Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 4th, 2018. I will now turn the call over to Jacques Cornet with ICR. Please go ahead.
Thank you, operator. Good morning. Everyone should have access to the company's first quarter 2018 earnings release. The release can be found in the investors section of the VICI Properties website at www.viciproperties.com. Some of management's comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should, or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for more detailed discussion of the risks that could impact future operating results and financial condition. During the call, management will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2018 earnings release. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer, John Payne, President and Chief Operating Officer, and David Kieske, Chief Financial Officer of the company. Management will provide some opening remarks. Then we'll open the call to questions. With that, I turn the call over to Ed.
Thank you, Jacques. Good morning, everyone. Welcome to our second earnings call as a publicly traded company and the first earnings call reporting a full calendar quarter. Today is day 210 since our emergence on October 6th, 2017. We continue to execute on our mission to be America's most dynamic leisure and hospitality experiential real estate company. The highlight of our first quarter was our successful IPO on January 31st, in which we raised $1.4 billion, de-levering our balance sheet, improving our liquidity, and greatly expanding our shareholder base. We were also pleased to announce our first dividend in March. We look forward to continuing to deliver these distributions as a key part of our total return package to investors. David will provide more details on the results. We ended the quarter with just about $1.3 billion in dry powder available for growth initiatives.
We remain hard at work focused on prospects to advance our strategy around our four key pillars of value, portfolio, tenant, capital stewardship, and our governance and independence. Our pipeline of growth opportunities is healthy. We have three call-option properties which we can take down at our discretion at a 10 cap at any time between now and October of 2022. Our relationship with Caesars remains very strong, and we continue to work on mutually beneficial opportunities together. With John leading the charge, we are hard at work developing relationships with other asset operators in the industry. We do not expect that our dry powder will sit idle for any extended period of time, and we remain confident in our ability to deploy your capital strategically and in an accretive and in a timely manner. We're often asked, what inning is it?
We can have a healthy debate about what inning the overall REIT sector may be in. What about gaming REITs? What inning are we in? Let's start with the fact that the gaming REIT sector is still less than five years old. During that period, there have been two major portfolio trades and five single asset trades that were not pre-negotiated or otherwise contractually dropped down from the tenant. What we should all note is that in recent months, the pace of activity has picked up. Market participants, both buyers and sellers, are gaining more confidence that a liquid market is truly developing. We believe this confidence will be key to generating further deal flow, as would be the case in any sector. Trading values may trend higher, or against the current backdrop of rising interest rates, they may not.
In either case, when it comes to the issue of trading values being high or not, we ask the question, compared to what? When we purchased Harrah's Las Vegas in December and its $87 million of NOI, we bought that income at a 7.7 cap rate. We know of no other real estate sector in which that kind of quality, scale, and durability of income can be bought at anywhere near that kind of cap rate. At VICI, we're very confident that we are establishing a real estate transactional practice of truly institutional quality. We have worked hard to develop our growth strategy, our acquisition criteria, and our relationships with asset controllers and transaction advisors. Thanks to our successful IPO, we have established a pool of capital to fund our growth activities for the foreseeable future.
That growth capital belongs, of course, to our shareholders, and we will deploy it with great care and great discipline. As a REIT management team, we will be judged, as we should be, by the quality of our capital allocation. To answer the original question, what inning is it? Being less than five years old, we say the gaming REIT sector is in no later than its third inning, and we, VICI, being barely 200 days old, are by definition in our first inning. We are very, very excited to be in the batter's box.
With that, I'd like to turn the call over to John to provide more details on the current market environment. John?
Thanks, Ed, good morning to everyone. As many of you are aware, the market environment for gaming transactions is quite active. The announced trades in the sector by us and our peers over the last six months are a testament to the growing confidence in the gaming REIT model. At VICI, the opportunities that we are currently assessing and the conversations that we're having continue to indicate that our growth trajectory is not going to slow down. We believe the key ingredients to this have been our governance, our keen understanding of the tenant's underlying business, and our focus on executing what we consider fair deals or deals that are mutually beneficial to both the OpCo and VICI. We are very active on several opportunities and ask that you stay tuned as we look forward to providing updates in the future.
With that, I'll turn the call over to David, who will discuss our financial results.
