Q3 2019 Earnings Call
Good thing, ladies and gentlemen, thank you for standing by welcome to the V.T. properties third quarter 2000, a 19 earnings conference call.
At this time, all participants are going to listen only mode. Please note that this conference call is being recorded today November 1st 2000, I 19, I will now to turn to call over two Samantha Gallacher General Counsel with Fiji properties go ahead.
Thank you operator, and good morning, everyone should have access to the company's third quarter 2019 earnings relief and supplemental information, they're releasing stop now information can be found in the investors section of the V.T. properties website at W.W.W. Dot peachy properties Dot com.
Some of our comments today will be forward looking statements, but then the meaning of the federal securities laws forward looking statements, which are usually identified by the use of words judges will expect should guidance intense projects and other similar phrases or so that to numerous wrist and uncertainties that could cause actual results different materially from what we've.
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Therefore, you should exercise caution and interpreting I'm relying on that.
I refer you to the company's L.C.C. filings for more detailed discussion, although respected impact future operating results and financial condition.
During the call we will discuss certain non got measures, which we believe can be useful in evaluating the company's options for me.
These measures should not be considered in isolation or the substitute for our financial results prepared in accordance with gap.
Conciliation of these measures to the most directly comparable got measure is available on our third quarter of 2019 earnings release and our supplemental information.
Posted in the call today, we have at the Tonia Chief Executive Officer, John Pain, President and Chief Operating Officer gave a key ski Chief Financial Officer, and gave Wasserman cheaper County officer, adding chemo provides an opening remarks and then we will open a quota questions with that I'll turn the call over to it.
Thank you Samantha and good morning, everyone is third quarter of 2019 was another quarter in which V.G. continued to build for shareholders and institutional quality real estate portfolio in an institutional quality balance sheet in a moment John pain will tell you about our growth initial initiatives in court.
Three and since the end of quarter three and then David key will tell you about our financial results and balance sheet initiatives. The first I'd like to spend a few moments on recent developments in our marketplace in what they may mean for beachy over time.
Referring in particular to the news two weeks or so ago of Blackstone buying the real estate obliged Hill.
When we launched V.G. a little over two years ago, we were charged with and charged up about the opportunity to tell the equity and credit investing communities gaming real estate possesses the characteristics the typify institutional grade real estate.
These characteristics distilled down to the real estate being mission critical uncritically difficult to replace for tenants who's end user relationships and economics have endured and will endure for decades.
And we said from the beginning two years ago. There's there's time would come when more America's commercial real estate investors would come to investigate and invest in America's gaming real estate.
All along we've said this growing recognition would be inevitable and it would be welcome given that real estate doesn't achieve its full value until hes recognition takes place by institutional capital or to repeat the phrase we used on or quarter, one 2900 earnings call validation dry.
Rives valuation.
Blackstones purchases the Blasio real estate is just that sort of validation and thus it's in all respects a good thing for Vg for shareholders for a sector.
Some of asked why it took so long others have asked how fast other institutional investors are likely to move well. It took time for Blackstone and we'll take time for others like Blackstone because learning takes time.
Institutional real estate investors make educated investment decisions before they invest capital they invest time.
They take the time necessary to study an asset classes cyclical risk.
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Vulnerability to over supply and then be to see real estate, the credit quality and business model sustainability of the tenets.
Blackstone, obviously benefited from the learning they've obtained through their investment in cosmopolitan and no doubt. They studied gaming rigorously before they made that Cosmo investment decision and reaffirmed their learning before making their blasio investment decision.
Learning takes time and it takes diligence and advantage of crews to those institutional real estate investors, who learn about previously non institutionalized asset classes at the highest velocity if what they learn leads to positive views on the asset class they can execute highly attractive investments.
Before other market participants are ready to do so.
V.G., we call this accelerated asset class learning process.
<unk> arbitrage.
It's arbitrage born of doing the hard work of learning and then acting on that learning.
