Q3 2019 Earnings Call
So the gaming and leisure properties incorporated third quarter 2019 earnings conference call.
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The J.C. I feel that they give us a funny you may begin.
Thank you Tim Good morning, everyone and thank you for joining gaming and leisure properties third quarter 2019 earnings call and webcast.
The press release distributed yesterday afternoon is available on the Investor Relations section of our website at Www Dot GL prop Inc. dot com.
Today's call management's prepared remarks answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
Forward looking statements may include those related to revenue operating income in financial guidance as well as non-GAAP financial measures such as <unk>.
As a reminder, fast forward looking statements represent management's current estimates and the company assumes no obligation to update any forward looking statements in the future.
We encourage listeners to review the more detailed discussions related to forward looking statements contained in the company's filed filings with the FCC as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.
This morning's call, we're joined by Peter Carlino, Chairman, and Chief Executive Officer, and Steve Snyder, Chief Financial Officer gaming and leisure properties.
Also joining today's call or Deseret, Burke Senior Vice President and Chief Accounting Officer branded more senior Vice President General Counsel, and Secretary and Steve Lad makes senior Vice President Finance and met them check senior Vice president of investments.
With that it's my pleasure trying to call over to Peter Carlino Peter.
Well.
Thank you Joe and good morning to all.
Oh I will begin with my usual few comments, obviously, we have our entire team here today to answer any at all questions that you may have Steve Snyder will obviously provide a lot of detail.
But look we're very pleased to present another solid quarter.
With a very good performance out of from each of our major tenants.
I'll add that those of you who have followed us for years now that we are very aggressive people that hasn't changed a we continue to look at a number of opportunities, but I want to highlight what we generally do each quarter. We're in no hurry to rush into any transaction that is less than optimal for our company.
So that's an inevitable question what do you guys looking at silicon that number of things, but again, we patients is I I think one of our strong suits and.
We're looking ahead to Oh strong.
A year in 2020.
So in the meantime, we continue to perfect our balance sheet with the this summer's debt refinance.
At the same time, using our free cash flow to pay down debt and position ourselves for whatever will come back. So we're very pleased with where we find ourselves this quarter and with that I'm going to turn it over to Steve Snyder and then we'll have to your question Steve. Thanks, Peter Good morning, everybody as Peter said it was a very.
Productive quarter.
During the quarter, we certainly strengthened the family the financial Foundation of the company by executing on our refinancing. In addition to the refinancing we did hit our revenue guidance and we were able to exceed our adjusted EBITDA guidance by a percent and exceeded our adjusted FFO guidance by over 2% real quickly.
Just go through one house cleaning matter, we did file our quarterly report on Form 10-Q . This morning with the FCC. So then any detail you want to find or wants to learn about you can find in it.
Highlighting the portfolio as you know where you are and remain 100% leased in terms of the individual leases in the portfolio. The pen master leases was disclosed on their earnings call yesterday, they achieved sequential improvement in their coverage factors as a result of their continued margin initiative.
Yes.
One highlight on the pen Master lease I would make is that in February of next year. The resorts to nickel property will be removed from that master lease. So you will see a reduction in the count of facilities under that master lease. What it is has been contemplated we just provided the notice of termination of the ground lease.
Effective next February .
Moving on to the amended Pinnacle Master lease also the pen lease we have completed our reviews. The pen folks stated on their earnings call yesterday.
Police your rent coverage as of the end of the lease your April Thirtyth and we mutually agreed with our tenant that the actual coverage was 1.81 times pursuant to the provisions of the lease resulting in a realization of nearly $1 million actually $979000 in annual run rate escalators on.
The amended pinnacle master lease well realize the rents and a true up payment of approximately 650000 in quarter four this year as a quarter that we're currently and so those will be realized between now and you ran reflecting the period from may 1st, but we used to anniversary date through year end.
We want to thank our tenant for providing their full cooperation in realizing this outcome and believe it highlights the transparency afforded both parties under the master lease.
In terms of the Eldorado Master lease the coverage of that lease was 1.98 as disclosed by our tenant reflecting a sequential improvement a five basis points on a quarter over quarter over quarter basis and demonstrates the success of Eldorado's business model as of October 1st we did we.
