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 in Item 1A 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.

OVERVIEW

We are 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 us. Following the Formation Date, we are a stand-alone entity that was initially owned by certain former creditors of CEOC. We are primarily engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations. We lease our properties to subsidiaries of Caesars and Penn National. We conduct our real property business through an operating partnership and our 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 our consolidated results (including the real property business and the golf course business) for the year ended December 31, 2018 and the period from October 6, 2017 (Formation Date) to December 31, 2017. Other financial information included, beginning on page F-37 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 from January 1, 2017 to October 5, 2017.

Summary of Significant 2018 Activities

•	On February 5, 2018, we completed an initial public offering of 69,575,000 shares of common stock at an offering price of $20.00 per share for an aggregate offering value of $1.4 billion, resulting in net proceeds of $1.3 billion after commissions and expenses.

•	On April 24, 2018, we entered into four interest rate swap agreements with third party financial institutions having an aggregate notional amount of $1.5 billion. The interest rate swap transactions are designated as cash flow hedges that effectively fix the LIBOR component of the interest rate on a portion of the outstanding debt under the Term Loan B Facility at 2.8297%.

•

On June 18, 2018, we entered into definitive agreements to (i) acquire the land and real estate assets of the Margaritaville Resort Casino, located in Bossier City, Louisiana for $261.1 million and (ii) concurrently with the closing of the transaction, entered into a triple-net lease on the property with a subsidiary of Penn National. The lease has an initial annual rent of $23.2 million and an initial term of 15 years, with four five-year renewal options. The tenant’s obligations under the lease will be guaranteed by Penn National and certain of its subsidiaries. We completed the transaction on January 2, 2019.

•	On July 11, 2018, we completed the transaction with Caesars to acquire, and lease back, all of the land and real estate assets associated with the Octavius Tower at Caesars Palace (“Octavius Tower”) for a purchase price of $507.5 million in cash. Octavius Tower provides for annual rent of $35.0 million payable in equal consecutive monthly installments.

•	On September 17, 2018 we announced an increase in our targeted annualized dividend to $1.15 per share of common stock, which represents a 9.5% increase from our previous annualized dividend rate of $1.05 per share.

•

On November 13, 2018, we entered into definitive agreements to acquire from affiliates of JACK Entertainment LLC all of the land and real estate assets associated with the Greektown, located in Detroit, Michigan, for $700.0 million in cash, and an affiliate of Penn National Gaming, Inc. has agreed to acquire the operating assets of Greektown for $300.0 million in cash. Simultaneous with the closing of the acquisition, the Company will enter into a triple-net lease agreement for Greektown with a subsidiary of Penn National. The lease will have an initial total annual rent of $55.6 million and an initial term of 15 years, with four five-year tenant renewal options. The tenant’s obligations under the lease will be guaranteed by Penn National and certain of its subsidiaries. The transaction is expected to close in mid-2019 and is subject to regulatory approvals and customary closing conditions. We can provide no assurances that the acquisition of Greektown will be consummated on the terms or timeframe described herein, or at all.

•

On November 19, 2018, we completed a primary follow-on offering of 34,500,000 shares of common stock (including 4,500,000 shares of common stock sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of common stock) at an offering price of $21.00 per share for an aggregate offering value of $724.5 million, resulting in net proceeds of $694.2 million. We intend to contribute the net proceeds from the offering to pay a portion of the aggregate $700.0 million purchase price for the recently announced acquisition of the land and real estate assets of Greektown related fees and expenses.

•	On December 19, 2018, we entered into an equity distribution agreement, or ATM Agreement, pursuant to which we may sell, from time to time, up to an aggregate sales price of $750.0 million of our common stock pursuant to “at the market” offerings.

•

On December 26, 2018 we completed the previously announced transaction with Caesars to acquire all of the land and real estate assets associated with Harrah’s Philadelphia Casino and Racetrack (“Harrah’s Philadelphia”) from Caesars for $241.5 million, which purchase price was reduced by $159.0 million to reflect the aggregate net present value of the contemplated modifications to the Caesars Lease Agreements, resulting in cash consideration of approximately $82.5 million. In connection with the closing, the Non-CPLV Lease Agreement was amended to, among other things, include Harrah’s Philadelphia. The amendment to the Non-CPLV Lease Agreement provided for an additional $21.0 million in annual rent for Harrah’s Philadelphia, which is subject to the amended provisions of the lease.

•	On December 26, 2018, simultaneous with the completion of the acquisition of Harrah’s Philadelphia, we modified certain of the terms in the Caesars Lease Agreements. Such modifications, which are summarized in Item 1 of this 10-K, provide for better alignment of our strategic interests with that of our tenant, Caesars.

