VICI Properties Inc (VICI) — Q1 2024 Earnings Call Transcript

Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2024 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and our first quarter 2024 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and our counterparties discussed on this call, please refer to the respective companies' public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Moira McCloskey, Senior Vice President of Capital Markets. Ed and team will provide some opening remarks, and then we'll open the call to questions. With that, I'll turn the call over to Ed.

Thank you, Samantha, and good morning, everyone. The first quarter of 2024 was, shall we say, an interesting quarter in the American equity marketplace. A fair part of the S&P 500 packed into a house and held a magnificent party. One Wall Street shop went so far as to say the party reached the rarified state of euphoria. Euphoria, that sounds kind of fun. But to be clear, American REITs were not invited to this party. Those of us who work within REITs were out on the curb outside that party house. From the outside, one could wonder if this was a party in which new monarchs were being coronated for perpetual rule or the kind of party that eventually ends with ambulances and/or cops being called and a few of the partygoers fleeing naked down the street out of their minds like Will Ferrell in Old School. The first quarter of 2024 is now over. The ambulances or cops haven't necessarily showed up yet, but the party inside that magnificent house seems to be running out of steam. The MOVE Index, which measures U.S. treasury market volatility, was relatively high but relatively steady through much of the first quarter and even fell a bit in late March in a flight to safety, but in early April, started acting rowdy again. And it's much the same with the VIX equity volatility index, which having slept through much of the magnificent party, recently spiked almost 50% since the start of the year before settling back down. Amidst all this noise, the general investment marketplace is having a hard time focusing on the income and capital appreciation dynamics of good REITs. At VICI, we can deal with all of this. We don't spend a lot of time standing on curbs wondering or complaining about parties we're not invited to. We just keep doing what we do at VICI, and that's working within our resources and capabilities to keep improving and growing our company for the long-term benefit of our stakeholders. That's what we did in Q1 2024. The first quarter of 2024 was a quarter in which we produced 6.1% growth in AFFO per share over Q1 2023 and continued to flow our revenue growth through to the EBITDA line at what we believe is one of the higher rates among S&P 500 REITs. The first quarter of 2024 was also a quarter in which we focused on 3 key strategic imperatives: imperative number one, expanding our scope and TAM in investment with our investment in Homefield Kansas City, a market-leading sports training complex that will also soon feature a Margaritaville resort. This is an investment that builds on our initial entry into the sports and recreation sector with a late 2023 acquisition of the primary leasehold interest in Chelsea Piers, an investment that validates the use of our lending platform to ultimately acquire a real estate interest, in this case, 780,000 magnificent square feet of New York recreational and entertainment space on the Hudson River. Imperative number two, being ready to refinance our maturing 2024 debt at an opportune time, debt that would have come due on May 1; yesterday, in other words. During Q1, May 1st seemed a fair way off, but given the volatility of market conditions, we didn't want to wait too long. We went to market on March 7 and did so on what turned out the second lowest point in March for U.S. 10-year yields. Yes, our timing was fortunate, but our good fortune relied on us being ready to go. Imperative #3, which we've just announced, capitalizing on the scale and rarity of our existing assets by working throughout Q1 with our partners at Apollo to develop a property enhancement plan for The Venetian, which gives VICI the opportunity to invest up to $700 million of capital into this magnificent Las Vegas Strip asset. In a moment, John and David will give you more color on each of these 3 Q1 2024 imperatives. I'll close out my opening remarks by saying the obvious. The first 16 or so weeks of 2024 haven't been a lot of fun for REIT investors. It's not clear at this point when the marketplace will recognize what we believe to be the total return value that REITs can and do represent at this point. Most, not all, but most REIT categories currently offer dividend yields that are materially in excess of current inflation rates. And REIT dividends, unlike money market or bond interest payments, have the potential to grow over time, as VICI's has, with VICI posting a dividend growth CAGR of 7.9% since the first quarter of 2018 following our IPO. We've been living through a period in the equity marketplace in which the power of compounding has been somewhat ignored or forgotten. REITs can be powerful compounding tools. As a VICI shareholder, I haven't forgotten or ignored that compounding dynamic and benefit. I look forward to answering your questions, but first, a few words from John and David. John?

