VICI PROPERTIES, INC. The following discussion and analysis of the financial position and operating results ofVICI Properties Inc. for the three and nine months endedSeptember 30, 2020 should be read in conjunction with the Consolidated Financial Statements and related notes thereto and other financial information contained elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes for the year endedDecember 31, 2019 , which were included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . All defined terms included herein have the same meaning as those set forth in the Notes to the Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Quarterly Report on Form 10-Q, including statements such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or similar expressions, constitute "forward-looking statements" within the meaning of the federal securities law. Forward-looking statements are based on our current plans, expectations and projections about future events. We caution you therefore against relying on any of these forward-looking statements. They give our expectations about the future and are not guarantees. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed in or implied by such forward-looking statements. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the impact of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants. The extent to which the COVID-19 pandemic impacts the Company, its tenants and its pending transactions, will largely depend on future developments that are highly uncertain and cannot be predicted with confidence, including the impact of the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures on our tenants, including various state governments and/or regulatory authorities issuing directives, mandates, orders or similar actions restricting freedom of movement and business operations, such as travel restrictions, border closures, business closures, limitations on public gatherings, quarantines and "shelter-at-home" orders that resulted in the temporary closure of our tenants' operations at our properties, the ability of the Company's tenants to successfully operate their businesses following the reopening of their respective facilities, including the costs of complying with regulatory requirements necessary to keep the facilities open, including compliance with restrictions and reduced capacity requirements, the need to close any of the facilities after reopening as a result of the COVID-19 pandemic, and the effects of the negotiated capital expenditure reductions and other amendments to the Lease Agreements that the Company agreed to with certain of its tenants in response to the COVID-19 pandemic. Each of the foregoing could have a material adverse effect on our tenants' ability to satisfy their obligations under their leases with us, including their continued ability to pay rent in a timely manner, or at all, and/or to fund capital expenditures or make other payments required under their leases. In addition, changes and instability in global, national and regional economic activity and financial markets as a result of the COVID-19 pandemic have negatively impacted consumer discretionary spending and travel and may continue to do so, which could have a material adverse effect on our tenants' businesses. Investors are cautioned to interpret many of the risks identified under the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results, performance and achievements could differ materially from those set forth in the forward-looking statements and may be affected by a variety of risks and other factors, including, among others: the impact of changes in general economic conditions, including low consumer confidence, unemployment levels and depressed real estate prices resulting from the severity and duration of any downturn in theU.S. or global economy (including stemming from the COVID-19 pandemic and changes in economic conditions as a result of the COVID-19 pandemic); our dependence on subsidiaries of Caesars, Penn National,Hard Rock , Century Casinos andJACK Entertainment as tenants of our properties andCaesars, Penn National, Seminole Hard Rock, Century Casinos andRock Ohio Ventures LLC or certain of their respective subsidiaries as guarantors of the lease payments and the negative consequences any material adverse effect on their respective businesses could have on us; our borrowers' ability to repay their 52 -------------------------------------------------------------------------------- Table of Contents outstanding loan obligations to us; our dependence on the gaming industry; our ability to pursue our business and growth strategies may be limited by our substantial debt service requirements and by the requirement that we distribute 90% of our REIT taxable income in order to qualify for taxation as a REIT and that we distribute 100% of our REIT taxable income in order to avoid current entity-levelU.S. Federal income taxes; the impact of extensive regulation from gaming and other regulatory authorities; the ability of our tenants to obtain and maintain regulatory approvals in connection with the operation of our properties; the possibility that our tenants may choose not to renew the Lease Agreements following the initial or subsequent terms of the leases; restrictions on our ability to sell our properties subject to the Lease Agreements; Caesars', Penn National's, Hard Rock's, Century Casinos' andJACK Entertainment's historical results may not be a reliable indicator of their future results; our substantial amount of indebtedness and ability to service, refinance and otherwise fulfill our obligations under such indebtedness; limits on our operational and financial flexibility imposed by our debt agreements; our historical financial information may not be reliable indicators of our future results of operations, financial condition and cash flows; the possibility that our pending transactions may not be completed or that completion may be unduly delayed; the possibility that we identify significant environmental, tax, legal or other issues that materially and adversely impact the value of assets acquired or secured as collateral (or other benefits we expect to receive) in any of our pending or recently completed transactions; the effects of our recently completed and pending transactions on us, including the future impact on our financial condition, financial and operating results, cash flows, strategy and plans; the possibility our separation from CEOC fails to qualify as a tax-free spin-off, which could subject us to significant tax liabilities; the impact of changes to theU.S. Federal income tax laws; the possibility of foreclosure on our properties if we are unable to meet required debt service payments; the impact of a rise in interest rates on us; our inability to successfully pursue investments in, and acquisitions of, additional properties; the impact of natural disasters, war, political and public health conditions or uncertainty or civil unrest, violence or terrorist activities or threats on our properties and changes in economic conditions or heightened travel security and health measures instituted in response to these events; the loss of the services of key personnel; the inability to attract, retain and motivate employees; the costs and liabilities associated with environmental compliance; failure to establish and maintain an effective system of integrated internal controls; the costs of operating as a public company; our inability to operate as a stand-alone company; our inability to maintain our qualification for taxation as a REIT; our reliance on distributions received from theOperating Partnership to make distributions to our stockholders; the potential impact on the amount of our cash distributions if we were to sell any of our properties in the future; our ability to continue to make distributions to holders of our common stock or maintain anticipated levels of distributions over time; competition for transaction opportunities, including from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, gaming companies and other investors that may have greater resources and access to capital and a lower cost of capital or different investment parameters than us; and additional factors discussed herein and listed from time to time as "Risk Factors" in our filings with theSEC , including without limitation, in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results, performance and achievements will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the Federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such forward-looking statements should not be regarded as a representation by us. OVERVIEW We are an owner and acquirer of experiential real estate assets across leading gaming, hospitality, entertainment and leisure destinations. Our national, geographically diverse portfolio currently consists of 29 market leading properties (reflecting the acquisitions and dispositions described herein, as well as the removal of Tunica Roadhouse, which has permanently closed), including Caesars Palace Las Vegas and Harrah'sLas Vegas , two of the most iconic entertainment facilities on the Las Vegas Strip. Our entertainment facilities are leased to leading brands that seek to drive consumer loyalty and value with guests through superior services, experiences, products and continuous innovation. Across over 48 million square feet, our well-maintained properties are currently located across urban, destination and drive-to markets in twelve states, contain approximately 19,200 hotel rooms and feature over 200 restaurants, bars and nightclubs. Our portfolio also includes approximately 34 acres of undeveloped or underdeveloped land on and adjacent to the Las Vegas Strip that is leased to Caesars, which we may look to monetize as appropriate. We also own and operate four championship golf courses located near certain of our properties, two of which are in close proximity to the Las Vegas Strip. 53 -------------------------------------------------------------------------------- Table of Contents The following chart summarizes our current portfolio of properties, our pending transactions and our properties subject to right of first refusal agreements and put/call agreements with Caesars: [[Image Removed: vici-20200930_g1.jpg]] We lease our properties to subsidiaries of Caesars, Penn National, Hard Rock, Century Casinos andJACK Entertainment , with Caesars being our largest tenant. We believe we have a mutually beneficial relationship with Caesars, Penn National, Hard Rock, Century Casinos andJACK Entertainment , all of which are leading owners and operators of gaming, entertainment and leisure properties. Our long-term triple-net Lease Agreements with subsidiaries of Caesars, Penn National, Hard Rock, Century Casinos andJACK Entertainment provide us with a highly predictable revenue stream with embedded growth potential. We believe our geographic diversification limits the effect of changes in any one market on our overall performance. We are focused on driving long-term total returns through managing experiential asset growth and allocating capital diligently, maintaining a highly productive tenant base, and optimizing our capital structure to support external growth. As a growth focused public real estate investment trust with long-term investments, we expect our relationship with our partners will position us for the acquisition of additional properties across leisure and hospitality over the long term. Given current market conditions and the ongoing impact of the COVID-19 pandemic, we anticipate more limited acquisition and investment activity in the near term and we will prioritize our existing tenant relationships and assets, as well as our financial strength and liquidity over the near- to medium-term. However, we will continue to evaluate and may opportunistically pursue accretive acquisitions or investments that may arise in the market. Our portfolio is competitively positioned and well-maintained. Pursuant to the terms of the Lease Agreements, which generally require our tenants to invest in our properties (subject in certain cases to temporary relief we granted certain tenants on a portion of their capital expenditure obligations), and in line with our tenants' commitment to build guest loyalty, we anticipate our tenants will continue to make strategic value-enhancing investments in our properties over time, helping to maintain their competitive position. In addition, given our scale and deep industry knowledge, we believe we are well-positioned to execute 54 -------------------------------------------------------------------------------- Table of Contents highly complementary single-asset and portfolio acquisitions and other investments to augment growth as market conditions allow and with a focus on disciplined capital allocation given the ongoing impact of the COVID-19 pandemic. We conduct our operations as a REIT forU.S. federal income tax purposes. We generally will not be subject toU.