- Casino REIT didn’t have much to say regarding talks with tenant Caesars
- VICI CEO says company is looking for “win-win” solution
- Weakness at Caesar regional casinos has been a problem for VICI stock
Perhaps disappointing investors in both companies, VICI Properties’ (NYSE: VICI) fourth-quarter earnings conference call didn’t include much of an update on negotiations with tenant Caesars Entertainment (NASDAQ: CZR).
The oft-discussed issue of the master lease on Caesars regional casinos was mentioned on the VICI conference call with Goldman Sachs Caitlin Burrows getting that ball rolling, but CEO Edward Pitoniak didn’t provide much of an update.
We’re obviously not going to get into any kind of detail on what we might have discussed already with Caesars or more importantly, what we will be discussing,” said the VICI chief executive officer on the call. “But what I want to emphasize is that as we address lease issues with Caesars, we’re going to do so within the context of our overall approach to portfolio and risk management.”
The issue that has investors in both companies fretting is easily explained. VICI owns the property assets of a substantial amount of Caesars-operated casinos located outside of Las Vegas. Currently, the gaming company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) at those venues is barely enough to cover the rent, confirming the need for negotiations.
VICI Searching for a ‘Win-Win’
Neither Caesars nor VICI has openly discussed potential outcomes of their talks, but the prevailing wisdom in the investment community is that both sides are going to have give up something to get something.
Some analysts have floated the idea of VICI potentially lowering the rent on the Caesars regional casinos in exchange for equity or some other form of remuneration, but neither side has confirmed that idea is on the table.
What is clear is that VICI wants agreement that benefits both companies and one that fits within the context of the real estate investment trust’s (REIT) long-term objectives.
“What we undertake with Caesars again, will be a solution that we believe can and will be a win-win, but win-win for us insofar as it also helps further our portfolio optimization goals,” add Pitoniak on the call.
VICI Isn’t Caesars-Dependent
VICI was spun out of Caesars in 2017 and at that time, the casino operator accounted for all of the REIT’s lease rolls, but that percentage has since dipped below 40% as VICI has diversified its tenant base to include MGM Resorts International (NYSE: MGM) and many more gaming companies.
Still, Caesars is the largest contributor to VICI’s rental income, confirming why investors want the regional casino master lease situation to be resolved.
“For both Caesars and for us, I really believe the ultimate best solutions will be solutions that simply do not only address issues of lease coverage, but solutions that enhance both portfolios, which is to say, I think there’s going to be multiple levers, multiple strategies to achieve portfolio optimization for both parties,” concluded Pitoniak on the call.
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