Thanks, Ed, and good morning to everyone. Relationships are at the core of what we do at VICI and the quality of the relationships we have sets us apart. Our team works hard to strengthen existing ones and develop new ones so that we are best positioned for future growth opportunities, whether or not we are invited to what Ed has called the party. Our focus on trust in finding mutually beneficial solutions with our partners multiplies the beneficial impact of each relationship and we believe lays the groundwork for future growth through both good and bad market environments. One of the best examples of this is our relationship with Apollo and the team at The Venetian. The opportunity to acquire The Venetian originated during the COVID pandemic, another period of uncertainty with a challenging market backdrop. Since that time, the team at The Venetian has outperformed all expectations as Las Vegas has continued to solidify itself as the entertainment center of the world. We are thrilled to further expand our close relationship with Apollo and announced our opportunity to invest up to $700 million at The Venetian through VICI's Partner Property Growth Fund. This capital investment will fund several projects that seek to improve the overall guest experience and enhance the value of the property. The impact of our increasingly dynamic Las Vegas has continued to accrue to the benefit of The Venetian since we acquired the property together with Apollo in 2022, particularly with the neighboring Sphere, events like F1 and Super Bowl and an active convention schedule. The Venetian is set to celebrate its 25th anniversary this Saturday, and we're thrilled to partner with Apollo once again in their efforts to maximize the economic potential of this amazing iconic Strip asset. Gaming remains at VICI's core with over 98% of rent coming from our gaming partners, and the sector remains broadly healthy from a tenant credit perspective. Las Vegas continues to enjoy healthy growth with GGR up low single digits following the Super Bowl this quarter, and that is on top of an already impressive baseline, given gaming revenue increased 12% in the first quarter of 2023 over 2022. Since the market emerged from the pandemic, there have been 12 straight quarters, I'm going to repeat that, there have been 12 straight quarters of GGR growth in Las Vegas. Additionally, Las Vegas visitation numbers were up 4.2% in the first quarter, demonstrating the continued diversity of the revenue streams and the vast array of consumers enjoying this amazing city. In fact, based on a recent study from the University of Toronto that evaluated North American cities pre and post pandemic, Las Vegas is the only city that has surpassed pre-pandemic unique visitation numbers. In the regional gaming markets, while we recognize idiosyncratic weather headwinds this winter, we believe fundamentals remain sound, and we see steady consumer discretionary spend driven by the middle and high-end consumers on the casino floor. Although interest rate volatility has impacted transaction volume in the gaming market, we are active in dialogue around real estate opportunities in the gaming sector. Outside of our embedded growth pipeline, our relationships and gaming focus put us in a strong position when transactions or opportunities to invest in our existing properties arise. We continue to monitor the performance of Harrah's Hoosier Park and Horseshoe Indianapolis, for which we have a call right to acquire the real estate and buildings of these unique assets. This call right expires at the end of 2024 and we continue to work through the process with the appropriate Indiana regulatory agencies to gain the necessary gaming approvals should we elect to execute this option. VICI is also well positioned for incremental opportunities outside the gaming space as we've continued to expand our scope and our TAM of investments. We are committed to ensuring that each experiential sector and potential partner meets our investment criteria of low cyclicality, low secular threat, improving track record of growth and favorable supply and demand dynamics. In January of this year, VICI expanded its investment in the youth sports sector with the announcement of the up to $105 million construction loan agreement with affiliates of Homefield Kansas City to fund the development of a Margaritaville resort that will be embedded within Homefield's broader youth sports complex. The youth sports training center hosted 115 teams this last weekend for a basketball tournament and the baseball facility is open and in use. The Margaritaville resort is expected to be completed in 2025. Having visited the area a few weeks ago, I can tell you all the facilities are truly amazing. The Homefield partnership adds to our youth sports investment, as Ed said, which we initiated with our 2020 mortgage loan to Chelsea Piers in New York City. And at the end of 2023, we acquired the leasehold interest in the property and converted the initial loan into real estate ownership. While REITs were broadly excluded from, as Ed put it, the party that took place in the first quarter of 2024, the effects of the transactions and relationships announced at the end of last year and the beginning of this year contributed to our 6.1% growth in AFFO per share. As I stated earlier, our relationships are at the foundation of our business and drive our growth. Our standard for prudent underwriting gives us confidence in our roster of existing partners with whom we believe we have many growth opportunities. We look forward to developing new relationships with best-in-class operators so that VICI can continue to grow its quality experiential real estate portfolio. Now I will turn the call over to David, who will discuss our financial results and guidance. David?

