A lot has been written recently, including in this space, about the role of REITs in helping consolidate the casino industry. Now, activist investor Jonathan Litt wants to go a step farther: consolidate the consolidators.
According to the Wall Street Journal, the head of Land and Building Investment Management, has proposed that Gaming and Leisure Properties Inc. (GLPI) merge with VICI Properties.
That would create a giant real estate investment trust (REIT) owning 70 casinos all across America, combining for more than $20 billion in market capitalization.
Litt, the Journal said, has been buying GLPI shares recently, and was inspired by Blackstone’s $4.25 billion purchase of Bellagio from MGM Resorts. GLPI is now the largest holding of the $500 million fund.
As is well known, the gaming REITs (which include MGM majority-owned MGM Growth Properties) have facilitated consolidation with their ability to structure acquisitions that pay sellers good prices on high valuations, while creating leases that assure secure revenue streams and growing dividends for themselves.
Now, enter Blackstone. By paying more than 13 times EBITDA for Bellagio, Blackstone has awakened investors to the potential value of Las Vegas Strip real estate.
Around the same time, Phil Ruffin—as shrewd an investor as there is, and a successful Strip casino owner at TI—pointed to undeveloped land at Circus Circus as a key attraction for his $825 million purchase of that property from MGM.
With precedents like that, non-gaming investors are poking around, looking at everything from casinos to vacant lots.
Actually, the process had already begun. Caesars sold the Rio to New York real estate developer and manager Imperial Companies for $516.3 million. Drew is coming into existence because the formerly bankrupt Fontainebleau project was bought by New York firm Witkoff Group, which is pouring money into its 2022 opening. Richard Branson bought the Hard Rock off Paradise Road to transform it into a Virgin hotel. You can even include Genting Malaysia, an experienced casino company but a newcomer to the Strip, with its $4.3 billion Resorts World Las Vegas under construction.
That’s a lot of outside money moving in. And there are two more pending catalysts:
- Whatever MGM does in selling and leasing back the biggest property of them all, MGM Grand
- The closing, early next year, of Eldorado’s acquisition of Caesars, with the promise that a Strip property will be sold
Eldorado CEO Tom Reeg said on the company’s last conference call that numerous parties, including non-gaming ones, are expressing interest in Las Vegas real estate.
If all of this sounds familiar, that’s because it is. A little more than a decade ago, newspapers were filled with headlines of non-Las Vegas, non-gaming interests paying big money, or prepared to pay big money, to build in Sin City. They ranged from Israeli real estate developers to the aforementioned Fontainebleau, owned by Miami’s Soffer family, to celebrities like George Clooney.
The results were not pretty. Projects like Fontainebleau went belly up. New York developers who did finish projects—the Aladdin (now Planet Hollywood) and Cosmopolitan—lost them. Clooney got lucky. The financial bubble burst before he could lose his shirt.
This is not 2008. There’s no great financial and real estate bubble. Buyers like Ruffin lend assurance that realists are investing. Blackstone didn’t become the world’s biggest alternative asset management company by being starry-eyed.
Still, it’s nearly axiomatic that outsiders moving into a market is a sign of a top. So, before investors begin outbidding each other to buy Las Vegas real estate, or to buy stakes in companies that are, it might be prudent to put a little more “do” into due diligence.
