Business context and reporting period
VICI Properties Inc. is a REIT that owns gaming, hospitality and entertainment real estate and leases substantially all of it under long-term triple-net agreements. This Form 10-K covers the fiscal year ended December 31, 2019; subsequent events through the February 20, 2020 filing date are identified separately. At year-end, the portfolio comprised 26 casino properties and four golf courses. Rental income was highly concentrated in Caesars-related leases.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $894.8 million | $898.0 million |
| Operating income | $842.5 million | $758.0 million |
| Net income | $554.3 million | $532.1 million |
| Net income attributable to common stockholders | $546.0 million | $523.6 million |
| Diluted EPS | $1.24 | $1.43 |
| Operating cash flow | $682.2 million | $504.1 million |
| Dividends declared per common share | $1.17 | $0.9975 |
- Leasing revenue increased 9.7% to $865.9 million; contractual leasing revenue, including lease accounting adjustments, increased $122.0 million to $866.1 million.
- Operating margin was approximately 94.2% in 2019 versus 84.4% in 2018; year-over-year comparison is affected by 2018 gross presentation of tenant-paid property taxes and related expense.
- Non-GAAP AFFO was $649.6 million, or $1.49 per diluted share, compared with $525.6 million, or $1.43 per diluted share, in 2018. Adjusted EBITDA was $846.6 million versus $722.5 million. These company-defined measures are not GAAP substitutes.
- Cash and cash equivalents were $1.102 billion, short-term investments $59.5 million, and undrawn revolving credit capacity $1.0 billion at year-end: $2.161 billion of stated available liquidity, subject to facility covenants.
- Year-end debt carrying value was $4.792 billion, with $4.848 billion face value. Approximately $2.0 billion of variable-rate debt was hedged; $100 million remained unhedged. Debt was approximately 36% of total assets, based on carrying values.
- Cash flow: operating activities provided $682.2 million; investing activities used $1.361 billion; financing activities provided $1.183 billion. Cash, cash equivalents and restricted cash increased $503.4 million.
Material changes versus the prior comparable period
- Reported revenue decreased $3.2 million, although leasing revenue rose $76.3 million. Adoption of ASC 842 in 2019 stopped gross recognition of tenant-paid property taxes: 2018 included $81.2 million of reimbursement revenue and $81.8 million of property-tax expense.
- Operating income rose $84.5 million and net income rose $22.2 million. Interest expense increased $35.7 million, while the debt-extinguishment loss increased to $58.1 million from $23.0 million, primarily reflecting the prepayment penalty on repayment of $1.55 billion of Caesars Palace mortgage debt.
- Operating cash flow rose $178.1 million, principally with rental receipts from properties added to the portfolio. Investing outflows increased, including approximately $1.821 billion of 2019 acquisitions.
- Diluted EPS declined to $1.24 from $1.43 despite higher net income; weighted-average diluted shares increased to 439.2 million from 367.3 million, reflecting equity issuance and growth in the share base.
Outlook, management commentary, risks and unusual items
- Management emphasizes predictable rental cash flows, lease escalators and disciplined external growth, but provided no specific earnings or AFFO guidance in the supplied filing text.
- Completed 2019 acquisitions included Margaritaville, Greektown, Hard Rock Cincinnati and the Century Portfolio. The January 2020 JACK Cleveland/Thistledown acquisition cost approximately $843.3 million and carries initial annual rent of $65.9 million.
- The pending Eldorado/Caesars transaction included three planned property acquisitions for an aggregate $1.824 billion and $154 million of initial annual rent, plus amendments expected to increase annual Las Vegas rent by $98.5 million. Closing depended on the merger, regulatory approvals and other conditions; management could not assure completion on schedule or at all.
- In February 2020, VICI issued $2.5 billion of senior unsecured notes due 2025, 2027 and 2030, placed $2.0 billion of net proceeds in escrow for the pending transaction, and redeemed the $498.5 million Second Lien Notes. The Term Loan B spread was also reduced from LIBOR +2.00% to LIBOR +1.75%. These are subsequent events, not year-end balances.
- Major risks include tenant and industry concentration: Caesars leases generated 93% of lease revenue in 2019, and Las Vegas Strip properties generated about 33%. Tenant financial health, gaming regulation, competition, refinancing and interest-rate exposure, acquisition funding and transaction execution could affect rent, distributions and growth.
- Other material considerations include REIT distribution and qualification requirements, tenant lease renewal and performance, potential environmental or casualty liabilities, and forward-sale agreement settlement and dilution risk. The company reported no litigation expected to have a material adverse effect and no off-balance-sheet arrangements. Auditors issued unqualified opinions on the financial statements and internal control; the audit highlighted judgment in assessing tenant lease renewal options.
Important facts for investors to verify
- Reconcile the apparent flat reported revenue with rental growth, considering the ASC 842 presentation change and acquisitions.
- Review Caesars and other tenant credit quality, rent coverage, guarantor strength, and the concentration of revenue in Caesars and the Las Vegas Strip.
- Confirm closing status, final funding and rent terms for the Eldorado/Caesars transaction and assess any resulting debt, equity dilution and lease amendments.
- Check post-year-end debt balances, interest costs, maturities, covenant headroom and actual use of revolving or bridge facilities.
- Assess cash available for dividends against AFFO, debt service, REIT distribution requirements and the share issuance/forward-sale settlement schedule.