Thanks, John. Yesterday, we reported AFFO of $0.36 per share for the first quarter. Our earnings for the quarter reflect revenue of $218.3 million, which was comprised of $211.5 million from our real property business and $6.8 million from our golf business. Real property business revenue was comprised of $182 million of earned income from direct financing leases, $12.2 million of rental income from operating leases, and $17.2 million of property taxes paid by our tenants on the leased properties. Our earned income from direct financing leases for the quarter includes a $12.9 million net change to our investment in direct financing leases, which is a non-cash item. On the cost side, our general administrative costs were $7.3 million for the quarter.
As we mentioned on our last earnings call, we continue to incur startup and transition-related costs, which we expect to continue for the next quarter or two as we work towards a steady state run rate for G&A. Our first quarter G&A includes three items to note. First, $500,000 of severance costs related to the relocation of our corporate headquarters from Las Vegas to N.Y. Second, approximately $600,000 in one-time legal, professional, and consulting costs associated with non-recurring board advisory work. Finally, $300,000 in recruiting costs as we continue to build out our team. Our adjusted funds from operations includes these items, and for the quarter was $125 million and $0.36 per share. Turning to our balance sheet, with the completion of our IPO on February 5th, we ended the quarter with just over $918 million of cash, including $13.8 million of restricted cash.
Our outstanding debt at quarter end was $4.1 billion and a weighted average interest rate of 4.6% and a weighted average maturity of approximately six years. We have no debt maturing until 2022. Based on annualized first-quarter results, our gross leverage to adjusted EBITDA is 5.9 times, and our net leverage to adjusted EBITDA is 4.6 times. Our cash balance, along with $400 million of availability under our revolving credit facility, gives us approximately $1.3 billion of dry powder to execute on our growth strategy. Subsequent to quarter end, we entered into interest rate swap transactions with a syndicate of financial institutions as counterparties. The transactions have an aggregate notional amount of $1.5 billion, with an effective date of May 22nd, 2018, and a termination date of April 22nd, 2023.
These transactions serve to fix the LIBOR portion of our Term Loan B at approximately 2.8% and brings our total fixed-rate debt to approximately 86% of our total debt, providing clarity to our interest expense over the next five years. Turning to guidance. We expect 2018 AFFO per diluted share on a same-store basis to be between $1.39 and $1.41 per share. We assume a fully diluted weighted average share count of 364 million shares outstanding at year-end, which reflects the impact of our IPO in February. On March 15th, we announced our first quarterly cash dividend of $0.16 per share. The dividend was prorated for the period commencing upon the closing of our IPO on February 5th and ending on March 31st, based on an annual distribution rate of $1.05 per share. The dividend was paid on April 13th.
With that, we'd be happy to answer any questions that you might have. Operator, please open the line for questions.
At this time, if anybody has a question, please press star one on your telephone keypad. Again, that would be star one on your telephone keypad. We'll just wait a moment to compile a Q&A roster. Again, that would be star one on your telephone keypad. I do have one question from Michael Pace from J.P. Morgan. Your line is open.
Hi, guys. Thank you. Just to clarify a couple of comments that you said. Ed, earlier, maybe to go back to your baseball analogy, you said that you guys are very active on several opportunities. I'm wondering, are these opportunities, should we think of those in terms of singles or doubles or something maybe of the larger scale?
It's a great question, Mike. Good morning. We are a REIT that wants to grow in a sustainable way over time. As we deliver total return to our shareholders made up of dividends, same-store growth, and accretive acquisition growth, we believe we can be very successful knocking out singles and doubles if those are accretive, if they're gonna give us really good risk-adjusted returns. The thing we would probably emphasize, maybe it goes without saying, is that especially as a triple net REIT, our deals need to be accretive going in. This is not like the sector I used to be in, the hotel sector, where you could underwrite a dilutive going in yields that asset manage or property manage or revenue or yield manage your way to accretion and accretive running yield over time.
We're going to be careful, we're going to be disciplined, we're going to be diligent. Where there's great singles and doubles to be achieved, we're going to achieve those. If we see opportunities of greater magnitude, as long as they're accretive, as long as the risk-adjusted return over time is good, we will certainly focus on those as well.
