Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the audited consolidated Financial Statements and notes thereto of VICI Properties Inc., the combined Financial Statements and notes thereto of Caesars Entertainment Outdoor and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our business and growth strategies, statements regarding the industry outlook and our expectations regarding the future performance of our business contained herein are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” You should also review the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements.

BACKGROUND AND FORMATION

VICI is a Maryland corporation that was created to hold certain real estate assets owned by Caesars Entertainment Operating Company (“CEOC”), upon CEOC’s emergence from bankruptcy. Pursuant to CEOC’s Plan of Reorganization, on October 6, 2017 (the “Formation Date”), the historical business of CEOC was separated by means of a spin-off transaction whereby the real property assets (“Formation Properties”) of CEOC and certain of its subsidiaries, including four golf course businesses, were transferred through a series of transactions to VICI. Following the Formation Date, VICI is a stand-alone entity that was initially owned by certain former creditors of CEOC. VICI is primarily engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations. VICI leases the Formation Properties and Harrah’s Las Vegas, which was acquired on December 22, 2017, to subsidiaries of Caesars. VICI conducts its real property business through an operating partnership and its golf course business through a taxable REIT subsidiary (“TRS”), VICI Golf LLC.

The financial information included in this Annual Report on Form 10-K are the consolidated results of VICI (including the real property business and the golf course business) from October 6, 2017 through December 31, 2017. Other financial information included in Part IV, Item 15 of this Annual Report on Form 10-K are the historical combined Financial Statements of Caesars Entertainment Outdoor, the golf course business owned by CEOC until Formation Date. The financial information included for Caesars Entertainment Outdoor includes the period January 1, 2017 through October 5, 2017.

We intend to elect on our U.S. federal income tax return for our taxable year ended December 31, 2017 to be treated as a REIT and we have elected for VICI Golf LLC to be treated as a “taxable REIT subsidiary.”

SUMMARY OF 2017 EVENTS

Formation

In connection with our formation, on October 6, 2017, we issued 177,160,494 shares of common stock and 12,000,000 shares of Series A preferred stock with an aggregate liquidation preference of $300.0 million ($25 per share) to CEOC and certain of its subsidiaries in exchange for the Formation Properties, Caesars Entertainment Outdoor and approximately $56 million of cash and other assets, which shares were transferred by CEOC to its creditors as part of the Plan of Reorganization. These assets had an aggregate fair value of approximately $8.4 billion.

On October 6, 2017, in connection with our formation, we entered into the Formation Lease Agreements, pursuant to which we lease the Formation Properties to Caesars. Additionally, on October 6, 2017, we entered into the Golf Course Use Agreement.

In addition, on October 6, 2017, the Company entered into $4,917.0 million aggregate principal amount of debt consisting of senior secured credit facilities of $1,638.4 million (“Prior Term Loan”), first lien notes of $311.7 million (“Prior First Lien Notes”), second lien notes of $766.9 million (“Second Lien Notes”), $1,550.0 million in asset-level real estate mortgage financing of CPLV (“CPLV CMBS Debt”) and $650.0 million in CPLV mezzanine debt.

Mandatory Conversions

On November 6, 2017, all of the Series A preferred stock automatically converted into 51,433,692 shares of the Company’s common stock (the “Mandatory Preferred Conversion”). No additional consideration was payable in connection with the Mandatory Preferred Conversion.

On November 6, 2017, the junior tranche of CPLV mezzanine debt of $250.0 million issued to institutional accredited investors at formation, automatically converted into an aggregate of 17,630,700 shares of our common stock.

Acquisition of Harrah’s Las Vegas and Sale of Eastside Property

Purchase of Harrah’s Las Vegas Real Estate

On December 22, 2017, we acquired all of the land and real property improvements associated with Harrah’s Las Vegas Hotel & Casino (“HLV”) from a subsidiary of Caesars, for a purchase price of approximately $1,136.2 million. On the closing date, we entered into the HLV Lease Agreement with a subsidiary of Caesars, as tenant, pursuant to which we lease back HLV to Caesars, and Caesars Resorts Collection (“CRC”) guarantees the tenant’s payment obligations under the lease.

Sale of Eastside Property

On December 22, 2017, we sold approximately 18.4 acres of certain parcels located in Las Vegas, Nevada, east of HLV, to a subsidiary of Caesars, for a sales price of approximately $73.6 million.