Realize the full escalate are under this master lease and we've also now as of October 1st seen an increase in the interest rate on the Leumi air alone from 9.09% to 9.27% also as of the anniversary date of the lease on October 1st we as required by the Missouri regulators.
Well leased the D to trust securing the lumia alone and our discussions with Eldorado on a substitution for this property into the master lease for me and ongoing.
As it relates to avoid master lease they certainly commented on their earnings call last week, there very satisfied with the performance of the Midwest assets under that Master lease and they are covered at 1.9 times on a trailing 12 month basis as of September Thirtyth.
Moving on to the casino Queen property.
As you know their coverage is still below the minimum required coverage under the lease although it has improved sequentially to 1.33 times on the trailing 12 month basis as of September Thirtyth, and we believe that that modest improvement is indicative of the performance improvements that have been.
To put in place now starting to take hold.
Additionally, as it relates to the casino Queen an institutional Investor Standard General has been approved by the regulators in both states as the new secured lender to the Queen and they've deployed some of their operational talent into the business at this point in time.
Lastly, the metals mask the meadows lease we were positively surprised to receive the full 5% escalator on the anniversary date of that lease at 930 as a result, the coverage being 2.06 at the 930 12 month trailing 12 month yearend.
Moving to the Trs that the taxable REIT subsidiary did significantly outperformed in the quarter, achieving EBITDA of almost $7.5 million, which isn't over 11% improvement or 11% better than our previous guidance and really roughly.
Next the discipline our management team has employed down in both Perryville and Baton Rouge, and achieving stabilized revenues on a year over year basis in the quarter in light of that market conditions in Baton Rouge.
As far as a balance sheet update I think everything is pretty much in front of you in the press release.
I will acknowledge that we did achieve better than anticipated results in the tender offer for four and seven eights notes due in November of 2020, we did achieve 78.5% participation in that tender offer which resulted in a significant savings compared to the make whole call premium.
That was embedded in the notes as a result of the new financing, we were able to extend our debt maturity profile by over a year, while reducing the companys average borrowing costs by over 18 basis points and reducing the company's exposure to variable rate indebtedness from 15% previously to us.
Your 9% as a result of the refinancing.
The outcome of the refinancing and the balance sheet statistics as up 930 resulted in gross leverage of 5.54 times and that leverage at 930 or 5.52 times terms liquidity you can see were drawn at quarter end $60 million on the revolver, leaving over 1.1 billion.
Dollars of available capacity under the revolver lastly on the balance sheet. There was no ATM activity during the quarter and finally as it relates to guidance you will see in our press release, we have increased our guidance for the balance of the year based above the high end of the previous range that was pretty.
Why did with our last quarterly earnings release as result of those escalator realizations the interest rate savings from the refinancing and the Trs performance, so with that Tim I would turn it over to you to make it available for questions.
Thank you.
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Our first question comes on a lot of Carlos Santana rally.
We should bank. Please proceed with your question.
Hey, good morning, guys <unk>, Peter Steve, but when you think about kind of in a in a limited kind of acquisition environment, not saying that that's what you were saying, but in the in the absence of doing deals.
How are you guys kind of governing your thoughts on the dividend at present I mean, it looks like you're you're kind of didn't that 78% to 80% dividend payout range as it pertains to an FFO moving ahead, if we looked at 2020 and meet in the absence of of transactions, how do you kind of foresee the dividend growth.
That's a fair question look we have targeted 80% and I just speaking from my point of view as a shareholder I'm for pushing dividends as far as aggressively as possible, but at the manager frankly, managing our balance sheet paying down debt.
Focusing on the health of the company is his goal one two and three that having been said I think we have room. Obviously, that's the issue to be discussed with our board Steve do you want to yeah Carlo Peter said, it well I mean, we've focused on an 80% payout ratio, 80% of an AFFO we have.
Increased leverage in the company as a result to the transactions that we completed a year ago, we've used that free cash flow after those dividend payments to de lever.
