Hoya Capital Q&A Transcript with VICI Properties

Yesterday, I had the privilege to interview Edward Pitoniak, CEO of VICI Properties Inc. yesterday and wanted to share the Q&A that touched upon a wide range of topics including the outlook for Las Vegas, Sphere, experiential real estate offerings, One Beverly Hills, Canyon Ranch/Chelsea Piers and other partnerships.

Question: Can you walk us through your evolution from your IPO to where we are today?

Ed: We started in 2017. As a result, or as a consequence of a credit settlement between Caesars, which had gone through an Lbo in 2007, led by Apollo and DBG. A credit settlement between Caesars and its creditors.

And that agreement really pivoted on the creditors agreeing to create a REIT out of the property that had been conveyed from Caesars to the creditors as a way of satisfying the credit and Paul and I got involved. I was just so excited by the quality of this real estate and the magnitude of it economically. The bigger of the operator and Terms of envisioning and delivering experiences. So I got started by really figuring out, how do we tell the next great institutionalization story to American REIT investors, both equity and credit, and we emerged in the fall of 17. We immediately did a deal on Harrah's Las Vegas, and we're immediately able to demonstrate that we're buying an incredible magnitude of NOI out of a single property, 87 million dollars, and we were doing so at a 7.7% cap rate. And one of the ways we really got the attention of the dedicated REIT community was by creating a bubble chart that showed the number of single asset American commercial real estate trades that had taken place since 2015 of 70 million of NOI, or higher. Again, from a single asset. There were 12 trades at that point, 8 of which were New York A office, one was Boston. One was Crystal Shopping Mall in Las Vegas, and most all of those trades of again these assets of 70 million of Noi or higher.

We're trading at 3 and 4 handle cap rates. And here we were showing that we were buying this asset on a net lease basis with 87 million of NOI at a 7.7% cap rate. It was all part and parcel of really engaging the institutional community and getting the support from both the equity and the credit communities that have enabled us to fund the growth that you see taking place on this chart between 2017 and 2024

Question: What can you tell us about the long-term leases you have in place with your clients while your clients have the shortest lease terms in place with a one-night hotel lease?

Ed: I should point out that when we began in 2017 and IPO in 2018, we had one and only one tenant, and that was Caesars. 100% of the rent roll was Caesars and and we knew we had both the opportunity and the necessity to diversify our rent roll.

One point I want to clarify is in all of our properties. We own the improvements as well as in nearly all the properties we own the land. There's actually a couple of situations where we are on long term ground leases ourselves, but then own the improvements on that land. So we are fully vertical, if you will, landlord, and you know again it really came down to recognizing the opportunity we had to to expand into both the gaming category and the wider experiential sector. But so much of what we've done obviously has been focused on gaming.

And you are right, David, you are right to point out that our operators operate on one night leases while we operate on a weighted average lease term of 40 years, and that one night lease term obviously brings volatility with it for our operators. But one of the things I think, that we really strive to emphasize about gaming operators is their resiliency through all cycles. During the great financial crisis, regional same store gaming only declined about 3 to 4% right? That was a period when other categories, like retail and food service, were down anywhere from 9 to 11%. S&P 500 revenues overall were down, 18% regional gaming proved its resilience that Vegas held up better than most people ever thought it would, especially in light of all the new supply that happened to come along right in time for the GFC. And Vegas occupancy during the GFC troughed at 86%. Right?

So the resiliency of this business for operators gives us a whole lot of confidence in their ability to continue to pay rent through all cycles, and that was certainly dramatized during Covid when we collected 100% of our rent in cash and on time

Question: Could talk about some of these operators that you're with again like a Canyon Ranch, Chelsea Piers, a Cabot, Great Wolf, Kalahari or some of the other guys?

Ed: I just want to point out that we would not consider Las Vegas Sands a competitor, we would consider them a past and a potential future partner. We obviously partnered with them on the massive Venetian transaction. They as seller, we as buyer and we stay in touch with the LVS folks, in hopes that we can help them grow as they address their growth opportunities potentially in New York and in Texas and potentially beyond.

