VICI PROPERTIES, INC. The following discussion and analysis of the financial position and operating results ofVICI Properties Inc. for the three and six months endedJune 30, 2021 should be read in conjunction with the 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, 2020 , which were included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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 our, and our tenants' financial condition, results of operations, cash flows and performance. The extent to which the COVID-19 pandemic continues to adversely affect our tenants, and ultimately impacts our business and financial condition, depends on future developments which cannot be predicted with confidence, including the impact of the actions taken to contain the pandemic or mitigate its impact, including the availability, distribution, public acceptance and efficacy of one or more approved vaccines, new or mutated variants of COVID-19 (including vaccine-resistant variants) or a similar virus, the direct and indirect economic effects of the pandemic and containment measures on our tenants, the ability of our tenants to successfully operate their businesses, including the costs of complying with regulatory requirements necessary to keep their respective facilities open, such as 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 we 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 Lease Agreements 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. 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, 2020 , 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; our dependence on subsidiaries of Caesars, Penn National,Hard Rock , Century Casinos andJACK Entertainment as tenants of our properties and Caesars, Penn National,Seminole Hard Rock , Century Casinos andRock Ohio Ventures 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 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 and the completion of pending transactions; the possibility that our tenants may choose not to renew the Lease Agreements following 48 -------------------------------------------------------------------------------- Table of Contents 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; our historical financial information may not be reliable indicators of our future results of operations, financial condition and cash flows; our ability to obtain the financing necessary to complete our pending acquisitions on the terms we currently expect or at all; 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 pending and recently completed transactions on us, including the future impact on our financial condition, financial and operating results, cash flows, strategy and plans; 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; 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 firms and hedge funds, 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. 49 -------------------------------------------------------------------------------- Table of Contents 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 28 market leading properties, 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 47 million square feet, our well-maintained properties are currently located across urban, destination and drive-to markets in twelve states, contain approximately 17,800 hotel rooms and feature over 200 restaurants, bars and nightclubs. Our portfolio also includes four real estate loans that we have originated for strategic reasons in connection with transactions that may provide the potential to convert our investment into the ownership of certain of the underlying real estate in the future. In addition, we own 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. 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-20210630_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 each of 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 our operators provide us with a highly predictable revenue stream with embedded growth potential. We believe our geographic diversification limits the effect of 50 -------------------------------------------------------------------------------- Table of Contents 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. Despite the ongoing impact and uncertainty of the COVID-19 pandemic, we 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 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 in connection with the impact of the COVID-19 pandemic), 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 highly complementary single-asset and portfolio acquisitions, as well as other investments, to augment growth as market conditions allow, with a focus on disciplined capital allocation. We conduct our operations as a real estate investment trust ("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 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 taxable REIT subsidiary (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 six months endedJune 30, 2021 . Impact of the COVID-19 Pandemic on Our Business Since the emergence of the COVID-19 pandemic in early 2020, among the broader public health, societal and global impacts, the pandemic has resulted in state governments and/or regulatory authorities issuing various directives, mandates, orders or similar actions, which resulted in temporary closures of our tenants' operations at all of our