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We believe our election of REIT status combined with the income generation from the Lease Agreements will enhance our ability to make distributions to our stockholders, providing investors with current income as well as long-term growth, subject to the current macroeconomic impact of the COVID-19 pandemic and market conditions more broadly. We conduct our real property business through ourOperating Partnership and our golf course business through a TRS, VICI Golf. The financial information included in this Quarterly Report on Form 10-Q is our consolidated results (including the real property business and the golf course business) for the three and nine months endedSeptember 30, 2020 . Impact of the COVID-19 Pandemic on Our Business OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a pandemic, and onMarch 13, 2020 ,the United States declared a national emergency. Among the broader public health, societal and global impact, the COVID-19 pandemic resulted in state governments and/or regulatory authorities issuing various directives, mandates, orders or similar actions, resulting in the temporary closure of our tenants' operations at all of our properties. Our golf course business has also been impacted, with all four courses temporarily ceasing operations inMarch 2020 as a result of the COVID-19 pandemic, although our golf courses were subsequently reopened in early tomid-May 2020 in compliance with applicable regulations and restrictions. The operations of all of our properties have reopened, subject to operating limitations set forth by the state and local governments and/or regulatory authorities. As a result, our tenants' facilities at our properties have reopened at reduced capacity and subject to additional operating restrictions, and we cannot predict how long they will be required to operate subject to such operating restrictions or whether they will be subject to additional restrictions or forced to close again in the future. The full extent to which the COVID-19 pandemic ultimately impacts us and our tenants continues to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures on our tenants, including our tenants' financial performance and the duration and extent of operating limitations and reduced capacity requirements. We continue to closely monitor the impact of the COVID-19 pandemic on us, our tenants and our pending transactions. In addition to the closure and restriction of their operations, our tenants have experienced a substantial number of cancellations and reductions in future events and reservations in connection with the uncertain duration of the COVID-19 pandemic. Following the reopening of our tenants' businesses, they have faced additional challenges with respect to restoring operations, customer engagement and financial performance, although, in many of our tenants' regional markets their early operational performance following reopening has generally been at or near prior-year levels for such period. More broadly, the COVID-19 pandemic and the actions taken to contain the pandemic or mitigate its impact have resulted in a prolonged period of significant economic uncertainty, as well as a global economic recession, which is generally expected to continue into 2021. Additional economic effects may continue well beyond the lifting or phasing out of governmental restrictions related to COVID-19, thereby negatively affecting an economic recovery in the gaming sector. Historically, economic indicators such as GDP growth, consumer confidence and employment are correlated with demand for gaming, entertainment and leisure properties, and economic recessions have led to a decrease in gaming revenue, although the impact of such recessions have generally been less volatile than the impact on retail revenue and S&P 500 sales. All of our tenants have fulfilled their rent obligations throughOctober 2020 and we continue to engage with our tenants in connection with the ongoing COVID-19 pandemic and its impact on operations, liquidity and financial performance. However, in connection with the ongoing COVID-19 pandemic and its impact on our tenants' operations and financial performance, we have provided certain relief under the applicable Lease Agreements to some of our tenants. While the relief we have provided has not deferred or reduced rent obligations for any of our tenants and we do not currently anticipate providing any such relief, due to these factors and the continuing uncertainty of the ultimate impact of the COVID-19 pandemic, there can be no assurance that our tenants will continue to fulfill their rent obligations in full or that our tenants will make anticipated capital expenditures to maintain or improve our properties. Further, future or current economic conditions could impact our tenants' ability to meet capital improvement requirements or other obligations required in our Lease Agreements that could result in a decrease in value of our properties. We continue to actively engage in dialogues with our tenants regarding the impact of the COVID-19 pandemic on their businesses, including with respect to their respective financial and operating situations, liquidity needs and contingency planning. Although all of our tenants have fulfilled their rent obligation in full throughOctober 2020 , 55 -------------------------------------------------------------------------------- Table of Contents we cannot predict with confidence when our tenants' operations at our properties will operate without restriction, whether they will be forced to close again in the future, or if and when they will return to pre-pandemic performance levels. As the duration of the pandemic and operational restrictions lengthens, or if new operational restrictions are imposed, our tenants' liquidity positions may become more stressed and it may cause one or more of our tenants to be unwilling or unable to meet their obligations to us in full, or at all, or to otherwise seek modifications to such obligations. As a triple-net lessor, we believe we are generally in a strong creditor position and structurally insulated from operational and performance impacts of our tenants, both positive and negative. However, given the unprecedented nature of the COVID-19 pandemic, we understand that working with our tenants in the short term to ensure their long-term financial health and performance may become necessary and should provide meaningful benefits to us as well over the long-term. As described herein, the full extent to which the COVID-19 pandemic ultimately impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures on our tenants, the length of time our tenants' operations at our properties remain restricted, or close again in the future, our tenants' financial performance following reopening and any operating limitations upon reopening. These uncertainties make it difficult to predict our operating results for the remainder of 2020. We will continue to closely monitor the impact of COVID-19 on us, our tenants and our pending transactions. For more information, refer to " Part II - Item 1A. Risk Factors " included elsewhere in this Quarterly Report on Form 10-Q. SIGNIFICANT ACTIVITIES DURING 2020 Our significant activities in 2020, in reverse chronological order, are as follows: Sale of Harrah'sReno OnSeptember 30, 2020 , we and Caesars closed on the previously announced transaction to sell Harrah'sReno to a third party at a purchase price of$41.5 million . Pursuant to the agreement, we received$31.1 million of the proceeds of the sale and Caesars received$10.4 million of the proceeds. The annual rent payments under the Regional Master Lease Agreement remain unchanged following completion of the disposition. Caesars Forum Convention Center Mortgage Loan OnSeptember 18, 2020 , in accordance with a non-binding letter of intent (the "LOI") entered into onJune 15, 2020 , we entered into a mortgage loan agreement with a subsidiary of Caesars (the "Forum Convention Center Borrower") pursuant to which we loaned$400.0 million to the Forum Convention Center Borrower for a term of five years, with such loan secured by, among other things, a first priority fee mortgage on theCaesars Forum Convention Center (the "Forum Convention Center Mortgage Loan"). The interest rate on the Forum Convention Center Mortgage Loan is initially 7.7% per annum, with annual interest payments subject to 2.0% annual escalation (resulting in year two annual interest of$31,416,000 based on a year two interest rate of 7.854%), with interest paid monthly in cash in arrears. Except as provided below, no prepayments are permitted during the first two years of the term of the Forum Convention Center Mortgage Loan. During the third and fourth years of the term of the Forum Convention Center Mortgage Loan, the Forum Convention Center Borrower may prepay the Forum Convention Center Mortgage Loan, in each case in full but not in part, at 102% of par in year three and 101% of par in year four. During the fifth year of the term of theForum Convention Center Mortgage Loan, the Forum Convention Center Borrower may prepay the Forum Convention Center Mortgage Loan in full but not in part at par. However, the Forum Convention Center Mortgage Loan may be prepaid at any time at par, without penalty or make-whole, in connection with our acquisition of theCaesars Forum Convention Center and an OpCo sale and conversion to an OpCo/PropCo structure, subject to our consent, which may be withheld in our sole discretion. The Forum Convention Center Mortgage Loan is secured by a first priority mortgage on theCaesars Forum Convention Center , as well as a first priority lien on the equity interests in the Forum Convention Center Borrower, a first priority security interest in all of the Forum Convention Center Borrower's interest in furniture, fixtures and equipment used, owned or related to the operation of theCaesars Forum Convention Center , and a first priority assignment of the Forum Convention Center Borrower's interest in leases and rents, including a collateral assignment of theForum Convention Center Borrower's interest in the lease on theCaesars Forum Convention Center pursuant to which the Forum Convention Center Borrower leases theCaesars Forum Convention Center to another subsidiary of Caesars (the "Caesars Tenant"), which lease is fully subordinate to the Forum Convention Center Mortgage Loan. In addition, if the Forum Convention Center Borrower defaults on the Forum Convention Center Mortgage Loan and we take title to theCaesars Forum Convention Center , we may, at our option under certain 56 -------------------------------------------------------------------------------- Table of Contents circumstances, keep the lease with the Caesars Tenant in effect (which lease is guaranteed by Caesars and has an initial annual rent of$33.9 million , subject to annual increases equal to the greater of 2% and the annual consumer price index increase). In addition, in connection with the consummation of theForum Convention Center Mortgage Loan, we and Caesars waived the conditionality of the consummation of such loan transaction on the consummation of the potential acquisition of approximately 23 acres of land in the vicinity of, or adjacent to,The LINQ Hotel & Casino , Bally'sLas Vegas ,Paris Las Vegas and Planet Hollywood gaming facilities (the "LasVegas Land ") as initially contemplated by the LOI. While the parties may evaluate the potential transaction involving the LasVegas Land in the future, the parties are not actively pursuing consummation of the transaction at this time and we are under no obligation to purchase the LasVegas Land , and, as such, there can be no assurances that the LasVegas Land acquisition will close on the contemplated terms or at all. Amended and Restated Convention Center Put-Call Agreement OnSeptember 18, 2020 , concurrent with the entry into theForum Convention Center Mortgage Loan and in accordance with the LOI, we and a subsidiary of Caesars amended and restated the Amended and Restated Put-Call Right Agreement entered into onJuly 20, 2020 in connection with the consummation of the Eldorado Transaction (as further amended, the "A&R Convention Center Put-Call Agreement") related to theCaesars Forum Convention Center .The A&R Convention Center Put-Call Agreement provides for (i) a call right in our favor, which, if exercised, would result in the sale by Caesars to us and simultaneous leaseback by us to Caesars of theCaesars Forum Convention Center (the "Convention Center Call Right"), at a price equal to 13.0x the initial annual rent forCaesars Forum Convention Center as proposed by Caesars (which shall be between$25.0 million and$35.0 million ), exercisable by us fromSeptember 18, 2025 (the scheduled maturity date of the Forum Convention Center Mortgage Loan) untilDecember 31, 2026 , (ii) a put right in favor of Caesars, which, if exercised, would result in the sale by Caesars to us and simultaneous leaseback by us to Caesars of theCaesars Forum Convention Center (the "Convention Center Put Right") at a price equal to 13.0x the initial annual rent for theCaesars Forum Convention Center as proposed by Caesars (which shall be between$25.0 million and$35.0 million ), exercisable by Caesars betweenJanuary 1, 2024 andDecember 31, 2024 , and (iii) if there is an event of default under theForum Convention Center Mortgage Loan, the Convention Center Put Right will not be exercisable and we, at our option, may accelerate the Convention