KEY TRENDS THAT MAY AFFECT OUR BUSINESS

Subsidiaries of Caesars and Penn National are the lessees of all of our properties pursuant to the Lease Agreements, and Caesars, CRC or Penn National guarantees the obligations of the tenants under the Lease Agreements. The Lease Agreements account for substantially all of our revenues. Additionally, we expect to realize organic growth in rental revenue through annual rent escalators in our Lease Agreements. Accordingly, we are dependent on Caesars, Penn National, 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’ or Penn Nationals’ 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 Item 1A “Risk Factors—Risks Related to Our Business and Operations.”

We actively seek to grow our portfolio through acquisitions of experiential real estate in geographically diverse dynamic markets spanning hospitality, entertainment, leisure and gaming properties. 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 acquired from Centaur Holdings, LLC in Indiana; and (iii) the Put/Call Agreement, which includes rights relating to the Caesars Forum Convention Center in Las Vegas. 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 or underdeveloped land on and 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 leases with tenants with established operating histories, and we will consider various factors when evaluating acquisitions, including the ability to continue to diversify our tenant base 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 trailing 12-month EBITDAR at the time of exercise. We anticipate that we would seek to finance these acquisitions with a combination of debt and 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

(In thousands)	2018				2017*				Variance
Revenues
Income from direct financing leases	$	741,564			$	150,171			$	591,393
Income from operating leases	47,972				11,529				36,443
Tenant reimbursement of property taxes	81,240				19,558				61,682
Golf operations	27,201				6,351				20,850
Revenues	897,977				187,609				710,368
Operating expenses
General and administrative	24,429				9,939				14,490
Depreciation	3,686				751				2,935
Property taxes	81,810				19,558				62,252
Golf operations	17,371				4,126				13,245
Loss on impairment	12,334				—				12,334
Acquisition and transaction expenses	393				9,039				(8,646		)
Total operating expenses	140,023				43,413				96,610
Operating income	757,954				144,196				613,758
Interest expense	(212,663		)		(63,354		)		(149,309		)
Interest income	11,307				282				11,025
Loss from extinguishment of debt	(23,040		)		(38,488		)		15,448
Income before income taxes	533,558				42,636				490,922
Income tax (expense) benefit	(1,441		)		1,901				(3,342		)
Net income	532,117				44,537				487,580
Less: Net income attributable to non-controlling interests	(8,498		)		(1,875		)		(6,623		)
Net income attributable to common stockholders	$	523,619			$	42,662			$	480,957

_____________________________

*****Represents the period from October 6, 2017, the date of the Company’s Formation, through December 31, 2017

Revenue

For the year ended December 31, 2018 and the period from October 6, 2017 to December 31, 2017, our revenue was $898.0 million and $187.6 million, respectively, and was comprised as follows:

(In thousands)	2018				2017				Variance
Real property business revenue	$	870,776			$	181,258			$	689,518
Golf course business revenue	27,201				6,351				20,850
Total revenue	$	897,977			$	187,609			$	710,368

Real Property Business Revenue

Real property business revenue is generated from rent from our Lease Agreements and reimbursements of property taxes, and increased $689.5 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase was primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017. Additionally, we added Octavius Tower and Harrah’s Philadelphia to our real estate portfolio in 2018.

The following table details the components of our income from direct financing and operating leases:

(In thousands)	2018				2017
Income from direct financing leases	$	741,564			$	150,171
Income from operating leases	47,972				11,529
Total leasing revenue	789,536				161,700
Less: Direct financing lease adjustment (1)	(45,404		)		(8,443		)
Total contractual leasing revenue	$	744,132			$	153,257

---

(1) Amounts represent the non-cash adjustment to income from direct financing leases in order to recognize income on an effective interest basis at a constant rate of return over the term of the leases.

Golf Course Business Revenue

Revenues from golf operations increased $20.9 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase was primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017.

Revenues from golf operations was $14.1 million for the period from January 1, 2017 to October 5, 2017 and $18.8 million for the year ended December 31, 2016. Revenues for the period from January 1, 2017 to October 5, 2017 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. 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.

Operating Expenses

General and Administrative Expenses

General and administrative expenses increased $14.5 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase is primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017, partially offset by certain non-recurring formation related expenses incurred in 2017.

Property Taxes

Property taxes paid or reimbursed by our tenants increased $62.3 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase is primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017.

Golf Course Business Expenses

Expenses from golf operations increased $13.2 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. In addition, $3.7 million and $0.8 million of depreciation expense was incurred by the golf business during the year ended December 31, 2018 and the period from October 6, 2017 to December 31, 2017. The increases were primarily driven by a full year of operations in 2018, compared to only three months of operations in 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 for the year ended December 31, 2016.

