The U.S. economy might be struggling but Sin City, Caesars and MGM seem immune, according to one major Las Vegas player.
While the economy in the United States faces unprecedented inflation, high gas prices, and a tightening job market, the current economic woes look very different than past recessions. The economy has its problems, but lots of people are doing well, and jobs remain relatively plentiful.
There’s sort of a grey cloud hanging over everything, where people don’t exactly know what’s next, but for a lot of Americans, times are actually pretty good. Many people who kept their jobs through the recession have increased savings and are eager to have a good time.
Vici Properties (VICI) – Get VICI Properties Inc. Report, the biggest land-owner on the Las Vegas Strip owns the property under many Caesars Entertainment (CZR) – Get Caesars Entertainment Inc. Report and MGM Resorts International (MGM) – Get MGM Resorts International Report properties, and it has seen nothing but good news from its tenants on the Las Vegas Strip.
The real estate investment trust (REIT) which gets nearly half of its revenue from its Las Vegas properties does not believe that Caesars and MGM’s strong results are an anomaly.
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Is the Las Vegas Strip Recession Proof?
Vici CEO Ed Pitoniak shared his thought on the state of Las Vegas and the company’s business there during its second-quarter earnings call.
“As we have discussed in the past, the gaming customer has proven to be more resilient through both garden-variety recessions and full-blown crises than just about any other discretionary consumer out there. That was proven through both the great financial crisis and throughout the COVID-19 pandemic,” he said,
Realistically, Vici does not need Caesars and MGM to thrive, it simply needs them to be able to pay their rent. That does not seem like it will be a problem any time soon, according to Pitoniak.
“A couple of you on the sell side have produced well-reasoned analyses that show the gaming operators generally and many of our partners specifically will be in very solid shapes in terms of both free cash flow and balance sheet strength, even under fairly draconian recession scenarios in the year or so ahead,” he said. “Our operators are responsive and agile in dealing with changing conditions. Both gaming consumer and gaming operator resiliency give Vici confidence in our belief that a possible recession will not harm the credit quality of our operators.”
Vici Might Be Las Vegas’ Best Investment
Caesars and MGM have both been doing very well in the post-covid restrictions world. The two companies, and really most companies, remain vulnerable to economic conditions, If things take a turn for the worse, or people get worried about the economy, they may be less willing to take a Las Vegas trip or swap Bobby Flay’s burger joint for Nobu when it comes time to eat.
That’s not a concern for Vici, according to Pitoniak.
“There have been many questions about the outlook for consumer spending, and I would simply repeat that our income does not fluctuate based on monthly or quarterly trends,” he said.
But, while the CEO does not worry about his own company’s revenue stream, he’s also quite confident that Caesars and MGM have little to fear as well.
“Now with that said, in Las Vegas, the Strip continues to produce incredibly strong numbers. For example, gross gaming revenue in May was 41% above 2019 levels and Harry Reid International Airport just registered an all-time record for passenger traffic this past June. While the growth rates are becoming more difficult to surpass given the record activity levels, the gaming industry has proven its resilience over decades,” he added.