18:32 and perhaps down for a long period of time.
18:36 And this is again where REITs can be
18:38 a really virtuous investment as part of the portfolio.
18:41 I would never tell anybody, invest only in REITs,
18:44 but as a segment of your portfolio,
18:49 it is a great way to build wealth over the long term.
18:53 'Cause again, go back to that, you know,
18:56 five to 10% total return compounded
18:59 year after year after year.
19:00 And if you're younger, if you're in your 20s or 30s
19:03 and you compound for 30 years,
19:05 you're gonna have a lot of money at the end of it.
19:08 - Yeah, absolutely.
19:11 Awesome, all right, well, hey, thank you Ed
19:13 so much for being here.
19:14 I can't wait to catch up again
19:15 and tell you how much better my Vici stock
19:18 has done in the meantime.
19:20 - All right, Kevin, thank you.
19:21 - All right, thank you.