Thanks, John. It's a pleasure to speak with everyone today, and we truly appreciate your time. To begin with our balance sheet, as Ed mentioned, in the first quarter, we successfully executed our first refinancing of the $1.50 billion May 2024 notes that were due yesterday. On March 7, we launched a bond offering and reached a peak of 12 times oversubscription. We ultimately issued $550 million of 10-year notes at a coupon of 5.75% and $500 million of 30-year notes at a coupon of 6.125%, resulting in a blended yield of 5.9% before accounting for our forward interest rate swaps. Compared to the 5.625% coupon we refinanced, we are pleased with the all-in coupon we achieved while extending the duration of our maturity profile. During the quarter, we also enhanced our liquidity by selling 9.7 million shares, raising $305 million in gross proceeds under our ATM via the forward. Currently, we have around $3.5 billion in total liquidity, which includes $515 million in cash, cash equivalents, and short-term investments as of March 31, $683 million of estimated proceeds available under our outstanding forwards, and $2.3 billion in availability under our revolving credit facility. Additionally, our revolving credit facility features an accordion option, enabling us to request extra lender commitments of up to $1 billion. As we speak today, we believe we are well positioned to navigate the current macro environment and do not need to secure additional capital. Regarding leverage, our total debt stands at $17.1 billion. Our net debt to annualized first quarter adjusted EBITDA, excluding the influence of unsettled forward equity, is approximately 5.4 times, within our target leverage range of 5 to 5.5 times. Our weighted average interest rate is 4.36%, factoring in our hedge portfolio, and we have a weighted average of 6.8 years to maturity. On the income statement, AFFO per share was $0.56 for the quarter, which is a 6.1% increase compared to $0.53 for the quarter ended March 31, 2023. Our results underscore our highly efficient triple net model, reflected in the rise in adjusted EBITDA relative to the corresponding revenue increase, and our margins remain robust in the high 90% range when excluding noncash items. Our G&A for the quarter was $16.2 million, representing only 1.7% of total revenues, continuing to be one of the lowest ratios not only in the triple net sector but across all REITs. Regarding guidance, we are reaffirming our AFFO guidance for 2024 in both total amounts and on a per share basis. As highlighted during our Q4 earnings call, AFFO for the year ending December 31, 2024, is projected to be between $2.32 billion and $2.355 billion, or between $2.22 and $2.25 per diluted common share. Please note that our guidance does not incorporate the effects of any transactions that haven't closed yet, interest income from loans without final draw structures, potential future acquisitions or dispositions, capital markets activities, or other nonrecurring transactions or items. Additionally, as previously mentioned, we record a noncash CECL allowance quarterly, which due to its unpredictable nature makes accurate forecasting of net income and FFO challenging. Therefore, our guidance is focused on AFFO, which we believe is the best measure for assessing the productivity of our equity investments and evaluating our financial performance and ability to distribute dividends. With that, operator, please open the line for questions.

I guess one of the ways for VICI to identify and complete deals is when your partners are growing and expanding. So can you give some color on how your partners are doing and to what extent they're in the position to be expanding right now? I guess we can see the opportunity with The Venetian, but what else should we consider?

John, do you want to start?