At the closing, we entered into a Put-Call Agreement with certain subsidiaries of Caesars, which provides Caesars and us with certain rights and obligations in connection with (i) the sale by subsidiaries of Caesars to us and simultaneous leaseback by us to subsidiaries of Caesars of the Eastside Convention Center Property; and (ii) in the event the transactions described in item (i) are triggered by Caesars and such transactions do not close for reasons other than a default by Caesars or failure to obtain any required regulatory approvals (among other things), and Caesars so elects, the sale by us to Caesars of HLV, all on and subject to the terms and conditions set forth in the Put-Call Agreement. After the closing, subsidiaries of Caesars are the owners of certain parcels of real property located adjacent to HLV (including the Eastside Property) (collectively, the “Designated Property”), all or a portion of which Designated Property may in the future be improved by a convention center (in such case, the “Eastside Convention Center”).

Due to the Put-Call Agreement on the land parcels, it was determined that the transaction does not meet the requirements of a completed sale for accounting purposes. As a result, we reclassified $73.6 million from Real estate investments accounted for using the operating method to Land. Additionally, the Company recorded a $73.6 million Deferred financing liability in its Balance Sheet.

Amended and Restated Right of First Refusal Agreement

On December 22, 2017, VICI and Caesars entered into an Amended and Restated Right of First Refusal Agreement pursuant to which we also have a right of first refusal on any sale-leaseback by Caesars of the gaming facilities of Centaur Holdings, LLC, which are proposed to be acquired by Caesars, and certain income-producing improvements if built by Caesars in lieu of a large-scale convention center on the Eastside Property, subject to certain exclusions.

$2.6 Billion Senior Secured VICI PropCo Credit Facility and Debt Refinancing

On December 22, 2017, we entered into a new $2.6 billion senior secured VICI PropCo Credit Facility, comprised of a $2.2 billion senior secured term loan facility (the “Term B Loan Facility”) and a $400.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). The proceeds of the Term B Loan Facility, together with $300.0 million of borrowings under the Revolving Credit Facility, provided a portion of the proceeds used to purchase the Harrah’s Las Vegas property, to repay in full the Prior Term Loans, to repurchase in full the then outstanding Prior CPLV Mezzanine Debt and to discharge in full our obligations under the Prior First Lien Notes.

Private Equity Placement

On December 22, 2017, we sold, contemporaneously with the consummation of the acquisition of the Harrah’s Las Vegas property, 54,054,052 shares of our common stock at a price of $18.50 per share in a private placement transaction, for net proceeds of approximately $963.8 million. The net proceeds from the transaction were used to partially fund the purchase price for the Harrah’s Las Vegas property and for working capital and general corporate purposes.

KEY TRENDS THAT MAY AFFECT OUR BUSINESS

Subsidiaries of Caesars are the lessees of all of our properties pursuant to the Lease Agreements, and Caesars or CRC guarantees the obligations of the tenants under the Lease Agreements. The Lease Agreements account for substantially all of our revenues. Additionally, we expect to experience organic growth in rental revenue through annual rent escalators in our Lease Agreements. Accordingly, we are dependent on Caesars, the gaming industry and the health of the economies in the areas where our properties are located for the foreseeable future, and an event that has a material adverse effect on Caesars’ business, financial condition, liquidity, results of operations or prospects would have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. See “Risk Factors—Risks Related to Our Business and Operations.”

Additionally, we expect to grow our portfolio through acquisitions by pursuing opportunities to execute sale leaseback transactions with Caesars, pursuant to: (i) the Call Right Agreements, relating to three properties; (ii) rights of first refusal relating to certain domestic gaming facilities proposed to be acquired or developed by Caesars located outside the Gaming Enterprise District of Clark County, Nevada and the properties that Caesars recently agreed to acquire from Centaur Holdings, LLC; and (iii) the Put-Call Agreement, which includes rights relating to the Eastside Convention Center Property in Las Vegas. Additionally, we will actively seek to grow our portfolio through acquisitions of experiential real estate in dynamic markets spanning hospitality, entertainment, leisure and gaming properties. Finally, we believe the approximately 34 acres (after giving effect to the sale of approximately 18.4 acres to Caesars in December 2017) of undeveloped land adjacent to the Las Vegas Strip that we own will provide attractive opportunities for potential future expansion and development. In pursuing external growth initiatives, we will generally seek to acquire properties that can generate stable rental revenue through long-term, triple-net leases with tenants with

established operating histories, and we will consider various factors when evaluating acquisitions, including the ability to diversify our tenant base, by potentially leasing properties to parties unaffiliated with Caesars, and increasing our geographic diversification.