We actually committed ourselves from day one to being an experiential real estate investment trust not purely a Casino Real Estate Investment Trust, and that really grew out of our belief. Our conviction in the secular trend of consumers, increasingly preferring experiences over things, the spending of discretionary income and time on experiences rather than things. So we began really from day one working to identify categories that would meet our key investment criteria when it comes to making investments, and those start with lower than average cyclicality versus consumer discretionary and large and absence of secular threat.

We really want to stay away from categories that are subject to real estate obsolescence because of technological change, ie. Real estate. That's no longer necessary, because whatever took place in the real estate can now be sent in a box through a wire or wavelength directly to the end consumer.

We want proven durability usually measured over decades. We really are careful about investing behind fads. We really want to know that the end user experience has been again proving its durability over decades. We want favorable supply demand balance. And we want what we call economic dynamism. We want an operator P&L that really responds to management, intensity and innovation.

And so from the beginning we identified certain categories we believed, had all these characteristics, and 2 of the categories were indoor water park resorts and complex, highly complex fitness and wellness facilities like Chelsea piers. And we, we basically did our Chelsea piers and great wolf deals almost overlapping in 2020 those marked our 1st allocations of capital into non-gaming real estate, and we've continued to grow since then into other categories and with other partners in the way we'll talk about here in a moment.

Question: Can you talk about diversifying the gaming experience and attracting more family-friendly offerings?

Ed: Yeah, I don't know if I was talking about that so much as to diversifying the gaming experience so that it is more family welcoming that definitely takes place to some degree. And in fact, the recent data is showing an increase in visitation of families to Las Vegas, and that does have to do with the diversification of demand. Drivers that you now have in Las Vegas. Whether it be the music residencies, the sports teams relocating to Las Vegas, the shopping, what have you? But I think our greater focus would have been on investing in sectors that can benefit from either family activities or youth activities that again, we believe, have strong secular trends. And, for example, youth sports is a secular trend, we believe, has a long way to go, and thus the sort of investment and partnership we've made with both Chelsea piers and with our home field partners in Kansas.

Question: Are you seeing acquisition opportunities? Has the environment changed in 2025 vs. 2024?

Ed: It's marginally more positive. Ever since interest rates started rising in 2022. It's been, generally speaking, a transaction market where it's been hard to get things done, and especially given that a lot of would be sellers are anchored to what their assets might have been worth in 2021. And you have to remind them it's not 2021 anymore. But unless they have a really compelling reason or need to sell.

There hasn't been a whole lot of transaction activity. There has been a fair amount of development activity which is we've capitalized on through the use of our VICI experiential credit solutions line of business. But I would say it's feeling somewhat better. But, boy, is it volatile? Right on a day by day basis. The volatility of the USA. Tenure makes it very hard for anybody in the capital allocation business to have a lot of conviction and clarity around what money is going to cost 1, 2, 3 months from now, I mean, if we just look at the past couple days you know, we were looking at the US Ten Year, trading back up almost all the way to 4.35 traded almost all the way down to 4.15 today. And now I think it's back up to 4.24, or whatever it is right. These kind of intraday moves are not well, they didn't used to be normal.

We only had 3 days in 2,018, where the US Ten Year moved intraday 10 basis points or more.

We had 48 in 2022, 30 almost 40, I believe in 2023, we had probably close to 30 in 2024, and I bet we've had at least 10 so far this year right? And that volatility does not appear to be going away anytime soon, and that's what it really emphasizes is taking great care in making your capital commitments and making sure you don't turn out to be on the wrong side of a whack equation 2 months from now, because you made a bet that it would stay the way it is today.

Question: Have things changed with the new administration? How about the tariffs? Are you guys impacted by tariffs? And what's going on out there right now?

Ed: Not directly, because again, we're a net lease, landlord, so we don't buy a whole lot of stuff other than real estate. Right? In other words, we're not. We're not buying furniture, fixtures, and equipment the way our operators do, or the way a lot of landlords in other categories would so no, not not a whole lot of tariff impact. Again, I would say, because the environment has stayed volatile, I wouldn't say it's fundamentally changed a whole lot. And again, while I would absolutely say, there are not endless opportunities to play capital. We are seeing very interesting opportunities, like the kind we saw, obviously with one Beverly Hills.

