Apollo seeks approval for return to Las Vegas in $6.25B Sands deal - The Nevada Independent
While walking through Central Park on a brisk fall morning in 2020, Apollo Global Management Partner David Sambur took a call from a financial representative who was tasked by Las Vegas Sands Corp. with selling the company's Strip properties.
Sambur, who oversees Apollo's private equity strategy and played a chief role in several gaming industry acquisitions and investments for the New York City-based firm, was intrigued by the initial phone conversation and subsequent follow-up discussions.
"I thought it was really interesting, but questioned how they could make it happen," Sambur told The Nevada Independent in an interview last week. "We got to work trying to figure out how we could buy this iconic property in the middle of the COVID pandemic with financial markets essentially shut."
Sambur said Apollo officials approached his friend and former Caesars colleague, John Payne, president of real estate investment trust VICI Properties.
Nearly six months later, the joint transaction was finalized.
VICI will pay Sands $4 billion for 63 acres of Strip real estate covering the Venetian, Palazzo and Venetian Expo Center, as well as an additional 19 acres adjacent acres off Koval Drive where the $1.8 billion MSG Sphere is being developed.
Apollo will pay Sands $2.25 billion for the operating company that manages the combined 7,100 hotel rooms, 225,000 square feet of casino space and 2.3 million square feet of convention space. Madison Square Garden will continue to develop the Sphere and will operate the non-gaming entertainment attraction when it opens in 2023.
Eleven months after the transaction was announced and more than a year after the death of Las Vegas Sands founder Sheldon Adelson, the Nevada Gaming Control Board will consider the sale of one of the gaming industry's most high-profile Strip properties during a licensing hearing Wednesday in Las Vegas.
It won't be a simple discussion, given Apollo's 11-year controversial ownership of Caesars Entertainment.
The association began in 2008 as a $30 billion leveraged buyout of Caesars Entertainment in partnership with fellow private equity firm TPG Capital. Apollo's association with Caesars ended in 2019, two years after completion of a complicated two-year Chapter 11 bankruptcy restructuring that changed Caesars ownership structure and wiped $16 billion of the company's pre-bankruptcy $25.6 billion in debt off the books.
Longtime gaming observers, who would only speak on background, said the bankruptcy and Apollo stewardship of Caesars could dominate the conversation at Wednesday's hearing. Other insiders believe the Caesars events will be a topic, but not the focal point given Apollo's other gaming industry investments and financial standing. The company, which is traded on the New York Stock Exchange, has a market capitalization of nearly $16 billion.
Apollo founder, Chairman and CEO Leon Black stepped down from the company last March after published reports surfaced detailing his connections and alleged payments to disgraced financier and convicted sex offender Jeffrey Epstein. An outside spokesman for Apollo told the Nevada Current last month that Black was not trying to return to Apollo.
Apollo said last year it plans to retain the operating team that oversees the Venetian, Palazzo and Venetian Expo complex, including Venetian CEO George Markantonis.
Payne, who was CEO of Caesars Entertainment Operating Co. and oversaw many of the operations of the company's casinos, joined VICI when the REIT was created out of the bankruptcy. VICI took ownership of 20 Caesars resorts and leased the operations back to Caesars.
He offered a full-throated endorsement of Apollo in an interview in November with The Nevada Independent, citing his more than a decade-long business relationship with the company and his support for the company's plans for the resort.
"We went at this deal with Apollo," Payne said. "We believe in Apollo and what they're going to do with the management team. Vici is a real estate investment trust, and in that format, we have no operational input. The capital requirements are Apollo's. The management and how they run it is Apollo's. I may be a recovering operator, but the decisions are made by Apollo."
The Sands deal, along with the VICI's $17.2 billion purchase of rival MGM Growth Properties,will reshape the ownership of the Strip. Apollo will be one of eight tenants tied to VICI.
Sambur, who is on the Control Board's agenda for Wednesday and is listed the manager for the operating company, expects questions on Caesars but said the transactions – separated by 14 years and a much different business climate – are vastly different in scale and scope.
Unlike Caesars, Sambur noted the Venetian (Palazzo is essentially an expansion of the Venetian) is a single asset with far less leverage.
Under the terms of the transaction, which was announced on March 3, Las Vegas Sands is funding $1.2 billion of the deal through seller financing in the form of a term loan credit and security agreement. Apollo is paying the remaining $1.05 billion. Under a 30-year lease, Apollo will pay VICI $250 million annually to run the resorts. The lease contains escalators that kick in after 2023.
