High roller
In a transformative year for casino REITs, Vici Properties asserted its dominance in August by agreeing to buy MGM Growth Properties for US$17.2bn, including US$5.7bn of debt, from MGM Resorts International, that it opted to pre-fund with a US$3.4bn follow-on.
“When we announce an acquisition, our goal is to raise equity as soon as possible,” said Vici CFO David Kieske.
The equity offering in mid-September represented a hefty 18.2% capital increase, with 115m shares sold at US$29.50 each.
Six months earlier, Vici had raised US$2bn for another acquisition in a forward sale that ranked as the largest REIT offering since another Vici fundraising in June 2019. Investors were well prepared for Vici's regular equity issues.
On the day REITs fell 2.2%, giving context to a file to offer discount of 7.1%. Pricing was a 2.5% discount to the pre-acquisition announcement level.
To manage earnings dilution, the offering comprised 65m new shares and another 50m shares sold under a one-year forward contract. The trade ranks as the largest REIT common stock follow-on in the US.
Morgan Stanley, Citigroup, JP Morgan and Goldman Sachs marketed the offering for just one day, placing more than half with long-only institutions, dedicated REIT funds and REIT-focused hedge funds.
Vici shares closed the following day at US$29.73.
Rated BB by both Fitch and S&P, Vici expects to achieve an investment-grade credit rating after the MGM Growth acquisition closes in the first half of 2022, a key goal for the company, according to Kieske. Vici’s leverage target of 5.8 times adjusted Ebitda would support an upgrade.
A ratings upgrade will open up cheaper funding in the debt market, making the serial issuing casino REIT less dependent on equity for funding acquisitions.
In October, Vici closed its US$4bn purchase of Venetian Resorts and other assets from Las Vegas Sands funded with US$2bn from an equity raise in March conducted as a 100% forward sale.
Vici’s buying spree generated US$166.8m in fees last year, making it one of the largest fee payers to banks globally.
Vici was formed as a result of Caesars Entertainment’s emergence from bankruptcy in 2017 around a portfolio anchored by Caesars Palace Las Vegas.
Ironically, MGM Growth tried to buy Vici before the REIT went public in 2018.
“The MGM Growth acquisition was game, set and match for casino REITs,” said Edward Molloy, Morgan Stanley's co-head of ECM Americas.
MGM Growth places Las Vegas landmarks MGM Grand and Mandalay Bay alongside Caesars Palace in Vici's portfolio.
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