VICI Properties Inc. — Q1 2020 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2020, compared with Q1 2019. VICI is a gaming, hospitality and entertainment real-estate REIT; it reported 28 properties leased primarily on long-term triple-net agreements, plus four golf courses. Substantially all tenants’ property operations and VICI’s golf courses closed during March because of COVID-19.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Revenue | $255.0 million | $214.0 million; up 19.2% |
| Operating income | $88.0 million | $201.9 million |
| Net income (loss) attributable to common stockholders | $(24.0) million; $(0.05) per share | $150.8 million; $0.37 per share |
| Operating margin | 34.5% | 94.3% |
| Cash from operating activities | $137.4 million | $115.6 million |
| Adjusted EBITDA (non-GAAP) | $244.7 million | $199.0 million |
| AFFO (non-GAAP) | $180.0 million; $0.39 basic per share | $151.5 million; $0.37 basic per share |
| Debt, face amount | $6.85 billion | $4.85 billion at Dec. 31, 2019 |
| Cash and cash equivalents / restricted cash | $369.1 million / $2.00 billion | $1.10 billion / none at Dec. 31, 2019 |
Q1 investing cash outflow was $839.6 million and financing cash inflow was $1.97 billion. Restricted cash was held in escrow for the pending Eldorado transaction. VICI also reported $1.0 billion of undrawn revolving-credit capacity, subject to covenants. No debt matures within the next 12 months; the next stated principal maturities are in 2022.
Material changes and unusual items
- Revenue rose mainly because of acquisitions added since Q1 2019, including Greektown, Hard Rock Cincinnati, the Century Portfolio and JACK Cleveland/Thistledown. Q1 2020 includes $12.0 million of lease-financing receivable income and $0.8 million of loan income. Golf revenue fell $1.0 million as courses closed in March.
- VICI adopted the expected-credit-loss standard (ASC 326) on January 1, 2020, recording a $309.4 million opening retained-earnings adjustment. It recorded a further $149.5 million credit-loss expense in Q1; about $127.4 million reflected increased estimated tenant credit risk amid COVID-19, and $22.2 million related to the new JACK investment and loan. No leases or loans were reported past due or on non-accrual at quarter-end.
- A $39.1 million loss on extinguishment followed redemption of the $498.5 million face amount of 8% Second Lien Notes for approximately $537.5 million. Interest expense increased $22.5 million year over year, partly reflecting newly issued debt; the weighted-average debt rate declined from 4.97% to 4.58%.
- In February, VICI issued $2.5 billion of unsecured notes at coupons of 3.50%–4.125%, placing $2.0 billion of net proceeds in escrow for the Eldorado transaction. The company also sold 7.5 million shares through its at-the-market program for about $200 million net.
Outlook, risks and contingencies
Management gave no specific earnings or AFFO guidance. It said near-term acquisitions would likely be more limited while it prioritizes tenant relationships, liquidity and financial strength, but it may pursue opportunistic acquisitions. All tenants paid April 2020 rent in full; management cautioned that closures’ duration and tenants’ recovery remain uncertain, and that future rent payments, tenant liquidity and capital spending could be affected. Gaming demand, travel, consumer spending and access to capital are additional risks. Caesars-related leases represented 82% of Q1 2020 lease revenue; Las Vegas Strip properties represented approximately 29%.
The Eldorado/Caesars merger and related VICI transactions remained subject to regulatory approvals and closing conditions. The planned package includes $1.8235 billion of property acquisitions and additional rent acquisitions; VICI expected to fund it with cash, forward-sale proceeds and escrowed note proceeds. If specified transactions fail to close, certain 2020 notes are subject to special mandatory redemption; other termination provisions could require fees, including a potential $75 million reverse termination fee or $45 million CPLV break payment under specified circumstances. The company also disclosed a subsequent agreement to sell Bally’s Atlantic City for $25 million, subject to approvals; VICI’s expected share is approximately $19 million and lease rent is to remain unchanged.
The $0.2975-per-share quarterly dividend was paid April 9, 2020. Management reported compliance with debt covenants at March 31 and effective disclosure controls. No litigation believed material was disclosed.
Important facts for investors to verify
- Whether tenants continue paying rent and meet lease obligations as casinos reopen, and how the COVID-related credit-loss estimate changes in later quarters.
- Completion, timing, funding and final economics of the Eldorado/Caesars merger and associated acquisitions; treatment of escrowed proceeds and mandatory-redemption provisions if transactions fail.
- Tenant concentration and guarantor strength, particularly Caesars-related exposure, alongside liquidity available after escrowed funds are committed.
- Debt service, covenants, refinancing access and the effect of forward-sale settlement on share count and per-share measures.
- Reconciliation of non-GAAP AFFO and Adjusted EBITDA to GAAP results; these measures are not substitutes for net income or operating cash flow.