Center Call Right so that it is exercisable from the date of such event of default untilDecember 31, 2026 (in addition to any other remedies available to us in connection with such event of default). The A&R Convention Center Put-Call Agreement also provides for, if Caesars exercises the Convention Center Put Right and, among other things, the sale of theCaesars Forum Convention Center to us does not close for certain reasons more particularly described in the A&R Convention Center Put-Call Agreement, a repurchase right in favor of Caesars, which, if exercised, would result in the sale of the Harrah'sLas Vegas property by us to Caesars (the "HLV Repurchase Right"), exercisable by Caesars during a one-year period commencing on the date upon which the closing under the Convention Center Put Right transaction does not occur and ending on the day immediately preceding the one-year anniversary thereof for a price equal to 13.0x the rent of the Harrah'sLas Vegas property for the most recently ended annual period for which Caesars' financial statements are available as of Caesars' election to exercise the HLV Repurchase Right. Sale of Louisiana Downs OnSeptember 3, 2020 , we and Caesars entered into definitive agreements to sell Harrah'sLouisiana Downs Casino for$22.0 million toRubico Acquisition Corp. We are entitled to receive$5.5 million of the proceeds from the sale and Caesars is entitled to$16.5 million of the proceeds. The annual rent payments under the Regional Master Lease Agreement will remain unchanged following completion of the disposition, which we anticipate will close by early 2021 and remains subject to regulatory approval and customary closing conditions. Chelsea Piers Mortgage Loan OnAugust 31, 2020 , we entered into an$80.0 million mortgage loan agreement (the "Chelsea Piers Mortgage Loan") with Chelsea Piers New York ("Chelsea Piers") secured by the Chelsea Piers complex inNew York City , pursuant to which we provided (i) an initial term loan of$65.0 million and (ii) a$15.0 million delayed draw term loan at the borrowers' election (which remained undrawn as ofSeptember 30, 2020 ), subject to certain conditions. The Chelsea Piers Mortgage Loan bears interest at a rate of 7.0% per annum, with a term of 7 years. 57 -------------------------------------------------------------------------------- Table of Contents Consummation of the Eldorado Transaction OnJuly 20, 2020 , concurrent with the consummation of theEldorado /Caesars Merger, we consummated the Eldorado Transaction contemplated by the MTA and the MTA Property Purchase Agreements (as defined below). We funded theEldorado Transaction with a combination of cash on hand, the proceeds from the physical settlement of theJune 2019 Forward Sale Agreements onJune 2, 2020 , as described in Note 12 - Stockholders' Equity , and the proceeds from ourFebruary 2020 Senior Unsecured Notes offering previously held in escrow. Any references to Caesars in the subsequent transaction discussion refer to the combinedEldorado /Caesars subsequent to the consummation of theEldorado /Caesars Merger. The closing of the Eldorado Transaction includes the consummation of the transactions contemplated by the following agreements: •Acquisition of theMTA Properties . We acquired all of the land and real estate assets associated with Harrah'sNew Orleans , Harrah'sLaughlin and Harrah'sAtlantic City (collectively, the "MTA Properties ") for an aggregate purchase price of$1,823.5 million (the "MTA Properties Acquisitions"). The Regional Master Lease Agreement was amended to, among other things, include each such property, with initial aggregate total annual rent payable to us increased by$154.0 million to$621.7 million , and to extend the initial term toJuly 2035 and to adjust certain minimum capital expenditure requirements and other related terms and conditions as a result of theMTA Properties being included in the Regional Master Lease Agreement as further described in "-Lease Amendments and Terminations" below. We completed the MTA Properties Acquisitions pursuant to the following agreements: (i) a Purchase and Sale Agreement (the "Harrah's New Orleans Purchase Agreement") pursuant to which we agreed to acquire, andEldorado agreed to cause to be sold, all of the fee and leasehold interests in the land and real property improvements associated with Harrah'sNew Orleans inNew Orleans, Louisiana ("Harrah'sNew Orleans ") for a cash purchase price of$789.5 million , (ii) a Purchase and Sale Agreement (the "Harrah'sAtlantic City Purchase Agreement") pursuant to which we agreed to acquire, andEldorado agreed to cause to be sold, all of the land and real property improvements associated with Harrah's Resort Atlantic City and Harrah'sAtlantic City Waterfront Conference Center inAtlantic City, New Jersey for a cash purchase price of$599.3 million ? and (iii) a Purchase and Sale Agreement (the "Harrah'sLaughlin Purchase Agreement" and, collectively with the Harrah's NewOrleans Purchase Agreement and the Harrah's Atlantic City Purchase Agreement, the "MTA Property Purchase Agreements") pursuant to which we agreed to acquire, andEldorado agreed to cause to be sold, all of the equity interests in a newly formed entity that acquired the land and real property improvements associated with Harrah'sLaughlin Hotel & Casino inLaughlin, Nevada for a cash purchase price of$434.8 million . Each of our call options on theMTA Properties terminated upon the closing of the MTA Properties Acquisitions. OnJuly 20, 2020 , in connection with the completion of the purchase of Harrah'sNew Orleans , the tenant's leasehold interest in that certain Second Amended and Restated Lease Agreement (the "HNO Ground Lease") dated as ofApril 3, 2020 , by and amongJazz Casino Company, L.L.C. , aLouisiana limited liability company ("JCC"),New Orleans Building Corporation ("NOBC") and theCity of New Orleans , was assigned by JCC to us. The HNO Ground Lease sets forth the terms and conditions pursuant to which we lease from NOBC a portion of the land upon which Harrah'sNew Orleans is located. Simultaneous with entering into the assignment of the HNO Ground Lease, we subleased our interest in the HNO Ground Lease to Caesars in accordance with the terms and conditions of the RegionalMaster Lease Agreement. Pursuant to the Regional Master Lease Agreement, Caesars is required to perform our obligations as tenant under the HNO Ground Lease, which include the obligation to construct a new hotel intended to be located on the ground-leased premises and to expend at least$325.0 million in connection with the construction of such hotel. The HNO Ground Lease contains certain rights in our favor should Caesars fail to perform our obligations thereunder, including providing us with additional cure periods to cure defaults. If we are unable to cure a Caesars default during any such additional cure period, then, subject to certain conditions more particularly set forth in the HNO Ground Lease, we will have a further additional period (up to 12-24 months) to seek to terminate Caesars as tenant and to enter into a replacement sublease with a new operator with respect to the leased premises. If we fail to cure such default at the end of such additional cure period, NOBC would have the right to exercise remedies, including termination of the HNO Ground Lease, in which case we would no longer have any right, title or interest to the leased premises or the improvements located thereon. •Creation of LasVegas Master Lease . In consideration of a payment by us to (i) the tenant under the CPLV Lease Agreement of$1,189.9 million (the "CPLV Lease Amendment Payment") and (ii) the tenant under the HLV Lease Agreement of$213.8 million (the "HLV Lease Amendment Payment"), upon the consummation of theEldorado 58 -------------------------------------------------------------------------------- Table of Contents Transaction, (a) the CPLV Lease Agreement was amended to (A) combine the CPLV Lease Agreement and the HLV Lease Agreement into a single LasVegas Master Lease Agreement, (B) increase the annual rent payable to us thereunder associated with Caesars Palace Las Vegas by$83.5 million (the "CPLV Additional Rent Acquisition"), (C) increase the annual rent previously payable to us with respect to the Harrah'sLas Vegas property by$15.0 million (the "HLV Additional Rent Acquisition") under the Las Vegas Master Lease Agreement and (D) to provide for the amended terms described below, and (b) the HLV Lease Agreement and the related lease guaranty were terminated. As a result of such amendments, the Harrah'sLas Vegas property is also now subject to the higher rent escalator under the Las Vegas Master Lease Agreement. •Lease Amendments and Terminations. Each of the Caesars Lease Agreements was amended to, among other things, (i) remove the rent coverage floors, which coverage floors served to reduce the rent escalators under such leases in the event that the "EBITDAR toRent Ratio " (as defined in the applicable Caesars Lease Agreements) coverage was below the stated floor and (ii) extend the term of each such lease by such additional period of time as necessary to ensure that each lease will have a full 15-year initial lease term following the consummation of the Eldorado Transaction. The Regional Master Lease Agreement was also amended to, among other things: (a) permit the tenant under the Regional Master Lease Agreement to cause facilities subject to the Regional Master Lease Agreement that in the aggregate represent up to five percent of the aggregate EBITDAR of (A) all of the facilities under such RegionalMaster Lease Agreement and (B) the Harrah's Joliet facility, for the 2018 fiscal year (defined as the "2018EBITDAR Pool " in the Regional Master Lease Agreement, without giving effect to any increase in the 2018EBITDAR Pool as a result of a facility being added to the Regional Master Lease Agreement) to be sold (whereby the tenant and landlord under the Regional Master Lease Agreement would sell the operations and real estate, respectively, with respect to such facility), provided, among other things, that (1) we and Caesars mutually agree to the split of proceeds from such sales, (2) such sales do not result in any impairment(s)/asset write down(s) by us, (3) rent under the Regional Master Lease Agreement remains unchanged following such sale and (4) the sale does not result in us recognizing certain taxable gain? (b) restrict the ability of the tenant thereunder to transfer and sell the operating business of Harrah'sNew Orleans and Harrah'sAtlantic City to replacement tenants without our consent and remove such restrictions with respect to Horseshoe Southern Indiana (in connection with the restrictions applying to Harrah'sNew Orleans ) and HorseshoeBossier City (in connection with the restrictions applying to Harrah'sAtlantic City ), provided that the tenant under the Regional Master Lease Agreement may only sell such properties if certain terms and conditions are met, including that replacement tenants meet certain criteria provided in the Regional Master Lease Agreement; and (c) require that the tenant under the RegionalMaster Lease Agreement complete and pay for all capital improvements and other payments, costs and expenses related to the extension of the existing operating license with respect to Harrah'sNew Orleans , including, without limitation, any such payments, costs and expenses required to be made to theCity of New Orleans , theState of Louisiana or any other governmental body or agency. Caesars has executed new guaranties with respect to the LasVegas Master Lease Agreement (the "Las Vegas Lease Guaranty"), the Regional Master Lease Agreement (the "Regional Lease Guaranty") and the Joliet Lease Agreement (the "Joliet Lease Guaranty" and, together with the Las Vegas Lease Guaranty and the Regional Lease Guaranty, the "Caesars Guaranties"), guaranteeing the prompt and complete payment and performance in full of: (i) all monetary obligations of the tenants under the Caesars Lease Agreements, including all rent and other sums payable by the tenants under the Caesars Lease Agreements and any obligation to pay monetary damages in connection with any breach and to pay any indemnification obligations of the tenants under the Caesars Lease Agreements? and (ii) the performance when due of all other covenants, agreements and requirements to be performed and satisfied by the tenants under the Caesars Lease Agreements. In connection with entering into the amendments to the Caesars Lease Agreements and the Caesars Guaranties described above, we and Caesars terminated the Management and Lease Support Agreements, dated as ofOctober 6, 2017 , with respect to each of the Caesars Lease Agreements, pursuant to which, among other things, Pre-Merger Caesars previously guaranteed the tenants' monetary obligations under the Caesars Lease Agreements and the Guaranty of Lease dated as ofDecember 22, 2017 pursuant to which, among other things, a subsidiary of Pre-Merger Caesars guaranteed the tenant's obligations under the HLV Lease Agreement. •Centaur Properties Put-Call Agreement. Prior to the consummation of the Eldorado Transaction, we were party to a right of first refusal agreement with affiliates of Pre-Merger Caesars with respect to two