I will start, and I'll start first in our portfolio in Las Vegas because I think that's been a real center of where we've grown our company, and we have great operators there. We obviously announced The Venetian today, and you heard in my opening remarks that I believe, and maybe I'm a little bit biased, but this is the fastest-growing or the best city in hospitality in the world as it continues to attract a wide variety of consumers. So that provides opportunities for our partners, whether that's MGM, Caesars, we announced with Venetian. We've got a partner in Hard Rock that owns the Mirage that are all studying ways to continue to reinvent their business and add additional amenities to these amazing assets. The beauty of the assets in Las Vegas is the magnitude of opportunities that they have and the magnitude of square footage that they have in these assets to continue to not only remodel, but there are large parts of these assets that are unused at this time that could be brought either back to life or have never been in life with new concepts. So I can't give you any details that we haven't announced, but our operators have all talked about the development of their Las Vegas assets. Outside Las Vegas, there are some regional markets that continue to grow. We own some of the best assets out there, and we continue to talk to our partners about how we could potentially use our capital to grow their businesses. And we've announced previously some opportunities with Century, and I think there'll be some opportunities with some of our larger and our smaller operators. So Ed, I'll start with that if you want to add anything to that answer.

I would only add, John, and Caitlin, good to hear from you, that obviously, depending on the outcome of the New York gaming licensing process, were the MGM asset in Yonkers, which we own the real estate of, to gain one of the full licenses, that would obviously be an opportunity for us to invest substantial capital in the recreation of that asset.

Got it. And then you guys were talking about the Homefield partnership. I was wondering if you could just maybe remind us the status of your current construction loan there, which I don't think itself is a huge exposure for VICI, but as we think about the potential growth and scope of that relationship, what it could be like?

David?

Yes, Caitlin, we started funding that upon an announcement. And so that's an 18-odd-month development build, but it's really the proceeds that are going into the Margaritaville Hotel to use to build the Margaritaville Hotel, excuse me. As John mentioned, the team was out there a week or so ago and saw the sports facilities that are ultimately part of our real estate that we do have the option to call in the future once everything is up and running and stabilized. But they are a best-in-class youth sports operator, and while there's no immediate intentions to grow, they are realizing the benefits of what they're creating and may have opportunities in the future to expand what they are successfully building in Kansas City.

I guess my first question is, can you talk a bit about how you're thinking about return requirements and your cost of capital and any sort of spread? When I look at Venetian, it's obviously a tremendous asset and a strong relationship, and you talked about the importance of that. Then the flip is, I guess you got some flat term for a little bit, and it's also more of a CapEx investment as opposed to new assets. So maybe just help us with putting some dimensions around how you're thinking about the right levels of return in your own cost of capital.

Yes. Tony, good to hear from you. The starting point is that, over time, we are obviously solving for blended yield on our investments. When we have the opportunity to put capital into an asset as rarefied as The Venetian and still maintain an accretive spread, to the point of your note, not a vast accretive spread and not our targeted blended rate of return. But if we can match an investment like The Venetian with investments, whether acquisitions or property or lending investments that give us more substantial yields, more substantial spreads, we feel, on a net-net basis, we're creating a lot of value for shareholders.

Okay. And then just my second one, John, you mentioned on the Centaur assets going through some regulatory process right now. Does that mean that if you do exercise the option, the close would be pretty immediate? Is that what to read there? Or just wondering what that meant.

Tony, I don't think that's necessary. It's funny. First of all, it's funny we still call them the Centaur assets. It is Harrah's Hoosier Park and Horseshoe Indianapolis. We do the same thing. But no, Tony, I mean we're going through the process with the appropriate Indiana regulatory agencies. And should we elect to execute this option, we will make sure that we follow all the rules and the regulations. But to your question about timing, really no position on that other than we're going through and spending the appropriate time with those agencies.

I was curious, how deep is the pipeline for additional partner property growth investments? And then I guess, as we think about those investments like Venetian, how should we think about the potential for those ROI improvements converting to sale leaseback at some point?

Yes. So I think as a starting point, Barry, it's valuable to remember that from what we can determine, we are the largest owner of hotel room real estate in America. We're the largest private sector owner of convention space in America, one of the largest owners of restaurants, theaters, other kinds of entertainment spaces. What are we right now, David, about 130 million square feet?

Just under that. That's right.