Our operating and financial performance in the future will be significantly influenced by the success of our acquisition strategy, and the timing and the availability and terms of financing of any acquisitions that we may complete. We can provide no assurance that we will exercise any of our contractual rights to purchase one or more properties from Caesars or otherwise be successful in acquiring any properties. Additionally, our ability to successfully implement our acquisition strategy will depend upon the availability and terms of financing, including debt and equity capital. Further, the pricing of any acquisitions we may consummate and the terms of any leases that we may enter into will significantly impact our future results. Competition to execute sale leaseback transactions with attractive properties and desirable tenants is intense, and we can provide no assurance that any future acquisitions or leases will be on terms as favorable to us as those relating to recent transactions. Should we exercise an option to purchase a property under a Call Right Agreement, the purchase price will be equal to ten times the property’s annual rent, which, in turn, will equal approximately 60% of the trailing property EBITDAR at the time of exercise. Accordingly, the purchase price and rent for any property we may acquire under a Call Right Agreement and lease to Caesars will depend upon the property’s EBITDAR at the time of exercise. We anticipate that we would seek to finance these acquisitions with a majority of equity, although no assurance can be given that we would be able to issue equity in such amounts on favorable terms, or at all, or that we would not determine to incur more debt on a relative basis at the relevant time due market conditions or otherwise. In addition to rent, our tenants are required to pay the following: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on our income); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. Accordingly, due to the “triple-net” structure of our leases, we do not expect to incur significant property-level expenses.

DISCUSSION OF OPERATING RESULTS

Revenue

For the period from October 6, 2017, the date of our formation, to December 31, 2017 our revenue was $187.5 million and was comprised of $181.2 million from our real property business and $6.4 million from our golf course business.

Real Property Business Revenue

Real property business revenue of $181.2 million was generated from rent and reimbursements of property taxes, pursuant to the Formation Lease Agreements, which became effective on October 6, 2017, and the HLV Lease, which became effective on December 22, 2017, and was comprised of $150.1 million of earned income from direct financing leases, $11.5 million of rental income from operating leases and $19.6 million of property taxes paid by our tenants on the leased properties.

For the period from October 6, 2017 to December 31, 2017, cash received under our Lease Agreements was $213.7 million, including $60.4 million received for January 2018 rent.

Golf Course Business Revenue

For the period from October 6, 2017 to December 31, 2017, Golf Course related revenue was $6.4 million. Revenue for the golf courses included $2.4 million earned pursuant to the Caesars membership fee; $0.7 million from the Caesars use fee; $0.3 million from Caesars minimum rounds fees; $2.1 million from other golf activities; $0.4 million from food and beverage; and $0.5 million from merchandise sales and other.

For the period from January 1, 2017 to October 5, 2017, Golf Course related revenue was $14.1 million and were comprised of golf revenues of $11.4 million, food and beverage revenues of $1.3 million and retail and other revenues of $1.4 million. Golf Course related revenue was $18.8 million and $18.1 million for the years ended December 31, 2016 and 2015, respectively. Revenues for the year ended December 31, 2016 were comprised of golf revenues of $14.6 million, food and beverage revenues of $2.1 million and other revenues of $2.1 million. Revenues for the year ended December 2015 were comprised of golf revenues of $14.1 million, food and beverage revenues of $2.1 million and other revenues of $1.9 million.

Operating Expenses

General and Administrative Expenses

For the period from October 6, 2017 to December 31, 2017, general and administrative expenses were $9.9 million, comprised primarily of $5.0 million of compensation costs; $3.4 million of legal and professional fees and $1.1 million of franchise and other taxes.

Transaction and Acquisition Costs

For the period from October 6, 2017 to December 31, 2017, transaction and acquisition costs totaled $9.0 million and were comprised of expenses related to the acquisition of Harrah’s Las Vegas and the sale of the Eastside Property.

Loss on Extinguishment of Debt

We recognized a loss on extinguishment of debt of $38.5 million during the period from October 6, 2017 to December 31, 2017, resulting from the buy down of $400.0 million aggregate principal amount of Prior CPLV Mezzanine Debt.

Property Taxes

Property taxes paid or reimbursed by our tenants were $19.6 million for the period from October 6, 2017 to December 31, 2017.

Golf-related Expenses

Golf-related expenses totaled $4.1 million for the period from October 6, 2017 to December 31, 2017 and were primarily comprised of property-related costs consisting of land rent, grounds maintenance, taxes, insurance and utilities directly related to the golf course of $1.7 million; compensation costs of $1.1 million; and food, beverage and retail-related cost of goods sold of $0.4 million.