gaming facilities inIndiana - Harrah'sHoosier Park and Indiana Grand (together, the "Centaur Properties "). Upon the consummation of the Eldorado Transaction, the Second Amended and Restated Right of First Refusal Agreement between us and Pre-Merger Caesars terminated in accordance with its terms, which included the right of first refusal that we had with 59 -------------------------------------------------------------------------------- Table of Contents respect to theCentaur Properties , and we entered into a Put-Call Right Agreement with Caesars (the "Centaur Put-Call Agreement"), whereby (i) we have the right to acquire all of the land and real estate assets associated with theCentaur Properties at a price equal to 13.0x the initial annual rent of each facility (determined as provided below), and to simultaneously lease back each such property to a subsidiary of Caesars for initial annual rent equal to the property's trailing four quarters EBITDA at the time of acquisition divided by 1.3 (i.e., the initial annual rent will be set at 1.3x rent coverage) and (ii) Caesars will have the right to require us to acquire theCentaur Properties at a price equal to 12.5x the initial annual rent of each facility, and to simultaneously lease back each such Centaur Property to a subsidiary of Caesars for initial annual rent equal to the property's trailing four quarters EBITDA at the time of acquisition divided by 1.3 (i.e., the initial annual rent will be set at 1.3x rent coverage). Either party will be able to trigger its respective put or call, as applicable, beginning onJanuary 1, 2022 and ending onDecember 31, 2024 . The Centaur Put-Call Agreement provides that the leaseback of theCentaur Properties will be implemented through the addition of theCentaur Properties to the Regional Master Lease Agreement. •Amended and Restated Caesars Forum Convention Center Put-Call Agreement. Upon the consummation of the Eldorado Transaction, we entered into an A&R Put-Call Right Agreement with Caesars amending and restating that certain put-call agreement related to theCaesars Forum Convention Center . In connection with the consummation of the Forum Convention Center Mortgage Loan onSeptember 18, 2020 , we further amended the agreement as described above in "-Amended and Restated Convention Center Put-Call Agreement". •Las Vegas Strip Assets ROFR. Upon the consummation of the Eldorado Transaction, we entered into a right of first refusal agreement with Caesars (the "Las Vegas Strip ROFR Agreement") pursuant to which we have the first right, with respect to the first two Las Vegas Strip assets described below that Caesars proposes to sell, whether pursuant to a sale leaseback or a WholeCo sale, to a third party, to acquire any such asset (it being understood that we will have the opportunity to find an operating company should Caesars elect to pursue a WholeCo sale). The Las Vegas Strip assets subject to the Las Vegas Strip ROFR Agreement are the land and real estate assets associated (i) with respect to the first such asset subject to the Las Vegas Strip ROFR Agreement, the Flamingo Las Vegas,Paris Las Vegas , Planet Hollywood and Bally'sLas Vegas gaming facilities, and (ii) with respect to the second asset subject to the Las Vegas Strip ROFR Agreement, the foregoing assets plus The LINQ gaming facility. If we enter into a sale leaseback transaction with Caesars on any of these facilities, the leaseback may be implemented through the addition of such properties to the Las Vegas Master Lease Agreement. •Horseshoe Baltimore ROFR. Upon the consummation of the Eldorado Transaction, we entered into a right of first refusal agreement with Caesars pursuant to which we have the first right to enter into a sale leaseback transaction with respect to the land and real estate assets associated with the Horseshoe Baltimore gaming facility (subject to any consent required from Caesars' joint venture partners with respect to this asset). •CPLV CMBS Refinancing. We were obligated to cause the CPLV CMBS Debt to be repaid in full prior to the consummation of theEldorado /Caesars Merger. InNovember 2019 , we repaid the CPLV CMBS Debt in full resulting in a prepayment penalty of$110.8 million , of which$55.4 million was reimbursed by Caesars upon the consummation of the Eldorado Transaction in accordance with the MTA as follows:$31.0 million was paid to us in cash,$20.5 million was credited to us as a reduction in the CPLV Lease Amendment Payment and$3.9 million was credited to us as a reduction in the HLV Lease Amendment Payment. •Eldorado Bridge Facilities. OnJune 24, 2019 , in connection with theEldorado Transaction, VICI PropCo entered into a commitment letter (the "Commitment Letter") withDeutsche Bank Securities Inc. and Deutsche Bank AG Cayman Islands Branch (collectively, the "Bridge Lender"), pursuant to which and subject to the terms and conditions set forth therein, the Bridge Lender agreed to provide (i) a 364-day first lien secured bridge facility of up to$3.3 billion in the aggregate (the "Eldorado SeniorBridge Facility ") and (ii) a 364-day second lien secured bridge facility of up to$1.5 billion in the aggregate (the "Eldorado Junior Bridge Facility," and, together with the Eldorado SeniorBridge Facility , the "Bridge Facilities"), for the purpose of providing a portion of the financing necessary to fund the Eldorado Transaction. The commitments under the Bridge Facilities were fully terminated at our election inJune 2020 . 60 -------------------------------------------------------------------------------- Table of Contents JACK Lease Agreement Amendment and Amended and Restated ROV Loan OnJuly 16, 2020 , we andJACK Entertainment entered into an amendment to the JACKCleveland /Thistledown Lease Agreement (the "JACK Lease Agreement Amendment"), pursuant to which, among other things, we agreed to fund$18.0 million for the construction of a new gaming patio amenity at JACK Thistledown Racino, which will be leased byJACK Entertainment pursuant to the JACK Lease Agreement Amendment. In connection with the construction of the gaming patio, commencing onApril 1, 2022 , rent under the JACKCleveland /Thistledown Lease Agreement (as amended by the JACK Lease Agreement Amendment) will be increased by an incremental$1.8 million . The JACK Lease Agreement Amendment also provides for relief with respect to certain existing covenants throughMarch 31, 2022 , adds an additional five years to the initial lease term, with the tenant under the JACKCleveland /Thistledown Lease Agreement having three (rather than four) five-year renewal options as a result of such extension of the initial lease term, and provides for rent escalation to begin in 2022 rather than 2021. The JACK Lease Agreement Amendment does not provide for a reduction or deferral of the tenant's rent obligations. The tenant's obligations under the JACK Lease Agreement Amendment are guaranteed byRock Ohio Ventures LLC ("Rock Ohio Ventures "). Pursuant to the Jack Lease Agreement Amendment, the relief provided thereunder is conditioned upon (i) the tenant's timely payment of rent obligations under the JACKCleveland /Thistledown Lease Agreement and (ii) no tenant event of default occurring under the JACKCleveland /Thistledown Lease Agreement during the compliance period set forth in the JACK Lease Agreement Amendment. Simultaneously with entry into the JACK Lease Agreement Amendment, we and affiliates ofRock Ohio Ventures entered into an amendment and restatement of our existing$50.0 million term loan agreement with such affiliates ofRock Ohio Ventures (the "Amended and Restated ROV Loan"), pursuant to which, among other things, we increased our existing term loan to$70.0 million (the "ROV Term Loan") which bears interest at a rate of 9.0% per annum (which interest, at the option ofJACK Entertainment , may be paid-in-kind throughApril 30, 2021 with any paid-in-kind interest required to be paid in cash in eleven equal monthly installments endingMarch 31, 2022 ), and added a$25.0 million revolving credit facility (the "ROV Credit Facility"), which bears interest at a rate of LIBOR plus 2.75% per annum. A commitment fee of 0.50% per annum calculated on the unused portion of the ROV Credit Facility is payable quarterly. The Amended and Restated ROV Loan, which includes the ROV Term Loan and ROV Credit Facility, matures inJanuary 2025 which maturity date may be extended at the borrower's election for up to two additional years if certain conditions are satisfied. In connection with the amendment and restatement, we received additional collateral, including an additional land parcel in proximity to JACKCleveland so that the loan is now secured by a first priority lien on substantially all gaming and non-gaming real and personal property ofJACK Entertainment , including the furniture, fixtures and equipment associated with the properties. The amendment and restatement also provides the obligors with relief with respect to certain existing financial covenants throughMarch 31, 2022 . Omnibus Capex Amendment to Caesars Leases OnJune 1, 2020 , we entered into an Omnibus Amendment to Leases (the "Omnibus Amendment") with Pre-Merger Caesars. Pursuant to the Omnibus Amendment, Caesars has been granted certain relief with respect to a portion of their capital expenditure obligations under the Caesars Lease Agreements conditioned upon (i) funding by Caesars of certain minimum capital expenditures in fiscal year 2020 (which represent a reduction of the minimum capital expenditure amounts currently set forth in the Caesars Lease Agreements), (ii) timely payment of Caesars' rent obligations under the Caesars Lease Agreements during the compliance period set forth in the Omnibus Amendment, and (iii) no tenant event of default occurring under any of the Caesars Lease Agreements during the compliance period set forth in the Omnibus Amendment. Caesars will receive credit for certain deemed capital expenditure amounts, which credit may be used to satisfy certain of their capital expenditure obligations in the 2020, 2021 and 2022 fiscal years, provided that the foregoing conditions are satisfied. If Caesars fails to satisfy any of the foregoing conditions, Caesars will be required to satisfy the capital expenditure obligations set forth in the Caesars Lease Agreements or, in certain cases, to deposit amounts in respect thereof into a capital expenditure reserve in accordance with the Omnibus Amendment. Subsequent toSeptember 30, 2020 , onOctober 27, 2020 , we and Caesars entered into an Amended and Restated Omnibus Amendment to Leases, which provides for a proportionate adjustment to certain relief previously granted under the Omnibus Amendment with respect to a portion of the capital expenditure obligations of Caesars under the Caesars Lease Agreements in order to account for the addition of theMTA Properties to the Regional Master Lease Agreement pursuant to the MTA Properties Acquisitions onJuly 20, 2020 . 61 -------------------------------------------------------------------------------- Table of Contents Amendment to Century Portfolio Lease Agreement InMay 2020 , we entered into an amendment to the Century Portfolio Lease Agreement with Century Casinos. The Century Portfolio Lease Agreement contains certain covenants, including minimum capital expenditures. The covenants under the Century Portfolio Lease Agreement began onJanuary 1, 2020 ; however, as a result of the casino closures in connection with the COVID-19 pandemic, we agreed to waive Century Casinos' capital expenditure requirements for 2020 and defer to not later thanDecember 31, 2021 certain other expenditures contemplated in connection with the underwriting of the Century Portfolio. Pursuant to the amendment to the Century Portfolio Lease Agreement, the capital expenditure relief is conditioned upon (i) Century Casinos' timely payment of rent obligations under the Century Portfolio Lease Agreement during the compliance period set forth in the amendment and (ii) no tenant event of default occurring under the Century Portfolio Lease Agreement during the compliance period set forth in the amendment. If Century Casinos fails to satisfy any of the foregoing conditions, Century Casinos will be required to satisfy the capital expenditure obligations set forth in the Century Portfolio Lease Agreement or, in certain cases, to deposit amounts in respect thereof into a capital expenditure reserve for expenditure in accordance with the amendment. Sale of Bally'sAtlantic City OnApril 24, 2020 , we and Caesars entered into definitive agreements to sell the Bally'sAtlantic City Hotel & Casino for$25.0 million to a subsidiary ofTwin River Worldwide Holdings, Inc. We are entitled to receive approximately$19.0 million of the proceeds from the sale and Caesars is entitled to approximately$6.0 million of the proceeds. The annual rent payments under the Regional Master Lease Agreement will remain unchanged following completion of the disposition, which we anticipate will close by the end of the year and remains subject to regulatory approval and customary closing conditions. UnsecuredFebruary 2020 Senior Notes Offering and Redemption and Repayment of the Second Lien Notes OnFebruary 5, 2020 , the Issuers issued (i)$750.0 million in aggregate principal