And we're well on pace to get to our goal of being between be below five and a half and beach somewhere between five and 5.5 times. So it really does provide us the flexibility to look at the dividend payout ratio to look at de leveraging to look at stock repurchases, if we get tool.
Point in time, where we've achieved our leverage target. So all of those three variables are kind of in the mix, but you should feel comfortable being guided by our historical practices of a payout ratio close to 80%.
Great. That's that's helpful.
And Steve if I could just you know with what's kind of the limited variable rate debt that you have right now and and somewhat limited kind of revolver outstanding debt right now does that five to five and a half range feel more comfortable towards the high end when you think about 2020.
Hi in the absence of any transaction in this market environment, yes, Okay. This market environment, I mean, the macro market with interest rates trending where they are understood. Thank you guys. Thanks Carlos.
Our next question comes on the line if you follow.
Oh Scotia Bank. Please proceed with your question.
Greg on with Nick.
I just have a just one quick question trying to understand a on the resorts tunica ground lease cancellation.
I'm not sure the competitive environment necessarily support it but couldn't new operator come in and reopen that casino.
Good morning, Greg look it's a fair question there has been capacity taken out of that market in the past in fact, the largest facility the old Grand facility, which became Harris is still sitting there with three hotels on it and overgrown golf course, we have issued noticed.
Termination of the ground lease the facility will be turned back to the ground lessor without any gaming equipment with all of the gaming pieces removed and you should assume every piece of movable equipment removed by our tenant pen.
So I would suggest that given the market dynamics down there, it's highly unlikely and it's not something that we are going to keep in our portfolio as an independent lease.
Right. Okay, I guess that makes sense actually just one one more quick one Steve so for the retroactive like lease audit with Pinnacle, how does the the rent workmen accounting perspective as any differences there.
No. There are no differences there there will be as I mentioned payments that we'll have have commenced or will be commencing here in the quarter. Its a 979000 dollar per year divided by 12, that's the monthly amount in and they'll be a catch up payment to reflect the payments that word do starting with the.
For all anniversary of the lease through.
Through the quarter and then just monthly on a go forward basis.
Yeah, Let me, let me add that the issue was simply a different sitting in treatment of certain expenses between pinnacle and Penn handed was logically conform the two when they brought the thing together, but it had the unintended.
Effect of impacting our lease payment, we had a discussion about that and obviously came to a very amicable.
Settlement, so Doug and.
And over.
Great. Thank you thanks, Greg.
Our next question comes on a lot of Thomas Allen of Morgan Stanley . Please proceed with your question.
Hey, good morning, so so obviously in the quarter there was a big transaction with Blackstone buying the blogs show in general is there a lot more private equity interest in this space and I'm kind of what are you seeing out there. Thank you.
Thomas Good morning <unk>.
Look private equity has.
Exhaustive pools of capital that they're looking to deploy a the numbers that I've heard out of the Blackstone private read or staggering in terms of the monthly cash that is they are generating in that business.
So I think private equity will continue to look at any opportunities, where they see potential dislocation to put capital to work and accretive way I'm. So I I don't think that this is the last I don't think it's the only experienced that we'll see.
The with private equity being involved in gaming or in fact in gaming real estate.
Oh, Thanks, and then just on the the pedicle screw <unk> or the pedicle deal and the escalator that you guys did you guys figured out this this quarter.
How should we like it was the counting agreed upon on a go forward basis or did you just I reconcile.
The past or this escalator and then how should we like how's the structure different very important thing.
Yeah, Thomas <unk>, the way to think about it and why tried to comment on it in my notes in the introduction.
There are remedies that are available to the tenant there are remedies that are available to the landlord whenever there is anything at issue in the past we had never faced a escalator, where we were going to get a zero. This was the first time that we were ever looking at an escalator of zero other than.
Situation with casino Queen I'll catch myself.
So as a result of that we thought it prudent on behalf of our stakeholders to try and understand what went on because a lot happened with the merger of pinnacle into pen in October of 2018, and we worked with them. They were very cooperative it was very friendly effort to under.
Stand and to appreciate why the accounting for the lease and accounting for the rent coverages under the lease as had been done and conducted by Pinnacle previously was where our expectations remain and that really gets to exactly what the deal.
