The streets of Las Vegas aren’t exactly empty. But they’re also not nearly as packed as they used to be.
The Bellagio’s famous fountains. The shows. The sights. The lights. The sounds.
They’re still all operating, but fewer people are appreciating them these days.
CBRE Equity Research noted last month that the Las Vegas Strip “has had a slow summer, with visitation declines pressuring occupancy and ADRs, particularly in the midweek period at mid-to-lower-end properties.”
For instance, there were 3,490,600 visitors in June 2024, but just 3,094,800 this past June. That’s an 11.3% decline year over year.
Las Vegas is hardly the largest U.S. city, of course. New York, L.A., Chicago, Dallas, and even Charlotte, North Carolina, have much larger populations. Nor is it even close to being the most economically significant.
But it is an enormous tourist attraction for both Americans and international guests alike. Las Vegas is the definition of a discretionary expense. With the exception of attending conferences for work, nobody needs to take a trip to Vegas. And so, when Vegas traffic slows, it can be a bit of a canary in the coal mine for the consumer.
An Honest Analysis of the Las Vegas Scene
Some sources are naturally quick to blame Trump for the drop. The Los Angeles Times reported earlier this week how one “Las Vegas waiter feels the ill effects of Trump’s policies.” And Congressman Steven Horsford (D-NV) told his Facebook followers last month that “Las Vegas runs on tourism. But Trump’s tariffs and immigration crackdowns are driving visitors [away].”
Maybe there’s some truth to that… maybe not.
I think the reality is probably much simpler: Las Vegas visitor volume suffered during the COVID-19 and lockdown years for obvious reasons. But that also created pent-up demand. And that demand exploded into record visitor volume in more recent years.
But it was inevitable that the demand for experiential vacations would eventually moderate and even decline. CBRE also wrote how it views this “visitation decline primarily as a return to more typical seasonality.”
This isn’t to say it doesn’t recognize “negative geopolitical sentiment from Canada and Mexico, immigration control concerns from Southern California, and reduced flight capacity from Spirit Airlines.” Only that those aren’t the biggest factors.
Jonathan Jossel, CEO of the Plaza Hotel Casino, seems to agree with my view. He says that:
Last summer and the summer before [were] the best months we’ve ever had in our entire 53-year history at the property.
And so, there is an expression that trees don’t grow to the sky. And at some point, you can’t keep growing indefinitely. So we have seen a decline in rates. And we have dropped our rates to compete.
I’m Still Betting on ‘Win City’
I’ve said in the past that if I could bet on only one American city for long-term growth, it would probably be Las Vegas. That’s because Vegas has transformed from a gambling town with some seedier elements to a city that specializes in luxury, high-end retail, and world-class experiences.
As I shared in May 2024:
… an NHL team was introduced [to the city] in 2017, complete with a brand-new arena. Then came the new Las Vegas Raiders and Allegiant Stadium. Finished in 2020, it seats 65,000 and was the home to this past year’s Super Bowl…
And we have to mention “The Sphere.”
Opened in 2023, this 366-foot tall, 516-foot wide ball-shaped building features the world’s most advanced audio and video capabilities, making it perfect for live entertainment. Words don’t really do it justice…
Yet almost nobody was able to appreciate that changing landscape in 2020, thanks to the shutdowns. And there was a whole lot of travel-restricting worry still lingering in 2021 and even 2022.
And so, that made 2023 and 2024 “makeup” years, with the regular hordes returning as well as those who’d postponed previously planned visits. Those numbers added up nicely for two years straight.
But even without the inevitable return to normal, the Plaza’s Jossel went on to note that “there’s still some decent business” to be had out there.
And for some companies, business remains downright excellent.
Veni. Vidi. VICI.
“Veni. Vidi. Vici.” is a Latin phrase that means “I came. I saw. I conquered.”
Julius Caesar is supposed to have written it a note to the Roman Senate around 47 B.C. after achieving a quick and decisive victory at the Battle of Zela.
The phrase is also the inspiration for VICI Properties’ name, a real estate investment trust (“REIT”) that spun off from Caesars Entertainment (CZR) in February 2018. It turned out to be an apt name.
VICI Properties (VICI) might have been born out of a casino chain’s bankruptcy proceedings. But it hit the ground running and hasn’t looked back once ever since.
The Caesars’ split gave it an immediate 19 gaming facilities and four golf courses. Seven and a half years later, this world-class gaming REIT boasts a whopping 54 gaming properties and 39 other experiential assets leased to a spread of 13 tenants.
It also has eight additional financing partners, and significant scale and access to capital.
Source: Wide Moat Research
“Veni. Vidi. VICI,” indeed!
Being a gaming REIT from the start, a large percentage of VICI’s revenues are naturally tied to Las Vegas. The Caesars property accounts for 35% of its rent, as does MGM Resorts. And The Venetian provides another 10%.
Altogether, it has 10 trophy assets located on the Strip. These amount to 660 acres of underlying land, 41,400 hotel rooms, and 5.9 million square feet of conference, convention, and trade show space.
So it goes without saying that there’s geographic concentration risk with owning shares in VICI. However, keep in mind that VICI is not a hotel or casino operator; it’s a very well-positioned landlord.
VICI signs long-term leases with its tenants, typically for 40 years on average (with 1.7% same-store rent growth). Moreover, the exact terms it operates under meant that, in 2020… when the Las Vegas Strip was a ghost town…
VICI still collected 100% of its rent.
Those kinds of iron-clad contracts have helped it grow its dividend by a sector-leading average of 6.6% since 2018. Better yet, it’s maintained a safe payout ratio the whole way through.
Currently, its dividend yield is 5.8% and shares are undervalued, as shown below. VICI’s current multiple is 13.3 times versus its normal 15.7 times.
Source: FAST Graphs
While I’m not much of a gambler, I think VICI is a good bet considering how shares could return 25% over the next 12 months. The primary catalyst for this projected growth is an improved cost of capital – which is supported by likely interest rate cuts over the next 12 months.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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