You said it would be unlikely that you would sit on cash for an extended period of time. I'm just wondering, what does an extended period of time mean for you guys? Maybe just in the context of, should we expect that cash balance to be there at year-end?
I would say, Mike, we would hope it obviously would not be there at year-end. Yet we're going to take the time to do the best deals we can for our investors, again, given the fact that they need to be accretive going in. When you look across the marketplace, there's really 2 types of deals that are happening and will happen in the future. One is deals in which the owner of the asset, both the owner and the operator of the asset, is looking to exit, right? Those may be marketed or non-marketed processes as it may be, but chances are they will look for the highest price. The other category is the category of sale leasebacks, where the owner/operator will stay in as the operator on a sale leaseback basis. Those are relationships that take time to develop.
Those are relationships that we think can and should form the core of our strategy going forward. So we're going to obviously look at both, and we're looking at both at this time, and again, working very hard to execute deals that'll provide very good outcomes with that cash available to us.
Thanks, guys. Appreciate the color.
Your next question comes from Amanda Gramling from GF. Your line is open.
Hi, this is Bill filling in for Steven. You mentioned before a deliberate approach to acquiring those call option properties that you have. Can you just remind us the puts and takes around exercising those contracts, either in the near future or over time?
Yeah, this is John speaking. We have three call options. They're five years. We have five years from the date of emergence in October of 2007. 2017, my apologies.
It just seems like that long ago.
Yeah, exactly. They are at a 10 cap and a 1.67 rent coverage. We need to give Caesars roughly 60 days notice before we take them down. As long as we have opportunities that are not going to be available over the next five years, we are obviously going to prioritize those opportunities to deploy both our management time and our capital.
Great. That's helpful. Just a quick follow-up. With your competitors doing deals with different tenants, has the competitive dynamic for VICI as an independent REIT shifted at all?
No. What we think is happening is that the overall gaming REIT model is being validated by virtue of these deals. We congratulate our colleagues in the sector for getting these deals done. We know that at least one of those deals took a long time to gestate. It's not surprising that it did. It was a big, complex deal. We really do, again, point to the fact that there's finally, over, I would say, the last six to nine months, a growing recognition of the role that gaming REITs can play in helping to either finance exits or moreover, finance growth.
I think what's exciting to us is that we are in a period now where, among other things, you're seeing the emergence of what we would call super regionals, who are focused on growing their portfolios, their operating portfolios, growing their footprints across the U.S. We believe gaming REITs generally, and we would hope VICI specifically, can be a provider of long-term growth capital to them as they pursue their growth ambitions.
Great. Thank you.
Again, if anybody else would like to ask a question, please press star one on your telephone keypad. Your next question comes from Komal Patel from Goldman Sachs. Your line is open.
Hi. Thanks for the question. Following up on potential M&A, given your infancy in the REIT market, would you be more focused on markets that have a more established track record, or would newer markets such as Massachusetts or even international be an option for you as well?
I think that markets that have good fundamentals are going to be interesting to us wherever they are. I do think for the time being, though, we're excited about the magnitude of opportunities that exist for us within the existing gaming states, if you will. Again, we have to make sure the deals we do are accretive going in. The triple net model in and of itself requires that insofar as we can't bet on the come that accretion will come in the future. It's either going to come at the beginning or frankly, it probably wouldn't come at all. We will evaluate markets carefully.
We will then evaluate the assets in the market and make sure they're good assets that have good fundamental real estate investment characteristics, the exact location, the quality of the building's envelope, the quality of the building's systems, the quality of the operator and its competitiveness and its market share. Again, we believe we've got a good pipeline of opportunity in the well-established gaming states, and that's where we believe we'll get the highest return on management time for the time being.
Okay, thanks.
Again, if anyone else would like to ask a question, please press star one on your telephone keypad. I have no further questions in queue. I turn the call back over to Mr. Ed Pitoniak, CEO, for closing remarks.
Thank you, Michelle. In closing, we at VICI are excited at the rapid progress we continue to make on executing our strategy, and we have no plans of slowing down. Our growth pipeline continues to be robust, and we believe we are well-positioned to grow our portfolio and drive superior shareholder value. Thanks again for your time today. We look forward to providing an update on our continued progress when we report our second quarter results. Again, thank you and goodbye.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.