Difference was we wanted to make sure and did that there were no changes in how things were accounted for as a result of that merger.
Helpful. Thank you.
Thanks.
Our next question comes from the line of Jordan vendor of.
Achary.
Please proceed with your question.
Good morning, Thanks for taking my question. So over the last three or six months have you seen conversation from operators that still own all their land a pick up say over though from the last a year or kill.
Jordan first of all good morning, and thank you to you in shed for the work, particularly you that the work that Youve put in in terms of understanding our asset class educating yourself around GLP Guy and your initiation of coverage. So we welcome you joining our call.
In terms of your question.
They are both [laughter], if you listen to the Boyd earnings call or read the Boyd transcript. There are a number of operators and I don't mean to single them out but those comments are there. There are number of operators that feel we are relatively late cycle in terms of the U.S. macro economy and there.
For feel retaining the real estate provides them a cushion if or when they're instincts are correct and we go from economic growth to economic contraction.
On the other hand.
There are investors there are entrepreneurs, who are always looking to take capital off the table.
So there are still folks out there that are looking to monetize as much of their real estate as possible. So there is no single template that I would be comfortable with it.
Differently, Peter No I feel pretty much the same I don't think the environment's changed for better or worse. It's it's kinda is what it is we overturn a lot of rocks looking for.
It's up in a value and ER and we remain totally focused but look at it gets to be I.
I I kinda by the late cycle idea that seems to be a sense that people would be very cautious or in what they choose to do.
So I wish we could give a better clear answer or except to say there are few things that we're looking at the gym others are doing the same and Oh, we see the stars align and get the the kind of accretion that we think merits.
I actually and then then will head down that path. So it's about <unk> I'll speak for myself with my usual vague answer because it's really not a whole lot more we can we can say about that.
We're very focused on on on on growing but again I think I said in my opening comments. It's never grows at any cost. So we're this is to manage our balance sheet.
Ready for whatever is next and and stay tuned.
Perfect. Thanks, guys.
Thanks George.
Our next question comes on a lot of David Katz of Jefferies. Please proceed with your question.
Hi, good morning.
Good morning, I'm wondering and thanks for the sort of detail in color I wanted to just go back to what the Las Vegas strip for a moment you know that this is this does seem as though it's a moment for the Las Vegas strip.
You know that has some rarity where things become available.
And I certainly here your commentary and I appreciate the commentary around you know growth not being at all cost, but how do you feel about the notion that you know Las Vegas real estate.
You know could have some positive effect on you know the inherent value of what you own and on the on the portfolio and ultimately in your stock.
Well I look quick answer is we hope that's the case, a and we're a cut I look at every day at the at my Little handheld here to see what prices it doing to make some judgment about whether the market has quickly a embrace that idea look it isn't bad that Blackstone has come into the space validated a again velocity of them.
Very very special irreplaceable property, but look it doesn't hurt and.
So we think it is positive.
But time will tell us what effect it has on on pricing.
Yeah, David if I may I mean, with those pools of capital looking for homes I I I think it obviously will over time have an impact I don't want to leave anybody on the call with the impression that Las Vegas and the portfolio that we have in terms of regional gaming assets are.
Directly comparable in fact, we think the regional gaming assets or or more secure and provide greater stability, because where else do you find state governments that are actually revenue participants I mean, there's so many real estate investors that look for opportunities to put capital to work where the governments are paying lease.
Payments [laughter], we're we're even above that we are facilities are generating substantial funding for these state governments. So we're not we're not funded by state governments. We are funding state governments in terms of the underlying operations of our business. So we think overtime institutional.
Capital will come to appreciate that.
Right and I suppose the essence of my question is you know.
Does it does it pay to overpay, just a little bit.
To get something that that may be constructor were helpful over the long term and and that's not intended to be a preconceived are leading question.
[laughter] there is a fair question go ahead, well look in terms of overpaying I I.
I I laugh right when when people come to me in say take that sell on that excel spreadsheet and expanded decimal places out before and then you'll find the accretion on a per share basis.
