Between June 2 to June 4, senior representatives from across the hospitality industry will head to New York for the 46th Annual NYU International Hospitality Investment Conference (NYUIHIIC).
This year’s speakers include top executives from Starwood Capital, MCR Hotels, Vici Properties and many more. We will also have exclusive on-stage interviews with David Solomon, CEO of Goldman Sachs and Jonathan Gray, Chief Operating Officer of Blackstone.
The following preview is part of a series aimed at bringing you a flavour of the conversations you can expect on stage, highlighting some of the big-picture trends and themes ahead of the event.
Over the last couple of decades Las Vegas has moved beyond casinos to reshape itself as perhaps the world’s premier leisure entertainment destination. To get a sense of how the city and other places like it have changed, we caught up with John Payne, president and chief operating officer at Vici Properties.
Payne will be speaking on a panel entitled ‘Place your bets: Casinos and the hotel market ’ (Monday 3 June, 2.00-2.45pm Adjacent Spaces Track, Julliard Complex ).
Hospitality Investor: In light of the evolving regulatory landscape, how do you foresee the future of casino-hotel partnerships and developments?
John Payne: As a little background, VICI is a 6-year-old, publicly-traded experiential REIT. Our goal is to create the highest quality and most productive experiential real estate portfolio through a strategy of partnering with the world’s highest quality place makers and operators. VICI owns 93 properties, 4 world-class golf courses, and has ~$50bn Enterprise Value. The majority of our portfolio currently consists of gaming and hospitality assets that we triple net lease to casino operators, but over the past year we have expanded into other experiential categories including indoor waterpark resorts, “pilgrimage” golf resorts, health & wellness destinations and family entertainment centers. We have been the pioneer in bringing Class A real estate to the Net Lease category. By Class A we mean real estate of great scale, great quality and high mission-criticality, and VICI enables investors to own Class A real estate within the superior economic transparency and integrity of the net lease model. As casino operators look for opportunities to significant grow their portfolios or improve their assets, they will continue to monetize their real estate which will provide growth opportunities for VICI. This has been prevalent over the past several years as operators have started to appreciate the advantages of partnering with REITs, as the combined cost of capital enhances the ability to acquire assets at attractive prices with favorable economics for all parties involved.
Hospitality Investor: With the rise of experiential travel, how are casinos adapting their offerings to meet the changing demands of consumers, particularly in terms of hospitality experiences?
John Payne: Referring to a resort in Las Vegas as a casino is truly a misnomer. Since the mid-2000s, the Resorts on the Las Vegas strip have generated less than 50% of their net revenue from games of chances. The operators have been the leaders of using their entire array of amenities (e.g. hotel rooms, bars, restaurants, night clubs, spa, pools, etc.) to drive profitability. In addition, the casino operators are the most creative in using unused space inside their footprint to generate incremental revenue and I expect over the coming years will continue to add new concepts.
Hospitality Investor: Can you discuss any innovative strategies or trends in space utilization within integrated casino-resort properties to optimize revenue streams and enhance guest experiences?
John Payne: Years ago casino operators capitalized on an opportunity to program some of the most under-utilized space at their property by creating the “Day Club” concept. Fast forward to today and many Day Club’s now feature world-renowned DJ’s and/or celebrities. It is not uncommon for customers to spend thousands of dollars on bottle service or cabana rentals at these experiences, which yields a great profit for the operators.
Hospitality Investor: From a branding perspective, how do casino resorts differentiate themselves in a crowded hospitality market, and what branding strategies have proven to be successful in attracting both gaming and non-gaming guests?
John Payne: The creation of a hub and spoke model in the casino industry has been a game changer for many operators. An operator’s ability to host guests at many properties across the country and in particular Las Vegas, is a big reason companies like Caesars Entertainment and MGM Resorts have a loyal following from many of their customers and compete successfully in local markets.
Hospitality Investor: The theme of this year’s event is ‘Driving Alpha’, reflecting the confident outlook on the opportunities in hospitality markets with investors in the sector recognizing that success demands a profound knowledge of market intricacies, strategic timing, and creativity in deal structures. Have you got an example that you could share either in your own business or the wider market?
John Payne: Two examples come to mind:
1) In 2020, VICI pioneered what we call our Partner Property Growth Fund. Simply put, we partner with our existing tenants to fund high ROI development opportunities at our existing assets. Our first investment was relatively small as we funded an outdoor gaming and smoking terrace. Since that 1st investment, we have funded the transformation of a riverboat casino into a land-based casino-hotel, which VICI funding the entirety of the project in exchange for incremental rent. We also recently announced a $700mm investment through our partner property growth fund at the Venetian Resort Las Vegas, which is a very safe and attractive investment for VICI while also being a win-win for our partners that operate the property.
2) Over the past could of years, we noticed an opportunity to use lending as a strategic tool to develop relationships and provide our partners a broader array of capital solutions. While we are not a bank, loans that are backed by real estate serve as qualified income under REIT rules. Today, VICI has made over $2.0bn in loans, which carries an attractive yield and has been well received by our partners. It is another way that VICI can be creative and create tailor-made solutions that work for individual companies.