VICI Properties Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. VICI is a REIT that primarily owns gaming, hospitality and entertainment real estate leased under long-term triple-net agreements; it also operates four golf courses. Its 28 casino properties were leased to subsidiaries of Caesars, Penn National, Hard Rock, Century Casinos and JACK Entertainment.
Financial performance and position
| Metric | FY 2020 | FY 2019 | Change / context |
|---|---|---|---|
| Total revenue | $1.226 billion | $894.8 million | Up 37.0% |
| Net income attributable to common stockholders | $891.7 million | $546.0 million | Diluted EPS $1.75 vs. $1.24 |
| AFFO | $835.8 million | $649.6 million | Up 28.7%; diluted AFFO/share $1.64 vs. $1.48 |
| Cash provided by operating activities | $883.6 million | $682.2 million | Up $201.5 million |
| Cash, cash equivalents and short-term investments | $336.0 million | $1.161 billion | At December 31 |
| Debt, face amount | $6.850 billion | $4.848 billion | Carrying value at year-end 2020 was $6.766 billion |
- Operating cash flow was $883.6 million; investing activities used $4.549 billion, principally for property acquisitions and loans; financing activities provided $2.879 billion. Cash and restricted cash declined $785.9 million to $316.0 million.
- Year-end liquidity included $316.0 million cash, $20.0 million short-term investments, $1.0 billion of undrawn revolver capacity and an estimated $547.2 million available from physical settlement of the remaining June 2020 forward sale shares. The filing’s total of these sources was $1.883 billion; revolver access is subject to covenants, and the forward-sale amount assumes physical settlement.
- Debt consisted of a $2.1 billion Term Loan B and $4.75 billion of senior unsecured notes. No debt principal matured in the following 12 months; the Term Loan B and revolving facility mature in 2024. The company reported compliance with debt covenants at year-end.
- At year-end, $4.75 billion of debt was fixed-rate, $2.0 billion of variable-rate debt was hedged, and $100 million was unhedged. The company disclosed that after $500 million of swaps matured in January 2021, $600 million was unhedged.
- The annual dividend declared was $1.255 per share, compared with $1.17 in 2019. The quarterly rate reached $0.33 in the second half of 2020. Future distributions remain at board discretion.
Material changes versus 2019
- Growth reflected acquisitions and lease transactions, rather than solely comparable-property growth. VICI completed about $4.6 billion of acquisitions and investments, including JACK Cleveland/Thistledown for approximately $843.3 million and the Harrah’s New Orleans, Laughlin and Atlantic City real estate for $1.824 billion.
- The Eldorado/Caesars merger closed July 20, 2020. VICI acquired additional properties, combined and amended Caesars leases, extended their initial terms to July 2035, and increased annual rent through additional rent acquisitions. The Caesars leases’ rent coverage floors were removed.
- Interest expense rose $60.2 million to $308.6 million, mainly reflecting increased debt, while the weighted average annualized debt interest rate declined to 4.47% from 4.95%. VICI issued $2.5 billion of notes at a weighted average rate of 3.83% and redeemed its remaining $498.5 million of 8% second-lien notes.
- Reported earnings included a $333.4 million noncash gain from remeasuring Caesars leases after modification and a $244.5 million credit-loss expense. VICI also recorded a $309.4 million cumulative reduction to opening equity on adopting the expected-credit-loss standard; the adoption adjustment was not a 2020 operating expense.
- Revenue from Caesars leases represented 84% of lease revenue, down from 93% in 2019; Las Vegas Strip properties generated approximately 30% of lease revenue, versus 33%.
Outlook, commentary and risks
- Management said all properties had reopened by the filing date, but casino operations remained subject to capacity limits and other restrictions. Tenants had paid rent in full through February 2021. The duration and economic effects of COVID-19, including possible renewed restrictions, remained uncertain.
- VICI stated it continued to consider accretive acquisitions and investments, while emphasizing disciplined capital allocation. The filing provides no numerical earnings, revenue or AFFO guidance.
- Some tenants received temporary capital-expenditure or covenant relief related to the pandemic. The filing states that this relief did not reduce or defer rent obligations. Caesars and Century received certain capital expenditure relief; JACK received covenant relief and a delayed start to rent escalations. VICI also agreed to fund $18 million for a JACK Thistledown gaming patio, with rent scheduled to increase by $1.8 million beginning in 2022.
- Key exposure is tenant concentration and tenant credit: Caesars is the largest tenant, and rent depends on operators’ ability to generate cash, service debt and meet lease obligations. Gaming regulation, market competition and Las Vegas travel demand are additional risks.
- VICI identified $244.5 million of 2020 credit-loss expense following adoption of the CECL standard. The allowance relies on modeled default and loss assumptions, including a two-year economic forecast and historical benchmarks; the filing reports no charge-offs or recoveries in 2020.
- Potential contingencies include regulatory approvals for gaming-related transactions, future funding commitments of $46 million, and contractual put/call or right-of-first-refusal arrangements. Caesars’ 2024 put right for the Forum Convention Center could lead to a purchase obligation; under specified circumstances, Caesars also has a right to repurchase Harrah’s Las Vegas if that transaction fails to close.
- No litigation was identified as likely to have a material adverse effect. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Caesars’ current liquidity, leverage and ability to meet rent and guarantee obligations, given its importance to VICI and the concentration of lease revenue.
- How casino capacity restrictions, customer demand and recovery trends affect tenants’ rent coverage, capital spending and credit quality.
- The assumptions behind the CECL allowance, including the $553.9 million year-end allowance across leases and loans and the material judgments used to estimate credit losses.
- How much of reported earnings growth reflects recurring rent and lending income versus the one-time $333.4 million lease-modification gain; review AFFO definitions and adjustments alongside GAAP results.
- Actual proceeds, dilution or any cash settlement impact when VICI settles the remaining 26.9 million shares under the June 2020 forward sale agreement.
- Debt covenant headroom, refinancing needs beginning in 2024, floating-rate exposure and the effects of the LIBOR transition.
- Completion and terms of pending transactions, including the Caesars Southern Indiana lease transition and Louisiana Downs sale, and any future exercise of put/call or ROFR rights.