VICI to Provide up to $700M for Venetian Las Vegas Enhancements

Late on Wednesday, VICI Properties (NYSE: VICI) announced that it would finance improvements at the Venetian Resort Las Vegas up to $700 million.

That money was revealed on the day of Venetian's 25th birthday and will be supplied under VICI's Partner Property Growth Fund plan. The operator, Apollo Global Management (NYSE: APO), celebrated the event by announcing that it has invested $1.5 billion to upgrade the integrated resort on the Las Vegas Strip.

"VICI has agreed to provide up to $700 million of financing through the Venetian Capital Investment, comprised of $400 million to be drawn in 2024 and an incremental $300 million that The Venetian Resort will have the option, but not the obligation, to draw in whole or in part until November 1, 2026,” according to a statement issued by the New York-based real estate investment trust (REIT). “The initial $400 million investment will be funded in three quarterly draws based on a fixed funding schedule: $100 million in Q2 2024, $150 million in Q3 2024 and $150 million in Q4 2024.”

In the US and Las Vegas, VICI is the biggest owner of casino real estate.

At Venetian, Apollo and VICI Form a Powerful Team

Apollo and VICI paid $6.25 billion in March 2021 to purchase the Venetian and the adjacent Palazzo, as well as the Sands Expo & Convention Center. VICI spent $4 billion on the real estate, and the private equity group paid $2.25 billion for the venues' operating rights.

Tenants are usually financially responsible for improvements and additions to the premises under triple-net leases, which are the most typical lease arrangement in the casino business. At Venetian, Apollo has fulfilled that promise.

“Redevelopment presents new gaming offerings including The Palazzo High Limit Lounge, the fully redesigned sportsbook complete with a multi-year naming rights partnership with Yahoo, the Yahoo Sportsbook powered by William Hill, and a brand-new poker room that will be debut this summer,” according to a statement issued Wednesday by the Venetian.

More recently, tenants have expressed interest in receiving finance from VICI and other REITs to upgrade gambling establishments. The goal of such purchases is to increase property values, which benefits landlords, in addition to diversifying REITs' revenue streams.

Rent in Venice is also rising.

Apollo's lease responsibilities at Venetian will be increased by VICI as part of the financing agreement. Rent will increase "on the first day of the quarter immediately following each capital funding at a 7.25% yield," according to the current rental agreement.

"The Incremental Venetian Rent will begin escalating annually at 2.0% on March 1, 2029, and commencing on March 1, 2031, will begin escalating on the same terms as the rest of the rent payable under the Venetian Resort Lease with annual escalation equal to the greater of 2.0% or Consumer Price Index (CPI), capped at 3.0%,” said the REIT in the press release.

The Venetian upgrades will be financed by VICI using cash on hand and a portion of the proceeds from forward equity sales.