VICI Properties Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. VICI is a REIT that primarily owns gaming, hospitality and entertainment real estate leased under long-term triple-net agreements. Unless noted, amounts below are consolidated and in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $904.3 million | $751.5 million | $2.680 billion | $1.831 billion |
| Net income attributable to VICI common stockholders | $556.3 million | $330.9 million | $1.766 billion | $513.6 million |
| Diluted earnings per share | $0.55 | $0.34 | $1.75 | $0.60 |
| AFFO attributable to common stockholders | $547.6 million | $470.7 million | $1.617 billion | $1.206 billion |
| Diluted AFFO per share | $0.54 | $0.49 | $1.60 | $1.42 |
| Cash provided by operating activities | Not separately presented | Not separately presented | $1.605 billion | $1.455 billion |
Q3 revenue increased about 20% year over year; nine-month revenue increased about 46%. Growth chiefly reflected properties added through the Venetian and MGP transactions and 2023 acquisitions, plus contractual rent escalators. Net income also benefited from a substantially smaller credit-loss provision than in 2022. Q3 and nine-month results include $96.0 million and $166.1 million of credit-loss expense, respectively, versus $232.8 million and $865.5 million in the comparable 2022 periods.
Q3 contractual lease revenue was $727.6 million, compared with $607.0 million a year earlier. Reported lease revenue includes non-cash effective-interest accounting adjustments; the company reported a $131.4 million Q3 non-cash adjustment. Operating margin is not presented as a standard measure in the filing; AFFO and Adjusted EBITDA are non-GAAP measures and should not be treated as substitutes for GAAP results or cash flow.
Balance sheet, debt and liquidity
- At September 30, 2023, total assets were $42.8 billion, net debt carrying value was $16.7 billion, and cash and cash equivalents were $510.9 million.
- Total debt principal was $17.1 billion, up from $14.0 billion at December 31, 2022. The weighted-average debt rate was 4.349% after the effect of hedges; 99.1% of principal was fixed-rate and 0.9% variable-rate.
- Debt maturities include $1.05 billion in 2024, $2.05 billion in 2025 and $1.91 billion in 2026. The company reported compliance with all debt covenants.
- Reported available liquidity was approximately $3.66 billion, comprising cash, $2.34 billion of revolver capacity and $807.2 million of proceeds available from unsettled forward-sale agreements. The remaining January 2023 forward shares were physically settled after quarter-end, on October 17, for approximately $560.3 million.
- Nine-month investing cash outflow was $1.945 billion, reflecting acquisitions and investments; financing cash inflow was $642.4 million. Cash paid for interest was $563.9 million.
Material changes and transactions
- In January, VICI acquired the remaining 49.9% of the MGM Grand/Mandalay Bay joint venture for $1.262 billion and consolidated the venture, including its $3.0 billion of property-level debt. VICI became entitled to the full lease rent of approximately $309.9 million annually.
- Other 2023 activity included the PURE Canadian Gaming real estate acquisition, the Rocky Gap Casino real estate acquisition and the Century Canadian Portfolio acquisition. The latter two added $15.5 million and approximately $12.7 million, respectively, to annual rent under the Century Master Lease.
- VICI entered into a $140.1 million Canyon Ranch mortgage loan and committed up to $150 million to a Canyon Ranch preferred-equity investment. It also purchased $85 million of Hard Rock Ottawa secured notes.
- After quarter-end, VICI acquired 38 Bowlero bowling centers for $432.9 million and entered a 25-year triple-net master lease with initial annual rent of $31.6 million. This transaction was not included in September 30 results.
- VICI declared a Q3 dividend of $0.415 per share, compared with $0.390 in Q3 2022.
Outlook, commentary and risks
- Management said it believes current liquidity is sufficient for material cash requirements, contractual obligations, debt maturities and commitments over the next 12 months and future periods. The filing does not provide numerical earnings or AFFO guidance.
- Management describes triple-net leases as providing predictable rent and shifting property operating costs, maintenance and capital expenditures to tenants. Tenant payment capacity nevertheless depends on their businesses and the broader economy.
- Credit and tenant concentration are key exposures: Caesars represented 37% and MGM 39% of lease revenue in both Q3 and the first nine months of 2023. Las Vegas Strip properties generated approximately 49% of lease revenue in those periods.
- Risks cited include inflation, interest-rate increases, capital-market access, tenant and guarantor financial performance, gaming regulation, refinancing and debt service, acquisition execution, tenant lease renewals, foreign-exchange movements and REIT qualification and distribution requirements.
- The total allowance for credit losses on recorded investments was approximately $1.505 billion at quarter-end; a further $30.1 million allowance for unfunded commitments was recorded in other liabilities. Management reported all leases and loan and security investments current, with none on non-accrual status.
- The company reported no litigation it believes could have a material adverse effect, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Tenant health and rent coverage, particularly at Caesars and MGM, and concentration in Las Vegas.
- Debt refinancing needs, especially the $1.05 billion 2024 maturity, and the cost and availability of future capital.
- Credit-loss allowance assumptions and the effect of tenant performance and economic forecasts on future provisions.
- Completion and economics of post-quarter Bowlero financing, rent escalators and lease obligations.
- How share issuance and forward-sale settlements affect per-share AFFO, and the sustainability of dividends relative to cash generation.