Blackstone is not the first institutional real estate investor to figure out the value of Las Vegas strip real estate, nor would they claim to be the fact is that retail real estate equity investors have understood for years that the Las Vegas strip is one of the most valuable real estate market's in America, just ask David Simon assign.
Properties, what kind of capital he has been willing and able to put into Las Vegas trip real estate and real estate credit investors have also long understood how valuable Las Vegas trip real estate is have lent against it accordingly with the recent refinancing of Las Vegas Sans as Grand Canal.
Shops, and an AD in a praised 4.5% cap rate as evidence of that.
But here's a key factor there is still many institutional real estate investors, who have not yet started or are just beginning the work of understanding the real investment real estate investment characteristics of our sector.
As they learned about her sector, the demand for and value of gaming real estate, including our assets will grow.
We've been asked if we are likely to see increase bidding competition for assets. We believe we will will this increase the risk that we may be outbid for assets. We believe it may.
But if we get outbid for an asset it means asset values are rising.
And if the values of traded assets Rice history will tell you that the market is pretty effective at marking nontraded assets to market.
Unless a given portfolio suffers from specific idiosyncrasies, such as trouble tenants or troubled governance.
Vg suffers from none of those troubles, so we believe.
Asset values rise our cost of capital should further improve correspondingly, enabling us to sustain our competitiveness for gaming assets and for Nongaming asset classes as well.
Some of you understandably are asking what this philosophy you transaction means for regional gaming real estate simply put we believe it means good things the Blasio trade overtime will bring increased focus on an interest in the gaming real estate asset class as a class.
Yes.
Take high flow through logistics real estate as an example.
It's a class that I spent time around thanks to my association with a great folks at real term.
When the real estate investment market began to appreciate the mission critical nature of distribution real estate to the final miles to be commerce. The initial focus was on markets proximate to the biggest Durban course, such as northern New Jersey, and L.A.'s inland Empire.
Understanding of the mission critical nature of this real estate grew the investment Bull's eye also grew to include other geographic regions take as an example, the $177 million superb suburban Cleveland Amazon distribution center across the street from the Thistledown Racino asset we announce the acquisition.
Earlier, this week or take the deal pro lodges announced on Monday buying an estimated 4.5 cap a portfolio of logistics assets concentrated largely in the mid Atlantic and the upper Midwest.
We really believe sorry. This same ripple out dynamic will play out for regional gaming real estate as real estate investment market comes to appreciate the mission critical nature Regis Regional gaming real estate to America's Great regional operators, especially those for whom regional assets are key.
Folks in their national hub and spoke network.
We'll be differences in value between Las Vegas, and regional gaming real estate, but these will be differences of degree not kind.
We've also been asked her right first refusals or Rovers to to do be determined Caesar's own Las Vegas drove assets are worth as much now did this belongs you traded occurred.
Answer is that we believe they're worth more now writes first refusal simply aren't worth a lot you know marketplace, where there aren't likely to be many offers if there is indeed likely to be more institutional real estate investor interest in Las Vegas trip real estate and if Caesar's decides to sell the entirety, one or two Las Vegas.
Pass that's that is both up going propco. These roper's give us an exclusive window of opportunity and with that an exclusive window of time to find an operator, who can partner with us to acquire the asset.
Caesar's will and must make the best total value decision for their shareholders, but we believe these ropers should enable us to consummate of transaction with Caesar's add a fair price and with quick execution without Caesar's necessarily having to bear the cost and market risk of a prolonged marketing process.
All in all her excitement around beaches value creation opportunity grows with every quarter in John will now share with you are recent exciting developments over to you John .
Thanks, adding good morning to everyone.
During the third quarter on September 20th we officially closed on the acquisition of Jack Cincinnati Casino and partnership with hard Rock International We were happy closed the first acquisition, we announced in 2019 and we are very excited about the future of this property under hard rock leadership.
Many of you know earlier this week, we announced or fourth transaction of 2019, and which we will acquired Jack Cleveland Casino, and Jack This'll down <unk> and a sale leaseback transaction with Jack Entertainment.