In addition, $0.8 million of depreciation expense was incurred by the golf business during the period from October 6, 2017 to December 31, 2017.

Golf-related expenses totaled $14.1 million for the period from January 1, 2017 to October 5, 2017. Golf-related expenses totaled $18.8 million and $18.1 million for the years ended December 31, 2016 and 2015, respectively.

Interest Expense

During the period from October 6, 2017 to December 31, 2017, we incurred $63.4 million of interest expense from our borrowing obligations based upon a weighted average interest rate of 5.19%. We paid cash interest costs of $36.8 million during the 2017 period. See “Liquidity and Capital Resources” below for more information.

Net Income, Funds From Operations (“FFO”), Available Funds From Operations (“AFFO”) and Adjusted EBITDA

Net income, FFO, AFFO and Adjusted EBITDA were $42.7 million, $42.7 million, $84.1 million and $145.1 million for the period from October 6, 2017 to December 31, 2017. See “Reconciliation of Non-GAAP Measures” below for a reconciliation of net income to FFO, AFFO and Adjusted EBITDA.

RECONCILIATION OF NON-GAAP MEASURES

We present Funds From Operations (“FFO”), Adjusted Funds From Operations (“AFFO”) 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, AFFO 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) (computed in accordance with GAAP) excluding gains (or losses) from sales of property plus real estate depreciation. AFFO is a non-GAAP measure that is used as a supplemental operating measure specifically for comparing year over year ability to fund dividend distribution from operating activities. AFFO is used by us as a basis to address our ability to fund our dividend payments. We calculate AFFO by adding or subtracting from FFO direct financing lease adjustments, 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, non-cash interest expense, non-real estate depreciation (which is comprised of the depreciation related to our golf course operations), impairment charges on non-real estate assets, amortization of capitalized leasing costs and debt extinguishment gains and losses. We define Adjusted EBITDA as net income as adjusted for gains (or losses) from sales of property, real estate depreciation, direct financing lease adjustments, 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), impairment charges on non-real estate assets, amortization of capitalized leasing costs, debt extinguishment gains and losses, provision for income taxes and interest expense, net.

Because not all companies calculate FFO, AFFO and Adjusted EBITDA in the same way we do and other companies may not perform such calculations, those measures as used by other companies may not be consistent with the way we calculate such measures and should not be considered as alternative measures of operating income or net income. Our presentation of these measures does not replace the presentation of our financial results in accordance with GAAP.

Reconciliation of FFO, AFFO and Adjusted EBITDA

(In thousands)		For the period October 6, 2017 to December 31, 2017
Net income attributable to common shareholders		$	42,662
Real estate depreciation		—
FFO		42,662
Direct financing lease adjustments attributable to common shareholders		(8,362		)
Loss on extinguishment of debt		38,488
Acquisition and transaction costs		9,039
Non-cash stock compensation		1,385
Amortization of debt issuance costs and original issue discount		156
Other depreciation		751
AFFO		84,119
Interest expense, net		62,916
Income tax benefit		(1,901		)
Adjusted EBITDA		$	145,134

LIQUIDITY AND CAPITAL RESOURCES

General

VICI’s intends to use funds for payment of operating expenses, cash distributions, principal and interest on our outstanding indebtedness and other investments. We expect to meet our liquidity and capital resource requirements primarily through currently available cash and cash equivalents, restricted cash, 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. As of December 31, 2017, our cash balance was $183.9 million, our restricted cash balance was $13.8 million and we had $300.0 million outstanding and $100.0 million was available for future borrowings under our Revolving Credit Facility.

Cash Flow Analysis

The table below summarizes our cash flows for the period from October 6, 2017 to December 31, 2017:

(In thousands)			Period from October 6 to December 31, 2017
Cash, cash equivalents and restricted cash
	Provided by operating activities		$	129,440
	Used in investing activities		(1,136,251		)
	Provided by financing activities		1,148,446
	Net increase in cash, cash equivalents and restricted cash		141,635
	Balance at October 6, 2017		55,771
	Balance at December 31, 2017		$	197,406

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $129.4 million for the period from October 6, 2017 to December 31, 2017 with the primary source being from cash rent collected by our leasing operations of $213.7 million and the primary use being cash paid for interest on our debt obligations of $36.8 million.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $1,136.3 million for the period from October 6, 2017 to December 31, 2017. The acquisition of Harrah’s Las Vegas for $1,136.2 million was the primary use of cash from investing activities. The sale of approximately 18.4 acres of undeveloped land located behind the LINQ Hotel & Casino and Harrah’s Las Vegas to Caesars for $73.6 million was the primary source of cash from investing activities.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled $1,148.4 million million for the period from October 6, 2017 to December 31, 2017.

