VICI Properties Inc. — Q3 2021 Form 10-Q
Business context and period. This unaudited filing covers the three and nine months ended September 30, 2021. VICI is a gaming, hospitality and entertainment real estate owner and REIT, with 28 properties leased primarily under long-term triple-net agreements, plus four golf courses. Caesars was its largest tenant.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 |
|---|---|---|
| Total revenue | $375.7 million, up 10.6% year over year | $1,126.4 million, up $273.9 million year over year |
| Net income attributable to common stockholders | $161.9 million; diluted EPS $0.28 | $732.4 million; diluted EPS $1.31 |
| AFFO (non-GAAP) | $257.4 million; diluted AFFO per share $0.45 | $768.6 million; diluted AFFO per share $1.38 |
| Cash from operating activities | Not presented as a quarterly figure | $610.9 million, versus $539.5 million |
| Cash and cash equivalents | $669.5 million at September 30, 2021 | |
| Debt | $4.75 billion face value ($4.69 billion carrying value); all outstanding debt was fixed-rate |
Q3 GAAP net income was down from $398.3 million in Q3 2020, which included a $333.4 million non-cash gain on lease modification. Nine-month net income rose from $605.8 million despite the comparable 2020 period also including that gain. The 2021 nine-month period included a $24.5 million credit-loss allowance decrease; Q3 included a $9.0 million increase. Interest expense was $165.1 million in Q3 and $322.0 million for the nine months. The Q3 amount includes $64.2 million of interest-rate-swap settlement costs; nine-month results also include a $15.6 million debt-extinguishment loss.
VICI repaid its $2.1 billion Term Loan B Facility in September using equity proceeds and proceeds from settling a prior forward sale. Operating cash flow increased year over year, while cash rose to $669.5 million. The company reported $1.0 billion of undrawn revolving capacity and approximately $3.27 billion of potential proceeds from outstanding forward sale agreements as of quarter-end. No debt principal maturities were due within 12 months. Total liabilities were $5.42 billion; total assets were $17.55 billion.
The quarterly dividend was raised to $0.36 per share, or $1.44 annualized. The company reported collecting 100% of rent in cash in Q3 and that all tenants had met rent obligations through October 2021.
Material changes and transactions
- Revenue growth primarily reflected the Harrah’s Original Call Properties and lease rent increases added in the 2020 Eldorado transaction, as well as income from loan investments.
- In September 2021, VICI completed an equity offering involving 115 million shares at $29.50 per share, comprising 65 million shares sold by the company and 50 million shares under forward sale agreements. The share issuance and future forward settlements create potential dilution.
- VICI agreed to acquire MGM Growth Properties (MGP) for approximately $17.2 billion, including assumption of about $5.7 billion of debt. The proposed deal was expected to add approximately $1.009 billion of annualized attributable rent; closing was expected in the first half of 2022, subject to approvals and other conditions.
- VICI expected to acquire the Venetian Resort real estate for $4.0 billion and lease it to the operating-company buyer for initial annual rent of $250 million. Closing was expected in Q1 2022, subject to customary conditions and regulatory approvals.
- Caesars Southern Indiana operations transferred to EBCI, with VICI entering a new lease at $32.5 million initial annual rent; the Regional Master Lease rent was reduced by the same amount.
Outlook, risks and unusual items
Management said tenant performance at many properties had returned to or exceeded pre-pandemic levels, but cautioned that COVID-19, variants, operating restrictions, staffing constraints and economic effects could weaken tenant performance and rent-paying capacity. Management described its triple-net lease structure as providing creditor protection, while acknowledging continued tenant and market risks.
Management expected to fund the Venetian and MGP transactions with a mix of cash, forward-sale proceeds and long-term debt; bridge facilities could be used if permanent financing were unavailable. The filing cautions that financing may not be available on favorable terms, or at all. The MGP transaction also entails additional debt, share issuance, integration and regulatory risks, and a tax-protection agreement that may constrain certain future actions and create indemnity exposure.
Revenue concentration is material: Caesars lease agreements generated 85% of lease revenue in Q3 and 86% for the nine months. The filing also identifies concentration in the Las Vegas Strip. Nine lawsuits challenging merger disclosures had been filed as of the report date; VICI said it believed them without merit and recorded no accrual. Management reported compliance with debt covenants and effective disclosure controls.
Key facts for investors to verify
- Progress, financing terms, regulatory approvals and final consideration for the MGP and Venetian transactions, including any changes to expected timing.
- Tenant rent coverage, liquidity and operating performance, particularly at Caesars and Las Vegas properties, amid continuing pandemic-related risks.
- Actual forward-sale settlements, share dilution and the cost and availability of acquisition financing.
- Recurring AFFO and cash generation versus reported GAAP earnings, including the effects of credit-loss estimates, swap settlement costs and other unusual items.
- Outcome and potential costs of merger-related litigation, and obligations under the proposed MGM tax-protection arrangements.
AFFO is a non-GAAP measure and should be considered alongside, not as a substitute for, GAAP results or cash flows.