properties and our golf course operations. Although all of our leased properties and our golf courses are currently open and operating, without restriction in some jurisdictions, they remain subject to any current or future operating limitations, restrictions or closures imposed by state and local governments and/or regulatory authorities. While our tenants' recent performance at many of our leased properties has been at or above pre-pandemic levels, they may continue to face additional challenges and uncertainty due to the impact of the COVID-19 pandemic, such as complying with operational and capacity restrictions and ensuring sufficient employee staffing and service levels, and the sustainability of maintaining improved operating margins and financial performance. Due to prior closures, operating restrictions and other factors, our tenants' operations, liquidity and financial performance have been adversely affected, and the ongoing nature of the pandemic, including emerging variants, may further impact our tenants' businesses and, accordingly, our business and financial performance. All of our tenants have fulfilled their rent obligations throughJuly 2021 and we regularly engage with our tenants in connection with their business performance, operations, liquidity and financial results. 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, the full extent to which the COVID-19 pandemic continues to adversely affect our tenants, and ultimately impacts us, depends on future developments which cannot be predicted with confidence, including the actions taken to contain the pandemic or mitigate its impact, including the availability, distribution, public acceptance and efficacy of one or more approved vaccines, new or mutated variants of COVID-19 (including vaccine-resistant variants) or a similar virus, the direct and indirect economic effects of the pandemic and containment measures on our tenants, our tenants' financial performance and any future operating limitations. These factors may contribute to increased uncertainty with respect to our business and operating results through 2021 and we will continue to closely monitor the impact of the COVID-19 pandemic on us and our tenants. For more information, refer to the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 51 -------------------------------------------------------------------------------- Table of Contents Second Quarter 2021 Highlights Operating Results •Collected 100% of rent in cash. •Total revenues increased 45.9% year-over-year to$376.4 million . •Net income attributable to common stockholders was$300.7 million , or$0.54 per diluted share. •AFFO increased 45.3% year-over-year to$256.1 million and AFFO per diluted share increased 27.8% to$0.46 . Acquisition and Investment Activity •Originated the GreatWolf Mezzanine Loan with a total commitment of$79.5 million to partially fund the development of the GreatWolf Lodge Maryland , a 48-acre indoor water park resort located inPerryville, MD . SIGNIFICANT ACTIVITIES DURING 2021 Acquisition and Investment Activity •GreatWolf Mezzanine Loan . OnJune 16, 2021 , we entered into a mezzanine loan agreement (the "GreatWolf Mezzanine Loan ") with an affiliate ofGreat Wolf Resorts, Inc. ("Great Wolf") to provide up to$79.5 million to partially fund the development of the GreatWolf Lodge Maryland , a 48-acre indoor water park resort located inPerryville, MD . The GreatWolf Mezzanine Loan bears interest at a rate of 8.0% per annum and has an initial term of 3 years with two successive 12-month extension options subject to certain conditions. Our commitment will be funded subject to customary terms and conditions in disbursements to the borrower based upon construction of the development and, as ofJune 30, 2021 , no funds have been disbursed. We expect to fund our entire$79.5 million commitment by mid-2022. In addition, pursuant to a non-binding letter agreement, we will have the opportunity for a period of up to five years to provide up to a total of$300.0 million of mezzanine financing, inclusive of the$79.5 million related to the GreatWolf Lodge Maryland , for the development and construction of Great Wolf's extensive domestic and international indoor water park resort pipeline. •Venetian Acquisition. OnMarch 2, 2021 , we entered into definitive agreements to acquire from Las Vegas Sands Corp. ("LVS"), all of the land and real estate assets associated with the Venetian Resort Las Vegas and theSands Expo and Convention Center , located inLas Vegas, Nevada (collectively, the "Venetian Resort "), for$4.0 billion in cash (the "Venetian PropCo Acquisition"), and an affiliate of certain funds managed by affiliates of Apollo Global Management, Inc. (the "OpCo Buyer"), has agreed to acquire the operating assets of theVenetian Resort for$2.25 billion , subject to certain post-closing adjustments, of which$1.2 billion is in the form of a secured term loan from LVS and the remainder is payable in cash (together with the Venetian PropCo Acquisition, the "Venetian Acquisition"). Simultaneous with the closing of the Venetian Acquisition, we will enter into a triple-net lease agreement for theVenetian Resort (the "Venetian Lease") with OpCo Buyer (in such capacity, the "Venetian Tenant"). The Venetian Lease will have an initial total annual rent of$250.0 million and an initial