Yes. So Barry, when you think about having 130 million square feet of existing property, 1% and 2% of that number as potential reinvestment opportunities is a pretty compelling opportunity unto itself. As John mentioned, The Strip obviously represents a very compelling opportunity. We're particularly excited about the opportunities that could be at the south end of The Strip. We're in partnership with MGM. We own 5 assets, I believe it is. And that is an end of The Strip that, as you know, Barry, has taken on a vitality in recent years that it didn't have before. The T-Mobile obviously added to the vitality at that end of The Strip, Allegiant definitely added a lot and the A's stadium could potentially add a lot of vitality. And so when you look at assets like MGM Grand, New York, New York Excalibur, Luxor, Mandalay Bay and Park MGM, we, with our partners, MGM, who obviously reported a very good quarter last night, are excited about what the densification opportunities could be over the coming years.

Barry, I want to add one thing to that. I completely agree with Ed regarding the assets, but it's also important to consider the operators managing these assets. They are always seeking ways to attract more consumers and increase business. A great asset means little if the operator is resistant to change and sits idle. The gaming operators, especially in Las Vegas, excel in hospitality and are continually looking to develop and innovate their businesses. Therefore, the combination of incredible assets and operators willing to evolve and grow creates a solid foundation for us to continue expanding with the Property Growth Fund.

And Barry, before we move to your second question, Samantha wants to clarify an assumption that you made in your question that, in fact, isn't quite right.

Yes. Thanks, Barry. So you asked if we will have the opportunity to convert that via sale leaseback. And we actually don't need to do that because we own the capital improvement and that reverts to us via rent. So it's not something that we need to then, in the future, convert via sale leaseback. That's one of the benefits we think of the Property Growth Fund.

But do you see a possibility, I suppose, to look at the previous MGP, where there were cases of them acquiring additional improvements that led to increased rent? Does such an opportunity still exist, just to confirm my understanding?

Yes. I mean it's in essence what we're doing, yes, exactly. We're investing incremental capital and in return for incremental capital, we get incremental rent.

Okay, okay. Understood. And then just quickly as a follow-up, curious as you're looking at deals if the competitive environment is the same or if you're seeing kind of any new spaces at those parties as it's called?

It continues to remain the same, Barry.

Let's start with Las Vegas. John, in your remarks, you mentioned what a great hospitality market Las Vegas is, and we agree. I'm curious about your net exposure to the market after the Venetian investment. Could you also update us on whether you have made any official commitments at the Mirage yet? Hard Rock is looking at a significant rebranding there, and you've talked about several partners that might activate space. Considering all the potential opportunities, are you comfortable with your position? Do you have a limit in mind for how much capital you're willing to invest in Las Vegas, and how do you view your exposure to that market in the near to medium term?

Ed, do you want me to take that?

Yes. Yes, he was asking you, John.

Yes. John, let's discuss the various areas of Las Vegas. Currently, we have a significant number of assets on The Strip, specifically 10 assets that we are very enthusiastic about. However, we see growth potential in the regional market and downtown Las Vegas where we do not yet have any investments. Therefore, you can expect VICI to continue expanding in Las Vegas, which could include The Strip or other areas. These segments represent great opportunities for us, although we don't currently have real estate or partnerships established there. Regarding the Mirage, we are still in discussions with the Hard Rock team managing it to explore ways we can support their growth, but there have been no announcements on that front yet, John.

Got it. Maybe a high-level follow-up for whoever wants to take it. It's kind of an observation first that a lot of the casino industry, your partners and others' preference for development or project CapEx right now. We see that with The Venetian. Interest rate volatility is probably a part of the answer to the question, but why do you think we've seen more capital deployed in existing properties or new development relative to M&A, assuming your kind of cost of capital as a financing source for casino industry participants is still pretty competitive? So we would think M&A could still be a logical option yet we've seen kind of all developments. So just curious if you guys have a view why that might be other than maybe just interest rates.

Yes, you're right. You might need to ask the operators why they think there isn't more M&A activity at the moment. I can only speculate, but it does seem puzzling that many operators are trading at such low valuations, regardless of how you look at them, including free cash flow yield. It could be a period where operators decide not to sell. However, you should really ask them directly. Another possibility is that operators have performed strongly since COVID, leading to questions about whether these levels of earnings are sustainable or if they are at a peak. We believe our operating partners will maintain their earnings strength, but one could reasonably worry about buying at what might become a peak, only to see their economic performance decline as the COVID impact lessens.

