01—Abstract
Summary
Summary of the 10-K filed March 28, 2018. Cited figures are marked; the original filing is the authoritative source.
VICI Properties Inc. filed its first annual report on Form 10-K following its formation on October 6, 2017, when real estate assets were separated from Caesars Entertainment Operating Company (CEOC) under CEOC's bankruptcy Plan of Reorganization.
The company owns 20 market-leading properties, including Caesars Palace Las Vegas and Harrah's Las Vegas, across nine states, all leased to subsidiaries of Caesars under long-term triple-net leases. For the period from October 6 to December 31, 2017, net revenues were $187.6 milliona, net income was $44.5 million, and net income attributable to common shareholders was $42.7 million, or $0.19 per diluted share. Adjusted EBITDA was $145.1 million and AFFO was $84.1 million for the same period.
The company's balance sheet at December 31, 2017 showed total assets of $9.74 billionb and debt of $4.79 billion, with an aggregate face value of $4.82 billion. In December 2017 VICI acquired Harrah's Las Vegas for approximately $1.14 billion and leased it back to Caesars, and it entered into a $2.6 billion senior secured credit facility. Following year-end, the company completed an initial public offering in February 2018 that raised net proceeds of $1.307 billion, which it used in part to pay down debt.
Caesars' lease payments are guaranteed by Caesars or its subsidiary CRC, and Caesars' obligations are a significant concentration of risk, since the leases account for substantially all of the company's revenues. Investors should note the concentration risk: the filing states that approximately 27.8%c of lease revenue came from Las Vegas Strip properties for the stub period, and the company depends on a single tenant and the gaming industry. The filing also notes that the company intends to elect REIT status beginning with its 2017 taxable year, and it discloses a pending objection by the City of Hammond, Indiana regarding the assignment of the Horseshoe Hammond property leases.
02—Key points
Key Highlights
- Portfolio of 20 properties across nine states, containing nearly 14,500 hotel rooms and over 36 million square feet, all leased to Caesars subsidiaries under long-term triple-net leases with an initial 15-year term and four 5-year renewal options.
- Stub-period results from October 6 to December 31, 2017: net revenues of $187.6 million, net income of $44.5 million, net income attributable to common shareholders of $42.7 million, and diluted EPS of $0.19.
- Adjusted EBITDA of $145.1 million and AFFO of $84.1 million for the October 6 to December 31, 2017 period, as reported in the filing's non-GAAP reconciliation.
- December 2017 acquisition of Harrah's Las Vegas real estate for approximately $1.14 billion, followed by a leaseback to Caesars, and a sale of approximately 18.4 acres (the Eastside Property) to Caesars for $73.6 million.
- Total debt face value of $4.82 billion at December 31, 2017, with a weighted average interest rate of 4.64%, and approximately $2.5 billion of variable-rate borrowings; a one percent rate change would affect annual interest expense by approximately $25.0 million.
- February 2018 IPO raised net proceeds of $1.307 billion, used to pay down $300.0 million of the revolver, redeem $268.4 million of Second Lien Notes, and repay $100.0 million of the Term Loan B, reducing the weighted average interest rate to 4.39% at February 28, 2018.
- Concentration risk: Strip properties generated approximately 27.8% of lease revenue for the stub period, and Caesars is the sole tenant, so the company depends heavily on Caesars and the gaming industry.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $187.61M— | — |
| Operating Income | $144.20M— | — |
| Interest Expense | $63.35M— | — |
| Net Income | $44.54M— | — |
05—Questions
Frequently Asked Questions
How does VICI generate its revenue?
Substantially all revenue comes from rent under long-term triple-net leases with subsidiaries of Caesars. Under these leases, the tenants pay property costs such as maintenance, utilities, taxes and insurance. For the stub period, revenue of $181.2 million came from the real property business and $6.4 million from the golf course business.
Who guarantees the lease payments?
Caesars or its subsidiary Caesars Resort Collection, LLC (CRC) guarantees the tenants' payment obligations under the Lease Agreements. The filing notes that Caesars' guaranty of the Formation Leases is not currently collateralized, although it may become secured if certain conditions are met.
What is the company's debt position at year-end 2017?
Aggregate face value of debt was $4.82 billion at December 31, 2017, including a $2.2 billion Term Loan B, $300.0 million drawn on a $400.0 million revolver, $1.55 billion of CPLV CMBS debt, and $766.9 million of Second Lien Notes. The company reported compliance with all debt-related covenants at year-end.
What did the February 2018 IPO accomplish?
VICI sold 69,575,000 shares at $20.00 per share, for gross proceeds of $1.3915 billion and net proceeds of $1.307 billion. The proceeds were used to reduce debt, including paying down $300.0 million on the revolver, redeeming $268.4 million of Second Lien Notes, and repaying $100.0 million of the Term Loan B.
What are the main risks highlighted in the filing?
The filing highlights dependence on Caesars as the sole tenant and guarantor, concentration of revenue on the Las Vegas Strip, dependence on the gaming industry, regulatory licensing requirements, substantial indebtedness, and REIT qualification requirements. It also discloses that the City of Hammond, Indiana filed an objection in November 2017 to the assignment of Horseshoe Hammond property leases.
06—Continue