VICI Properties Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. 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 comprised 28 properties and four golf courses.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $374.3 million | $255.0 million |
| Net income attributable to common stockholders | $269.8 million | $(24.0) million |
| Diluted EPS | $0.50 | $(0.05) |
| AFFO, a non-GAAP measure | $255.0 million; $0.47 per diluted share | $180.0 million; $0.38 per diluted share |
| Net cash provided by operating activities | $155.7 million | $137.4 million |
- Revenue rose 46.8% year over year. Management attributed higher contractual lease revenue mainly to the 2020 Eldorado transaction, including the addition of the MTA Properties and increased rent under the Caesars Las Vegas leases. New loan investments also contributed to revenue growth.
- Reported profit improved sharply, but the comparison was heavily affected by credit-loss accounting: Q1 2021 included a $4.4 million decrease in the credit-loss allowance, versus a $149.5 million increase in Q1 2020. Q1 2020 also included a $39.1 million debt-extinguishment loss. Net income therefore should not be read as a like-for-like measure of underlying operating growth.
- Quarter-end total assets were $17.1 billion, debt carrying value was $6.8 billion ($6.85 billion face value), and cash and cash equivalents were $322.5 million. The company reported no debt maturities within the next 12 months and was in compliance with debt covenants.
- Management reported $3.77 billion of available liquidity sources, including cash, $1.0 billion of undrawn revolver capacity and approximately $2.45 billion of proceeds expected from physical settlement of outstanding forward-sale agreements. Forward-sale proceeds are contingent on settlement and are not quarter-end cash.
- Operating cash flow increased $18.3 million year over year, primarily reflecting rent and loan-interest receipts from investments added in 2020. Cash dividends paid were $178.0 million; the quarterly dividend declared was $0.33 per share, up from $0.2975.
- The filing does not present a conventional operating-margin measure. Lease accounting includes non-cash effective-interest adjustments, and AFFO and Adjusted EBITDA are non-GAAP measures that should not be treated as substitutes for GAAP earnings or cash flow.
Material changes and capital activity
- On March 2, VICI agreed to acquire the Venetian Resort and Sands Expo real estate for $4.0 billion and lease it to the operating-company buyer. The proposed lease provides for initial annual rent of $250 million, a 30-year initial term and two 10-year renewal options. Closing was expected in the second half of 2021, subject to customary conditions and regulatory approvals; completion was not assured.
- In March, VICI completed a 69 million-share offering through forward-sale agreements at $29 per share, representing $2.0 billion of gross proceeds upon physical settlement. The shares had not been settled at quarter-end. Settlement may increase shares outstanding and dilute per-share results; cash or net-share settlement may also be elected, subject to the agreements.
- Quarterly lease revenue was $350.0 million, compared with $247.2 million a year earlier. The 2020 comparison reflects the Caesars Palace Las Vegas land component being reclassified from operating-lease to sales-type income after the Eldorado transaction.
- Interest expense was $77.0 million, versus $76.1 million. Management cited higher debt from the 2020 notes issuance, partly offset by retiring the Second Lien Notes and lower variable rates; the weighted-average annualized debt rate declined to 4.05% from 4.58%.
Outlook, risks and contingencies
- All leased properties and golf courses were open, but casino operations generally remained subject to reduced capacity or other restrictions. Management said all tenants had paid rent through April 2021. It cautioned that the pandemic, future restrictions or closures, and tenant financial performance could affect rent collection and contractual obligations.
- Caesars represented 86% of lease revenue in Q1 2021; Las Vegas Strip properties represented approximately 32%. This creates significant tenant and geographic concentration exposure despite the triple-net lease structure.
- For the Venetian transaction, LVS agreed to provide limited rent-payment support through 2023, subject to early termination conditions. The Venetian tenant’s obligations will not be guaranteed by Apollo or its affiliates; the support does not cover certain non-rent liabilities. VICI also disclosed a possible termination fee of up to $150 million in specified circumstances.
- VICI arranged a bridge facility commitment of up to $4.0 billion for the Venetian acquisition; commitments were reduced by $1.89 billion after the forward offering. Management said it expected to use a mix of cash, forward-sale proceeds and debt, and intended to issue long-term debt for part of the purchase price. Availability and refinancing terms are subject to market conditions.
- Approximately $2.1 billion of debt carried variable rates, of which $1.5 billion was hedged. A 1 percentage-point rate change on the approximately $600 million unhedged portion would change annual cash interest expense by about $6 million.
- Management stated it had sufficient liquidity to meet obligations, but noted that tenant defaults, reduced rent, capital-market disruption, acquisition financing needs and COVID-related effects could adversely affect results, liquidity or distributions. No formal full-year earnings guidance is provided in the supplied filing text.
- The Caesars Southern Indiana operating-business sale and related new lease, expected in Q3 2021, remained subject to approvals. The Louisiana Downs sale also remained pending regulatory approval and closing conditions. The filing reported no litigation believed likely to have a material adverse effect.
Most important facts for investors to verify
- Whether the Venetian acquisition closed on the expected terms and timing, and how its purchase price was financed.
- Settlement of the March 2021 and June 2020 forward-sale agreements, including actual proceeds, share dilution or any cash-settlement obligation.
- Tenant rent coverage and credit quality, particularly Caesars, and any subsequent changes in rent collection, capacity restrictions or capital-spending compliance.
- Changes in the credit-loss allowance and the assumptions underlying expected credit losses; the Q1 earnings comparison was materially affected by the prior-year allowance charge.
- Debt covenant headroom, refinancing plans and exposure to interest-rate changes as the Venetian transaction and other commitments progress.
- Whether pending transactions, including Caesars Southern Indiana and Louisiana Downs, received required approvals and closed.