I would like to hear your thoughts on some of the non-gaming initiatives and pursuits. They are obviously exciting regarding the total addressable market. Can you discuss how you view the long-term durability of asset classes like Bowlero and Canyon Ranch, and how that compares with your initial core business in Las Vegas?

Yes, that's a great question, David. It's something we consistently evaluate as we explore new experiential categories. We've previously discussed our four main criteria: a healthy supply and demand balance, minimal secular threats, the durability of the end-user experience, and below-average cyclicality. Additionally, we seek businesses that exhibit economic dynamism, which often revolves around revenue complexity or what we refer to as cash register intensity. This should be paired with operators who can fully leverage that economic dynamism; they need to be energetic and economically savvy. A crucial aspect of our evaluation is durability—whether the asset has been established for decades and whether it has proven resilient through various economic and demographic cycles. For example, we are cautious about the pickleball category. It is currently gaining popularity, but it hasn't been around long enough, and the supply and demand balance is uncertain because pickleball courts can easily be placed in many locations. I remember racketball, which was extremely popular in the '70s and '80s, yet I seldom see racketball courts anymore. I'm not sure why they disappeared, as it was an enjoyable game that didn't require high skill levels. Therefore, we are very committed to examining durability, and the best evidence of durability comes from being established for a significant period and succeeding through various cycles.

John, I wanted to follow up on something you mentioned in your opening remarks about the regional market, where revenues are being driven by the middle and high end. Is this consistently the case, or are your operators beginning to notice some weakness with lower-end consumers? Do you have any concerns regarding this as you consider the overall portfolio?

Yes, Smedes, good to talk to you. Probably a better question for the operating side of our business or the operators, but I'll give it a go here a little bit. In my comments, we're about in the regional markets, like you said, the middle and the high-end consumers are still coming in their frequency based on the information from our tenants. I think you're asking or do we believe that those lower segments will come back. I think that really depends on the operator. Is the operator pulling back incentives to those consumers and they've elected not to come because they find more ways to spend their marketing dollars in a more efficient way? So again, more an operator conversation. But Smedes, again, you're asking how does that affect VICI? As I always like to say, and you know this well, even with every casino closed in the world during the pandemic, VICI collected 100% of our rent on time and in cash. So if segments of the business see a little bit of a downturn, not even negative, VICI is going to collect our rent or historically has collected our rent. So we monitor these things. I stay on top of it because I'm a recovering operator, but in the core business of what we do, those downturns, upturns don't have a huge change in our look at the business. We look much more big picture, longer-term, years out. Does that make sense, Smedes?

Yes, absolutely. It seems that this might be more of a strategic goal from the operator's perspective. We're hearing from other calls that there may be a sense of consumers starting to pull back a bit, and there's some weakness in various leisure segments. I'm curious if you have any insights on that. Additionally, I've seen reports suggesting that MGM Resorts might be looking to sell their operating rights at MGM Springfield. I'm not sure if you can comment on that, but could you discuss what VICI's role might be in this situation and your perspective if that were to proceed?

John, do you want to take that? Or do you want Samantha to take that?

Samantha.

Yes. As you know, obviously, we wouldn't comment on any of our operators' sale transactions. But to the extent they were to sell an operating business, we obviously retain the asset and would enter into a lease with any transferring of that asset.

You've seen that happen in a few instances with our assets, Southern Indiana being one and Gold Strike being another. We have definitely figured out how to work through those processes with existing tenants and new.

You all have a diverse group of partners and tenants, both large and small. This earnings season, there have been some questions around the health of the U.S. and Canadian consumers from a risk perspective. And just acknowledging that you all are well fortified at the lease level, but are there certain areas of the portfolio you're thinking about more trying to understand better in this environment?

I wouldn't say it's specifically about certain assets or geographic areas. However, it does relate back to the question Smedes raised earlier regarding the behaviors of different consumer segments, as well as their income and spending capabilities. Currently, there's a notable cognitive dissonance linked to the gap between lower-income consumers and those with higher incomes. We're observing that lower-income consumers are experiencing more stress and reduced liquidity compared to a year or two ago when the benefits from various COVID stimulus plans were still visible. We closely monitor these trends for their potential impact on our partners, as well as for our overall understanding of the economy and credit markets. Following Jerome Powell's remarks yesterday, there's an acknowledgment from the Fed that, despite many macroeconomic indicators appearing strong, there are some underlying tensions in the economy at this time.

