VICI Properties Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Figures are consolidated and in U.S. dollars; VICI Properties Inc. and VICI Properties L.P. are reported together as one business. VICI is a REIT focused primarily on owning gaming, hospitality and entertainment real estate leased under long-term triple-net agreements.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $898.2 million | $662.6 million | $1,775.8 million | $1,079.2 million |
| Net income attributable to VICI common stockholders | $690.7 million | Loss of $57.7 million | $1,209.4 million | $182.7 million |
| Diluted earnings per share | $0.69 | Loss of $0.06 | $1.20 | $0.23 |
| Operating cash flow | Not provided by quarter in this filing text | Not provided by quarter in this filing text | $1,052.4 million | $951.1 million |
| AFFO per share (non-GAAP) | $0.54 | $0.48 | $1.06 | $0.93 |
| Adjusted EBITDA (non-GAAP) | $723.4 million | $564.5 million | $1,433.7 million | $922.5 million |
Revenue growth was principally driven by properties added through the Venetian, MGP, Foundation, PURE and MGM Grand/Mandalay Bay transactions, plus rent escalators. Q2 lease revenue was $851.8 million, including a $129.5 million non-cash adjustment; contractual lease revenue was $722.3 million. The filing does not present a meaningful conventional operating-margin measure; reported operating expenses were heavily affected by credit-loss allowance changes.
GAAP earnings comparisons were especially affected by credit-loss accounting: VICI recorded a $41.4 million allowance reduction in Q2 2023, compared with a $551.9 million increase in Q2 2022. For the first half, the allowance increased expenses by $70.1 million in 2023 versus $632.7 million in 2022. AFFO and Adjusted EBITDA are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- At June 30, 2023, total assets were $42.25 billion and debt carrying value was $16.62 billion; debt principal was $17.06 billion, compared with $13.95 billion at December 31, 2022.
- Cash and cash equivalents were $738.8 million, up from $208.9 million at year-end. The company reported total available liquidity of approximately $4.00 billion, including cash, $2.39 billion of revolving-credit capacity and estimated proceeds from outstanding forward equity sale agreements.
- Six-month investing cash outflow was $1.21 billion, versus $8.64 billion in 2022, when the MGP and Venetian acquisitions drove substantial spending. Financing cash provided was $688.0 million, versus $7.57 billion in 2022.
- Approximately 99.4% of debt principal carried fixed interest rates. The weighted average debt rate reported at June 30 was 4.342%, including the stated impact of hedges. The company was in compliance with its debt covenants.
- The next scheduled debt maturity was $1.05 billion in May 2024. Quarterly dividends declared were $0.39 per share, up from $0.36 in 2022.
Material changes, outlook and risks
- In January, VICI acquired the remaining 49.9% of the MGM Grand/Mandalay Bay joint venture for $1.26 billion cash and consolidated the venture, including $3.0 billion of property-level debt. It became entitled to the full $309.9 million annual rent under that lease.
- VICI acquired the PURE Canadian Gaming real estate portfolio in January for approximately C$271.9 million and entered into a 25-year lease. It also entered a separate Gold Strike lease in February, with $40 million initial annual rent, while reducing MGM Master Lease rent by the same amount.
- After quarter-end, VICI closed the $260 million Rocky Gap acquisition on July 25, adding $15.5 million of annual rent to the Century Master Lease. The Century Canadian Portfolio acquisition, announced in May and expected to close in the second half of 2023, remained subject to approvals and closing conditions.
- After quarter-end, VICI committed up to $150 million of preferred equity to Canyon Ranch and said it intended to provide approximately $150 million of mortgage financing, expected to close in Q3 2023. These were not completed quarter-end transactions.
- Management provided no specific earnings or full-year financial guidance in the supplied filing text. It said it believes available liquidity and expected funding sources are sufficient for obligations over the next 12 months and future periods, while cautioning that capital-market access and tenant performance are uncertain.
- Key risks include higher interest rates and capital costs, macroeconomic weakness and changes in consumer spending, tenant and guarantor creditworthiness, gaming regulation, refinancing and access to capital, and foreign-exchange movements. Caesars and MGM represented 38% and 39% of six-month lease revenue, respectively; Las Vegas Strip properties generated approximately 49%.
- All lease and loan obligations were current and no investments were on non-accrual status at June 30. The company reported no litigation it believed could have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Tenant financial health and rent coverage, particularly for Caesars and MGM, and the concentration of revenue in Las Vegas.
- The basis and sensitivity of the $1.41 billion recorded credit-loss allowance, including assumptions used in the expected-credit-loss model.
- Debt refinancing plans and costs for the $1.05 billion May 2024 maturity, as well as the effect of interest rates on future borrowing.
- Closing conditions and expected timing for the Century Canadian Portfolio acquisition, and the funding, terms and execution of the Canyon Ranch arrangements.
- Actual settlement proceeds and share dilution from outstanding forward sale agreements; the reported liquidity figure assumes physical settlement of those agreements.
- Non-GAAP reconciliations and the distinction between GAAP lease income and contractual cash rent, which differ because of effective-interest accounting.