VICI Properties Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; unaudited. VICI owns gaming, hospitality and entertainment real estate, primarily leased under long-term triple-net agreements, and operates four golf courses. Its 20-property portfolio was leased principally to Caesars affiliates. VICI was formed in October 2017, so the filing does not provide comparable prior-year consolidated VICI results.
Financial results and liquidity
| Metric | Q2 2018 | Six months 2018 |
|---|---|---|
| Revenue | $221.0 million | $439.3 million |
| Operating income | $189.4 million | $378.2 million |
| Net income | $141.4 million | $255.5 million |
| Net income attributable to common stockholders | $139.0 million; $0.38 per share | $251.2 million; $0.70 per share |
| Adjusted EBITDA (non-GAAP) | $175.4 million | $350.2 million |
| AFFO (non-GAAP) | $128.8 million; $0.35 per share | $253.5 million; $0.71 per share |
Six-month operating cash flow was $246.7 million. Investing activities used $40.5 million, and financing activities provided $550.9 million, including IPO proceeds and debt repayments. Cash, cash equivalents and restricted cash totaled $954.5 million at quarter-end, including $940.7 million of unrestricted cash. An additional $400 million was available under the revolver.
Debt carrying value was $4.12 billion at June 30, versus $4.79 billion at December 31, 2017. No principal maturities were scheduled within the following 12 months; $1.56 billion was scheduled for 2022. The company reported compliance with debt covenants. Q2 dividends declared were $0.2625 per share; $97.1 million of declared dividends remained payable at quarter-end.
Real estate lease income and tenant property-tax reimbursements generated most revenue. Property taxes reimbursed by tenants were $18.9 million in Q2 and $36.2 million for the half-year, with corresponding property-tax expense. Operating income was approximately 85.7% of revenue in Q2 and 86.1% for the half-year, calculated from reported figures.
Material changes and transactions
- The February 2018 IPO raised approximately $1.3 billion net. Proceeds funded repayment of $300 million on the revolver, $100 million of Term Loan B principal, and redemption of $268.4 million of Second Lien Notes. The redemption generated a $23.0 million first-half debt-extinguishment loss, primarily from the redemption premium.
- Golf-course revenue rose to $7.5 million in Q2 from $5.1 million in the predecessor business’s Q2 2017 results, mainly reflecting the Caesars Golf Course Use Agreement. The predecessor’s prior-year results are not directly comparable to VICI’s consolidated results.
- After quarter-end, on July 11, VICI completed the $507.5 million Octavius Tower acquisition and leaseback, funded from cash. The lease provides $35 million initial annual rent. Harrah’s Philadelphia acquisition and lease modifications were agreed in July, with $82.5 million stated cash consideration after a $159 million lease-modification value reduction; closing was expected in Q4, subject to approvals and consents.
- VICI agreed to acquire Margaritaville Resort Casino real estate for $261.1 million and lease it to a Penn National subsidiary at initial annual rent of $23.2 million. Closing was expected in the second half of 2018, subject to approvals and customary conditions.
Outlook, commentary and risks
Management said it believed available cash, lease receipts, revolver capacity and access to capital would provide sufficient liquidity, and anticipated funding the announced acquisitions with cash and/or revolver borrowings. The company announced an intended increase in its targeted annualized dividend from $1.05 to $1.15 per share, subject to board declaration, expected to begin with the Q3 2018 dividend; this is not a guarantee of future distributions.
Four interest-rate swaps hedged $1.5 billion of variable-rate debt by fixing the LIBOR component at 2.8297%. Approximately $600 million of variable-rate debt remained unhedged; a one-percentage-point rate change was estimated to affect annual cash interest expense by about $6 million. Management cited dependence on Caesars as the primary tenant, gaming-sector and regulatory risks, substantial indebtedness, refinancing and interest-rate exposure, and uncertainty over acquisition closings. REIT distribution requirements may also exceed cash available after operations and debt service. No litigation expected to have a material adverse effect was reported; management said there were no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Caesars affiliates account for most rental revenue; assess tenant credit, lease coverage and the effect of any tenant financial deterioration.
- Confirm closing status, final consideration, lease economics and financing for Harrah’s Philadelphia and Margaritaville; assess the implications of the Octavius Tower acquisition and related lease changes.
- Reconcile the targeted $1.15 annualized dividend with AFFO, cash flow, debt service and REIT taxable income; the target remained subject to board action.
- Review variable-rate exposure, debt covenants and future refinancing needs, including the substantial 2022 maturity schedule.
- Consider the $23.0 million debt-extinguishment charge and the limitations of non-GAAP AFFO and Adjusted EBITDA when evaluating recurring performance.