amount of 2025 Notes, (ii)$750.0 million in aggregate principal amount of 2027 Notes and (iii)$1.0 billion aggregate principal amount of 2030 Notes. We placed$2.0 billion of the net proceeds of the offering into escrow pending the consummation of the Eldorado Transaction (which was subsequently released from escrow and used to fund a portion of the purchase price of the Eldorado Transaction). OnFebruary 20, 2020 we used the remaining net proceeds from the 2025 Notes, together with cash on hand, to redeem in full the outstanding$498.5 million in aggregate principal amount of the Second Lien Notes plus the Second Lien Notes Applicable Premium, for a total redemption cost of approximately$537.5 million . The 2025 Notes will mature onFebruary 15, 2025 , the 2027 Notes will mature onFebruary 15, 2027 and the 2030 Notes will mature onAugust 15, 2030 . Interest on the 2025 Notes will accrue at a rate of 3.500% per annum, interest on the 2027 Notes will accrue at a rate of 3.750% per annum and interest on the 2030 Notes will accrue at a rate of 4.125% per annum. Interest on theFebruary 2020 Unsecured Notes will be payable semi-annually in cash in arrears onFebruary 15 andAugust 15 of each year, commencing onAugust 15, 2020 . Closing of Purchase of JACKCleveland /Thistledown OnJanuary 24, 2020 we completed the previously announced transaction to acquire the casino-entitled land and real estate and related assets of JACKCleveland , located inCleveland, Ohio and JACK Thistledown located inNorth Randall, Ohio (the "JACKCleveland /Thistledown Acquisition") fromJACK Entertainment , for approximately$843.3 million . Simultaneous with the closing of the JACKCleveland /Thistledown Acquisition, we entered into a master triple-net lease agreement for JACKCleveland and JACK Thistledown with a subsidiary ofJACK Entertainment . The lease has an initial total annual rent of$65.9 million and an initial term of 15 years, with four five-year tenant renewal options. The tenant's obligations under the lease are guaranteed byRock Ohio Ventures . Additionally, we made a$50.0 million loan to affiliates ofRock Ohio Ventures secured by, among other things, certain non-gaming real estate assets owned by such affiliates and guaranteed byRock Ohio Ventures . The terms of the JACKCleveland /Thistledown Lease Agreement and the ROV Loan were subsequently amended onJuly 16, 2020 pursuant to the JACK Lease Agreement Amendment and Amended and Restated ROV Loan as described above under "-JACK Lease Agreement Amendment and Amended and Restated ROV Loan." Repricing of Term Loan B Facility OnJanuary 24, 2020 , VICI PropCo entered into Amendment No. 1 to the Amended and Restated Credit Agreement, which, among other things, reduced the interest rate on the Term Loan B Facility from LIBOR plus 2.00% to LIBOR plus 1.75%. 62 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Segments Our real property business and our golf course business represent our two reportable segments. The real property business segment consists of leased real property and loan investments and represents the substantial majority of our business. The golf course business segment consists of four golf courses, with each being operating segments that are aggregated into one reportable segment. The results of each reportable segment presented below are consistent with the way our management assesses these results and allocates resources. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2020 2019 Variance 2020 2019 Variance Revenues Income from sales-type and direct financing leases$ 270,274 $ 206,001 $ 64,273 $ 718,421 $ 603,300 $ 115,121 Income from operating leases 3,638 10,913 (7,275) 25,464 32,740 (7,276) Income from lease financing receivables and loans 52,827 - 52,827 82,696 - 82,696 Other income 7,276 - 7,276 8,702 - 8,702 Golf operations 5,638 5,599 39 17,273 21,221 (3,948) Revenues 339,653 222,513 117,140 852,556 657,261 195,295 Operating expenses General and administrative 8,047 6,717 1,330 22,560 19,460 3,100 Depreciation 910 1,000 (90) 2,990 2,948 42 Other expenses 7,263 - 7,263 8,702 - 8,702 Golf operations 4,672 5,423 (751) 13,181 14,363 (1,182) Change in allowance for credit losses 177,052 - 177,052 261,080 - 261,080 Transaction and acquisition expenses 2,026 993 1,033 7,703 4,749 2,954 Total operating expenses 199,970 14,133 185,837 316,216 41,520 274,696 Operating income 139,683 208,380 (68,697) 536,340 615,741 (79,401) Interest expense (77,399) (68,531) (8,868) (231,185) (176,936) (54,249) Interest income 214 6,690 (6,476) 6,743 15,861 (9,118) Loss from extinguishment of debt - - - (39,059) - (39,059) Gain upon lease modification 333,352 - 333,352 333,352 - 333,352 Income before income taxes 395,850 146,539 249,311 606,191 454,666 151,525 Income tax benefit (expense) 368 (24) 392 (395) (1,098) 703 Net income 396,218 146,515 249,703 605,796 453,568 152,228 Less: Net loss (income) attributable to non-controlling interest 2,056 (2,080) 4,136 (2,132) (6,235) 4,103 Net income attributable to common stockholders$ 398,274 $ 144,435 $ 253,839 $ 603,664 $ 447,333 $ 156,331 63
-------------------------------------------------------------------------------- Table of Contents Revenue For the three and nine months endedSeptember 30, 2020 and 2019, our revenue was comprised of the following items: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2020 2019 Variance 2020 2019 Variance Leasing revenue$ 323,711 $ 216,914 $ 106,797 $ 821,628 $ 636,040 $ 185,588 Income from loans 3,028 - 3,028 4,953 - 4,953 Other income 7,276 - 7,276 8,702 - 8,702 Golf operations 5,638 5,599 39 17,273 21,221 (3,948) Total revenue$ 339,653 $ 222,513 $ 117,140 $ 852,556 $ 657,261 $ 195,295 Leasing Revenue The following table details the components of our income from direct financing, sales-type, operating and financing receivables leases: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2020 2019 Variance 2020 2019 Variance Income from sales-type and direct financing leases$ 270,274 $ 206,001 $
64,273
10,913 (7,275) 25,464 32,740 (7,276)
Income from lease financing
receivables (2) 49,799 - 49,799 77,743 - 77,743
Total leasing revenue 323,711 216,914 106,797 821,628 636,040 185,588
Non-cash adjustment (3) (18,942) 2,494 (21,436) (11,879) (2,295) (9,584)
Total contractual leasing
revenue $ 304,769 $ 219,408 $ 85,361 $ 809,749 $ 633,745 $ 176,004
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(1) Represents portion of land separately classified and accounted for under the
operating lease model associated with our investment in Caesars Palace Las Vegas
and certain operating land parcels contained in the Regional Master Lease
Agreement. Upon the consummation of the Eldorado Transaction on July 20, 2020 ,
the land component of Caesars Palace Las Vegas and the certain operating land
parcels were reassessed for lease classification and determined to be a
sales-type lease. Accordingly, subsequent to July 20, 2020 , such income is
recognized as Income from sales-type and direct financing leases.
(2) Represents the MTA Properties and the JACK Cleveland /Thistledown Lease
Agreement both of which were sale leaseback transactions. In accordance with ASC
842, since the lease agreements were determined to meet the definition of a
sales-type lease and control of the asset is not considered to have transferred
to us, such lease agreements are accounted for as financings under ASC 310.
(3) Amounts represent the non-cash adjustment to income from direct financing
leases, sales-type leases and lease financing receivables in order to recognize
income on an effective interest basis at a constant rate of return over the term
of the leases.
Leasing revenue is generated from rent from our Lease Agreements. Total leasing
revenue increased $106.8 million and $185.6 million during the three and nine
months ended September 30, 2020 , respectively, compared to the three and nine
months ended September 30, 2019 , respectively. Total contractual leasing revenue
increased $85.4 million and $176.0 million during the three and nine months
ended September 30, 2020 , respectively, compared to the three and nine months
ended September 30, 2019 , respectively. The increase was primarily driven by the
addition of Greektown, Hard Rock Cincinnati , the Century Portfolio, JACK
Cleveland /Thistledown and the MTA Properties to our real estate portfolio in May
2019 , September 2019 , December 2019 , January 2020 and July 2020 , respectively,
as well as the CPLV Additional Rent Acquisition and the HLV Additional Rent
Acquisition in July 2020 .
Income From Loans
Income from loans increased $3.0 million and $5.0 million during the three and
nine months ended September 30, 2020 , respectively, compared to the three and
nine months ended September 30, 2019 , respectively. The increase was driven by
the addition of the ROV Loan (and the Amended and Restated ROV Loan), Chelsea
Piers Mortgage Loan and Forum Convention Center Mortgage Loan to our real estate
portfolio in January 2020 (and July 2020 ), August 2020 and September 2020 ,
respectively.
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Other Income
For the three and nine months ended September 30, 2019 , Other income was
included net in General and administrative expenses. During the three and nine
months ended September 30, 2020 , we have re-classified Other income to be
presented gross with an offsetting amount within Other expenses. Additionally,
during the three months ended September 30, 2020 , we recognized additional
income and offsetting expense as a result of the assumption of the HNO Ground
Lease as part of the MTA Properties Acquisitions.
Golf Operations Revenue
Revenues from golf operations stayed consistent during the three months ended
September 30, 2020 compared to the three months ended September 30, 2019 and
decreased $3.9 million during the nine months ended September 30, 2020 compared
to the nine months ended September 30, 2019 . The decrease was primarily driven
by the closure of our golf courses in mid-March until early to mid-May as a
result of the ongoing COVID-19 pandemic, partially offset by an increase in the
contractual fees paid to us by Caesars for the use of our golf courses, pursuant
to a golf course use agreement.
Operating Expenses
For the three and nine months ended September 30, 2020 and 2019, our operating
expenses were comprised of the following items:
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2020 2019 Variance 2020 2019 Variance
General and administrative $ 8,047 $ 6,717 $ 1,330 $ 22,560 $ 19,460 $ 3,100
Depreciation 910 1,000 (90) 2,990 2,948 42
Other expenses 7,263 - 7,263 8,702 - 8,702
Golf operations 4,672 5,423 (751) 13,181 14,363 (1,182)
Change in allowance for credit
losses 177,052 - 177,052 261,080 - 261,080
Transaction and acquisition
expenses 2,026 993 1,033 7,703 4,749 2,954
Total operating expenses $ 199,970 $ 14,133 $ 185,837 $ 316,216 $ 41,520 $ 274,696
General and Administrative Expenses
General and administrative expenses increased $1.3 million and $3.1 million for
the three and nine months ended September 30, 2020 as compared to the three and
nine months ended September 30, 2019 , respectively. The increase was primarily
driven by an increase in compensation, including stock-based compensation.
Other Expenses
For the three and nine months ended September 30, 2019 , Other expenses were
included net in General and administrative expenses. During the three and nine
months ended September 30, 2020 , we have re-classified Other expenses to be
presented gross with an offsetting amount within Other income. Additionally,
during the three months ended September 30, 2020 , we recognized additional
income and offsetting expense as a result of the assumption of the HNO Ground
Lease as part of the MTA Properties Acquisitions.
Golf Operations
Expenses from golf operations decreased $0.8 million and $1.2 million during the
three and nine months ended September 30, 2020 , respectively, compared to the
three and nine months ended September 30, 2019 , respectively. The decrease was
primarily driven by the closure of our golf courses in mid-March until early to
mid-May as a result of the ongoing COVID-19 pandemic, partially offset by an
increase in the water usage charges at one of our golf courses. Additionally,
even though our courses were closed from mid-March until early to mid-May as a
result of the ongoing COVID-19 pandemic, we continued to pay all of our golf
course employees their full salaries and benefits for a period of time and,
accordingly, the decrease in our golf course operating revenues was not
proportionately offset by a decrease in golf course operating expenses.
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Change in Allowance for Credit Losses
On January 1, 2020 , we adopted ASU No. 2016-13 - Financial Instruments-Credit
Losses (Topic 326) which requires us to record an estimated credit loss for our
(i) Investments in leases - sales-type and direct financing, (ii) Investments in
leases - financing receivables and (iii) Investments in loans. During the three
months ended September 30, 2020 , we recognized a $177.1 million increase in our
allowance for credit losses primarily related to an increase in our investment
balances subject to CECL from the consummation of the Eldorado Transaction.
