VICI Properties Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. VICI is a REIT primarily owning gaming, hospitality and entertainment real estate leased under long-term triple-net agreements. Its portfolio comprised 49 gaming facilities in the U.S. and Canada, plus four golf courses. Caesars and MGM are its largest tenants. VICI and VICI Properties L.P. report substantially the same operating business.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Total revenue | $877.6 million | $416.6 million; up 110.7% |
| Contractual leasing revenue | $710.4 million | $354.2 million; up $356.2 million |
| Net income | $527.9 million | $242.7 million |
| Net income attributable to common stockholders; diluted EPS | $518.7 million; $0.52 | $240.4 million; $0.35 |
| Operating cash flow | $522.0 million | $298.2 million |
| FFO / AFFO attributable to common stockholders (non-GAAP) | $520.2 million / $528.6 million | $240.4 million / $305.5 million |
| AFFO per share (non-GAAP) | $0.53 | $0.45 basic; $0.44 diluted |
| Debt, net carrying value | $16.6 billion | $13.7 billion at Dec. 31, 2022 |
| Cash and cash equivalents | $247.7 million | $208.9 million at Dec. 31, 2022 |
Revenue and profit growth primarily reflect acquisitions and consolidation of acquired properties, rather than solely same-property growth. Interest expense rose to $204.4 million from $68.1 million, largely reflecting debt added through the 2022 acquisitions and the MGM Grand/Mandalay Bay transaction. The $111.5 million increase in credit-loss allowance was a noncash expense. The filing reports no lease or loan investments on non-accrual and all tenants current on payments.
At March 31, debt principal totaled $17.1 billion; 99.4% bore fixed rates. The weighted-average debt rate was 4.34% including specified hedging effects. The company reported $2.40 billion of undrawn revolving credit capacity and estimated total available liquidity of $3.60 billion, including cash and proceeds available from unsettled forward equity sales. Debt maturities include $1.05 billion in 2024, with no maturities before May 2024. The company was in compliance with debt covenants.
Material changes and notable transactions
- In January, VICI acquired the remaining 49.9% of the MGM Grand/Mandalay Bay joint venture for $1.26 billion and assumed the full $3.0 billion of property-level debt. It thereafter consolidated the joint venture and became entitled to the lease’s full $309.9 million annual rent.
- VICI acquired four PURE Canadian Gaming properties for approximately C$271.9 million and entered a 25-year lease with initial annual rent of approximately C$21.8 million.
- Following MGM’s sale of Gold Strike operations, VICI entered a lease with Cherokee Nation Businesses at $40 million initial annual rent; the MGM Master Lease rent was reduced by the same amount.
- VICI purchased $85 million of Hard Rock Ottawa senior secured notes. It also had $971.8 million of future funding commitments for loans and securities at quarter-end, subject to contractual conditions.
- VICI issued forward sale agreements for 30.3 million shares at a $33.00 offering price, with settlement required by January 2024. The company received no proceeds at the time of the offering; 3.2 million shares were physically settled after quarter-end for approximately $101.5 million.
Outlook, risks and contingencies
The filing gives no quantitative earnings or AFFO guidance. Management stated it believes liquidity is sufficient for material cash needs over the next 12 months and beyond, while cautioning that access to capital depends on market conditions. A pending Rocky Gap Casino transaction was expected to close in mid-2023, subject to regulatory approvals and customary conditions.
Management cited inflation, rising interest rates, capital-market volatility, consumer spending and tenant operating costs as uncertainties. Triple-net leases generally place property operating costs on tenants, but tenant financial health remains important to rent collection. Q1 lease revenue concentration was 38% from Caesars and 39% from MGM; Las Vegas Strip properties generated approximately 48%. The filing also identifies gaming regulation, refinancing and acquisition execution as risks. No litigation was reported that management believed would have a material adverse effect, and no material changes to previously disclosed risk factors were reported.
The quarterly dividend declared was $0.39 per share, compared with $0.36 a year earlier. REIT distribution requirements may limit retained cash. The company notes that quarterly results are not necessarily indicative of full-year results.
Important facts for investors to verify
- How much of reported growth reflects acquired assets versus rent escalators and underlying tenant/property performance.
- Tenant credit and rent-payment capacity, particularly for Caesars and MGM, and the concentration of revenue in Las Vegas.
- Debt refinancing needs and financing costs, including the $1.05 billion 2024 maturity and exposure to future interest rates.
- Expected funding and returns on loan, security and property-growth commitments, and whether borrowers meet their funding conditions.
- Potential dilution and net proceeds from outstanding forward sale agreements, and the company’s dependence on debt and equity markets for growth and liquidity.
- The assumptions behind CECL allowances, including the $111.5 million quarterly charge and the noncash nature of that expense; assess non-GAAP FFO, AFFO and Adjusted EBITDA alongside GAAP results.
- Whether the pending Rocky Gap transaction closes as expected and delivers the stated rent increase.