The primary sources of cash from financing activities include:

•	Proceeds from the issuance of $2,200.0 million of Term Loan B Facility;

•	Proceeds from the $300.0 million draw from our Revolving Credit Facility;

•	Proceeds from the private placement issuance of $1,000.0 million of our common stock; and

The primary uses of cash from financing activities include:

•	Repayment of our $1,638.4 million senior secured first lien Prior Term Loan;

•	Repayment of our $311.7 million first-priority senior secured Prior First Lien Notes;

•	The purchase by VICI PropCo of the entirety of the outstanding CPLV mezzanine debt in the aggregate principal amount of $400.0 million;

•	Costs of $36.2 million related to our common stock private placement and premium and fees related to the purchase of the mezzanine debt of $38.4 million; and

•	Debt issuance costs of $31.5 million related to our Term Loan B Facility and Revolving Credit Facility.

Debt

On the Formation Date, VICI issued $1,638.4 million of Prior Term Loans; $311.7 million aggregate principal amount of Prior First Lien Notes; $766.9 million aggregate principal amount of Second Lien Notes; $1,550.0 million of CPLV CMBS Debt and $650.0 million of CPLV mezzanine debt for a total aggregate face value of debt of $4,917.0 million. The weighted average interest rate on the outstanding debt at formation was 5.36% and had a first year debt service requirements of $272.0 million.

As a result of a mandatory conversion of the $250.0 million junior tranche of the CPLV mezzanine debt in November 2017 and certain refinancing transactions in December 2017, VICI has $4,816.9 million of aggregate face value of debt outstanding at December 31, 2017. Included in our year-end debt balances are: a new $2,200.0 million Term B Loan Facility; $300.0 million drawn on a new $400.0 million senior secured Revolving Credit Facility; $1,550.0 million of CPLV CMBS Debt; and $766.9 million of our Second Lien Notes. The weighted average interest rate on all outstanding debt at December 31, 2017 was 4.64% and has a 2018 debt service requirements of $249.3 million. In addition, we were in compliance with all debt-related covenants at December 31, 2017.

Impact of Initial Public Offering

On February 5, 2018, the Company completed an initial public offering of 69,575,000 shares of common stock (which included 9,075,000 shares of common stock related to the overallotment option exercised by the underwriters in full) at an offering price of $20.00 per share for gross proceeds of $1,391.5 million, resulting in net proceeds of $1,307.0 million after commissions and expenses. The Company utilized a portion of the net proceeds from the stock offering to: (a) pay down $300.0 million of indebtedness outstanding under the Revolving Credit Facility; (b) redeem $268.4 million in aggregate principal amount of the Second Lien Notes at a redemption price of 108% plus accrued and unpaid interest to the date of the redemption; and (c) repay $100.0 million of the Term Loan B Facility.

The impact of these subsequent payments of debt decreased our weighted average interest rate on outstanding debt from 4.64% at December 31, 2017 to 4.39% at February 28, 2018 and decreased our 2018 debt service requirements to $210.8 million.

VICI PropCo Credit Facility

On December 22, 2017, VICI PropCo entered into the VICI PropCo Credit Facility, comprised of the $2,200.0 million senior secured Term Loan B Facility and a $400.0 million senior secured Revolving Credit Facility. The Revolving Credit Facility and Term Loan B Facility initially bear interest at LIBOR plus 2.25%, with an adjustment to LIBOR plus 2.00% upon an Initial Public Offering with proceeds greater than $500.0 million. The Revolving Credit Facility will mature on December 22, 2022 and the Term Loan B Facility will mature on December 22, 2024 or the date that is three months prior to the maturity date of the Second Lien Notes, whichever is earlier (or if the maturity is extended pursuant to the terms of the agreement, such extended maturity date as determined pursuant thereto). As of December 31, 2017, $300.0 million was drawn on the Revolving Credit Facility. If more than 30% of the Revolving Credit Facility is utilized at any quarter-end, VICI PropCo is required to maintain a maximum total net debt to adjusted total assets ratio.