Specifically, the increase was driven by (i) the increase in investment balances
resulting from the Eldorado Transaction, which includes (A) an initial CECL
allowance on our $1.8 billion investment in the MTA Properties , (B) an
additional CECL allowance on our aggregate $1.4 billion increased investment in
the Las Vegas Master Lease Agreement as a result of the CPLV Additional Rent
Acquisition and HLV Additional Rent Acquisition and (C) an additional CECL
allowance on the $333.4 million increased balance of our existing Caesars Lease
Agreements as a result of the mark to fair value in connection with the
reassessment of lease classification, (ii) an increase in the R&S Period PD of
Caesars as a result of the Eldorado /Caesars Merger and (iii) an initial CECL
allowance on our $400.0 million investment in the Forum Convention Center
Mortgage Loan. This increase was partially offset by a decrease in the R&S
Period PD of our other tenants and their parent guarantors as a result of an
improvement in their economic outlook due to the reopening of a majority of
their gaming operations and relative performance of such operations during the
second and third quarter of 2020.
During the nine months ended September 30, 2020 , we recognized a $261.1 million
increase in allowance for credit losses related to our real estate portfolio as
a result of (i) the Eldorado Transaction, Eldorado /Caesars Merger and Forum
Convention Center Mortgage Loan as described above, (ii) an increase in the
Long-term Period PD of our tenants due to downgrades on certain of the credit
ratings of our tenants' senior secured debt and (iii) a $22.2 million increase
related to our initial investment in JACK Cleveland /Thistledown and the ROV Loan
in January 2020 . The credit loss standard does not require retrospective
application and as such there is no corresponding charge for the three and nine
months ended September 30, 2019. Refer to Note 6 - Allowance for Credit
Losses for further details.
Transaction and Acquisition Expenses
Transaction and acquisition expenses increased $1.0 million and $3.0 million
during the three and nine months ended September 30, 2020 , respectively,
compared to the three and nine months ended September 30, 2019 , respectively.
Changes in transaction and acquisition expenses are related to fluctuations in
(i) costs incurred for investments during the period that are not capitalizable
under GAAP and (ii) costs incurred for investments that we are no longer
pursuing.
Non-Operating Income and Expenses
Interest Expense
Interest expense increased $8.9 million and $54.2 million during the three and
nine months ended September 30, 2020 , respectively, as compared to the three and
nine months ended September 30, 2019 , respectively. The increase is primarily
attributable to the increase in debt of $4.75 billion in the aggregate from the
February 2020 Senior Unsecured Notes offering and the November 2019 Senior
Unsecured Notes offering, partially offset by a reduction in debt of $2.05
billion as a result of the full redemption of the Second Lien Notes in February
2020 and full repayment of the CPLV CMBS Debt in November 2019 .
Additionally, the weighted average annualized interest rate of our debt
decreased to 4.18% and 4.48% during the three and nine months ended September
30, 2020 , respectively, from 4.97% during the three and nine months ended
September 30, 2019 as a result of (i) the weighted average interest rate on the
February 2020 Senior Unsecured Notes and the November 2019 Senior Unsecured
Notes being lower than the weighted average interest rate of the Second Lien
Notes and CPLV CMBS Debt, (ii) a decrease in LIBOR on the $100.0 million portion
of our variable rate debt that is not hedged and (iii) a reduction in the
interest rate on the Term Loan B Facility from LIBOR plus 2.00% to LIBOR plus
1.75%.
Interest Income
Interest income decreased $6.5 million and $9.1 million during the three and
nine months ended September 30, 2020 , respectively, compared to the three and
nine months ended September 30, 2019 , respectively. The decrease was primarily
driven by an overall decrease in our cash on hand and a substantial decrease in
the interest rates earned on our excess cash.
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Loss on Extinguishment of Debt
During the nine months ended September 30, 2020 , we recognized a loss on
extinguishment of debt of $39.1 million resulting from the full redemption of
our Second Lien Notes in February 2020 . We had no such related extinguishment of
debt during the nine months ended September 30, 2019 .
Gain Upon Lease Modification
In connection with the Eldorado Transaction and as required under ASC 842, we
reassessed the lease classification of the Las Vegas Master Lease Agreement,
Regional Master Lease Agreement and Joliet Lease Agreement and determined the
leases meet the definition of a sales-type lease, including the land component
of Caesars Palace Las Vegas. As a result of the reclassifications of the Caesars
Lease Agreements from direct financing and operating leases to sales-type
leases, we recorded the investments at their estimated fair values as of the
modification date and recognized a net gain equal to the difference in fair
value of the assets and their carrying values immediately prior to the
modification.
RECONCILIATION OF NON-GAAP MEASURES
We present Funds From Operations ("FFO"), FFO per share, Adjusted Funds From
Operations ("AFFO"), AFFO per share, and Adjusted EBITDA, which are not required
by, or presented in accordance with, generally accepted accounting principles in
the United States ("GAAP"). These are non-GAAP financial measures and should not
be construed as alternatives to net income or as an indicator of operating
performance (as determined in accordance with GAAP). We believe FFO, FFO per
share, AFFO, AFFO per share and Adjusted EBITDA provide a meaningful perspective
of the underlying operating performance of our business.
FFO is a non-GAAP financial measure that is considered a supplemental measure
for the real estate industry and a supplement to GAAP measures. Consistent with
the definition used by The National Association of Real Estate Investment Trusts
(NAREIT), we define FFO as net income (or loss) attributable to common
stockholders (computed in accordance with GAAP) excluding (i) gains (or losses)
from sales of certain real estate assets, (ii) depreciation and amortization
related to real estate, (iii) gains and losses from change in control and (iv)
impairment write-downs of certain real estate assets and investments in entities
when the impairment is directly attributable to decreases in the value of
depreciable real estate held by the entity.
AFFO is a non-GAAP financial measure that we use as a supplemental operating
measure to evaluate our performance. We calculate AFFO by adding or subtracting
from FFO non-cash leasing and financing adjustments, non-cash change in
allowance for credit losses, transaction costs incurred in connection with the
acquisition of real estate investments, non-cash stock-based compensation
expense, amortization of debt issuance costs and original issue discount, other
non-cash interest expense, non-real estate depreciation (which is comprised of
the depreciation related to our golf course operations), capital expenditures
(which are comprised of additions to property, plant and equipment related to
our golf course operations), impairment charges related to non-depreciable real
estate and gains (or losses) on debt extinguishment, other non-recurring
non-cash transactions (such as non-cash gain upon lease modification) and
non-cash adjustments attributable to non-controlling interest with respect to
certain of the foregoing. The non-cash change in allowance for credit losses
consists of estimated credit loss for our Investments in leases - sales-type and
direct financing, Investments in leases - financing receivables and Investments
in loans as a result of our adoption of ASU No. 2016-13 - Financial
Instruments-Credit Losses (Topic 326). No similar adjustments are reflected in
prior periods because the accounting standard was adopted effective January 1,
2020 and does not require retrospective application. Please see Note 6 -
Allowance for Credit Losses for further information.
We calculate Adjusted EBITDA by adding or subtracting from AFFO contractual
interest expense and interest income (collectively, interest expense, net) and
income tax expense.
These non-GAAP financial measures: (i) do not represent cash flow from
operations as defined by GAAP; (ii) should not be considered as an alternative
to net income as a measure of operating performance or to cash flows from
operating, investing and financing activities; and (iii) are not alternatives to
cash flow as a measure of liquidity. In addition, these measures should not be
viewed as measures of liquidity, nor do they measure our ability to fund all of
our cash needs, including our ability to make cash distributions to our
stockholders, to fund capital improvements, or to make interest payments on our
indebtedness. Investors are also cautioned that FFO, FFO per share, AFFO, AFFO
per share and Adjusted EBITDA, as presented, may not be comparable to similarly
titled measures reported by other real estate companies, including REITs, due to
the fact that not all real estate companies use the same definitions. Our
presentation of these measures does not replace the presentation of our
financial results in accordance with GAAP.
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Reconciliation of Net Income to FFO, FFO per Share, AFFO, AFFO per Share and
Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except share data and per
share data) 2020 2019 2020 2019
Net income attributable to common
stockholders $ 398,274 $
144,435
- - - -
FFO 398,274 144,435 603,664 447,333
Non-cash leasing and financing adjustments (18,919) 2,494 (11,826) (2,295)
Non-cash change in allowance for credit
losses 177,052 - 261,080 -
Transaction and acquisition expenses 2,026 993 7,703 4,749
Non-cash stock-based compensation 2,013 1,404 5,375 3,821
Amortization of debt issuance costs and
original issue discount 4,368 14,816 15,504 18,180
Other depreciation 879 997 2,905 2,940
Capital expenditures (337) (588) (1,982) (1,991)
Loss on extinguishment of debt - - 39,059 -
Non-cash gain upon lease modification (333,352) - (333,352) -
Non-cash adjustments attributable to
non-controlling interest (4,097) 69 (3,990) 202
AFFO 227,907 164,620 584,140 472,939
Interest expense, net 72,817 47,025 208,938 142,895
Income tax (benefit) expense (368) 24 395 1,098
Adjusted EBITDA $ 300,356 $
211,669
Net income per common share Basic$ 0.75 $ 0.31 $ 1.22 $ 1.05 Diluted$ 0.74 $ 0.31 $ 1.21 $ 1.04 FFO per common share Basic$ 0.75 $ 0.31 $ 1.22 $ 1.05 Diluted$ 0.74 $ 0.31 $ 1.21 $ 1.04 AFFO per common share Basic$ 0.43 $ 0.36 $ 1.18 $ 1.11 Diluted$ 0.43 $
0.35
Basic 533,407,916 460,666,295 496,002,850 426,437,889
Diluted 536,180,175 465,771,668 499,982,269 428,366,146
68-------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES Overview As ofSeptember 30, 2020 , our available cash balances, short-term investments, capacity under our Revolving Credit Facility and additional available proceeds were as follows: (In thousands) September 30, 2020 Cash and cash equivalents $ 144,057 Short-term investments 19,973 Capacity under Revolving Credit Facility (1)
1,000,000
