VICI Properties will not exercise its option on a pair of Indiana racinos owned by Caesars Entertainment. That was the main topic of discussion during Thursday’s second-quarter earnings call.

According to CFO John Payne, VICI will achieve greater portfolio value by pursuing gaming-sector acquisitions other than Horseshoe Indianapolis and Harrah’s Hoosier Park. “This was a strategic decision based on capital allocation at this time,” he said.

Why did VICI decide to pass before its option expired, CEO Edward Pitoniak was asked. He replied that the factors determining his decision weren’t going to change over time and VICI needs “to be as ruthlessly efficient as we can be.” Also, Caesars CEO Tom Reeg had no plans to sell.

Pitoniak continued that the cap rate on the Indiana option was “perfectly fine,” but the main question was, “Would this be the highest and best use of our capital?” Payne added that the oncoming Bally’s Chicago played no role in the decision, pointing out that there are many other casinos between Chicago and Indianapolis.

“We’re comfortable with our decision,” affirmed Pitoniak. He added that he was looking for “sustainable” capital allocations.

By contrast, VICI executives were bullish on the Las Vegas Strip, which accounts for 45 percent of the real estate investment trust’s (REIT’s) rent. Pitoniak cited strong recent numbers from that market, saying, “Our Las Vegas tenants continue to benefit from this momentum.”

Payne, who had been on the road lately, reported that in Scotland, every person he spoke with talked about visiting the United States and the common denominator of their desires was to see Las Vegas. Noting the diversification of VICI’s tenants on the Strip, he added that they “continue to attract different kinds of folks to that city.”

One Wall Street analyst pointed to VICI’s raw-land holdings near the Strip, under the auspices of Caesars Entertainment, asking if any new development might be on the horizon. Pitoniak replied, “We’re great believers in the Las Vegas ecosystem. The amount of innovation … truly makes it unlike any other place on Earth.”

Pitoniak said VICI would continue to invest in Sin City, whether incrementally as at the Venetian or by developing vacant land. But he announced no new plans to do so.

Would VICI invest in sports and entertainment venues on the Strip? “Could there be an investment over time?” Payne responded. “There could be.”

“Casino gaming assets continue to present the largest opportunity, domestically and internationally,” Pitoniak said, pointing to VICI’s explorations for deals outside the United States. “We’ve been busy traveling,” Payne added, including excursions to New Zealand, Australia, Europe, and the United Kingdom. “We see opportunities to continue to diversify,” including with new tenants.

Payne was also looking at opportunities in regional U.S. casinos, including on-the-bubble Kentucky and Texas, in addition to international jurisdictions where positive change is imminent. “The catchment areas in regional casinos tend to be more confined than Las Vegas,” interjected Pitoniak, “because Las Vegas is global” in its appeal.

“You’re starting to hear about weakness, especially in the lower-end consumer,” the CEO allowed. He said that VICI was focused more on middle- and higher-end properties and as a landlord was not directly exposed to customer spending. He added that VICI was careful to invest in assets and partnerships that could endure volatility. “We don’t go seeking cigar-butt real estate,” Pitoniak said, but where dividends could exceed inflation.

Asked whether VICI was aware of current merger-and-acquisition chatter, Payne said that it was. Clarified General Counsel Samantha Gallagher, “All of our leases are mindful of a change of control.”

Said Payne, “I’m excited about where we have our money and where we will continue to put our money.” Added Pitoniak, “REITs have begun a comeback that we feel can endure.”

Please fill out the form to send a message to the CDC Gaming Reports team. Alternatively, you can send an email to the address on the footer of each page.