Great. Yes. I appreciate the detailed response, and that makes sense. And then just real quick around some of the development financing in the loans and securities bucket. I'm sure you all talk with those teams on a regular basis. Can you just give us an idea if there have been any recent headwinds or tailwinds that you're hearing about from them?

Yes, Dan, it's David. Good to hear from you. No, we have a very thorough asset management loan administration process and we monitor both our tenants and our loan investments very closely. And we talk to, as John mentioned, we talk to the operators and we also talk to our borrowers, and they are not seeing any headwinds in terms of development completion or asset performance where we do have these loan investments.

Just looking at the Venetian deal, it obviously looks like a win-win from our perspective, at least just in the sense of Apollo's cost of finance and then the yield that VICI gets to invest on The Strip in Vegas. I was wondering, could you guys walk through maybe how those negotiations kind of transpired and how you came to that final yield number given that it is favorable or it looks favorable on both sides? And how that might look for future similar investments on The Strip with other partners that you guys have?

Sure. Yes, Michael, good question. John?

Michael, it's great to speak with you this morning. We both agree that this is beneficial for both companies. You asked when these discussions began. They started when we first signed the lease during the pandemic. When we acquired the real estate with Apollo and they took over the operations of Venetian, we anticipated their business would grow. We didn't expect it to grow this quickly, and we are very proud of their success. We have discussed the Property Growth Fund and potential growth opportunities. Discussions often begin when we are working on deals, as we evaluate not just the current deal but also future growth opportunities, especially with valuable assets like The Venetian. Regarding pricing, since our inception, we've aimed to make mutually beneficial agreements. If one side benefits excessively, it jeopardizes long-term relationships. I mentioned today that relationships matter, and they really do. When considering a good partner, it's possible to reach a price that satisfies both parties, leading to successful transactions. As you've pointed out, this has been a win-win situation, and we are excited to support them in adding and upgrading their amenities.

Got it. And just sticking with the Venetian deal. Obviously, you laid out the terms of the initial disbursements and the $400 million can be up to $700 million. Is the entire scope of the project that Apollo is looking to take on, is that included in the initial $400 million? Or will they eventually need that $300 million eventually, it's just whether or not they want to use that option?

Michael, it's David. One of the things you should look at is the Venetian press release that they put out yesterday where they, ahead of a 25th anniversary of the asset this Saturday, actually, where they have laid out extensive value enhancement plans well in excess of $700 million actually. So it's just a little bit of timing on their side as they work through the initial $400 million this year. They've got a lot of things in the hopper and things that they've already done. And then just a bit of as that all comes together, what their pace of potentially drawing that incremental $300 million, where that falls in and how they use that capital going forward.

And Michael, just to add to that, I believe you'll see the press release talks about a total of about $1.5 billion of total investment into The Venetian, of which we may end up being about half of that. But I want to stress the point that I don't know of another REIT category where tenants put more capital into the REIT's asset than ours. If you look across our portfolio, both our Las Vegas portfolio and our regional portfolio, any given year, our tenants are putting hundreds of millions of dollars, if not billions of dollars into our assets, making our assets more valuable. That obviously doesn't get captured in the models per se, given that obviously, the transparency around the exact capital that our tenants put into each one of our assets is not necessarily there. But we can tell you, based on what we know of their investment activities, that no other REIT that we know enjoys greater benefit from tenant reinvestment into our properties.

So, regarding the Venetian deal that had the potential to reach $1 billion, does that imply there is still an additional $300 million available in the future, or does this fulfill that initial agreement? Also, for the Partner Property Growth Fund, could there be more definite agreements established in advance, similar to The Venetian or other situations like the south side of The Strip and MGM? Is it more probable to see an actual investment announced rather than just the potential for one?

Yes. David or John?

