VICI Properties Inc. — Q1 2019 10-Q Summary
Reporting period: Three months ended March 31, 2019. Unaudited results are compared with Q1 2018. VICI is a REIT focused on owning gaming, hospitality and entertainment real estate, primarily leased on a long-term triple-net basis. Its portfolio had 22 properties and four golf courses; nearly all real estate was leased to Caesars affiliates, with Margaritaville leased to Penn National.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Revenue | $214.0 million | $218.3 million | Down $4.3 million; primarily reflects a change in presentation of tenant-paid property taxes after ASC 842 adoption. |
| Contractual lease revenue | $204.2 million | $181.3 million | Up $22.8 million, principally from Octavius Tower, Harrah’s Philadelphia and Margaritaville. |
| Operating income | $201.9 million | $188.7 million | Up $13.1 million. |
| Net income attributable to common stockholders | $150.8 million | $112.1 million | Up $38.7 million; prior-year results included a $23.0 million debt-extinguishment loss. |
| Diluted EPS | $0.37 | $0.33 | Weighted-average diluted shares increased to 406.0 million from 343.1 million. |
| AFFO / diluted share | $0.37 | $0.36 | AFFO was $151.5 million versus $124.7 million. |
| Operating cash flow | $115.6 million | $122.5 million | Down $6.8 million, partly due to rent prepaid in December 2018 for January 2019. |
Net cash used in investing activities was $101.2 million, including the Margaritaville acquisition; net cash provided by financing was $9.7 million, including $128.1 million of ATM equity proceeds and $116.3 million of dividends paid. Cash, cash equivalents and restricted cash ended the quarter at $622.6 million.
At March 31, 2019, VICI had $356.9 million of short-term investments, $598.3 million of cash and cash equivalents, $24.4 million of restricted cash, and $400.0 million of undrawn revolving credit capacity. The filing totals these sources at $1.380 billion; restricted cash is not necessarily available for general use.
Debt had a $4.148 billion principal balance and $4.123 billion carrying value. Scheduled principal repayments are $1.560 billion in 2022, $520.5 million in 2023 and $2.068 billion in 2024; no debt matures in the next 12 months. The company reported compliance with debt covenants. Swaps hedge $2.0 billion of variable-rate debt, leaving approximately $100 million unhedged; a 1 percentage-point rate change on that unhedged amount would change annual cash interest by about $1.0 million.
Material changes and notable items
- ASC 842 was adopted January 1, 2019 without a material effect on primary triple-net lease accounting or an opening retained-earnings adjustment. Tenant-paid property taxes are no longer reported as both revenue and expense, so GAAP revenue comparisons are not directly like-for-like. Certain lease transaction costs are now expensed.
- VICI acquired Margaritaville Resort Casino on January 2 for $261.1 million and entered into a 15-year triple-net lease with initial annual rent of $23.2 million, guaranteed by Penn National and certain subsidiaries.
- Q1 included $0.9 million of transaction and acquisition expenses. The company declared a $0.2875-per-share quarterly dividend, paid April 11, 2019; Q1 2018’s $0.16 dividend covered only the period after the IPO.
- Unrealized losses on cash-flow hedges were $17.2 million in other comprehensive income. No material adverse litigation was reported, and the company said risk factors had not materially changed from its 2018 Form 10-K.
Outlook, risks and contingencies
No quantitative earnings or AFFO guidance is provided. Management said it expected to fund acquisitions with a mix of available cash, debt and equity and believed available liquidity, lease receipts and capital-market access were sufficient for requirements. It cautioned that funding markets may not remain available on attractive terms.
Greektown, a $700 million real-estate acquisition with expected initial annual rent of $55.6 million, was pending regulatory approvals and customary conditions and was expected to close in Q2 2019; completion was not assured. After quarter-end, VICI agreed to acquire JACK Cincinnati real estate for approximately $558.3 million, with initial annual rent of $42.75 million under a proposed 15-year lease; closing was expected in late 2019, subject to approvals and other conditions.
Key disclosed risks include substantial tenant and industry concentration, gaming regulation, tenant ability to pay rent, lease renewals, indebtedness and refinancing, interest rates, acquisition financing and completion, and maintaining REIT qualification. Caesars-affiliated tenants account for most revenue; Las Vegas Strip properties generated approximately 34% of Q1 lease revenue.
Important facts for investors to verify
- Tenant credit quality and rent coverage, particularly Caesars’ ability to meet lease obligations and the concentration of revenue in Caesars and the Las Vegas market.
- Whether Greektown and JACK Cincinnati close as expected, their final financing and lease terms, and resulting leverage and share dilution.
- Comparability of revenue and expenses following ASC 842; contractual lease revenue is more informative than the reported revenue decline alone.
- Debt refinancing needs, covenant headroom, swap coverage and the effect of interest rates on the unhedged balance.
- Dividend sustainability and REIT distribution requirements, including the relationship between taxable income, cash flow and distributions.