The VICI PropCo Credit Facility contains customary covenants that, among other things, limit the ability of VICI PropCo and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) merge with a third party or engage in other fundamental changes; (iii) make restricted payments; (iv) enter into, create, incur or assume any liens; (v) make certain sales and other dispositions of assets; (vi) enter into certain transactions with affiliates; (vii) make certain payments on certain other indebtedness; (viii) make certain investments; and (ix) incur restrictions on the ability of restricted subsidiaries to make certain distributions, loans or transfers of assets to the VICI PropCo or any restricted-subsidiary. 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 the REIT status of VICI.

CPLV CMBS Debt

On the Formation Date, CPLV Property Owner LLC, the special purpose entity that is the fee owner of CPLV (subject to the CPLV Lease Agreement) and that is indirectly owned by VICI PropCo (the “CPLV Mortgage Borrower”) borrowed the CPLV CMBS Debt, which matures in October 2022 and consists of asset-level real estate mortgage financing from various third-party financial institutions.

The CPLV CMBS Debt has an interest rate of 4.36% per annum and is secured by, among other things, all of the assets of CPLV Mortgage Borrower, including, but not limited to, CPLV Mortgage Borrower’s (1) fee interest (except as provided in (2)) in and to CPLV, (2) leasehold interest with respect to Octavius Tower, and (3) interest in the CPLV Lease Agreement and all related agreements. The CPLV CMBS Debt is a first priority lien, subject only to permitted encumbrances (which are set forth in the loan documentation), and an obligation to repay a specified sum with interest. The CPLV CMBS Debt was evidenced by certain promissory notes and secured by a deed of trust that created a mortgage lien on the fee and/or leasehold interest of the CPLV Mortgage Borrower.

The loan documents governing the CPLV CMBS Debt contain covenants limiting CPLV Mortgage Borrower’s ability to, among other things: (i) incur additional debt; (ii) enter into certain transactions with its affiliates; (iii) consolidate, merge, sell or otherwise dispose of its assets; and (iv) allow transfers of its direct or indirect equity interests.

Second Lien Notes

On the Formation Date, VICI Properties 1 LLC and VICI FC Inc. (together, “the co-issuers”), issued $766.9 million in aggregate principal amount of Second Lien Notes to certain creditors pursuant to the terms of the Plan of Reorganization. The Second Lien Notes are due in 2023. The notes co-issuers pay interest semi-annually on the Second Lien Notes at a rate per annum of 8.0%. The Second Lien Notes are senior secured obligations of the notes co-issuers and rank equally and ratably in right of payment with all existing and future senior obligations and senior to all future subordinated indebtedness.

The Second Lien Notes are guaranteed on a senior secured basis by each of the VICI PropCo existing and subsequently acquired direct and indirect wholly owned material domestic restricted subsidiaries, and secured by a second priority lien and security interest on substantially all of VICI PropCo and each such restricted subsidiaries’ material assets, including pledges of equity interests in their respective restricted subsidiaries and mortgages on their respective real estate (which mortgages are to be entered into within a certain period of time following the issuance of the Second Lien Notes), subject in each case to customary exceptions. Such guarantees are required to be provided by the same subsidiary guarantors that guarantee the indebtedness under the VICI PropCo Credit Facility or Prior First Lien Notes and such liens and security interests are required to be in the same collateral that

secures the indebtedness under the VICI PropCo Credit Facility or Prior First Lien Notes. Neither VICI REIT or our Operating Partnership or certain subsidiaries of VICI PropCo, including CPLV and its subsidiaries, are subject to the covenants of the indenture governing the Second Lien Notes or are guarantors of the Second Lien Notes.

The indenture governing the Second Lien Notes contains covenants that limit the notes co-issuers’ and their restricted subsidiaries’ ability to, among other things: (i) incur additional debt; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on certain assets to secure debt; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; (viii) enter into certain transactions with their affiliates; and (ix) designate their subsidiaries as unrestricted subsidiaries. The Second Lien Notes are redeemable at VICI PropCo’s option, in whole or in part, at any time, from time to time, at a price equal to 100% of the principal amount of the Second Lien Notes so redeemed and, (1) prior to the third anniversary of the issuance of such Notes, a “make-whole” premium and (2) thereafter, a prepayment premium equal to (y) 4% of the amount redeemed on and after the third anniversary of such issuance, and (z) 0% on and after the fourth anniversary of such issuance plus accrued and unpaid interest to the redemption date. In addition, prior to the third anniversary of such issuance, up to 35% of the original aggregate principal amount of the Second Lien Notes may be redeemed at VICI PropCo’s option with the net cash proceeds of certain issuances of common or preferred equity by VICI PropCo, VICI REIT or any parent entity of VICI PropCo, at a price equal to 108% of the principal amount of the Second Lien Notes redeemed plus accrued and unpaid interest to the redemption date; provided, however, that at least 50% of the original aggregate principal amount of the Second Lien Notes must remain outstanding after any such redemption.

