VICI Properties Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. VICI is a REIT that owns gaming, hospitality and entertainment real estate, primarily leased to operators under long-term triple-net leases. At quarter-end, its portfolio included 43 properties across 15 states, plus four golf courses. The filing combines VICI and its operating partnership, VICI Properties L.P.; figures below generally refer to consolidated VICI.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $751.5 million | $375.7 million | $1,830.8 million | $1,126.4 million |
| Net income | $336.9 million | $164.2 million | $521.4 million | $739.4 million |
| Net income attributable to common stockholders | $330.9 million | $161.9 million | $513.6 million | $732.4 million |
| Diluted EPS | $0.34 | $0.28 | $0.60 | $1.31 |
| AFFO per share, diluted (non-GAAP) | $0.49 | $0.45 | $1.42 | $1.38 |
Revenue rose 100% in Q3 and 63% for the first nine months, mainly from the Venetian and MGM leases and other portfolio growth. Nine-month net income fell 29.5%, chiefly reflecting an $865.5 million increase in the allowance for credit losses; the 2021 comparison also included a $15.6 million debt-extinguishment loss. AFFO per diluted share increased 9% in Q3 and 3% for the nine-month period. AFFO is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Cash flow: Nine-month operating cash flow was $1.46 billion, versus $610.9 million a year earlier. Investing activities used $8.89 billion, primarily for the MGP transactions and Venetian acquisition. Financing activities provided $7.21 billion. Cash and cash equivalents were $518.4 million at September 30.
- Assets and liquidity: Total assets were $37.31 billion, versus $17.60 billion at year-end 2021. Reported available liquidity was $4.72 billion, including cash, $207.7 million of short-term investments, undrawn $2.5 billion revolving and $1.0 billion delayed-draw facilities, and $490.4 million of proceeds available from unsettled ATM forward sales. Much of this total is not cash on hand.
- Debt: Debt had $13.95 billion face value and $13.73 billion carrying value, compared with $4.75 billion face value at year-end 2021. The weighted-average stated rate, adjusted for hedges, was 4.496%; all debt outstanding was fixed-rate. No debt maturities were due within the next 12 months; the first scheduled principal maturity was $1.05 billion in 2024. The company reported compliance with all debt covenants.
- Credit allowance: The allowance for credit losses on portfolio assets was $1.376 billion at quarter-end, equal to 3.8% of amortized cost; an additional $23.5 million applied to unfunded commitments. Management said all lease and loan investments were current and none were on non-accrual status.
- Distribution: VICI declared a quarterly dividend of $0.39 per share for Q3, up from $0.36 in each of the first two quarters of 2022.
Material changes and transactions
- On April 29, 2022, VICI completed its acquisition of MGM Growth Properties (MGP) for $11.6 billion of consideration and assumed approximately $5.7 billion of principal debt, including its proportionate share of BREIT JV debt. The transaction added 15 casino resort properties and approximately $1.01 billion of annualized rent.
- VICI acquired the Venetian Resort real estate for $4.0 billion in February and entered a lease with initial annual rent of $250 million. The tenant’s obligations are not guaranteed by Apollo or its affiliates; LVS provided limited rent support through 2023, subject to stated conditions.
- VICI issued $5.0 billion of April 2022 senior notes and exchanged $4.11 billion of MGP notes for VICI-issued notes. It also issued 119 million shares through settlement of prior forward-sale agreements and issued shares in the MGP merger, materially increasing the share count.
- Revenue concentration remains significant: Caesars represented 39% of Q3 lease revenue and MGM, including VICI’s share of the BREIT JV lease, represented 43%. Las Vegas Strip properties generated approximately 47% of Q3 lease revenue.
Outlook, commentary and risks
The filing provides no specific earnings or AFFO guidance. Management said it believes available liquidity and access to lease receipts, credit facilities and capital markets are sufficient to meet material cash requirements for the next 12 months. Management noted that triple-net leases generally pass property operating costs to tenants, but tenant financial stress can still threaten rent payments; inflation above CPI escalation caps may also outpace rent increases.
- The $232.8 million Q3 credit-loss allowance increase reflected uncertain economic conditions, higher modeled tenant and guarantor default probabilities, annual model updates and new loan commitments. The nine-month increase also included $523.2 million of initial allowances associated with acquisitions and investments.
- Interest rates, inflation, market volatility, tenant performance, gaming-sector dependence, regulatory approvals and access to capital are identified risks. VICI also has tax-protection obligations to MGM, including obligations related to maintaining specified nonrecourse debt for a period of up to 15 years, subject to the agreement’s terms.
- Pending Mirage and Gold Strike operating-property sales and lease transitions were expected to close in Q4 2022 and the first half of 2023, respectively, subject to approvals and closing conditions. These transitions would reduce MGM Master Lease rent by $90 million and $40 million, respectively, while establishing separate leases with Hard Rock and CNB.
- The Rocky Gap acquisition was expected to close in mid-2023, subject to customary conditions and regulatory approvals. On October 7, 2022, after quarter-end, VICI agreed to provide up to $200 million of Canyon Ranch Austin development financing.
- Management reported no litigation believed likely to have a material adverse effect and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Key facts investors should verify
- How the $1.38 billion portfolio credit-loss allowance is calculated, how sensitive it is to economic assumptions, and whether tenant credit quality or payment status changes.
- Tenant and geographic concentration, particularly Caesars, MGM and Las Vegas Strip exposure, and the strength and scope of lease guarantees.
- Post-MGP leverage, debt-service costs, upcoming maturities and the company’s ability to refinance or raise capital at attractive rates.
- Whether acquisition-related rent growth translates into durable cash generation, especially given the non-cash credit-loss charge and changes in share count.
- Closing status and final economics of the Mirage, Gold Strike and Rocky Gap transactions, including rent adjustments, approvals and any related funding commitments.
- Actual utilization and returns on the $1.0 billion Venetian Partner Property Growth Fund and other loan and tenant-funding commitments.