Greg, I can start, and John can maybe chime in. Yes, potentially, there could be more than $700 million that comes out of our agreement here. The original $1 billion announcement back in 2022, we modified that as the team worked through and got in under the hood, so to speak, of the asset and realize what they wanted to do or what they want to undertake. So there's some tweaks to the original agreement on our side. And as Ed just laid out, the announcement that The Venetian put out yesterday has up to $1.5 billion or their plan is to invest $1.5 billion into the assets. So there could be incremental capital. But what we've documented and announced with our great partners at Apollo and Patrick and team and Rob into The Venetian is this incremental $700 million investment today. And to the second part of your question, there could be incremental dollars that we put in across the portfolio. It was because of the uniqueness of our assets versus any other REITs out there.

Yes, Greg, I want to emphasize that we are enthusiastic about these opportunities. As Ed mentioned a few moments ago, there are not many REITs that have the unique ability to facilitate significant growth. Few REITs will commit $700 million to a single asset; in fact, some can't even allocate that much across their entire portfolio. We're discussing just one of our 93 assets. We appreciate this opportunity to support our partners' growth, and this is one of the distinct advantages VICI holds. Additionally, as we discussed earlier, we can engage in mergers and acquisitions to acquire other assets. However, we also have this lever that we've been highlighting for years, which is now being realized with The Venetian.

Okay. And David, just on the maintained guidance real quick. Was there no additional drawdown on loans without final draw structure in Q1? Or is it just at an immaterial level to have no impact on the full year guide?

No, sorry, could you clarify your question about the draw schedules, Greg? We still feel really good about our guidance. Sorry, go ahead.

Yes. So I understand that for loans without draw schedules, that's not included in future guidance. And I'm not exactly sure what was drawn, if anything. Assumption would be that there was.

Yes, it's immaterial if there were any, so we feel really good about our guidance range where we sit here today.

Just 2 quick ones. Just first, just looking for some qualitative comments starting with the annual letter about sort of higher rates and the impact of activity, just as you've seen sort of this recent spate of movements on the rate front, just qualitative comments on what that's doing to the pipeline, where the decisions are taking longer and so on and so forth, or if anything's falling out?

Yes, it's a timely question, Ron. It's certainly affecting trading activity across nearly all asset classes. That's why we value having various options to generate growth during times when conventional asset trading is challenging. These options include our property partner growth fund, with The Venetian as an example, as well as our credit book and expanding existing relationships. Additionally, we have tools for non-gaming opportunities, allowing us to collaborate with partners like Chelsea Piers, Homefield, Cabot, and Canyon Ranch, especially when trading assets becomes difficult, which it currently is.

Great. And then just the second question, just staying on the pipeline, is there sort of more activity on the gaming side, non-gaming side, all of the above? Just any sort of color there would be helpful.

We continue to spend time...

John?

Yes, we continue to spend time in a lot of different sectors on the non-gaming side, whether that's wellness, indoor water parks, pilgrimage golf, youth sports, you've heard us make an investment. But at the same time, let's remember, as I said in my opening remarks, we get 98% of our rent from our gaming assets, and we continue to spend time with our current partners and others to grow. So for us, I know we get asked a fair amount about our non-gaming, but it shouldn't be forgotten that we're also spending a lot of time in gaming. So the answer is both, spending time in both.

All right. Thanks, everybody. So I want to close out the call by just reiterating how much value we believe we're creating with the announcement we made yesterday afternoon of our investment in The Venetian with our partner, Apollo. And I'm going to actually read from somebody's note because, frankly, this note expresses it better than I ever could. And in this note, the author says we view the Venetian cap rate spread as attractive, especially considering how tight spreads are elsewhere in net lease. Bigger picture, we view this as VICI capitalizing on its relationships to double down on a winning hand. In parenthesis, The Venetian may be VICI's best acquisition to date, close parenthesis. Despite higher interest rates, there's just nowhere else in today's triple net lease market where you can put that amount of money, $700 million up to, to work into that kind of irreplaceable real estate at a 7.25% cap rate. Then in parenthesis, delusional sellers are still looking for sub-7 cap rates on their poorly-located Red Lobsters. I could not have said it better myself. And again, we just want to thank you for your time today and reemphasize that as noisy as it is out there and confusing at times in the marketplace, the VICI team is a team that continues to get good things done. Again, thanks for your time today, and we'll see you again in the next quarter.