Starting with a blank slate on corporate governance is a unique position for any company to be in, and for one REIT, VICI Properties Inc. (NYSE: VICI), that very situation in 2017 proved essential in creating trust in a new company and accelerating the institutionalization of a nascent gaming real estate asset class.
VICI, which held its IPO in early 2018, is the subject of a recent case study published by the Corporate Governance Research Initiative at the Stanford University Graduate School of Business.
VICI was formed out of the bankruptcy of an entity of Caesar’s Entertainment. The hedge funds that controlled the Caesar assets post-bankruptcy “recognized that the only way to monetize that investment was to combine the assets into a vehicle and then ultimately take that vehicle public as a REIT,” says Bill Ferguson, chairman of global talent management firm Ferguson Partners, and a co-author of the study. Ferguson Partners recruited the entire VICI leadership and board ahead of its IPO.
“It was incredibly important to the hedge funds to have both a board and a leadership team that the investors would respect, and that ultimately could build and manage a high quality REIT,” Ferguson says. In assembling the board, Ferguson recalls, “we wanted diversity, for sure. We also wanted sought a mix of active and retired executives. We wanted board experience where we could find it too.
VICI CEO Ed Pitoniak was initially considered as chairman of the board, “but everybody was so impressed with him we ultimately asked him to be CEO,” Ferguson says. Among his strengths, Pitoniak had a background serving as a chairman, lead director, as well as a CEO of public REITs in the hospitality space, he notes.
Raising the Game
From the very beginning, Pitoniak says, creditors and shareholders made sure that there was a high degree of alignment in terms of governance principles and practices.
“They handed the beginnings of this governance platform over to us as a new board and a new management team. It did take an awful lot of work coming really from square one, but it was a wonderful opportunity to set us on the path toward institutionalization,” he says.
According to Pitoniak, VICI was in the position to propel investor acceptance of a new asset class. But to achieve that, VICI had to be “institutional in all its key qualities, and that obviously starts with institutional quality governance.”
Pitoniak says VICI is an example to other REITs of “how quickly you can raise your game to an institutional level of quality governance...it’s all part and parcel of taking a very deliberate approach and constantly asking ‘what do our stakeholders need from us, what do they expect from us, and how do we deliver on those promises?’”
When a company can establish trust with its stakeholders, whether its equity owners, the owners of credit, partners, or the communities in which it operates, “it tends to de-stress the daily experience of running the business,” Pitoniak says. He adds that, when stakeholders “understand that you’re going to take care in everything you do and be very mindful of their expectations and needs, it gives you the confidence and ability to do what’s right for the business, even in the greatest time of turmoil.”
Impact on Performance
Ferguson notes that for REITs today, board quality and composition are “incredibly important. When you see activists out there in our space, or any space or to be frank, the first thing they look at is the quality of the board.
If the board is long-tenured, if the executives are primarily retired, if they don’t have prior public company experience, or if they happen to be closely affiliated with the CEO, “none of that augurs well as it relates to good governance,” he says.
A corporate governance structure that includes board members that are independent, yet work as strong partners with the executive team, has clear long-term benefits for REIT performance, Ferguson adds.
A corporate governance structure that includes board members that are independent, yet work as strong partners with the executive team, has clear long-term benefits for REIT performance.
“It’s a fine balance...the board is there to be a fiduciary and represent the shareholders’ interests, but the bottom line is that they also need to be a good partner to the leadership team to make sure that the strategy and the execution of the business plan make sense and happen flawlessly,” he says.
Meanwhile, among the many benefits of taking a deliber - ate approach to governance, Pitoniak cites “the comfort of knowing you’re doing the right things for all of your key stakeholders.” It also sends a strong message to existing and potential investors “that you’re a REIT that can be counted on when it comes to governance quality and stakeholder alignment.” It can also be very positive in attracting new talent, he adds.
Among its accomplishments in 2022, VICI gained investment grade credit status and was elevated to the S&P 500. Pitoniak says that makes VICI the fastest REIT in history to go from IPO to S&P 500 inclusion.
We believe that the world of experiential real estate still has great promise attached to it...it’s an exciting time for us,” Pitoniak says.