VICI Properties Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. VICI is a REIT that primarily owns gaming, hospitality and entertainment real estate leased under long-term triple-net agreements. Its portfolio included 28 properties and four golf courses. Results are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $376.4 million | $257.9 million | $750.7 million | $512.9 million |
| Net income attributable to common stockholders | $300.7 million | $229.4 million | $570.5 million | $205.4 million |
| Diluted EPS | $0.54 | $0.47 | $1.04 | $0.43 |
| AFFO | $256.1 million | $176.3 million | $511.1 million | $356.2 million |
| AFFO per diluted share | $0.46 | $0.36 | $0.93 | $0.74 |
- Q2 revenue grew 45.9% year over year; common-stockholder net income rose 31.1%. AFFO increased 45.3%, and AFFO per diluted share increased 27.8%.
- Management attributed higher lease revenue chiefly to the 2020 addition of the MTA Properties and increased Caesars Palace and Harrah’s Las Vegas rent. Loan income also increased following additions of the ROV, Chelsea Piers and Forum Convention Center loans.
- Q2 operating expenses were negative $7.7 million, principally because VICI recorded a $29.1 million decrease in its credit-loss allowance. For the first half, the allowance decreased $33.5 million versus an $84.0 million increase in the prior-year period. These noncash estimate changes materially affect reported comparisons; GAAP net margin is therefore not a straightforward measure of underlying operating performance.
- Operating cash flow for the first half was $410.5 million, compared with $318.5 million in 2020. Investing activities provided $42.1 million, versus $840.4 million used in 2020; financing activities used $361.0 million, versus $3.10 billion provided in 2020. VICI ended June with $407.5 million in cash.
- At June 30, debt had $6.85 billion face value and $6.77 billion carrying value, essentially unchanged from year-end. No debt maturities were due within the next 12 months; the next scheduled Term Loan B principal payment was in 2022. VICI reported compliance with debt covenants.
- Available liquidity included $407.5 million cash, $1.0 billion of undrawn revolver capacity and approximately $2.414 billion of potential proceeds from physical settlement of outstanding forward-sale agreements. Forward-sale proceeds are not cash already received and are subject to settlement choices and terms.
- VICI declared quarterly dividends of $0.33 per share, up from $0.2975 in the comparable 2020 periods.
Material changes, outlook and risks
- All properties and golf courses were open at the filing date, though subject to possible restrictions or closures. Management said tenants’ recent performance at many properties was at or above pre-pandemic levels, and all tenants had paid rent through July 2021. VICI cautioned that COVID-19, variants, operating restrictions, staffing and tenant financial health could still affect results and rent collection.
- Caesars remained a significant concentration: its leases generated 86% of lease revenue in both Q2 and the first half of 2021. Las Vegas Strip properties generated approximately 32% of lease revenue in those periods.
- The proposed $4.0 billion Venetian real estate acquisition remained pending, with closing expected in Q4 2021, subject to customary conditions including regulatory approvals. The planned lease has initial annual rent of $250 million and a 30-year initial term. VICI expected to fund the acquisition with cash, forward-sale proceeds and debt; it intends to issue additional unsecured notes but may use a $4.0 billion committed bridge facility if needed. Closing, financing availability and refinancing terms are not assured.
- The Venetian tenant’s obligations will not be guaranteed by Apollo or its affiliates. A separate LVS lease-support arrangement is designed to cover rent through 2023, subject to early-termination conditions; after it ends, a letter of credit may be required if specified operating thresholds are not met.
- VICI committed up to $79.5 million for a Great Wolf mezzanine loan at 8% interest; nothing had been disbursed by June 30, and full funding was expected by mid-2022. Total future loan funding commitments were $119.5 million.
- No material litigation was reported, and the filing identified no material change to previously disclosed risk factors. Management provided no general quantified earnings guidance.
Most important facts for investors to verify
- Whether the Venetian acquisition closes on schedule and on the disclosed terms, and how its purchase price will ultimately be financed.
- Tenant credit quality and rent coverage, particularly Caesars’ ability to meet lease, capital expenditure and other obligations given its revenue concentration.
- Whether tenant operating performance and rent collection remain resilient amid COVID-19 developments and any new restrictions.
- How much reported earnings growth reflects recurring lease economics versus noncash credit-loss allowance changes; compare AFFO methodology and per-share trends.
- Forward-sale settlement outcomes, potential share dilution, liquidity after acquisition funding, and interest-rate exposure. VICI reported $600 million of unhedged variable-rate debt; a one-percentage-point rate move would change annual cash interest expense by about $6 million.