Las Vegas Sands: hit me

After a messy bender, many a Las Vegas gambler has returned to Sin City seeking redemption. High roller Apollo Global Management announced on Wednesday that it would purchase the Venetian resort from Las Vegas Sands, built by recently-deceased gaming mogul Sheldon Adelson.

The transaction, valued at $6.25bn, is a far cry from Apollo’s $27bn mega-buyout of Harrah’s Entertainment from 2008. That deal culminated in a contentious bankruptcy. The latest gambit anticipates a realistic economic recovery. But the private equity firm is wise not to bet the house.

Despite its name, Las Vegas Sands is focused on Asia. The Venetian is its lone property outside Macau and Singapore. The Strip location includes a massive convention centre that distinguishes it from rivals such as Caesars and MGM.

In 2020, visits to Las Vegas dropped by 50 per cent. But Apollo believes people around the world will flock back to the Nevada desert to party once the pandemic ends.

The transaction for the Venetian is divided into two parts. Apollo will acquire the operating company while the underlying property portfolio is sold to a listed real estate investment trust, Vici. Apollo is putting up $1bn in cash while the other $1bn it owes will come in the form of so-called seller financing. This effectively means that it will pay that portion to LVS down the road.

Apollo will be spending a chunk of the Venetian’s revenue on rent to Vici. Vici is separately buying the Venetian land and structures for $4bn. In turn, it will initially charge $250m of annual rent to the operating company — roughly half its pre-rent operating profit.

The implied multiple, or “cap rate”, Vici would pay would be 6.25 per cent. That is in line with recent property deals for the likes of Bellagio, MGM Grand and Mandalay Bay. Las Vegas is now dominated by financially engineered landlords. These may well be safer bets than their operating company tenants. Still, Apollo’s reasonable purchase price means better odds this time around.

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