Covenants

At December 31, 2017, the Company was in compliance with all required debt-related financial covenants.

Capital Expenditures

As described in our leases, capital expenditures for properties under the Formation Lease Agreements and the HLV Lease are the responsibility of the tenants. Minimum capital expenditure spending requirements of the tenants are described in “Overview of our Lease Agreements” of Item 1 - Business.

Inflation

Our leases provide for certain increases in rent as a result of a fixed annual rent escalator or changes in the Consumer Price Index as further described in “Overview of our Lease Agreements” of Item 1 - Business. Inflation may cause the rent provisions to result in rent increases over time. However, we could be negatively affected if increases in rent are not sufficient to cover increases in our operating expenses due to inflation. In addition, inflation and increased cost may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue due to inflation.

Off-Balance Sheet Arrangements

As of December 31, 2017 and as of the date this report was filed, we do not have any off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Financial Statements are prepared in accordance with GAAP. We have identified certain accounting policies that we believe are the most critical to the presentation of our financial information over a period of time. These accounting policies may require our management to take decisions on subjective and/or complex matters relating to reported amounts of assets, liabilities, revenue, costs, expenses and related disclosures. These would further lead us to estimate the effect of matters that may inherently be uncertain.

Estimates are required in order to prepare the Financial Statements in conformity with U.S. GAAP.

Significant estimates, judgments, and assumptions are required in a number of areas, including, but not limited to, the application of fresh start reporting, determining the useful lives of real estate properties, and evaluating the impairment of long-lived assets, and allocation of costs and deferred income taxes. The judgment on such estimates and underlying assumptions is based on our historical experience that we believe is reasonable under the circumstances. These form the basis of our judgment on matters that may not be apparent from other available sources of information. In many instances changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. We believe the current assumptions and other considerations used to estimate amounts reflected in our Financial Statements are appropriate. However, if actual experience differs

from the assumptions and other considerations used in estimating amounts reflected in our Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations and, in certain situations, could have a material adverse effect on our financial condition.

Revenue Recognition

Leases

As a REIT, the majority of our revenues are derived from rent received from our tenants under long-term triple-net leases. The accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 840, “Leases” (“ASC 840”) is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease. We perform a lease classification upon lease inception, to determine if we will account for the lease as a capital or operating lease. Under ASC 840, for leases of both building and land, if the fair value of the land is 25 percent or more of the total fair value of the leased property at lease inception we consider the land and building separately for lease classification. In these cases, if the building element of the lease meets the criteria to be classified as a capital lease, then we account for the building element as a capital lease and the land separately as an operating lease. If the building element does not meet the criteria to be classified as a capital lease, then we account for the building and land elements as a single operating lease. To determine

if the building portion of a lease triggers capital lease treatment we conduct the four lease tests in ASC 840 outlined below. If a lease meets any of the four criteria below, it is accounted for as a capital lease.

(1) Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title.

(2) Bargain purchase option. The lease contains a bargain purchase option, which is a provision allowing the lessee, at its option, to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable. In addition, the exercise of the option must be reasonably assured at lease inception.

(3) Lease term. The lease term is equal to 75% or more of the estimated economic life of the leased property. However, if the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for purposes of classifying the lease. This test is conducted on a property by property basis.

(4) Minimum lease payments. The present value of the minimum lease payments at the beginning of the lease term, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90% of the fair value of the leased property to the lessor at lease inception less any related investment tax credit retained by the lessor and expected to be realized by the lessor. If the beginning of the lease term falls within the last 25% of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for purposes of classifying the lease.

The tests outlined above, as well as the resulting calculations, require subjective judgments, such as determining, at lease inception, the fair value of the assets, the residual value of the assets at the end of the lease term, the likelihood a tenant will exercise all renewal options (in order to determine the lease term), the estimated remaining economic life of the leased assets, the incremental borrowing rate of the lessee and the interest rate implicit in the lease. A change in estimate or judgment can result in a materially different financial statement presentation.

The revenue recognition model is different under capital leases and operating leases.