Loss on Impairment

During the year ended December 31, 2018 the Company recognized a $12.3 million loss on impairment related to certain vacant, non-operating land parcels transferred by CEOC to us on the Formation Date. All of the land parcels are located outside of Las Vegas and none of the land parcels are a component of the operations of our regional property portfolio. No such impairment occurred in the comparative period.

Transaction and Acquisition Costs

For the year ended December 31, 2018 transaction and acquisition costs totaled $0.4 million. 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.

Interest Expense

Interest expense increased $149.3 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase is primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017, offset by the pay down of amounts outstanding on our Revolving Credit Facility and the partial paydown of the Term Loan B Facility and Second Lien Notes in February of 2018.

Interest Income

Interest income increased $11.0 million during the year ended December 31, 2018 compared to the period from October 6, 2017 to December 31, 2017. The increase is primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017 as well as increased cash on hand from our IPO on February 1, 2018 and primary follow-on equity offering on November 15, 2018.

Loss on Extinguishment of Debt

During the year ended December 31, 2018 we recognized a loss on extinguishment of debt of a $23.0 million resulting from the redemption of $268.4 million in aggregate principal of our Second Lien Notes in February 2018 at a redemption price of 108%. During the period from October 6, 2017 to December 31, 2017 we recognized a loss on extinguishment of debt of $38.5 million resulting from the repurchase of $400.0 million aggregate principal amount of prior mezzanine debt of Caesars Palace Las Vegas.

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) (computed in accordance with GAAP) excluding gains (or losses) from sales of property plus real estate depreciation.

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 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), capital expenditures (which are comprised of additions to property, plant and equipment related to our golf course operations), impairment charges and gains (or losses) on debt extinguishment.

We calculate Adjusted EBITDA by adding or subtracting from AFFO 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.

Reconciliation of Net Income to FFO, FFO per Share, AFFO, AFFO per Share and Adjusted EBITDA

(In thousands, except share data and per share data)	Year Ended December 31, 2018				Period from October 6, 2017 to December 31, 2017
Net income attributable to common stockholders	$	523,619			$	42,662
Real estate depreciation	—				—
FFO	523,619				42,662
Direct financing lease adjustments attributable to common stockholders	(44,852		)		(8,362		)
Loss on extinguishment of debt	23,040				38,488
Loss on impairment	12,334				—
Non-cash stock-based compensation	2,342				1,385
Amortization of debt issuance costs and original issue discount	5,976				156
Other depreciation	3,679				751
Capital expenditures	(899		)		(51		)
Transaction and acquisition costs	393				9,039
AFFO	525,632				84,068
Interest expense, net	195,380				62,916
Income tax expense (benefit)	1,441				(1,901		)
Adjusted EBITDA	$	722,453			$	145,083
Net income per common share
Basic and diluted	$	1.43			$	0.19
FFO per common share
Basic and diluted	$	1.43			$	0.19
AFFO per common share
Basic and diluted	$	1.43			$	0.37
Weighted average number of common shares outstanding
Basic	367,226,395				227,828,844
Diluted	367,316,901				227,985,455

LIQUIDITY AND CAPITAL RESOURCES

Overview

As of December 31, 2018, our available cash balance was $577.9 million, our restricted cash balance was $20.6 million, our short-term investment balance was $520.9 million, and $400.0 million was available for future borrowings under our Revolving Credit Facility.

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 contractual commitments refer to Note 12 - Commitments and Contingent Liabilities, in the Notes to our Financial Statements.

Our long-term obligations consist primarily of principal payments on our outstanding debt obligations. We currently have $4.1 billion of debt obligations outstanding, none of which are maturing in the next twelve months. For a summary of principal debt balances and their maturity dates and principal terms refer to Note 9 - Debt, in the Notes to our Consolidated Financial Statements. We anticipate closing the acquisition of Greektown in mid-2019, and we expect to fund the purchase with approximately $350.0 million of cash on hand (which represents a portion of the proceeds that we raised in our November 2018 equity offering) and $350.0 million of debt, either through additional long-term debt financing or under our Revolving Credit Facility. We anticipate funding future transactions with a mix of debt, equity and available cash.

We believe that we have sufficient liquidity to meet our liquidity and capital resource requirements primarily through currently available cash and cash equivalents, restricted cash, 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. All of the Lease Agreements call for an initial term of fifteen years with four, five-year renewal options (except for Harrah’s Philadelphia) and are designed to provide us with a reliable and predictable revenue stream. However, 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. In particular, 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, adverse economic conditions.

