Editor’s Note:
Go in February. That’s the off-season. Better hotel rates. Smaller crowds. Shorter lines.

That’s what I was told the last time I took the family to Disney World. I didn’t personally count the attendance, but for the record, the Magic Kingdom and Epcot seemed as busy as ever. On any given day, approximately 159,000 visitors pour through the turnstiles. February might not be the peak, but don’t expect a ghost town either.

There is never really a true slowdown at Mickey’s house… just varying degrees of packed.

Viva Las Vegas
The same can said for America’s other favorite playground. The one geared towards adults. Yes, I’m talking about Las Vegas.

Sin City welcomed 41.7 million guests last year. About 6 million people flew in to attend business conventions. The rest were there for recreation and entertainment, of which options abound. (One of my personal favorites: snow skiing in Lee Canyon, a hidden treasure with a peak elevation of 11,000+ feet just 45 minutes from the strip).

Throngs of Asian revelers are in town right now to celebrate the Chinese Lunar New Year. February brings the Superbowl… and with it, about $185 million in sportsbook wagers. After that is March Madness, the frenzied tournament that crowns a college basketball champion. And then the World Series of Poker.

That’s just the next few months.

Meanwhile, the concert calendar promises one big act after another. The Eagles, Kenny Chesney, and U2 all have upcoming stays at the Sphere, perhaps the world’s most unique and immersive show venue. Across town, Las Vegas now fields professional hockey, basketball, football and baseball sports franchises.

Of course, some people visit on a random Tuesday with no particular agenda at all… except maybe a few drinks with friends and then seeing where the night takes them.

Whatever the reason, incoming passenger volume at nearby Harry Reid International Airport is setting one record after another. And with few exceptions, most of those visitors board return flights with lighter wallets and purses.

Gaming wins totaled $8.8 billion on the strip and $15.6 billion statewide in 2024. That marks the fourth straight record-breaking year. Keep in mind, that’s just what was pocketed at the tables and slot machines… many resorts generate the bulk of their cash off the casino floor.

For starters, daily room rates in Las Vegas have rebounded to $193 per night. That’s just a simple average. You can routinely expect to pay two to three times that at higher-end properties like Aria or Bellagio. Between acres of spas, retail shops, clubs, showrooms, poolside cabanas, and five-star restaurants, these amenity-laden properties are exceedingly good at separating patrons from their bankrolls.

Take Caesar’s Entertainment (Nasdaq: CZR). The company pocketed $2.9 billion in revenues last quarter. Casino gaming wins accounted for just over half (55%) of that take, but food/beverage, hotel, and other operations chipped in almost as much.

It wasn’t always this way.

Until 1989, Las Vegas was filled with cheap alcohol, inexpensive buffets and other promotions purposely designed to be loss-leaders to lure in gamblers. I still remember the $11.99 steak and lobster dinner downtown on Fremont Street. But then Steve Wynn built the extravagant $630 million Mirage, the world’s most expensive resort at the time. The sprawling 3,000-room property reportedly needed to collect $1 million in casino winnings per day just to break even.

But Mirage defied the skeptics and was enormously profitable, thanks largely to a bold new business model. Wynn fully expected the non-casino operations to carry their own weight. Sure, the baccarat tables and roulette wheels still took in their share of the profit, but not at the expense of the hotel, restaurants, theater and retail shops. These departments would be profit centers of their own.

The success of the Mirage ushered in the 90’s construction boom that welcomed castles, pyramids and other wonders to Las Vegas.

On a personal note, my first assignment in this industry as a columnist for Casino Player magazine was to cover the financial implications of the mega-merger between Mirage and MGM Grand decades ago. Harrah’s and Caesar’s joined forces a few years later, permanently consolidating the competitive landscape on the strip.

A lot has changed since then. Las Vegas is many things, but nostalgic isn’t one of them. The old is constantly being demolished to make room for the new. Wynn’s newest namesake resort — built at a cost of $2.7 billion — occupies the same spot where the rat-pack era Desert Inn used to stand.

As we speak, the Mirage is currently being dismantled and rebranded into the Hard Rock. The dolphins, white tigers and volcano popularized in films like Vegas Vacation are being replaced by a towering neon guitar.

Here’s what few people realize. Hard Rock’s corporate parent doesn’t actually own this prime real estate. In fact, just about every massive property up and down Las Vegas boulevard has a third-party landlord.