term of 30 years, with two ten-year tenant renewal options. The annual rent will be subject to escalation equal to the greater of 2.0% and the increase in the consumer price index, capped at 3.0%, beginning in the earlier of (i) the beginning of the third lease year, and (ii) the month following the month in which the net revenue generated by theVenetian Resort returns to its 2019 level (the year immediately prior to the onset of the COVID-19 pandemic) on a trailing twelve-month basis. The closing of the Venetian Acquisition is subject to customary closing conditions, including regulatory approvals. In addition, LVS has agreed with the Venetian Tenant pursuant to an agreement (the "Contingent Lease Support Agreement") to be entered into simultaneous with the closing of the Venetian Acquisition to provide lease payment support designed to guarantee the Venetian Tenant's rent obligations under the Venetian Lease through 2023, subject to early termination if EBITDAR (as defined in such agreement) generated by theVenetian Resort in 2022 equals or exceeds$550 million , or a tenant change of control occurs. We will be a third-party beneficiary of the Contingent Lease Support Agreement and will have certain enforcement rights pursuant thereto. The Contingent Lease Support Agreement is limited to coverage of the Venetian Tenant's rent obligations and does not cover any environmental expenses, litigation claims, or any cure or enforcement costs. The obligations of the Venetian Tenant under the Venetian Lease will not be guaranteed by Apollo Global Management, Inc. or any of its affiliates. After the termination of the Contingent Lease Support Agreement, the Venetian Tenant will be required to provide a letter of credit to secure seven and one-half months of the rent, real estate taxes and assessments and insurance obligations of 52 -------------------------------------------------------------------------------- Table of Contents the Venetian Tenant if the operating results from theVenetian Resort do not exceed certain thresholds. We expect the Venetian Acquisition to close during the fourth quarter of 2021. However, we can provide no assurances that the Venetian Acquisition will close in the anticipated timeframe, on the contemplated terms or at all. PENDING TRANSACTIONS •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 remains subject to regulatory approval and customary closing conditions. •Caesars Southern Indiana Lease Agreement. OnDecember 24, 2020 , in connection with theEastern Band of Cherokee Indians' ("EBCI") agreement to acquire the operations of Caesars Southern Indiana from Caesars, we agreed to enter into a triple-net lease agreement with EBCI with respect to the real property associated with Caesars Southern Indiana, at the closing of EBCI's acquisition. In addition, as part of the transaction, the parties have agreed to negotiate a right of first refusal for us on the real property associated with the development of a new casino resort inDanville, Virginia . Initial total annual rent under the lease with EBCI will be$32.5 million . The lease will have an initial term of 15 years, with four 5-year tenant renewal options. The tenant's obligations under the lease will be guaranteed by EBCI. Annual base rent payments under the Regional Master Lease Agreement will be reduced by$32.5 million upon completion of EBCI's acquisition of the operations of CaesarsSouthern Indiana and the execution of the lease between us and the tenant. The property is expected to retain the Caesars brand name and to continue to be a part of the Caesars Rewards loyalty program in accordance with the terms of a licensing agreement negotiated between EBCI and Caesars. The transaction is subject to customary regulatory and other approvals (and, with respect to the right of first refusal, negotiation of definitive documentation and applicable regulatory and other governmental approvals) and is expected to be completed in the third quarter of 2021. 53 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Segments Our real property business and our golf course business represent our two reportable segments. The real property business segment consists of leased real property and loan investments and represents the substantial majority of our business. The golf course business segment consists of four golf courses, with each being operating segments that are aggregated into one reportable segment. The results of each reportable segment presented below are consistent with the way our management assesses these results and allocates resources. Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2021 2020 Variance 2021 2020 Variance Revenues Income from sales-type and direct financing leases$ 291,132 $ 223,895 $ 67,237 $ 581,278 $ 448,147 $ 133,131 Income from operating leases - 10,913 (10,913) - 21,826 (21,826) Income from lease financing receivables and loans 69,996 17,026 52,970 140,373 29,869 110,504 Other income 6,987 733 6,254 13,961 1,426 12,535 Golf revenues 8,285 5,335 2,950 15,098 11,635 3,463 Total revenues 376,400 257,902 118,498 750,710 512,903 237,807 Operating expenses General and administrative 7,628 7,498 130 15,713 14,513 1,200 Depreciation 757 1,213 (456) 1,549 2,080 (531) Other expenses 6,987 736 6,251 13,961 1,439 12,522 Golf expenses 5,232 4,139 1,093 9,738 8,509 1,229 Change in allowance for credit losses (29,104) (65,480) 36,376 (33,484) 84,028 (117,512) Transaction and acquisition expenses 791 1,160 (369) 9,512 5,677 3,835 Total operating expenses (7,709) (50,734) 43,025 16,989 116,246 (99,257) Interest expense (79,806) (77,693) (2,113) (156,854) (153,786) (3,068) Interest income 30 1,009 (979) 49 6,529 (6,480) Loss from extinguishment of debt - - - - (39,059) 39,059 Income before income taxes 304,333 231,952 72,381 576,916 210,341 366,575 Income tax expense (1,256) (309) (947) (1,740) (763) (977) Net income 303,077 231,643 71,434 575,176 209,578 365,598 Less: Net income attributable to non-controlling interest (2,368) (2,241) (127) (4,666) (4,188) (478) Net income attributable to common stockholders$ 300,709 $ 229,402 $ 71,307 $ 570,510 $ 205,390 $ 365,120 54
-------------------------------------------------------------------------------- Table of Contents Revenue For the three and six months endedJune 30, 2021 and 2020, our revenue was comprised of the following items: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2021 2020 Variance 2021 2020 Variance Leasing revenue$ 351,201 $ 250,732 $ 100,469 $ 701,239 $ 497,917 $ 203,322 Income from loans 9,927 1,102 8,825 20,412 1,925 18,487 Other income 6,987 733 6,254 13,961 1,426 12,535 Golf revenues 8,285 5,335 2,950 15,098 11,635 3,463 Total revenue$ 376,400 $ 257,902 $ 118,498 $ 750,710 $ 512,903 $ 237,807 Leasing Revenue The following table details the components of our income from sales-type, direct financing, operating and financing receivables leases: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2021 2020 Variance 2021 2020 Variance Income from sales-type and direct financing leases$ 291,132 $ 223,895 $
67,237
10,913 (10,913) - 21,826 (21,826)
Income from lease financing
receivables (2) 60,069 15,924 44,145 119,961 27,944 92,017
Total leasing revenue 351,201 250,732 100,469 701,239 497,917 203,322
Non-cash adjustment (3) (29,398) 3,809 (33,207) (57,275) 7,063 (64,338)
Total contractual leasing
revenue $ 321,803 $ 254,541 $ 67,262 $ 643,964 $ 504,980 $ 138,984
____________________
(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 sales-type leases,
direct financing 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 $100.5 million and $203.3 million during the three and six
months ended June 30, 2021 , respectively, compared to the three and six months
ended June 30, 2020 , respectively. Total contractual leasing revenue increased
$67.3 million and $139.0 million during the three and six months ended June 30,
2021 , respectively, compared to the three and six months ended June 30, 2020 ,
respectively. The increase was primarily driven by the addition of the MTA
Properties to our real estate portfolio in July 2020 , as well as the CPLV
Additional Rent Acquisition and the HLV Additional Rent Acquisition in July
2020 .
Income From Loans
Income from loans increased $8.8 million and $18.5 million during the three and
six months ended June 30, 2021 , respectively, compared to the three and six
months ended June 30, 2020 , respectively. The increase was driven by the
addition of the Amended and Restated ROV Loan, the Chelsea Piers Mortgage Loan
and the Forum Convention Center Mortgage Loan to our real estate portfolio in
July 2020 , August 2020 and September 2020 , respectively.
55
--------------------------------------------------------------------------------
Table of Contents
Other Income
Other income increased $6.3 million and $12.5 million during the three and six
months ended June 30, 2021 , respectively, compared to the three and six months
ended June 30, 2020 , respectively. The increase was driven by the additional
income and offsetting expense as a result of the assumption of the HNO Ground
Lease as part of the MTA Properties Acquisitions. Refer to Note 3 - Property
Transactions for further description of the HNO Ground Lease.
Golf Revenues
Revenues from golf operations increased $3.0 million and $3.5 million during the
three and six months ended June 30, 2021 , respectively, compared to the three
and six months ended June 30, 2020 , respectively. The change was primarily
driven by the closure of our golf courses in mid-March 2020 until early to
mid-May 2020 as a result of the COVID-19 pandemic and 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 six months ended June 30, 2021 and 2020, our operating
expenses were comprised of the following items:
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2021 2020 Variance 2021 2020 Variance
General and administrative $ 7,628 $ 7,498 $ 130 $ 15,713 $ 14,513 $ 1,200
Depreciation 757 1,213 (456) 1,549 2,080 (531)
Other expenses 6,987 736 6,251 13,961 1,439 12,522
Golf expenses 5,232 4,139 1,093 9,738 8,509 1,229
Change in allowance for credit
losses (29,104) (65,480) 36,376 (33,484) 84,028 (117,512)
Transaction and acquisition
expenses 791 1,160 (369) 9,512 5,677 3,835
Total operating expenses $ (7,709) $ (50,734) $ 43,025 $ 16,989 $ 116,246 $ (99,257)
General and Administrative Expenses
General and administrative expenses increased $0.1 million and $1.2 million for
the three and six months ended June 30, 2021 , respectively, as compared to the
three and six months ended June 30, 2020 , respectively. The increase was
primarily driven by an increase in compensation, including stock-based
compensation.
