VICI Properties Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. VICI is a REIT focused on owning gaming, hospitality, entertainment and leisure properties, primarily leased under long-term triple-net agreements. Its portfolio comprised 43 properties and four golf courses at quarter-end. Unless noted, figures below are for VICI consolidated and in U.S. dollars.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $662.6m | $376.4m | $1,079.2m | $750.7m |
| Net income (loss) | ($58.1m) | $303.1m | $184.5m | $575.2m |
| Net income (loss) attributable to common stockholders | ($57.7m) | $300.7m | $182.7m | $570.5m |
| Diluted earnings (loss) per share | ($0.06) | $0.54 | $0.23 | $1.04 |
| Operating cash flow | Not reported quarterly | Not reported quarterly | $951.1m | $410.5m |
| AFFO attributable to common stockholders | $430.1m | $256.1m | $735.5m | $511.1m |
| Adjusted EBITDA | $564.5m | $327.2m | $922.5m | $653.1m |
Q2 revenue increased about 76%, principally from the Venetian and MGM/MGP transactions and existing lease escalators. The quarter’s GAAP loss reflected a $551.9m increase in the allowance for credit losses, including acquisition-related initial allowances; this was a non-cash charge. Management reported Q2 AFFO per share of $0.48, unchanged from the prior-year quarter; six-month AFFO per share was $0.93 versus $0.95.
- Cash and liquidity: Cash and cash equivalents were $614.0m at June 30, versus $739.6m at year-end 2021. Six-month investing cash outflow was $8.64bn and financing inflow was $7.57bn. Management cited $4.47bn of available liquidity, including cash, undrawn $2.5bn revolving and $1.0bn delayed-draw facilities, and approximately $360m available from settling an ATM forward sale.
- Debt: Debt carrying value was $13.72bn (face value $13.95bn), up from $4.69bn at year-end, largely following the MGP acquisition and new notes. The reported weighted-average interest rate was 4.496%; all $13.95bn of VICI debt principal was fixed-rate. No debt maturities were due within 12 months; the first listed principal maturity was $1.05bn in 2024. VICI stated it was in compliance with debt covenants.
- Assets and equity: Total assets were $37.29bn, compared with $17.60bn at year-end. Total stockholders’ equity was $22.11bn. Common shares outstanding rose from 628.9m at year-end to 963.1m at June 30, mainly through issuance for the MGP merger and settlement of forward equity sales.
- Distribution: VICI declared quarterly dividends of $0.36 per share in each of the first two quarters, versus $0.33 in each comparable 2021 quarter.
Material changes and transactions
- On April 29, VICI completed its acquisition of MGM Growth Properties (MGP), adding 15 casino resort properties and approximately $1.012bn of annualized rent. Consideration was approximately $11.6bn, plus assumed debt; VICI issued shares and redeemed most of MGM’s received operating partnership units for $4.404bn in cash.
- In February, VICI acquired the Venetian Resort real estate for $4.0bn and entered a 30-year lease with initial annual rent of $250m. The tenant’s operating obligations are not guaranteed by Apollo affiliates. LVS provides limited rent support through 2023, subject to early termination conditions.
- April financing included $5.0bn of new senior notes and $4.11bn of exchange notes. The new unsecured credit agreement provides a $2.5bn revolver and a $1.0bn delayed-draw term loan; neither had a balance at quarter-end.
- Credit-loss allowance rose to $1.149bn from $533.3m at year-end. The filing attributes the increase mainly to initial allowances on acquisitions and higher near-term default assumptions amid market volatility. All lease and loan investments were current, with none on non-accrual status.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said it believes available liquidity and expected lease cash receipts are sufficient for material cash needs over the next 12 months and beyond. All tenants had met rent obligations through July 2022. Management cautioned that COVID-19 restrictions, tenant operating performance, staffing and economic conditions remain uncertain.
- Tenant and market concentration remain material: Caesars represented 45% of lease revenue in Q2 and 57% for the first half; MGM represented 34% and 21%, respectively. Las Vegas Strip properties contributed approximately 46% of Q2 lease revenue.
- Pending Mirage and Gold Strike operating-asset sales would reduce MGM Master Lease rent by $90m and $40m, respectively, with new leases planned for Hard Rock and Cherokee Nation Businesses. Closings remained subject to conditions and approvals. Potential Mirage redevelopment funding of up to $1.5bn was under discussion.
- VICI has a 15-year tax protection agreement with MGM, including obligations concerning certain property dispositions, tax covenants and maintaining approximately $8.5bn of allocable nonrecourse debt, subject to specified terms and reductions.
- Other stated risks include rising interest rates and refinancing costs, capital-market access, gaming-industry dependence, tenant credit and lease renewals, regulatory approvals, REIT qualification and tax obligations, and integration or realization of benefits from recent acquisitions. No litigation was identified as reasonably likely to have a material adverse effect.
Most important facts for investors to verify
- How the acquisition-driven portfolio expansion translates into recurring cash rent and AFFO, particularly after the large non-cash credit-loss provision.
- Tenant credit quality, operating results and rent coverage, especially for Caesars, MGM and the Venetian tenant after the limited support period.
- Debt burden, interest expense, covenant headroom and refinancing exposure as rates and capital-market conditions change.
- Completion and rent effects of the Mirage and Gold Strike transactions, and the scale and terms of any property-growth-fund commitments.
- Assumptions behind the CECL allowance, including default probabilities, acquisition valuations and unfunded commitments; also distinguish GAAP earnings from management’s non-GAAP AFFO and Adjusted EBITDA measures.