Proceeds available from settlement of theJune 2020 Forward Sale Agreement (2) 557,037 Total $ 1,721,067 ____________________ (1)Subject to compliance with the financial covenants and other applicable provisions of our Revolving Credit Facility. (2)Assumes the physical settlement of the remaining 26,900,000 shares under theJune 2020 Forward Sale Agreement at the forward sale price of$20.71 , calculated as ofSeptember 30, 2020 . Our short-term obligations consist primarily of regular interest payments on our debt obligations, dividends to our common stockholders, normal recurring operating expenses, recurring expenditures for corporate and administrative needs, certain lease and other contractual commitments related to our golf operations and certain non-recurring expenditures. For a list of our material contractual commitments refer to Note 11 - Commitments and Contingent Liabilities . Our long-term obligations consist primarily of principal payments on our outstanding debt obligations and future funding commitments under our lease and loan agreements. As ofSeptember 30, 2020 , we have$6.9 billion of debt obligations outstanding, none of which are maturing in the next twelve months. As ofSeptember 30, 2020 , we have$58.0 million in future funding commitments consisting of$25.0 million related to the ROV Credit Facility,$15.0 million related to the Chelsea Piers Mortgage Loan and$18.0 million related to the funding of the construction of a new gaming patio amenity at JACK Thistledown Racino ($6.0 million of which was funded onOctober 1, 2020 ), which will be leased byJACK Entertainment pursuant to the JACK Lease Agreement Amendment. For a summary of principal debt balances and their maturity dates and principal terms refer to Note 8 - Debt , in the Notes to our Consolidated Financial Statements. For a summary of our future funding commitments under our loan portfolio refer to Note 5 - Real Es tate Portfolio , in the Notes to our Consolidated Financial Statements. 69 -------------------------------------------------------------------------------- Table of Contents Information concerning our obligations and commitments to make future payments under contracts such as our indebtedness and future minimum lease commitments under operating leases is included in the following table as ofSeptember 30, 2020 : Payments Due By Period 2024 and (In thousands) Total 2020 (remaining) 2021 2022 2023 Thereafter
Long-term debt, principal
2025 Notes (1) $ 750,000 $ - $ - $ - $ - $ 750,000
2026 Notes (1) 1,250,000 - - - - 1,250,000
2027 Notes (1) 750,000 - - - - 750,000
2029 Notes (1) 1,000,000 - - - - 1,000,000
2030 Notes (1) 1,000,000 - - - - 1,000,000
Term Loan B Facility (2) 2,100,000 - - 10,000 22,000 2,068,000
Revolving Credit Facility
(3) - - - - - -
Scheduled interest payments (4) 1,804,345 74,024 282,416 281,543 256,343 910,019
Total debt contractual obligations 8,654,345 74,024 282,416 291,543 278,343
7,728,019
Leases and contracts
Future funding commitments -
loan investments and lease
agreements(5) 58,000 6,000 12,000 - - 40,000
Operating lease for Cascata
Golf Course Land 19,978 230 933 951 970 16,894
Golf maintenance contract
for Rio Secco and Cascata
Golf Course 10,887 837 3,350 3,350 3,350 -
Office leases 8,804 237 918 857 857 5,935
Total leases and contract obligations 97,669 7,304 17,201 5,158 5,177 62,829
Total contractual commitments $ 8,752,014 $
81,328
________________________________________
(1) The 2025 Notes, 2026 Notes, 2027 Notes, 2029 Notes and 2030 Notes will mature onFebruary 15, 2025 ,December 1, 2026 ,February 15, 2027 ,December 1, 2029 andAugust 15, 2030 , respectively. (2) The Term Loan B Facility is subject to amortization of 1.0% of principal per annum payable in equal quarterly installments on the last business day of each calendar quarter. However, as a result of prepaying$100.0 million inFebruary 2018 the next principal payment due on the Term Loan B Facility isSeptember 2022 . The Term Loan B Facility will mature onDecember 22, 2024 (or if the maturity is extended pursuant to the terms of the agreement, such extended maturity date as determined pursuant thereto). (3) The Revolving Credit Facility will mature onMay 15, 2024 . (4) Estimated interest payments on variable interest loans are based on a LIBOR rate as ofSeptember 30, 2020 . (5) The allocation of our future funding commitments is based on the commitment funding date or expiration date, as applicable, however we may be obligated to fund these commitments earlier than such date. We believe that we have sufficient liquidity to meet our liquidity and capital resource requirements primarily through currently available cash and cash equivalents, short-term investments, cash received under our Lease Agreements, borrowings from banks, including undrawn capacity under our Revolving Credit Facility, and proceeds from the issuance of debt and equity securities (including issuances under theJune 2020 Forward Sale Agreement and our ATM Agreement). All of the Lease Agreements call for an initial term of fifteen years with four, five-year tenant renewal options and are designed to provide us with a reliable and predictable long-term revenue stream (except for the JACKCleveland /Thistledown Lease Agreement, as amended, which now provides for an initial term of twenty years with three, five-year renewal options). However, the COVID-19 pandemic has adversely impacted our tenants and their financial condition, and is expected to continue to do so, as all of their properties were closed for a period of time, and upon reopening are subject to operating restrictions and continuing uncertainty as to whether they will be forced to close again in the future. In the event our tenants are unable to make all of their contractual rent payments as provided by the Lease Agreements, we believe we have sufficient 70 -------------------------------------------------------------------------------- Table of Contents liquidity from the other sources discussed above to meet all of our contractual obligations for a significant period of time. Additionally, we do not have any debt maturities until 2024. For more information, refer to the risk factors incorporated by reference into Part II. Item 1A. Risk Factors herein from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and in our Annual Report on Form 10-K for the year ended December 31, 2019 . Our cash flows from operations and our ability to access capital resources could be adversely affected due to uncertain economic factors and volatility in the financial and credit markets, including the current conditions created by the COVID-19 pandemic which has severely and adversely impacted global, national and regional economic activity and has contributed to significant volatility and negative pressure in financial markets. In particular, in connection with the ongoing COVID-19 pandemic and its impact on our tenants' operations and financial performance we have provided certain relief under the applicable Lease Agreements to some of our tenants as more fully described above in "-Significant Activities During 2020 - JACK Lease Agreement Amendment and Amended and Restated ROV Loan", "-Significant Activities During 2020 - Amendment to Century Portfolio Lease Agreement" and "-Significant Activities During 2020 - Omnibus CapEx Amendment to Caesars Leases" and, as a result, we can provide no assurances that our tenants will not default on their leases or fail to make full rental payments if their businesses become challenged due to, among other things, current or future adverse economic conditions. In addition, such tenant default or failure to make full rental payments could impact our operating performance and result in us not satisfying the financial covenants applicable to our outstanding indebtedness, which could result in us not being able to incur additional debt, including the available capacity under our Revolving Credit Facility, or result in a default. Further, future or current economic conditions could impact our tenants' ability to meet capital improvement requirements or other obligations required in our Lease Agreements that could result in a decrease in the value of our properties. Our ability to raise funds through the issuance of debt and equity securities and access to other third-party sources of capital in the future will be dependent on, among other things, uncertainties related to COVID-19 and the impact of our response and our tenants' responses to COVID-19, general economic conditions, general market conditions for REITs, market perceptions and the trading price of our stock. We will continue to analyze which sources of capital are most advantageous to us at any particular point in time, but the capital markets may not be consistently available on terms we deem attractive, or at all. In addition, volatility in the debt capital markets and potential liquidity challenges in the banking sector resulting from the COVID-19 pandemic may increase the risk related to the pricing and availability of debt financing. Cash Flow Analysis The table below summarizes our cash flows for the nine months endedSeptember 30, 2020 and 2019: Nine Months Ended September 30, (In thousands) 2020 2019 Variance
Cash, cash equivalents and restricted cash
Provided by operating activities $
539,521
Used in investing activities (4,556,349) (1,355,857) (3,200,492)
Provided by financing activities 3,058,992 783,721 2,275,271
Net decrease in cash, cash equivalents and
restricted cash (957,836) (134,937) (822,899)
Cash, cash equivalents and restricted cash,
beginning of period 1,101,893 598,447 503,446
Cash, cash equivalents and restricted cash,
end of period $ 144,057 $ 463,510 $ (319,453)
Cash Flows from Operating Activities
Net cash provided by operating activities increased $102.3 million for the nine
months ended September 30, 2020 compared with the nine months ended September
30, 2019 . The increase is primarily driven by an increase in cash rental
payments from the Eldorado Transaction in July 2020 and the addition of
Greektown, Hard Rock Cincinnati , the Century Portfolio, JACK
Cleveland /Thistledown, the ROV Loan (and the Amended and Restated ROV Loan), the
Chelsea Piers Mortgage Loan and the Forum Convention Center Mortgage Loan to our
real estate portfolio in May 2019 , September 2019 , December 2019 , January 2020
(and July 2020 ), August 2020 and September 2020 , respectively, partially offset
by a decrease due to the prepayment of certain rent in December 2019 related to
January 2020 .
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Cash Flows from Investing Activities
Net cash used in investing activities increased $3,200.5 million for the nine
months ended September 30, 2020 compared with the nine months ended September
30, 2019 . The increase is primarily driven by the ROV Loan (and the Amended and
Restated ROV Loan), the JACK Cleveland /Thistledown Acquisition, the Eldorado
Transaction, the Chelsea Piers Mortgage Loan and the Forum Convention Center
Mortgage Loan for a total of $4,625.1 million , including acquisition costs,
during the nine months ended September 30, 2020 , as well as a decrease in net
maturities of short-term investments of $138.6 million during the nine months
ended September 30, 2020 as compared to the nine months ended September 30,
2019 . This increase was partially offset by the proceeds to VICI from the sale
of Harrah's Reno in the amount of $31.1 million during the nine months ended
September 30, 2020 and the Margaritaville Acquisition, Greektown Acquisition and
Hard Rock Cincinnati Acquisition for $1,530.6 million , including acquisition
costs, during the nine months ended September 30, 2019 .
Cash Flows from Financing Activities
Net cash provided by financing activities increased $2,275.3 million for the
nine months ended September 30, 2020 , compared with the nine months ended
September 30, 2019 .
During the nine months ended September 30, 2020 , the primary sources and uses of
cash from financing activities included:
•Net proceeds from the sale of an aggregate of $1,539.7 million of our common
stock pursuant to the full physical settlement of our June 2019 Forward Sale
Agreements, the partial physical settlement of $63.0 million of our common stock
pursuant to our June 2020 Forward Sale Agreement and our at-the-market program;
•Gross proceeds from our February 2020 Senior Unsecured Notes offering of
$2,500.0 million ;
•Full redemption of the $498.5 million outstanding aggregate principal amount of
our Second Lien Notes, as well as the $39.0 million Second Lien Notes Applicable
Premium plus fees;
•Dividend payments of $435.2 million ;
•Debt issuance costs of $57.8 million ;
•Reimbursement of the CPLV CMBS Debt prepayment penalty from Caesars in the
amount of $55.4 million ; and
•Distributions of $5.4 million to non-controlling interest
During the nine months ended September 30, 2019 the primary sources and uses of
cash from financing activities included:
•Net proceeds from the sale of an aggregate of $1,164.4 million of our common
stock from a primary follow-on offering and pursuant to our at-the-market
program;
•Dividend payments of $366.9 million ;
•Debt issuance costs of $7.7 million ; and
•Distributions of $6.1 million to non-controlling interest.
Capital Expenditures
As described in our leases, capital expenditures for properties under our Lease
Agreements are the responsibility our tenants. Refer to Note 5 - Real Estate
Portfolio in the Notes to our Financial Statements for further information of
the obligations of our tenants under the Lease Agreements.