Other Expenses
Other expenses increased $6.3 million and $12.5 million during the three and six
months ended June 30, 2021 , respectively, compared to the three and six months
ended June 30, 2020 , respectively. The increase was driven by the additional
income and offsetting expense as a result of the assumption of the HNO Ground
Lease as part of the MTA Properties Acquisitions. Refer to Note 3 - Property
Transactions for further description of the HNO Ground Lease.
Golf Expenses
Expenses from golf operations increased $1.1 million and $1.2 million during the
three and six months ended June 30, 2021 , respectively, compared to the three
and six months ended June 30, 2020 , respectively. The change was primarily
driven by the closure of our golf courses in mid-March 2020 until early to
mid-May 2020 as a result of the COVID-19 pandemic, partially offset by an
increase in the water usage charges at one of our golf courses during 2020.
Additionally, even though our courses were closed from mid-March 2020 until
early to mid-May as a result of the 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 change in our golf course operating revenues during
this time was not proportionately offset by the change in golf course operating
expenses.
56
--------------------------------------------------------------------------------
Table of Contents
Change in Allowance for Credit Losses
Under ASU No. 2016-13 - Financial Instruments-Credit Losses (Topic 326), we are
required to record an estimated credit loss for our (i) Investments in leases -
sales-type, (ii) Investments in leases - financing receivables and (iii)
Investments in loans. During the three and six months ended June 30, 2021 , we
recognized a $29.1 million and $33.5 million decrease, respectively, in our
allowance for credit losses primarily driven by (i) the decrease in the R&S
Period PD of our tenants and their parent guarantors as a result of an
improvement in their economic outlook due to the reopening of all of their
gaming operations and relative performance of such operations during the first
and second quarters of 2021, (ii) the decrease in the Long-Term Period PD due to
an upgrade of the credit rating of the senior secured debt used to determine the
Long-Term Period PD for two of our tenants during the second quarter of 2021 and
(iii) the decrease in the R&S Period PD and R&S Period LGD as a result of
standard annual updates that were made to the inputs and assumptions in the
model that we utilize to estimate our CECL allowance.
During the three months ended June 30, 2020 , we recognized a $65.5 million
decrease in our allowance for credit losses. This decrease was primarily driven
by a decrease in the R&S Period PD of our tenants and their parent guarantors as
a result of an improvement in their economic outlook due to the partial
reopening of a majority of their gaming operations. During the six months ended
June 30, 2020 , we recognized a $84.0 million increase in our allowance for
credit losses. This increase was primarily driven by (i) an increase in the R&S
Period PD and LGD of our tenants and their parent guarantors due to decreases in
the equity market capitalization of the stock of the parent public-entities of
certain of our tenants due to the uncertain economic conditions caused by the
COVID-19 pandemic and closure of the tenants operations at our properties during
such period, as well as the utilization of forecasted scenarios that
incorporated the expected negative impact of the COVID-19 pandemic on the
economy, (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) an increase related to our initial investments in JACK
Cleveland /Thistledown and the ROV Loan in January 2020 . This increase was
partially offset by the decrease for the three months ended June 30, 2020 . Refer
to Note 5 - Allowance for Credit Losses for further details.
Transaction and Acquisition Expenses
Transaction and acquisition expenses decreased $0.4 million during the three
months ended June 30, 2021 compared to the three months ended June 30, 2020 , and
increased $3.8 million during the six months ended June 30, 2021 compared to the
six months ended June 30, 2020 . 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 $2.1 million and $3.1 million during the three and
six months ended June 30, 2021 , respectively, as compared to the three and six
months ended June 30, 2020 , respectively. The increase during the three months
ended June 30, 2021 is primarily related to the amortization of the commitment
fees associated with the Venetian Acquisition Bridge Facility. The increase
during the six months ended June 30, 2021 is primarily attributable to the
amortization of the commitment fees associated with the Venetian Acquisition
Bridge Facility and the increase in debt of $2.5 billion in the aggregate from
the February 2020 Senior Unsecured Notes offering, partially offset by a
reduction in debt of $498.5 million as a result of the full redemption of the
Second Lien Notes in February 2020 .