Under the operating lease model, as the lessor, at lease inception the land is recorded as Real Estate Investments accounted for using the operating method in our Balance Sheet and we record rental income from operating leases on a straight-line basis over the lease term. The amount of annual minimum lease payments attributable to the land element after deducting executory costs, including any profit thereon, is determined by applying our incremental borrowing rate to the value of the land. We record this lease income as Rental Income from Operating Leases in our Statement of Operations.

Under the direct financing lease model, as lessor, at lease inception we record the lease receivable as Investment in direct financing leases, net in our Balance Sheet. Under the direct financing lease method, we recognize fixed amounts due on an effective interest basis at a constant rate of return over the lease term. As a result, the cash payments accounted for under direct financing leases

will not equal the earned income from direct financing leases as a portion of the cash rent we receive is recorded as Earned income from direct financing leases in our Statement of Operations and a portion is recorded as a reduction to Investment in direct financing leases, net.

Investment in direct financing leases, net and Real Estate Investments

For real estate investments accounted for using the operating method, we continually monitor events and circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized. When events or changes in circumstances indicate that a potential impairment has occurred or that the carrying value of a real estate investment may not be recoverable, we use an estimate of the undiscounted value of expected future operating cash flows to determine whether the real estate investment is impaired. If the undiscounted cash flows plus net proceeds expected from the disposition of the asset is less than the carrying value of the assets, we recognize an impairment charge equivalent to the amount required to reduce the carrying

value of the asset to its estimated fair value. We group our real estate investments together by property, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, we must make assumptions regarding future cash flows and other factors. Factors considered in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss.

Our investment in direct financing leases, net, is evaluated for impairment as necessary, if indicators of impairment are present, to determine if there has been an-other-than-temporary decline in the residual value of the property or a change in the lessee’s credit worthiness.

Income Taxes—REIT Qualification

We intend to elect to be taxed and qualify as a REIT for U.S. Federal income tax purposes commencing with our taxable year ended December 31, 2017, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT beyond that taxable year end. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (with certain adjustments), determined without regard to the dividends paid deduction and excluding any net capital gains. As a REIT, we generally will not be subject to Federal income tax on income that we pay as distributions to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. Federal income tax on our taxable income at regular corporate income tax rates, and distributions paid to our stockholders would not be deductible by us in computing taxable income. Additionally, any resulting corporate liability created if we fail to qualify as a REIT could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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 December 31, 2017.

			Payments Due By Period
(In thousands)			Total				Within 1 Year				1-3 Years				4-5 Years				After 5 Years
Long-term debt
	Term Loan B Facility (1)		$	2,200,000			$	21,918			$	43,182			$	42,326			$	2,092,574
	CPLV CMBS Debt, principal (2)		1,550,000				—				—				1,550,000
	Second Lien Notes, principal (3)		766,892				—				—				—				766,892
	Revolving Credit Facility, principal (4)		300,000				—				—				300,000				—
	Estimated interest payments (5)		1,313,336				227,372				443,709				428,567				213,688
Total debt contractual obligations			6,130,228				249,290				486,891				2,320,893				3,073,154
Leases and contracts
	Operating lease for Cascata Golf Course Land		22,509				873				1,799				1,871				17,966
	Golf maintenance contract for Rio Secco and Cascata Golf Course		3,194				2,969				225				—				—
	Office leases		258				200				58				—				—
Total leases and contract obligations			25,961				4,042				2,082				1,871				17,966
Total Contractual Commitments			$	6,156,189			$	253,332			$	488,973			$	2,322,764			$	3,091,120

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(1) The Term Loan B Facility requires scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount, with the balance due at maturity. The Term Loan B Facility will mature on December 22, 2024 or the date that is three months prior to the maturity of the Second Lien Notes, whichever is earlier (or if the maturity is extended pursuant to the terms of the agreement, such extended maturity date as determined pursuant thereto).

(2) The CPLV CMBS Debt will mature on October 10, 2022.

(3) The Second Lien Notes will mature on October 15, 2023.

(4) The Revolving Credit Facility will mature on December 22, 2022.

(5) Estimated interest on variable interest loans are based on a LIBOR rate of 1.50%.

As discussed in Note 17—Subsequent Events, the Company utilized a portion of the proceeds from its initial public offering in February 2018 to: (a) pay down $300.0 million of indebtedness outstanding under the Revolving Credit Facility; (b) redeem $268.4 million in aggregate principal amount of the Second Lien Notes at a redemption price of 108% plus accrued and unpaid interest to the date of the redemption; and (c) repay $100.0 million of the Term Loan B Facility.