The Las Vegas Strip exists today largely in the mold that Las Vegas Sands fashioned for it, and certainly, there’s been plenty to say over the last week about the company’s $6.25 billion decision to leave. There’s been no shortage of questions. The most compelling: Why did the company sell?
The deal didn’t come from out of the blue. Bloomberg News had an inside track on it back in the fall, even down to the sale price and the likelihood of a split owner/operator transaction involving a real estate investment trust (REIT)𑁋two of which, VICI Properties and MGM Growth Properties, already own most of the Strip’s resort casinos.
As it turned out, it was VICI, a REIT spun off from the Caesars bankruptcy. It owns more than a dozen Caesars resorts and nearly 30 others around the U.S. in lease agreement with five separate operators.
VICI is paying $4 billion in cash for the Venetian, its sister resort, the Palazzo, and the Sands Expo and Convention Center, in partnership with Apollo Global Management. Apollo is the private equity giant whose 2008 leveraged buyout of Harrah’s Entertainment in partnership with TPG Capital also figured prominently in the Caesars bankruptcy.
On top of the $4 billion, Apollo is paying $2.25 billion for the companies that operate the three properties, with a little help from LVS, which is kicking in $1.2 billion of the purchase price in the form of a term loan. LVS also is guaranteeing the $250 million in annual rent Apollo will pay VICI for the operating rights through 2023, subject to certain EBITDAR benchmarks.
Far and away it’s a great deal for VICI, which is adding two more marquee Strip resorts to an already glittering portfolio, encompassing more than 7,000 top-end rooms and suites, 225,000 square feet of gaming space, some of the best dining and shopping in Las Vegas and 2.3 million square feet of prime meetings and exhibitions space, not to mention the MGS Sphere, an 18,000-seat entertainment showplace slated to open in 2023 at a cost of $1.7 billion.
Apollo, for its part, is back on the Strip for relatively small money, considering the quality of the LVS assets, the capstone of an aggressive acquisitions strategy that currently includes Toronto-listed Great Canadian Gaming, Italian sports betting group Gamenet, a stake in IGT’s Lottomatica and a pending investment in Sazka, Europe’s largest lottery operator.
Of course, Apollo is not an operator. But as Alex van Hoek, an Apollo partner, astutely observed, “The Venetian has one of the best teams in the industry, focused on delivering world-class customer service and experiences.”
Then again, they’re buying into a destination that’s been devastated by the pandemic like no other in the country. But here, too, van Hoek was duly optimistic. The deal “underscores our conviction in a strong recovery for Las Vegas as vaccines usher in a reopening of leisure and travel in the United States and across the world,” he said.
A conviction, or so it appears, that LVS and its late founder, Sheldon Adelson, may not have entirely shared, at least not as operators who generated 87 percent of their $13.74 billion in 2019 revenues from Macau and Singapore, and which even in pandemic-battered 2020 were good for 79.5 percent.
“Anyone who thinks Sheldon Adelson wasn’t a brilliant businessman didn’t know him,” said Brendan Bussmann, director of government affairs for industry consultants Global Market Advisors. “He was one of the most brilliant people I ever met. Maybe he saw something.”
What we know is that the reinvention of Las Vegas as a fabulously successful convention destination where far more money gets made outside its casinos than in them𑁋that was the product of a singular vision, embodied in the Venetian, the convention-focused resort that came along on the cusp of the new century to rewrite the book on what you could charge for hotel rooms in the desert.
In Bussmann’s words, “It changed the landscape of Las Vegas.”
But in 2020, as the pandemic raged and business travel ground to a halt, and Adelson slowly succumbed to the cancer that claimed him earlier this year at the age of 87, the vision was in tatters.
Was it the second quarter’s $985 million operating loss? The third-quarter loss of $610 million announced just days before the Bloomberg story broke?
Clearly something had changed. It may have come from the board of directors, perhaps from longtime President and COO Rob Goldstein, Adelson’s hand-picked No. 2 and ultimately his successor as chairman and CEO.
More likely, it was Adelson.
“There is a belief that Sheldon was behind this,” a Wall Street analyst close to the deal told GGB News.
He had to be thinking at that point about the impending transfer of his controlling 57 percent of the stock to his wife, 75-year-old Miriam Adelson, a physician and noted philanthropist with priorities that no doubt have little in common with the business of running gambling halls.
“It was one of those where an opportunity to get a check like that doesn’t come around too often,” said Bussmann. “And when most of your money is coming from Asia anyway, it makes sense.”
The company will now be known simply as “Sands.”
“Clearly, it’s a positive,” said the analyst quoted above. “You’re seeing cap rates on a par with where they were pre-pandemic, looking back at the sale of the Bellagio and MGM and deals like that. But lower interest rates clearly affected this. And it was seller financing, REIT financing. And you have to wonder about the reluctance of the banks right now to finance these deals. There are some folks who are just hesitant. It’s unclear, was this unique in nature? I mean, how many players out there want to pay these multiples? And it’s unclear in what it says about the timing of (a Strip) recovery and what the recovery will look like.”
Obviously, there’s a lot LVS can do with $6.25 billion, like pay down some of its $3.97 billion in debt, restart the payment of dividends, a cause near and dear to Adelson’s heart, recycle capital back into its higher ROI holdings in Macau and Singapore, where some $5.5 billion worth of redevelopment and expansion work is under way and where the company’s invaluable Macau concession is set to expire in 18 months.
And it was reported that Adelson and his yacht shared a marina with Crown Resorts majority owner James Packer on New Year’s Eve, although there is some question the two met at that time. Could Sands be a player in picking up the pieces when all the regulatory investigations of Crown’s corporate misdeeds are completed in Australia? After all Sands has a pipeline to Chinese gamblers that runs through Macau, and now has the financial wherewithal to perhaps pick up the Australian operator at fire-sale prices, including a brand new integrated resort in Sydney.
There are potentially greener pastures in the U.S. as well, New York City and Texas (the company has been lobbying heavily in both states) being at the top of the list.
“It’s hard to say. Clearly, they’re interested in Texas and New York,” the analyst who spoke with GGB News said. “But isn’t Las Vegas the key to any regional strategy? Their intentions in the online space are sketchy as well. And I don’t think the markets believe they needed to do this to fund expansion in Asia. There are just so many unknowns. More questions than answers.”
Perhaps all that’s certain, as Bussmann put it, is this:
“I know it’s a cliché, but it really is the end of an era.”