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, 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.

Cash Flow Analysis

The table below summarizes our cash flows for the year ended December 31, 2018 and the period from October 6, 2017 to December 31, 2017:

(In thousands)		2018				2017				Variance ($)
Cash, cash equivalents and restricted cash
	Provided by operating activities	$	504,082			$	129,440			$	374,642
	Used in investing activities	(1,140,877		)		(1,136,251		)		(4,626		)
	Provided by financing activities	1,037,836				1,148,446				(110,610		)
	Net increase in cash, cash equivalents and restricted cash	401,041				141,635				259,406

Cash Flows from Operating Activities

Net cash provided by operating activities increased $374.6 million for the year ended December 31, 2018 compared with the period from October 6, 2017 to December 31, 2017. The increase is primarily driven by a full year of operations in 2018, compared to only three months of operations in 2017.

Cash Flows from Investing Activities

Net cash used in investing activities increased $4.6 million for the year ended December 31, 2018 compared with the period from October 6, 2017 to December 31, 2017. During 2018, the primary use of cash from investing activities was our investment in direct financing leases of $771.5 million related to the purchase of Octavius Tower and Harrah’s Philadelphia and net investments in short-term investments of $520.9 million. During the period from October 6, 2017 to December 31, 2017, our investment in deferred financing leases of $1,136.2 million related to the acquisition of Harrah’s Las Vegas was the primary use of cash from investing activities.

Cash Flows from Financing Activities

Net cash provided by financing activities decreased $110.6 million for the year ended December 31, 2018 compared with the period from October 6, 2017 to December 31, 2017.

During the year ended December 31, 2018 the primary sources and uses of cash from financing activities include:

•	Net proceeds from our initial public offering of $1,307.1 million of our common stock;

•	Net proceeds from our primary follow-on equity offering of $694.4 million of our common stock;

•	Repayment of $300.0 million on our Revolving Credit Facility;

•	Repayment of $100.0 million on our Term Loan B Facility;

•	Redemption of $290.1 million in aggregate principal amount of our Second Lien Notes;

•	Dividend payments of $262.7 million

During the period from October 6, 2017 to December 31, 2017 the primary sources and uses of cash from financing activities include:

•	Proceeds from the issuance of $2,200.0 million of our 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;

•	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;

•	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

The following table summarizes our debt related transactions from the Formation Date to December 31, 2018:

		Face Value (In thousands)
Description of Debt		Debt At Formation				Mandatory Conversion				Refinancing Transactions				Debt at December 31, 2017				IPO Transaction				Debt at December 31, 2018
VICI PropCo Senior Secured Credit Facilities
Revolving Credit Facility		$	—			$	—			$	300,000			$	300,000			$	(300,000	)		$	—
Term Loan B Facility		—				—				2,200,000				2,200,000				(100,000		)		2,100,000
First Lien Term Loan (“Prior Term Loan”)		1,638,387				—				(1,638,387		)		—				—				—
First Priority Senior Secured Notes (“Prior First Lien Notes”)		311,721				—				(311,721		)		—				—				—
Second Lien Notes		766,892				—				—				766,892				(268,412		)		498,480
CPLV Debt
CPLV CMBS Debt		1,550,000				—				—				1,550,000				—				1,550,000
CPLV Mezzanine Debt																		—				—
Senior tranche		200,000				—				(200,000		)		—				—				—
Intermediate tranche		200,000				—				(200,000		)		—				—				—
Junior tranche		250,000				(250,000		)		—				—				—				—
Total Debt		$	4,917,000			$	(250,000	)		$	149,892			$	4,816,892			$	(668,412	)		$	4,148,480

Impact of Initial Public Offering

On February 5, 2018, we 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 $1.4 billion, resulting in net proceeds of $1.3 billion after commissions and expenses. We 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.

Covenants

On December 22, 2017, VICI PropCo entered into a credit agreement (the “Credit Agreement”) governing the Term Loan B Facility and the Revolving Credit Facility. The Credit Agreement 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 VICI PropCo or any restricted subsidiary. These covenants are subject to a number of exceptions and qualifications, including the ability to make unlimited restricted payments to maintain our REIT status and to avoid the payment of federal or state income or excise tax, the ability to make restricted payments in an amount not to exceed 95% of our Funds from Operations (as defined in the Credit Agreement) subject to no event of default under the Credit Agreement and pro forma compliance with the financial covenant pursuant to the Credit Agreement, and the ability to make additional restricted payments in an aggregate amount not to exceed the greater of 0.6% of Adjusted Total Assets (as defined in the Credit Agreement) or $30,000,000. Commencing with the first full fiscal quarter ended after December 22, 2017, if the outstanding amount of the Revolving Credit Facility plus any drawings under letters of credit issued pursuant to the Credit Agreement that have not been reimbursed as of the end of any fiscal quarter exceeds 30% of the aggregate amount of the Revolving Credit Facility, VICI PropCo and its restricted subsidiaries on a consolidated basis would be required to maintain a maximum Total Net Debt to Adjusted Total Assets Ratio, as defined in the Credit Agreement, as of the last day of any applicable fiscal quarter.