In teaming up with VICI, the companies agreed to purchase the assets and property for $6.25 billion at a time of great uncertainty.
"(We're) bringing significant value to Las Vegas Sands while structuring in strong downside protection to continue weathering the pandemic recovery," Sambur said.
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Pedestrians walk near the Venetian and Palazzo resorts on the Las Vegas Strip on Tuesday, Nov. 16, 2021. (Jeff Scheid/The Nevada Independent) -
A couple walks near the reception area at Palazzo on Tuesday, March 17, 2020. (Jeff Scheid/The Nevada Independent)
Apollo and gaming
Caesars is one of Apollo's many gaming industry investments and acquisitions. Apollo is the largest shareholder in Las Vegas-based gaming equipment provider AGS, has invested in International Game Technology's Lottomatica business and took ownership last year of Canada-based casino operator Great Canadian.
Apollo unsuccessfully bid on acquiring the operations of sports betting giant William Hill, losing out on the U.S. side to Caesars and European business to 888 Holdings.
Sambur said the Caesars' bankruptcy was "very high profile" and "a rare example" where an Apollo investment in gaming didn't succeed.
"Everything else we've done in gaming has been really great. And the Venetian is going to be great, too," Sambur said.
The complicated bankruptcy was detailed in The Caesars Palace Coup by Max Frumes and Sunjeet Indap. The authors, both financial journalists, spent four years investigating and recapping the legal maneuverings.
In an interview with The Nevada Independent, the authors said Apollo never soured on gaming, even after the Caesars' ownership fell apart.
Frumes said Apollo always "believed in and loved" the vision Caesars leadership had for growing the company.
"The deals (Apollo is) doing right now are more like regular private equity, places where they can be innovative and where they can bring value," Frumes said. "That's kind of where they're focused right now."
Indap said one of the themes of the book was how Apollo stuck with Caesars for a long time because of their belief in the business model.
"The Caesars experience ended badly," Indap said. "I wouldn't say they are chastened by what happened. I think they feel like they were victims of bad luck."
Even during the bankruptcy, the authors said Apollo didn't give up on Caesars.
"They never stopped believing Caesars was going to snap back," Indap said. "They believed they could turn it around and believed in the fundamentals. The issue was they just paid too much at the wrong time. I don't think they ever soured on the opportunity in Las Vegas."
Growth opportunities
Sambur said the Venetian and Palazzo have been "well maintained" and provide Apollo with "pent-up growth opportunities." Las Vegas Sands' investment focus has been its resorts in Macau and Singapore, which the company will retain.
The two Las Vegas resorts have seen some reinvestment, and Sambur noted the unfinished St. Regis tower along the Strip that "has been draped" since 2011, three years after construction was halted on the planned $600 million condominium project.
"When you buy a business out of a larger corporate parent, there tends to be a lot of interesting capital and investment opportunities, just because there is more competition for capital," Sambur said.
He said the Venetian could decide to complete the tower through its own capital expense budget, finance the construction or work out a financing deal with VICI. Venetian will maintain the operating authority, similar to all other sale-leaseback arrangements.
Revisiting Caesars
Sambur said soon after the Caesars acquisition closed, the recession and the collapse of the financial markets in the mid-2000s took hold.
"Lehman Brothers went bankrupt, and the world started melting down," Sambur said. "We did everything we could to support the business."
Caesars wasn't the only gaming company to file bankruptcy during that era. Station Casinos filed Chapter 11 in 2009 and emerged in 2011. Also, former MGM Resorts International CEO Jim acknowledged in interviews the company would have gone bankrupt if CityCenter hadn't been completed. Even Las Vegas Sands faced bankruptcy in 2008 until Adelson personally funded $1 billion into the company to shore up the balance sheet.
During Apollo's ownership of Caesars, the company invested $2.4 billion into the Las Vegas operations, including renovations at Caesars Palace, the acquisition of Planet Hollywood, transforming the Imperial Palace into the Linq Hotel and rebranding the Barbary Coast as The Cromwell, which included the development of Drai's nightclub and day club on the property's roof.
"It was all done during our ownership period," Sambur said. "We were investing in Vegas and we knew the only way to solve our capital structure issues was to grow the business. But unfortunately, we just ran out of time."
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