… which brings us to the heart of today’s article.

Be a Better Bettor
At some point, most national lodging companies (both with and without casinos) decided that it made sense to sell off their real estate, typically renting the properties back from the buyer through sale-leaseback agreements.

This “asset-light” model reduces expenses and brings in cash that can be used to fund acquisitions and other growth initiatives. Plus, divesting properties (and staying on as a tenant) is the surest and quickest way to de-leverage stressed balance sheets across the industry.

Just about every major gaming company has adopted this approach, shedding properties either piecemeal or in bundles.

Not long ago, Wynn Resorts (Nasdaq: WYNN) entered into such a transaction for its Boston Encore Harbor resort. One of the biggest motivating factors was to pay down the firm’s hefty $11.9 billion debt burden. Building lavish mega-resorts isn’t cheap.

Here’s what it had to say.

“The company entered into a sale-leaseback arrangement with respect to certain real estate assets related to Encore Boston Harbor. We expect to receive cash consideration of approximately $1.7 billion and to concurrently enter into a lease agreement. We expect to use the proceeds for general corporate purposes, including the repayment of debt obligations.”

Outside of private equity buyers, these unique properties now belong mostly to specialized real estate investment trusts (REITs).

Gaming & Leisure Properties (Nasdaq: GLPI) owns dozens of casino resorts encompassing 16,000 hotel rooms and more than 30 million square feet of space. Many of these properties rank number one in their respective local or regional market, such as Ameristar Kansas City and L’Auberge Baton Rouge. Other standouts include Lumiere Place in St. Louis and Tropicana in Atlantic City.

To be clear, GLPI doesn’t run the casinos, but simply leases the land and structures to experienced operators. In other words, it just collects steady rent checks.

While gaming can be quite lucrative (betting with the house usually pays off), it can also be cyclical. And Lady luck is quite fickle, toying with table hold percentages and other key metrics. GLPI isn’t involved in day-to-day operations, so it has no exposure to a run of bad luck and doesn’t feel the pinch of rising operating overhead.

On top of that, it signs triple-net leases, meaning tenants like Bally’s are responsible for all property taxes, insurance, and maintenance. That provides an added layer of protection for shareholders.

I like GLPI, but most of its resorts are scattered in smaller regional markets. If you want a concentrated position in the gaming Mecca of Las Vegas, then you’ll want to consider VICI Properties (Nasdaq: VICI).

I first recommended VICI shortly after its 2018 IPO. At the time, it already held the keys to nearly two dozen properties, the crown jewel being the famed Caesar’s Palace. True to its name, VICI has expanded its empire with one conquest after another.

Within months, it took control of the tropical Margaritaville Bossier, the Jimmy-Buffet inspired resort on the banks of the Red River. The $260 million price tag immediately added $23.2 million in annual rent – a “cap rate” of close to 9%.

After that was the much bigger land grab for the marquee Las Vegas Venetian. And then the acquisition of MGM Growth Properties, which yielded ownership of iconic strip properties such as Mandalay Bay and New York-New York.

Today, the portfolio spans 54 casinos across 15 states containing 60,000 hotel rooms and 124 million square feet of space. Incidentally, that includes the new Hard Rock, which is under lease for the next 25 years at a base rate of $90 million annually (before automatic yearly rate hikes).

Aside from its trophy assets, VICI also owns 660 acres of valuable Las Vegas land, including 26 undeveloped acres behind Planet Hollywood and fronting Caesar’s Palace. In just a few years, it has blossomed from an unknown startup into one of the nation’s premier property owners – joining the S&P 500 faster than any REIT in history.

VICI has been busy, deploying another $230 million last quarter alone. But management is disciplined, which explains the perfect 100% rent collection since formation. The business now hauls in almost $1 billion in rental income per quarter. From that, it has generated $2.4 billion in Adjusted Funds from Operations (AFFO) over the past 12 months.

This pool supports a steadily rising dividend distribution that now stands at $1.73 on an annual basis – throwing off a yield of 5.8%. And unlike some of its peers, VICI also boasts a stout investment-grade balance sheet.

Unless the entertainment hub of Las Vegas suddenly loses its mojo, this well-run landlord should continue to spit out dividend jackpots for years to come.