Debt
Activity During 2020
On February 5, 2020 , the Issuers issued (i) $750.0 million in aggregate
principal amount of 2025 Notes, (ii) $750.0 million in aggregate principal
amount of 2027 Notes and (iii) $1.0 billion in aggregate principal amount of
2030 Notes. We placed $2.0 billion of the net proceeds of the offering into
escrow pending the consummation of the Eldorado Transaction (which was
subsequently released from escrow and used to fund a portion of the
consideration payable in connection with the closing of the Eldorado Transaction
on July 20, 2020 ). On February 20, 2020 , we used the remaining net proceeds from
the 2025 Notes, together with cash on hand, to redeem in full the outstanding
$498.5 million in aggregate principal amount of the Second Lien Notes plus the
Second Lien Notes Applicable Premium, for a total redemption cost of
approximately $537.5 million . The 2025
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Notes will mature on February 15, 2025 , the 2027 Notes will mature on February
15, 2027 and the 2030 Notes will mature on August 15, 2030 . Interest on the 2025
Notes will accrue at a rate of 3.500% per annum, interest on the 2027 Notes will
accrue at a rate of 3.750% per annum and interest on the 2030 Notes will accrue
at a rate of 4.125% per annum. Interest on the February 2020 Unsecured Notes
will be payable semi-annually in cash in arrears on February 15 and August 15 of
each year, commencing on August 15, 2020 .
On January 24, 2020 , VICI PropCo entered into Amendment No. 1 to the Amended and
Restated Credit Agreement, which, among other things, reduced the interest rate
on the Term Loan B Facility from LIBOR plus 2.00% to LIBOR plus 1.75%.
Covenants
Our debt obligations are subject to certain customary financial and protective
covenants that restrict our ability to incur additional debt, sell certain asset
and restrict certain payments, among other things. In addition, these covenants
are subject to a number of important exceptions and qualifications, including,
with respect to the restricted payments covenant, the ability to make unlimited
restricted payments to maintain our REIT status. At September 30, 2020 , we were
in compliance with all debt-related covenants.
Non-Guarantor Subsidiaries of Senior Unsecured Notes
The subsidiaries of the Operating Partnership that do not guarantee the Senior
Unsecured Notes accounted for: (i) 5.6% of the Operating Partnership's revenue
(or 5.5% of our consolidated revenue) for the nine months ended September 30,
2020 and (ii) 3.9% of the Operating Partnership's total assets (or 3.8% of our
consolidated total assets) as of September 30, 2020 .
Distribution Policy
We intend to make regular quarterly distributions to holders of shares of our
common stock. Dividends declared (on a per share basis) during the nine months
ended September 30, 2020 and 2019 were as follows:
Nine Months Ended September 30, 2020
Declaration Date Record Date Payment Date Period Dividend
January 1, 2020 - March 31,
March 12, 2020 March 31, 2020 April 9, 2020 2020 $ 0.2975
April 1, 2020 - June 30,
June 11, 2020 June 30, 2020 July 10, 2020 2020 $ 0.2975
July 1, 2020 - September 30,
September 10, 2020 September 30, 2020 October 8, 2020 2020 $ 0.3300
Nine Months Ended September 30, 2019
Declaration Date Record Date Payment Date Period Dividend
January 1, 2019 - March 31,
March 14, 2019 March 29, 2019 April 11, 2019 2019 $ 0.2875
April 1, 2019 - June 30,
June 13, 2019 June 28, 2019 July 12, 2019 2019 $ 0.2875
July 1, 2019 - September 30,
September 12, 2019 September 27, 2019 October 10, 2019 2019 $ 0.2975
Federal income tax law requires that a REIT distribute annually at least 90% of
its REIT taxable income (with certain adjustments), determined without regard to
the dividends paid deduction and excluding any net capital gains, and that it
pay tax at regular corporate rates to the extent that it annually distributes
less than 100% of its REIT taxable income, determined without regard to the
dividends paid deduction and including any net capital gains. In addition, a
REIT will be required to pay a 4% nondeductible excise tax on the amount, if
any, by which the distributions it makes in a calendar year are less than the
sum of 85% of its ordinary income, 95% of its capital gain net income and 100%
of its undistributed income from prior years.
We intend to continue to make distributions to our stockholders to comply with
the REIT requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), and to avoid or otherwise minimize paying entity level federal income
or excise tax (other than at any TRS of ours). We may generate taxable income
greater than our income for financial reporting purposes prepared in accordance
with GAAP. Further, we may generate REIT taxable income greater than our cash
flow from operations after operating expenses and debt service as a result of
differences in timing between the recognition of REIT taxable income and the
actual receipt of cash or the effect of nondeductible capital expenditures, the
creation of reserves or required debt or amortization payments.
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Critical Accounting Policies and Estimates
A complete discussion of our critical accounting policies and estimates is
included in our Annual Report on Form 10-K for the year ended December 31,
2019 . On July 20, 2020 we consummated the Eldorado Transaction, resulting in a
significant expansion to our existing accounting policies for the investments in
our leases. On January 1, 2020 , we adopted ASU No. 2016-13 - Financial
Instruments-Credit Losses (Topic 326) ("ASC 326"), resulting in a significant
change in our accounting policies.
Investments in Leases - Sales-type and Direct Financing, Net
Upon the consummation of the Eldorado Transaction on July 20, 2020 , we modified
the CPLV Lease Agreement, HLV Lease Agreement, Non-CPLV Lease Agreement and
Joliet Lease Agreement, which included amending certain of the lease terms, and
combining the CPLV Lease Agreement and HLV Lease Agreement into the Las Vegas
Master Lease Agreement and replacing the Non-CPLV Lease Agreement with the
Regional Master Lease Agreement. Upon modification, we reassessed the lease
classification of the Las Vegas Master Lease Agreement, Regional Master Lease
Agreement and Joliet Lease Agreement and determined the leases meet the
definition of a sales-type lease, including the land component of Caesars Palace
Las Vegas . Accordingly, we reclassified the land component of Caesars Palace Las
Vegas from Investments in leases - operating to Investments in leases -
sales-type and direct financing. Further, as a result of the reclassifications
of the Caesars Lease Agreements from direct financing and operating leases to
sales-type leases we recorded the investments at their estimated fair values as
of the modification date and recognized a net gain equal to the difference in
fair value of the assets and their carrying values immediately prior to the
modification. Such gain is recognized in our Statement of Operations as Gain
upon lease modification. Subsequent to the consummation of the Eldorado
Transaction, we no longer have any leases classified as operating or direct
financing and, as such, there is no longer any income recorded through
Investments in leases - operating. Refer to Note 4 - Property Transactions
for further discussion surrounding the lease modifications. Refer to Note 10 -
Fair Value for further discussion surrounding the mark to fair value.
Investments in Leases - Financing Receivables, net
In accordance with ASC 842, for transactions in which we enter into a contract
to acquire an asset and lease it back to the seller under a sales-type lease
(i.e., a sale leaseback transaction), control of the asset is not considered to
have transferred to us. As a result, we do not recognize the underlying asset
but instead recognize a financial asset in accordance with ASC 310 "Receivables"
("ASC 310"). The accounting for the financing receivable under ASC 310 is
materially consistent with the accounting for our investments in leases -
sales-type under ASC 842.
Upon the consummation of the Eldorado Transaction on July 20, 2020 , and
reassessment of the classification of the Caesars Lease Agreements, as described
above, we determined that the MTA Properties Acquisitions meet the definition of
a separate contract under ASC 842. In accordance with this guidance, we are
required to separately assess the lease classification apart from the other
assets in the Regional Master Lease Agreement. We determined that the land and
building components of the MTA Properties meet the definition of a sales-type
lease and, since we purchased and leased the assets back to Caesars, control is
not considered to have transferred to us under GAAP. Accordingly, the MTA
Properties are accounted for as Investments in leases - financing receivables on
our Balance Sheet, net of allowance for credit losses, in accordance with ASC
310.
Allowance for Credit Losses
On January 1, 2020 , we adopted ASC 326 "Credit Losses" ("ASC 326") which
requires that we measure and record current expected credit losses ("CECL") for
the majority of our investments, the scope of which includes our Investments in
leases - sales-type and direct financing, Investments in leases - financing
receivables and Investments in loans.
We have elected to use a discounted cash flow model to estimate the Allowance
for credit losses, or CECL allowance. This model requires us to develop cash
flows which project estimated credit losses over the life of the lease or loan
and discount these cash flows at the asset's effective interest rate. We then
record a CECL allowance equal to the difference between the amortized cost basis
of the asset and the present value of the expected cash flows.
Expected losses within our cash flows are determined by estimating the
probability of default ("PD") and loss given default ("LGD") of our tenants and
their parent guarantors over the life of each individual lease or financial
asset. We have engaged a nationally recognized data analytics firm to assist us
with estimating both the PD and LGD of our tenants and their parent guarantors.
The PD and LGD are estimated during a reasonable and supportable period for
which we believe we are able to estimate future economic conditions (the "R&S
Period") and a long-term period for which we revert to long-term historical
averages (the "Long-term Period"). The PD and LGD estimates for the R&S Period
are developed using the current financial
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condition of the tenant and applied to a projection of economic conditions over
a two-year term. The PD and LGD for the Long-term Period are estimated using the
average historical default rates and historical loss rates, respectively, of
public companies over the past 35 years that have similar credit profiles or
characteristics to our tenants and their parent guarantors. We were unable to
use our historical data to estimate losses as we have no loss history to date.
The CECL allowance is recorded as a reduction to our net Investments in leases -
direct financing and sales type, Investments in leases - financing receivables
and Investments in loans on our Balance Sheet. We are required to update our
CECL allowance on a quarterly basis with the resulting change being recorded in
the Statement of Operations for the relevant period. Finally, each time we make
a new investment in an asset subject to ASC 326, we are required to record an
initial CECL allowance for such asset, which will result in a non-cash charge to
the Statement of Operations for the relevant period.
We are required to estimate a CECL allowance related to contractual commitments
to extend credit, such as future funding commitments under a revolving credit
facility. The CECL allowance related to these future commitments is recorded as
a component of Other liabilities on our Balance Sheet.
Charge-offs are deducted from the allowance in the period in which they are
deemed uncollectible. Recoveries previously written off are recorded when
received. There were no write-offs or recoveries for the three and nine months
ended September 30, 2020 .
Refer to Note 6 - Allowance for Credit Losses for further information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We face market risk exposure in the form of interest rate risk. This market risk
arises from our debt obligations. Our primary market risk exposure is interest
rate risk with respect to our indebtedness.
At September 30, 2020 , we had $6.9 billion aggregate principal amount of
outstanding indebtedness. Approximately $2.1 billion of our indebtedness has
variable interest rates. We manage most of our interest rate risks related to
variable rate borrowings by means of interest rate swap agreements. However, the
REIT provisions of the Code substantially limit our ability to hedge our assets
and liabilities. We also expect to manage our exposure to interest rate risk by
maintaining a mix of fixed and variable rates for our indebtedness.
At September 30, 2020 , we had entered into interest rate swap agreements that
hedge $2.0 billion of our variable rate debt. Accordingly, we have approximately
$100.0 million in variable rate debt that is not hedged. A one percent increase
or decrease in the interest rate on our variable-rate borrowings that are not
hedged would increase or decrease our annual cash interest expense by
approximately $1.0 million .
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) designed to provide reasonable assurance that information required to be
disclosed in reports filed under the Exchange Act is recorded, processed,
summarized and reported within the specified time periods, and is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
Our management has evaluated, under the supervision and with the participation
of our principal executive officer and principal financial officer, the
effectiveness of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(e) as of the end of the period covered by this report. Based upon
this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the three months ended September 30, 2020 , that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
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