Additionally, the weighted average annualized interest rate of our debt
decreased to 4.01% and 4.03% during the three and six months ended June 30,
2021 , respectively, from 4.18% and 4.51% during the three and six months ended
June 30, 2020 , respectively, as a result of (i) the weighted average interest
rate on the February 2020 Senior Unsecured Notes being lower than the weighted
average interest rate of the Second Lien Notes and (ii) a decrease in LIBOR on
the $600.0 million portion of our variable rate debt that is not hedged.
Interest Income
Interest income decreased $1.0 million and $6.5 million during the three and six
months ended June 30, 2021 , respectively, compared to the three and six months
ended June 30, 2020 , respectively. The decrease was primarily driven by an
overall decrease in our cash on hand and a decrease in the interest rates earned
on our excess cash.
57
--------------------------------------------------------------------------------
Table of Contents
Loss on Extinguishment of Debt
During the six months ended June 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 six months ended June 30, 2021 .
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, non-cash stock-based compensation expense,
transaction costs incurred in connection with the acquisition of real estate
investments, 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, 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.
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.
58
--------------------------------------------------------------------------------
Table of Contents
Reconciliation of Net Income to FFO, FFO per Share, AFFO, AFFO per Share and
Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except share data and per
share data) 2021 2020 2021 2020
Net income attributable to common
stockholders $ 300,709 $
229,402
- - - -
FFO 300,709 229,402 570,510 205,390
Non-cash leasing and financing adjustments (29,346) 3,826 (57,198) 7,093
Non-cash change in allowance for credit
losses (29,104) (65,480) (33,484) 84,028
Non-cash stock-based compensation 2,395 2,012 4,672 3,362
Transaction and acquisition expenses 791 1,160 9,512 5,677
Amortization of debt issuance costs and
original issue discount 9,934 4,837 16,625 11,136
Other depreciation 726 1,183 1,486 2,026
Capital expenditures (274) (883) (1,507) (1,645)
Loss on extinguishment of debt - - - 39,059
Non-cash adjustments attributable to
non-controlling interest 296 200 523 107
AFFO 256,127 176,257 511,139 356,233
Interest expense, net 69,842 71,847 140,180 136,121
Income tax expense 1,256 309 1,740 763
Adjusted EBITDA $ 327,225 $ 248,413 $ 653,059 $ 493,117
Net income per common share
Basic $ 0.56 $ 0.47 $ 1.06 $ 0.43
Diluted $ 0.54 $ 0.47 $ 1.04 $ 0.43
FFO per common share
Basic $ 0.56 $ 0.47 $ 1.06 $ 0.43
Diluted $ 0.54 $ 0.47 $ 1.04 $ 0.43
AFFO per common share
Basic $ 0.48 $ 0.36 $ 0.95 $ 0.75
Diluted $ 0.46 $
0.36 $ 0.93
Basic 536,692,167 489,012,165 536,586,921 477,094,795
Diluted 554,438,981 489,213,427 549,620,976 481,652,482
59-------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES Overview As ofJune 30, 2021 , our available cash balances, capacity under our Revolving Credit Facility and additional available proceeds from the settlement of forward sale agreements were as follows: (In thousands) June 30, 2021 Cash and cash equivalents $ 407,522 Capacity under Revolving Credit Facility (1)
1,000,000
Proceeds available from settlement of the
2,413,916
Total $ 3,821,438
____________________
(1)Subject to compliance with the financial covenants and other applicable
provisions of our Revolving Credit Facility.
(2)Assumes the physical settlement of 69,000,000 shares and the remaining
26,900,000 shares under the March 2021 Forward Sale Agreements and June 2020
Forward Sale Agreement, respectively, at the forward sale price of $27.34 and
$19.61 , respectively, calculated as of June 30, 2021 .