Question: Can you talk to us about One Beverly Hills project and how it came together?

Ed: Yeah. Well, I think when you look at the attributes of one Beverly Hills, and why that, as opposed to potentially other mixed use development projects. It. Obviously all starts with location and this is one of the most compelling real estate locations in America. We talk about the Las Vegas strip as the most economically productive street in America, if not the world. And I absolutely believe that it is. And we love having the 10 locations we have on the strip. I believe, if I remember the numbers right. We own 1.7 miles of frontage on the Las Vegas strip and there's 4 total miles of frontage on the Las Vegas strip right? It is really important and really value, enhancing to own or otherwise invest in real estate that is, in truly compelling locations.

The location of one Beverly Hills is a dream location. Right? It's at the triangle formed by the intersection of Wilshire and Santa Monica in Beverly Hills, the triangle, the apex, the triangle top of the triangle is is the legendary Beverly Hilton, and as widens out it abuts lA Country Club, one of the most exclusive private clubs in America. You can look at this land and go wait. How was this ever available? How was this not developed decades ago in such a way that you could never develop it today.

And yet the Cain team got this tied up. They got it entitled. They got it permitted, and they've created a vision that will make this one of the most compelling luxury destinations in the world. It will continue to have a newly renovated Beverly Hilton. It will have an Aman Hotel and Aman Club, and 2 Aman branded residential towers and a luxury retail and restaurant garden.

In terms of helping you understand who and what Aman is, Aman actually started in Thailand, and from the beginning was positioned as one of the most ultra luxurious and private hospitality experiences you could have in the world. They became famous, in the USA. At least among certain people, for the development of a property in Southern Utah called Amangiri, and I would encourage everybody to Google them on. And just look through the portfolio because they're pretty much one of a kind properties in one of a kind locations.

Their pricing power is really not nearly equal, and certainly not exceeded by any other player out there in the global luxury, hospitality space. I remember we were meeting with folks at the City Real Estate Conference back here at the very beginning of March. We decided to just figure out, okay, what would it cost you to stay at the Aman in New York at the intersection at 57th and 5th? What would it cost you to stay there this coming weekend and the pricing?

The cheapest room available on that Friday night was $11,000. Yeah...

And don't anybody ever call me looking for a deal on a room? Because they I I wouldn't even dare ask for one, because they don't need to give deals. So again, this is a tremendously exciting project. If you actually, if you're a Bloomberg reader, there is actually a big story on Aman today on Bloomberg. I encourage everyone to read that because it really talks about the global growth opportunity for Aman, which I hope over time we could be part of especially given Cain's investment in the Aman brand.

Question: Does this one have you pretty giddy compared to some of the other deals that you've done? Or is this just? It's another great deal this fits right in the course of everything else we've done, you know. Just watch. We're gonna show you.

Ed: Yeah. Well, it it's way up there, I mean, obviously, I look back and I'm I'm so get still giddy about the deal we're able to do with our Apollo partners on buying the venation still giddy about becoming a partner to MGM, through our acquisition of MGP, and I would say, yeah, this is up there both on the merits of the capital allocation to one Beverly Hills, and probably even more so the opportunity to begin what we believe to be a very long term and growing partnership with Cain and Eldridge, who are incredibly dynamic investors across the experiential spectrum.

Question: If if you had to look in your crystal ball many years down the road. Could you see you guys being a true global player?

Ed: We will pursue international growth when it's truly compelling, and there are certainly certain REITs whom we respect tremendously, but most notably Prologis, that have expanded internationally, very productively, and very accretively. We want to make sure we take care in any investment we make anywhere, but especially internationally, to know that it is truly going to be good investment for the long term that we've protected ourselves against currency risk. We have protected ourselves as best we can against tax leakage that we're in countries with a rule of law and economic health towards the investment could be a great one for the long term.

Question: Can you talk about the differences between you and your peers?