That's a that that's really not something that we've made a practice of likewise doing something that is credit dilutive, where all of a sudden the portfolio. After the transaction is weaker than the portfolio before the transaction and Oh by the way you had to go to that.
With decimal spot defined possible accretion no those just aren't the kinds of transactions that we would ever be comfortable with and.
Now here is we said earlier, maybe being a little late cycle, taking on incremental risk without.
Appropriate compensation just doesn't feel.
This is the time to do it.
Yeah, I view my and our.
A requirement as managers is to protect the values that we built in this company. That's got to be goal number one there's no transaction, we have to do I say on the road. All the time, we are not in the mining that building business. We're in a cash flow generating business and I want to keep that number moving ahead as it.
Has every year since we've been public in this business year after year after year and get their by means any means possible, but not at any cost.
Yeah I. This is Matt I'd I'd also add to the extent, we do any transaction than we match fund them I mean, we're effectively selling a piece of our portfolio at what we things are really attractive multiple and to overpay really would go against getting that positive spread for our shareholders. So there's a valued a diversification and there is.
The place for everything the portfolio at a price, but given the current prices in the environment and the low risk premium it doesn't line up right now to make sense and we're already the most diversified company in the gaming space.
[noise] appreciate it thanks very much.
Yes, David.
Our next question comes on the line of Battery Jones Jonas Pardon me of Suntrust. Please proceed with your question.
Yes. Thanks, So just to close the loop on this blogs. Your transaction have you seen any change in seller expectations in sort of the non high end strip or just the regional markets around the multiple or is there an understanding of this is very unique and.
Maybe not applicable to the rest of the market I think you've answered it but I'm watching Steve Ladny.
Shaking his head so I'm wondering you stepped up Steve it's about people involved here, yeah, I mean, I I can't speak for what maybe going on with other strip assets that are currently rumored to be in play directly but I can tell you in the regional markets. The conversations that are being had I don't believe that sellers.
Expectational there are currently taking the 17 times comp and applying it to their to their marketplace. So I do think people view Blackstone as a as a unique buyer I think people view double audio as a unique asset and because of that you'd had there has not been a direct correlation to a seller.
Expectation.
Okay, Great and then.
Curious about interest about the international pipeline, maybe you know you're looking at stuff out there and also curious where international stacks up relative to a non gaming domestic deals. Thanks.
Yeah.
Barry This is Steve it.
We we've talked in the past and there there is a very robust commercial casino industry north of the U.S. in Canada in the different provinces.
Provinces and there is activity all the time out there for us as read it's really a matter of making sure that we can bring back the income without any kind a tax friction any kind of excise taxes or anything like that since reach or a phenomena of the U.S. tax code and.
Canada and most of the EU countries or are places, where there are methodologies to be able to do that so we do continue a foot in terms of looking at those opportunities.
And just from and where that stocks relative to non gaming.
Well.
In Canada. The the the mechanics are very similar it's high tax high barriers to entry limited numbers of competitors. So that is probably have a much higher priority because we just have not found non gaming opportunities that that exhibit the same resilient.
So the cash flows that our current portfolio generates.
Great. Thanks, Steve Thanks, guys.
Thank you.
Our next question comes on a lot of <unk>, John Massocca of Landenburg Thalmann. Please proceed with your question good morning.
Hey, John .
So I know it doesn't really change from an accounting perspective, but given standard just kind of entered into to take a role at casino Queen does that change your thinking on the potential of getting some kind of value back from the loan you made there.
[laughter] time time will tell a I mean, we are obviously are an unsecured lender there and we will continue to pursue any and all remedies available to us as an unsecured lender or while we do continue to collect on a timely basis the rent pursuant to the lease.
Standard General as you May know they've been very active in gaming Aliansce, a twin river Greektown I'm. So they do have a track record and they have a bench.
But they are the senior they are the secured lender. So they will certainly be taking the lead on this.
As we said on our last call. If there is any recovery under the unsecured note, which we've written off it will only be realized when when the check clears.
[laughter], Okay understood and then I guess are you seeing any more you know it and you did the expansions in kind of Pennsylvania. The the many casinos kind of start take root are you seeing any opportunities there potentially.