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 10 - 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 of June 30, 2021 , we have $6.9 billion of debt obligations
outstanding, none of which are maturing in the next twelve months. As of
June 30, 2021 , we have $119.5 million in future funding commitments consisting
of (i) $79.5 million related to the Great Wolf Mezzanine Loan , (ii) $25.0
million related to the ROV Credit Facility and (iii) $15.0 million related to
the Chelsea Piers Mortgage Loan. For a summary of principal debt balances and
their maturity dates and principal terms refer to Note 7 - Debt . For a
summary of our future funding commitments under our loan portfolio, refer to
Note 4 - Real Estate Portfolio .
As described in our leases, capital expenditures for properties under the Lease
Agreements are the responsibility of the tenants. Minimum capital expenditure
spending requirements of the tenants pursuant to the Lease Agreements are
described in Note 4 - Real Estate Portfolio .
60
--------------------------------------------------------------------------------
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 of June 30, 2021 :
Payments Due By Period
2025 and
(In thousands) Total 2021 (remaining) 2022 2023 2024 ThereafterLong-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) 1,585,965 140,905 281,150 255,129 240,344 668,437
Total debt contractual obligations 8,435,965 140,905 291,150 277,129 2,308,344 5,418,437
Leases and contracts
Future funding commitments -
loan investments and lease
agreements(5) 119,500 31,607 47,893 - - 40,000
Operating lease for Cascata
Golf Course Land 19,283 467 951 970 990 15,905
Golf maintenance contract
for Rio Secco and Cascata
Golf Course 8,375 1,675 3,350 3,350 - -
Office leases 8,094 444 857 857 857 5,079
Total leases and contract obligations 155,252 34,193 53,051 5,177 1,847 60,984
Total contractual commitments $ 8,591,217 $
175,098
________________________________________
(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 ofJune 30, 2021 . (5) The allocation of our future funding commitments is based on the construction draw schedule, commitment funding date or expiration date, as applicable, however we may be obligated to fund these commitments earlier than such date. We expect the Venetian Acquisition to close in the fourth quarter of 2021, and expect to fund the purchase with a mix of cash on hand, the physical settlement of ourJune 2020 Forward Sale Agreement andMarch 2021 Forward Sale Agreements, and debt (through additional long-term debt financing, under our Revolving Credit Facility and/or under our Venetian Acquisition Bridge Facility). In particular, we currently intend to issue additional senior unsecured notes to fund a portion of the cash consideration for the Venetian Acquisition, but, absent such a long-term debt financing, we may draw on our Venetian Acquisition Bridge Facility in connection with the closing of the Venetian Acquisition to fund a portion of the consideration and then, in the future, would expect to incur long-term debt financing to refinance such amounts borrowed under the Venetian Acquisition Bridge Facility, subject to market and other conditions. Our ability to raise long-term debt financing on favorable terms or at all may be adversely affected by market or economic conditions that change after the date of this Quarterly Report on Form 10-Q. If we draw upon the Venetian Acquisition Bridge Facility, there can be no assurances that we would be able to refinance the Venetian Acquisition Bridge Facility on terms satisfactory to us, or at all. We anticipate funding future transactions with a mix of debt, equity and available cash. 61 -------------------------------------------------------------------------------- Table of Contents 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,March 2021 Forward Sale Agreements and our ATM Agreement). All of the Lease Agreements call for an initial term of between fifteen and twenty years with additional tenant renewal options and are designed to provide us with a reliable and predictable long-term revenue stream. However, the COVID-19 pandemic has adversely impacted our tenants and their financial condition, and may continue to do so, due to the impact of operating restrictions and limitations imposed from time to time, as well as potential property reclosures. 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 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 Annual Report on Form 10-K for the year ended December 31, 2020 . 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 as a result of the COVID-19 pandemic. In particular, in connection with the COVID-19 pandemic and its impact on our tenants' operations and financial performance, 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, any 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, current or future 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. 62 -------------------------------------------------------------------------------- Table of Contents Cash Flow Analysis The table below summarizes our cash flows for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, (In thousands) 2021 2020 Variance
Cash, cash equivalents and restricted cash
Provided by operating activities $ 410,470 $ 318,497 $ 91,973
Provided by (used in) investing activities 42,105 (840,431) 882,536
(Used in) provided by financing activities (361,046) 3,100,577 (3,461,623)
Net increase in cash, cash equivalents and
restricted cash 91,529 2,578,643 (2,487,114)
Cash, cash equivalents and restricted cash,
beginning of period 315,993 1,101,893 (785,900)
Cash, cash equivalents and restricted cash,
end of period $ 407,522 $ 3,680,536 $ (3,273,014)
Cash Flows from Operating Activities
Net cash provided by operating activities increased $92.0 million for the six
months ended June 30, 2021 compared with the six months ended June 30, 2020 . The
increase is primarily driven by an increase in cash rental and interest payments
from the Eldorado Transaction in July 2020 and the addition of the Amended and
Restated ROV Loan, the Chelsea Piers Mortgage Loan and the Forum Convention
Center Mortgage Loan to our real estate portfolio in July 2020 , August 2020 and
September 2020 , respectively.