Ed: Yeah, I would say that, you know. You can do very well by making a bet on both us and GLPI. We are really striving to be a total return investment. We want our investors to benefit, not only from the income we distribute to them but, for, you know, enduring value appreciation in the properties and we feel we give our investors the best shot at enduring value, improvement in the in the properties we already own by giving them exposure to an incomparable location like the Las Vegas strip, and through the ownership of incomparable assets, like the Venetian, like Caesar's Palace, like MGM Grand, like Mandalay Bay, and the other assets we own along the strip.

So our exposure to the Las Vegas strip, which constitutes almost half of our rent roll, and our willingness and our ability and excitement in investing in non gaming categories, we think, gives us a growth, opportunity, and a total return opportunity that is truly compelling and differentiated, and that was born out, you know, in terms of the guidance we were able to give for 2025, when we announced our guidance in our February earnings call when we guided to 2025 growth in AFFO per share at 3.3% at the midpoint, GLPI guided, I believe, to 1.4% growth in afo per share at the midpoint. And we're about 3 times bigger. But again, we're able to post growth. That wasn't quite 3 times the rate. And so I think it's our ability to identify growth opportunities outside the gaming spectrum, and or within the gaming spectrum that are somewhat unique to us.

Question: What do you think Vegas looks like 25 years from now?

Ed: I think the evolution, the evolution, will be driven by the leaders of cultural innovation and transformation. Vegas has become really probably the leading experiential development lab in the world. Right? There's a reason. The 1st and still only Sphere in the world is in Las Vegas.

There's a reason. Las Vegas is really the only place in the world where you have residencies like you have in Las Vegas. Adele hasn't done a residency anywhere else right? Lady Gaga doesn't really do residencies anywhere else like she does in Las Vegas, nor Bruno Mars, nor Usher and so that that cultural energy is is the energy out of which the innovation and the transformation will grow, and I have no business, no qualifications predict what it will look like. But I do know that it, that transformation will grow out of really the richest experiential petri dish that is, that exists in the world today. And so much of it's dependent upon infrastructure that exists nowhere else in the world today. That infrastructure starts with the roads into Las Vegas, the airport that serves Las Vegas. Everything that goes into enabling

I don't know what. There are 140,000 hotel rooms on the Strip, 140,000 hotel rooms to function properly every night of the year. I mean, our biggest Vegas assets do occupancy year round occupancy in the 90 plus percent range. There's there's there's nowhere else in the world that does that.

Question: Are there opportunities partnering with "Big Sports"?

Ed: Well, it does. I obviously. I hope it all ends well paying 6 billion dollars for the Celtics, a team that does not even own its own arena. That's quite breathtaking. But hey, I'm really glad that Wic and all the other owners who came in at 300 odd 1 million whatever year that was in the early 2 thousands. They've done a great job with the franchise. They deserve to be rewarded. Our interest in sports is obviously in sports infrastructure, and one of the elements of sport infrastructure we're frankly most interested in is the whole training, facility, dimension of sports infrastructure. We would have to evaluate stadiums and arenas very carefully given what can be the obsolescence factor, especially in the North American model. There's a lot of teams that decide after 20 years, have already outgrown this arena. We don't want to own an arena. The the one and only tenant leaves after 20 years.

Training facilities, on the other hand, are very big complexes, both operating and capital. As an example, the Miami dolphins spent 150 million building their new training center. And as you look across the European football landscape training grounds, especially if they have an academy component tend to be big big ticket items. And what we like about training centers is that they're key infrastructure. But even in a worst case scenario where the team left or outgrew the facility, you would have a sports and recreation complex that you could turn into a commercial enterprise by bringing in the likes of a Chelsea piers or a Saint James as an operator.

Question: Why VICI? What is the value proposition in 2025, and beyond, if somebody was questioning, should I buy the stock or why would I buy the stock?

Ed: The power of total return compounded.

And you know we've been through a period here in the equity markets, where it was all about the magnificent 7, and all about wild expansion of multiples and and incredible earnings growth.

And as we kind of come back to reality here, I think I think people really need to think, especially those saving for retirement or other critical life needs. As to how is my money going to grow over the next 10 years. And to what degree am I going to compound my return over that period, and what are going to be the drivers of that compounding?

