VICI Properties Inc. — 2018 Form 10-K Summary
Business context and reporting period
VICI is a REIT that owns gaming, hospitality, entertainment and leisure real estate, principally leased under long-term triple-net agreements. Its properties are operated mainly by Caesars; four golf courses are operated through a taxable REIT subsidiary. The fiscal year ended December 31, 2018. VICI was formed on October 6, 2017, so the 2017 comparison covers only October 6 through December 31 and is not a full-year comparable period.
Financial and operating metrics
| Metric | 2018 | Prior reported period |
|---|---|---|
| Revenue | $898.0 million | $187.6 million |
| Operating income | $758.0 million | $144.2 million |
| Net income | $532.1 million | $44.5 million |
| Net income attributable to common stockholders | $523.6 million; $1.43 per diluted share | $42.7 million; $0.19 per diluted share |
| Operating cash flow | $504.1 million | $129.4 million |
| Investing cash flow | $(1,140.9) million | $(1,136.3) million |
| Financing cash flow | $1,037.8 million | $1,148.4 million |
Reported operating margin was approximately 84.4% and net margin approximately 59.3%. The comparison is distorted by the partial 2017 period and changes in the portfolio; the filing attributes much of the revenue and expense increases to having a full year of operations in 2018. Real-property revenue was $870.8 million, including $789.5 million of lease income and $81.2 million of tenant property-tax reimbursements. Golf operations contributed $27.2 million.
Year-end assets were $11.33 billion, including $577.9 million cash and cash equivalents, $20.6 million restricted cash and $520.9 million short-term investments. The company also had $400.0 million of undrawn revolving-credit capacity. Debt was $4.15 billion face value ($4.12 billion carrying value); stockholders’ equity was $6.90 billion. No principal repayments were due within the next 12 months. Adjusted EBITDA, a non-GAAP measure, was $722.5 million and AFFO was $525.6 million, or $1.43 per diluted share; the company cautions these measures are not substitutes for GAAP results or liquidity measures.
Cash dividends declared totaled $0.9975 per share for 2018. In September, management raised its targeted annualized dividend to $1.15 per share, a 9.5% increase from the prior $1.05 rate.
Material changes and transactions
- Completed a $1.4 billion IPO in February and a $724.5 million follow-on stock offering in November. IPO proceeds were used in part to repay $300 million on the revolver, $100 million on the Term Loan B and $268.4 million principal of Second Lien Notes; the notes were redeemed at 108% of principal.
- Acquired Octavius Tower for $507.5 million in July; it added $35.0 million in annual rent. Acquired Harrah’s Philadelphia in December for approximately $82.5 million cash after a $159.0 million purchase-price reduction tied to lease amendments; the amended lease added $21.0 million annual rent.
- Amended Caesars leases in December, including bringing forward certain rent escalations and adding EBITDAR-to-rent coverage floors to some agreements. The amended Non-CPLV and Joliet leases began escalations in lease year two, with specified escalators and coverage protections.
- Completed the Margaritaville Resort Casino acquisition on January 2, 2019 for $261.1 million and leased it to a Penn National subsidiary, with stated initial annual rent of $23.2 million.
- Signed a $700 million agreement to acquire Greektown’s real estate, with a Penn National affiliate acquiring the operating assets. The planned initial annual rent is $55.6 million; closing was expected in mid-2019, subject to regulatory and customary conditions. Management expected to fund the real-estate purchase with about $350 million cash and $350 million debt.
Outlook, risks and unusual items
Management expects organic rent growth from contractual escalators and aims to grow through acquisitions and sale-leaseback transactions. It reported no formal earnings or cash-flow guidance. The company said available cash, investments, lease receipts and financing sources should provide sufficient liquidity, while warning that capital-market access and tenant performance are not assured.
- Tenant and industry concentration is significant: substantially all 2018 revenue depended on Caesars, and Las Vegas Strip properties generated about 36% of lease revenue. The Margaritaville acquisition added Penn National as a tenant after year-end.
- Debt, refinancing, interest-rate exposure, lender covenants and collateralization of substantially all properties may constrain growth, distributions and financial flexibility. At year-end, $600 million of variable-rate debt was unhedged; subsequent swaps reduced the reported unhedged amount to $100 million.
- Gaming regulation and licensing, tenant creditworthiness or lease renewal, competition, economic weakness, natural disasters, environmental liabilities and REIT qualification and distribution requirements could adversely affect results or distributions.
- VICI recorded a $12.3 million impairment on vacant, non-operating land parcels and a $23.0 million loss on extinguishment of debt in 2018. No litigation was identified as likely to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Assess Caesars’ ability to meet lease obligations and the strength and terms of its guarantees; review Penn National’s obligations under the post-year-end leases.
- Confirm Greektown’s closing status, financing, final rent terms and regulatory approvals, and evaluate the effect of the completed Margaritaville acquisition.
- Review debt maturities, interest-rate hedges, covenant headroom and the use of proceeds from equity offerings and any ATM issuance.
- Reconcile recurring cash available for distributions with GAAP cash flow, AFFO and REIT taxable income; verify whether the $1.15 annualized dividend target was maintained.
- Consider that 2017 results cover only the post-formation period and that direct-financing-lease accounting makes reported lease income differ from cash rent received.