Cash Flows from Investing Activities
Net cash provided by investing activities increased $882.5 million for the six
months ended June 30, 2021 compared with the six months ended June 30, 2020 .
During the six months ended June 30, 2021 , the primary sources and uses of cash
from investing activities included:
•Proceeds from partial repayment of the Amended and Restated ROV Loan and
receipt of deferred fees of $30.4 million ;
•Proceeds from net maturities of short-term investments of $20.0 million ;
•Final payment of the funding of a new gaming patio amenity at JACK Thistledown
Racino of $6.0 million ;
•Capitalized transaction costs of $1.9 million ; and
•Acquisition of property and equipment costs of $1.5 million .
During the six months ended June 30, 2020 , the primary sources and uses of cash
from investing activities include:
•The JACK Cleveland /Thistledown Acquisition for a total cost of $897.5 million ,
including acquisition costs;
•Proceeds from net maturities of short-term investments of $59.5 million ;
•Capitalized transaction costs of $1.1 million ; and
•Acquisition of property and equipment costs of $2.2 million .
Cash Flows from Financing Activities
Net cash used in financing activities decreased $3,461.6 million for the six
months ended June 30, 2021 , compared with the six months ended June 30, 2020 .
During the six months ended June 30, 2021 , the primary uses of cash in financing
activities included:
•Dividend payments of $355.3 million ;
•Distributions of $4.1 million to non-controlling interest.
63
--------------------------------------------------------------------------------
Table of Contents
During the six months ended June 30, 2020 the primary sources and uses of cash
from financing activities included:
•Net proceeds from the sale of an aggregate of $1,476.7 million of our common
stock pursuant to the full physical settlement of the forward sale agreements
entered into in June 2019 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 (as defined in the Second Lien Notes indenture), plus fees;
•Dividend payments of $276.5 million ;
•Debt issuance costs of $57.8 million ; and
•Distributions of $4.1 million to non-controlling interest.
Debt
For a summary of our debt obligations as of June 30, 2021, refer to Note 7 -
Debt .
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 June 30, 2021 , 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) 4.6% of the Operating Partnership's revenue
(or 4.5% of our consolidated revenue) for the six months ended June 30, 2021 and
(ii) 3.8% of the Operating Partnership's total assets (or 3.8% of our
consolidated total assets) as of June 30, 2021 .
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 six months
ended June 30, 2021 and 2020 were as follows:
Six Months Ended June 30, 2021
Declaration Date Record Date Payment Date Period Dividend
January 1, 2021 - March 31,
March 11, 2021 March 25, 2021 April 8, 2021 2021 $ 0.3300
April 1, 2021 - June 30,
June 10, 2021 June 24, 2021 July 8, 2021 2021 $ 0.3300
Six Months Ended June 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
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
64
--------------------------------------------------------------------------------
Table of Contents
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.
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,
2020 . There have been no significant changes in our critical policies and
estimates for the six months ended June 30, 2021 .
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 June 30, 2021 , 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 June 30, 2021 , we had entered into interest rate swap agreements that hedge
$1.5 billion of our variable rate debt. Accordingly, we have approximately
$600.0 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 $6.0 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 June 30, 2021 , that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
65
--------------------------------------------------------------------------------Table of Contents
© Edgar Online, source