So when you take VICI and you take our 5 odd percent dividend yield and our ability to grow our earnings year in year out at a minimum of, you know, 3 to 4%. Well, even if you capitalize that at a constant multiple and added to the dividend, you should be getting total return of 8 to potentially 10%. And everyone, of course, should know the rule of 72. And if you can achieve, you know, compounded total return of 10%. You'll double your money in 7 years. Right? The rule is 72, and that didn't sound that fun and sexy in the last couple of years, when Nvidia and all the other Mag sevens were just like multiplying, both in terms of valuation and stock price at these dizzying rates. Well that may not happen over the next 5 to 10 years, and the value of owning a REIT is to own a share of the cash flow through the dividend, and the opportunity to participate in the increasing capital value of what it owns, and the earning power of what it owns. And VICI, like so many other great reads really should be looked at as a compounding vehicle, and anybody who's read Buffett or Howard Marks, or anybody else knows. At the end of the day. It's all about compounding.

Question: How do you see NAV growth with where you stand now?

Ed: NAV honestly, is not a metric. We spend a lot of time on insofar as well first of all, we can't manage it per se. What we can do is influence the way in which our properties are perceived and understood and help the market understand better that through our ownership of our incomparable assets, especially in Las Vegas strip.

We own assets that deserve to trade at among the tightest cap rates in American commercial real estate, because there are very few other assets in American commercial real estate of this scale quality and economic magnitude. Right? And so the storytelling is something that we have to continue to do for years to come, because the both the bad and the good news is the market still doesn't fully appreciate the rarity of what we own in terms of the price per share. I mean, we just we need to keep growing income. We need to keep growing the dividend. And those are really the only 2 things we can manage right, and if we can, if we can do those things well, those things do get rewarded over time. But there will be periods through the Equity market cycle that those don't get rewarded the way they should. And frankly, we've been in that period as VICI for the last couple of years, and the whole REIT sector frankly, has been in it for almost 10 years.

If you look at the RMZ today versus where it was 10 years ago. It hasn't gone very far at all, which is not to say everybody's hovered around the same value. There's been winners over that 10 year period, obviously like a Prologis, the data centers well Tower. And then there have been losers over that period, you know, notably, obviously office. So we, we just we have to focus on what we can control. And that's really growing the earnings and growing the dividend.

Question: Is there any concern about safety of the dividend with more experiential offerings?

Ed: We are always concerned about the safety of the dividend. But I would go back to the criteria we apply before we go into a category, and then the criteria we apply to evaluate a given operator as a partner as a credit, and so no, inherently, we do not feel we're in any way endangering the dividend by diversifying into sectors that we know have the right investment characteristics

Question: Have you talked at all about future development of the land bank?

Ed: No, we haven't, really. And it kind of goes back to your great question, David, about what's Vegas going to look like over the next 10 to 25 years, and the answer is, we don't know yet, but the good thing is, we don't need to know, and we want to make sure that that lands available to us when innovation and development opportunities come along for which that land is the perfect solution. Perfect answer to the question, where is it going to get built.

Question: Have you been approached to sell that land by interested buyers?

Ed: Now and then. But not every day.

Question: Do you see any chances of a monthly dividend in the near future?

Ed: Not imminently. No.

Question: What kind of parting words would you like to leave with us?

Ed: You know, just, I think, really always being clear on why one should invest in REITs generally, and then a specific REIT like VICI, right. And there are folks out there who actively traded REIT stocks. And I'm actually kind of baffled by it. It's like, man. If you're going to actively trade something. Maybe it ought to be something where there's genuinely something happening like every day, every week, every quarter REITs really are about predictability, stability and the opportunity to compound total return, and one of the keys to compounding total return is, do not go backward.

If you go backward, that compounding machine really starts to get kind of creaky and so REITs that can deliver solid dividend, safety and growth based upon solid and steady earnings. Growth give you that really good opportunity for compounding. It's not to say that the equity price may not go backward in a given year, but if you measure it over a longer time period did the REIT continue to grow earnings in such a way that over the long term it grew in value.