Fresh-Start Reporting

12 Months Ended

Dec. 31, 2018

On the Formation Date, we adopted fresh-start reporting in accordance with provisions of ASC 852. In the application of fresh start accounting, we allocated the enterprise value to the fair value of assets and liabilities in conformity with the guidance for the acquisition method of accounting for business combinations under ASC 805. The amount remaining after allocation of the enterprise value to the fair value of identified tangible and intangible assets and liabilities, if any, would be reflected as goodwill and subject to periodic evaluation for impairment. In addition to fresh start accounting, our Financial Statements reflect all effects of the transactions contemplated by the Plan of Reorganization.

Under ASC 852, fresh-start reporting is required upon emergence from Chapter 11 if (i) the value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all post-petition liabilities and allowed claims; and (ii) holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. Accordingly, we qualified for and adopted fresh-start reporting as of October 6, 2017. Adopting fresh-start reporting results in a new reporting entity with no beginning retained earnings or deficits. It also includes the issuance of new shares of the reorganized entity caused by change of control under ASC 852.

The net book value of the real estate assets contributed to us by CEOC under the Plan of Reorganization was $4.8 billion. Based upon the analysis we completed with the assistance of outside third-party valuation experts, we concluded the fair value of these assets were $8.3 billion, net of non-controlling interests related to the Joliet facilities of $83.0 million.

Real estate assets were valued using an income approach and, more specifically, the discounted cash flow (“DCF”) technique. Future lease payments for the properties were modeled according to the terms contained in the initial Lease Agreements. Although we believe the length of the leases with CEOC will extend to the full thirty-five years lease term (assuming the exercise of tenant renewal options) per the initial Lease Agreements, the real property valuation analysis contemplates typical market participant oriented nine- and fourteen-year hold periods as a best methodology to estimate the value of the cash flow during the full term of the lease. Appropriate expenses were estimated and deducted from the future contract rent to derive expected future cash flows. Terminal or reversion values are calculated for both hold period scenarios based on estimated market terminal capitalization rates. The DCF technique estimates value by discounting back to present value the anticipated future cash flows for the interim periods in the DCF model plus the present value of the terminal values using an appropriate discount rate. The discount rate was derived based upon a weighted average cost of capital (“WACC”). The WACC was estimated based upon observations of a peer group of guideline companies whose stock was publicly traded on recognized exchanges as such guideline companies were considered comparable to us. Factors considered in deriving a WACC included general market rates of return at the valuation date, business risks associated with the industry in which VICI operates, and other specific risk factors deemed appropriate. An estimated discount rate of 9.0% was selected as a base rate for all properties. Individual property discount rates were then adjusted based on the specific additional aforementioned risk factors and, once adjusted, ranged from 7.5% to 17.5%.

The following fresh-start balance sheet illustrates the financial effects of the implementation of the Plan and the adoption of fresh-start reporting. It reflects the effect of the completion of the transactions included in the Plan, including the issuance of equity and the contribution of properties.



(In thousands)	Fair Value as of Formation Date (October 6, 2017)
Assets
Real estate portfolio:
Investments in direct financing leases, net	$	7,124,000
Investments in operating leases	1,184,000
Property and equipment used in operations, net	75,000
Cash and cash equivalents	55,771
Other assets	681
Total assets	$	8,439,452

Liabilities
Debt	$	4,917,000
Deferred income taxes	5,631
Accounts payable and accrued expenses	149
Total liabilities	4,922,780

Redeemable preferred stock	759,000

Stockholders’ Equity
Common stock	1,772
Additional paid-in capital	2,672,900
Total VICI stockholders’ equity	2,674,672
Non-controlling interests	83,000
Total stockholders’ equity	2,757,672
Total liabilities and stockholders’ equity	$	8,439,452