The CPLV CMBS Debt was incurred in October 2017 pursuant to a loan agreement containing certain covenants limiting CPLV Property Owner LLC’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.

The Second Lien Notes were issued on October 6, 2017, pursuant to an indenture (the “Indenture”) by and among VICI PropCo and its wholly owned subsidiary, VICI FC Inc. (together, the “Issuers”), the subsidiary guarantors party thereto, and UMB Bank National Association, as trustee. The Indenture contains covenants that limit the 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. These covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to VICI to the extent necessary for VICI to distribute cash dividends of 100% of our “real estate investment trust taxable income” within the meaning of Section 857(b)(2) of the Internal Revenue Code of 1986, as amended, certain restricted payments not to exceed the amount of our cumulative earnings (calculated pursuant to the Indenture as $30,000,000 plus 95% of our cumulative Adjusted Funds From Operations (as defined in the Indenture) less cumulative distributions, with certain other adjustments), and the ability to make restricted payments in an amount equal to the greater of 0.6% of Adjusted Total Assets (as defined in the Indenture) or $30,000,000.

At December 31, 2018, 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 Lease Agreements 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, 2018, 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, 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. Actual results may differ from the estimates.

Investments in Direct Financing and Operating Leases

Upon lease inception, we assess lease classification under ASC 840 “Leases” (“ASC 840”) to determine if the lease should be classified as capital or operating. If a lease is determined to be a capital lease, we further assess if it is a direct financing or sales-type lease as defined in ASC 840. For leases determined to be direct financing capital leases, upon execution of the lease transaction, the asset is classified to Investments in direct financing leases, net. For direct financing leases where the land represents greater than 25% of the fair value of the underlying asset, the land and building components of the lease are bifurcated and separately assessed for classification.

We have determined that all of our leases meet the definition of direct financing leases under ASC 840, with the exception of the land component of our investment in Caesars Palace Las Vegas and certain parcels of land contained in the Non-CPLV Lease Agreement. We recognize the related income from our direct financing leases on an effective interest basis at a constant rate of return over the terms of the applicable leases. As a result, the cash payments accounted for under direct financing leases will not equal income from direct financing leases. Rather, a portion of the cash rent we receive is recorded as Income from direct financing leases in our Statement of Operations and a portion is recorded as a change to the Investments in direct financing leases, net.

Initial direct costs incurred in connection with direct financing lease transactions are included in the balance of Investments in direct financing leases, net. Such amounts will be recognized as a reduction to Income from direct financing leases over the life of the lease using the effective interest method.

Under the operating lease model, as the lessor, at lease inception the land is recorded as Investments in operating leases in our Balance Sheet and we record 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 the lessee’s incremental borrowing rate to the value of the land. We record this lease income as Income from operating leases in our Statement of Operations.

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, 2018.

			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, principal (1)		$	2,100,000			$	—							$	32,000			$	2,068,000
	CPLV CMBS Debt, principal (2)		1,550,000				—				—				1,550,000				—
	Second Lien Notes, principal (3)		498,480				—				—				498,480				—
	Revolving Credit Facility, principal (4)		—				—				—				—				—
	Scheduled interest payments (5)		1,050,788				211,372				422,745				324,340				92,330
Total debt contractual obligations			5,199,268				211,372				422,745				2,404,820				2,160,330
Leases and contracts
	Operating lease for Cascata Golf Course Land		21,559				896				1,847				1,921				16,895
	Golf maintenance contract for Rio Secco and Cascata Golf Course		16,350				3,270				6,540				6,540				—
	Office leases		414				345				69				—				—
Total leases and contract obligations			38,323				4,512				8,456				8,461				16,895
Total Contractual Commitments			$	5,237,591			$	215,884			$	431,201			$	2,413,281			$	2,177,225

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(1) 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 in February 2018 the next principal payment due on the Term Loan B Facility is September 2022. 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 payments on variable interest loans are based on a LIBOR rate as of December 31, 2018. Subsequent to year end, on January 3, 2019, we entered into two additional interest rate swap transactions having an aggregate notional amount of $500.0 million at a blended rate of 2.38%.