As things get a little more tangible maybe maybe people start thinking about what their long term plans are for four of those properties.
Yeah. That's a fair question I think what is becoming clear is that five is probably the number not 10 cause. These last options if not resulted in anything well if they're up to two or three at this point in time have failed auctions trade that them. So it's five facilities. The five facilities are well dispersed as they were required to be.
Since they had to be outside of the 25 mile radius restrictions around existing facilities.
So we we have looked at the five we've had some conversations but at this point in time, there clearly is nothing for us to announce.
Okay. That's it for me. Thank you very much. Thank you.
Uh huh.
Our next question comes on a lot of Joe Greff.
JP Morgan. Please proceed with your question.
Hi, Good morning, everybody my questions were asked and answered. Thank you. Thanks Joe.
Thanks, Joe.
Our next question comes on a lot of Robin Farley of yes. Please proceed with your question.
Hi, Thank you I cannot for Robin regarding recent transactions involving Jack Entertainment by one of your competitors I was wondering if you could talk about competition, there and your interest level in those assets and.
Why then why not and why we are at it maybe sort of your thoughts on transaction market in general.
Sure. Yeah. In addition to the comments that we made earlier on the call in terms of the transaction volume the transaction that you're referencing.
The specific circumstances, where obviously an entrepreneur who is looking to take his capital off the table and did it in the form of pretty much 100% of the financing coming from a sale leaseback or from a loan from the counterparty onto the sale.
Leaseback and quite candidly the risk profile of the transaction like that with an owner that takes all of his capital off the table really feels like a free option on whether or not the economic cycle continues or doesn't add.
We had GLP guy are really not in the business of granting free options to counterparties.
So that's really the commentary I would have peters or anything else you would say about though I think that says it very well, it's just not a place we wanted to be.
Right. Thank you and then you mentioned last quarter that you saw some early signs of pick up in Louisiana as you anniversary the smoking ban there any recent thought.
Uh huh.
Yeah, you saw in the quarter the revenue at the Trs stabilized on a year over year basis, roughly a you obviously see what the Louisiana reports are as they come out every month.
Part of it has certainly been margin control margin improvement, but now that weve anniversary as of June . We are still started we are still seeing some green shoots of actual year over year growth.
If you look at that Baton Rouge market, it's been the most impacted the most depressed in the state and in terms of year over year growth.
But we are finally, starting to see some signs of stabilization and there's nothing that leads us to conclude differently than our last call.
Thank you that's it from.
Thank you. Thank you.
Our next question comes from a lot of Daniel Adam of Nomura. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question not just one for me. So I'm wondering to what extent if at all or do you think mgms increasingly vocal strategic focus on becoming more asset light.
Will lead to other owner operators, who maybe previously.
No we're not considering sale lease back to maybe reconsider their strategies.
Hi, Dan that's it's a great question. That's obviously what is top of mind for the folks that are on the real estate Committee at the board level at MGM I think it is going to take some time to play out and I think overtime hopefully year instincts are correct that others, we'll see the merit.
To deploying their balance sheets in ways other than real estate as a way to facilitate growth and value creation. Obviously, there are now to comps on the board and the two comps are pen and now MGM, Although MGM still has a number of owned assets.
Total assets other things so it's probably not as pure play an operating company as Penn is so we'll just wait and see and believe me [laughter]. All the operators are certainly paying attention to it all the operators are weighing how far they are comfortable going in terms of monetizing real estate.
Without without having any adverse impact on their overall enterprise valuation.
Okay great.
Thanks, so much guys.
Thank you.
At this time there no further questions over the audio portion of the conference I would like to turn the conference back over to management for closing remarks.
Well I guess, we get the thank you all for dialing in this morning. This is kind of quarter, we'd like to report and it looks like we're going to wind up a very very strong year here at GLP eyes. So we're quite pleased with that and we'll look forward to talk with you at the end up.
Next quarter. So thank you very much.
This concludes todays conference. Thank you for your participation you may disconnect. Your lines at this time have a wonderful rest of your day.