VICI Properties Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Figures below are in millions of dollars, except per-share amounts. The filing is unaudited.
Business context
VICI owns gaming, hospitality and entertainment real estate, primarily leased under long-term triple-net agreements. At quarter-end, its portfolio comprised 24 casino assets leased to subsidiaries of Caesars, Penn National and Hard Rock, plus four golf courses. Most real estate revenue came from Caesars-affiliated tenants; Las Vegas Strip properties generated approximately 33% of lease revenue in Q3 and 34% for the nine-month period.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $222.5 | $232.7 | $657.3 | $671.9 |
| Operating income | $208.4 | $184.1 | $615.7 | $562.3 |
| Net income attributable to common stockholders | $144.4 | $129.9 | $447.3 | $381.1 |
| Basic / diluted EPS | $0.31 / $0.31 | $0.35 / $0.35 | $1.05 / $1.04 | $1.06 / $1.06 |
| AFFO (non-GAAP) | $164.6 | $132.2 | $472.9 | $385.8 |
| Adjusted EBITDA (non-GAAP) | $211.7 | $182.8 | $616.9 | $533.0 |
- Lease revenue was $216.9 million in Q3, up $14.8 million year over year, and $636.0 million for nine months, up $45.1 million. Growth primarily reflected properties added in 2018 and 2019, including Margaritaville, Greektown and JACK Cincinnati.
- Operating income rose 13% in Q3 and 10% for nine months; common-stockholder net income rose 11% and 17%, respectively. Interest expense increased $14.5 million in Q3 and $18.6 million for nine months.
- EPS declined year over year despite higher common income, principally reflecting a larger weighted-average share count following equity issuance. Basic weighted-average shares were 460.7 million in Q3 2019 versus 369.9 million a year earlier.
- Reported revenue fell year over year partly because, after adoption of ASC 842 in January 2019, property taxes paid directly by tenants were no longer recorded as both reimbursement revenue and expense. Thus, reported revenue and operating expense comparisons are not directly comparable. Excluding those gross-ups, lease revenue increased.
Cash flow, balance sheet and liquidity
- For the first nine months, operating cash flow was $437.2 million, compared with $328.5 million in 2018. Investing cash outflow was $1.36 billion, primarily reflecting $1.53 billion of investments in direct financing and sales-type leases. Financing cash inflow was $783.7 million.
- Cash, cash equivalents and restricted cash totaled $463.5 million at September 30; short-term investments were $342.8 million. The company reported total available liquidity of approximately $1.81 billion, including $1.0 billion of undrawn revolving-credit capacity.
- Total assets were $12.58 billion; total liabilities were $4.51 billion and total stockholders’ equity was $8.07 billion. Debt, net, was $4.13 billion, with $4.15 billion face value outstanding. No debt maturities were scheduled in the next 12 months.
- Nine-month dividends paid were $366.9 million. The Q3 dividend was $0.2975 per share, paid October 10, 2019. The company stated an intention to continue regular quarterly distributions.
- Approximately $2.0 billion of the $2.1 billion Term Loan B variable-rate debt was hedged with swaps; about $100 million remained unhedged. Management estimated a 1% rate change on the unhedged amount would change annual cash interest expense by approximately $1 million.
Material changes, outlook and risks
- Completed acquisitions: VICI acquired Margaritaville in January for $261.1 million, Greektown in May for $700 million and JACK Cincinnati in September for approximately $558.3 million. Their leases carry initial annual rents of $23.2 million, $55.6 million and $42.8 million, respectively.
- Pending transactions: The Century Portfolio acquisition, for approximately $277.8 million and expected initial annual rent of $25 million, was expected to close by year-end 2019. The JACK Cleveland/Thistledown acquisition, announced after quarter-end at approximately $843.3 million with expected initial annual rent of $65.9 million, was expected to close in early 2020. Both were subject to approvals and closing conditions.
- Eldorado transaction: Subject to the ERI-Caesars merger and other conditions, the agreement contemplated acquisitions and lease amendments, including approximately $1.81 billion for three properties and additional rent arrangements. Management expected the merger and related transaction around mid-2020 / the first half of 2020. The company had committed bridge facilities of up to $3.3 billion first lien and $1.5 billion second lien, but intended to pursue longer-term financing; refinancing the bridge debt on acceptable terms was not assured. Bridge-facility fees recognized in interest expense were $13.4 million for nine months.
- VICI expected to fund planned acquisitions with cash, equity proceeds—including settlement of 65 million forward-sale shares—and debt. At September 30, the forward-sale agreements had not been settled; physical settlement at the then-adjusted price was expected to provide approximately $1.3 billion, while settlement could dilute shares. The company also had raised $1.0 billion net in its June offering and $129.9 million net through its at-the-market program during the nine months.
- Management reported compliance with debt covenants. The revolving facility was amended to increase capacity to $1.0 billion and extend maturity to May 2024. The company reported no litigation expected to have a material adverse effect and no material changes to previously disclosed risk factors beyond those described in its prior-quarter filing.
- Key risks include tenant and gaming-industry concentration, tenant ability to pay rent, regulatory approvals, acquisition execution and financing, access to capital markets, interest rates, substantial debt, and maintaining REIT qualification and distributions. The filing provides no formal earnings or AFFO guidance.
Important facts for investors to verify
- Progress, approvals, financing and final terms for the Eldorado, Century and JACK Cleveland/Thistledown transactions, including the planned refinancing of CPLV CMBS debt and any associated prepayment costs.
- Tenant credit quality and rent coverage, particularly Caesars-related concentration and Las Vegas exposure.
- How much of the 65 million forward-sale shares is settled, the proceeds received and the resulting dilution.
- Cash available after acquisition funding, leverage and refinancing plans, and continued compliance with debt covenants.
- Comparability of reported revenue and margins following ASC 842 presentation changes; AFFO and Adjusted EBITDA are non-GAAP measures and should be considered alongside GAAP results and cash flows.