We're paying a total of $843 million, which represents an attractive 7.8% cap raid for urban real estate and we'll add 65.9 million of annual lies rent to our portfolio.
Transaction will expand or footprint and the state of Ohio, one of the healthiest and fastest growing regional markets across the country and we'll add a tenant to our roster.
We're very excited about beginning our long term partnership with the team at Jack Entertainment, and we will look for ways to partner with the rock ventures family of companies. They further their investment in Cleveland and concentrate on select assets within gaming.
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Action with Jack brings or total announce transactions and 20 $19 million to $4.9 million billion dollars and total announce transactions sent our company was form just over two years ago to $7.6 billion.
We are often ask how we've been out so many complex transactions in such a short period of time as I said since we started the company. The principal keys to our success have been are true independence are deep understanding of the tenants underlined business or focused on executing what we consider fair deals.
And finally, our willingness and ability to structure deals to meet our operators needs.
Over the comedy month, we will focus on closing our remaining pending transactions as quickly and efficiently as possible. We continue to believe we have the best growth profile amongst our peers heading into 2020 and are significant embedded pipeline allows us to build on this growth consistently in the future we.
You also continue to invest time, including through engagement with operators and learning about sectors outside of gaming as we work toward our goal of building a best in class read with geographic.
Pennant and sector diversification.
We have proven ability to worse than execute a creative gills and we will continue to evaluate transactions on their financial and strategic merits as we consider increasing or investment universe.
We believe that the acquisition we've announced the date have demonstrated this discipline not only to our operating partners, but also to our shareholders who have entrusted us with their capital with that I will turn the call over to David who will discuss our balance sheet and financial results.
Thanks, John .
First cover a few of the highlights from our quarterly financial results before turning to our balance sheet and capital markets activity or total revenues and Q3 19, excluding the tenant reimbursement or property taxes, which are no longer record to be presented on the income statement under S.C.A. 42 has a January 1st 29 team.
7.4% over two 318 to 222.5 million Catherine revenue from our leases was 219.4 million for the quarter and included 1.3 million related to the Jack Cincinnati acquisition, which closed on September 20th.
<unk> with 6.7 million for the quarter in as a percentage of total revenues was only 3% for the quarter, which is in line with our full year projections and represents one of the lowest ratios in a triple in that sector.
Approximately $1 million of transaction expenses in the quarter, primarily related to the legal and accounting cost associated with documenting beliefs as project Cincinnati and the Eldorado transaction. These costs are required to be expensed under the new under the new leasing guidance.
Or apropos for the third quarter was 164.6 million or 35 cents per share on a full we've alluded basis.
Increased 24.5% year over year Fo per diluted shared decreased approximately 3% over the prior year given the increase your <unk> shared town and related.
<unk> equity issuances in November of 2018 and in June of 2019.
Adults once again highlight are highly efficient triple net model flow through of cash revenue to adjusted EBITDA was approximately 106% well well through of cash revenue to apropos was approximately 95%.
As always for additional transparency, including a detailed outline of our cash rent revenue by leaves. We point you two are quarterly financial supplement which is located in the investors section of our website under the menu heading financials, we'd welcome any feedback on the materials.
Moving on to our balance sheet and funding activities.
As a reminder, on June 28th we completed an upside fall on offering about 115 million shares sold at a price at 20 150 per share for net proceeds of approximately $2.4 billion.
Offering was comprised of a 50 million sheer regular away common stock offering resulting in immediate net proceeds of approximately $1 billion in such shares being added to our total share count on June 28th. We also entered into forward seal agreements for the additional 65 million shares upon settlement the forward component of the offering them.
Subpoenaed to raise net proceeds of approximately $1.3 billion, we retain the ability to settle the forward transaction in whole or in Traunches. It anytime between now and September 26, 2020 or.
Objective with the June offering was to immediately d. risk the balance sheet by effectively locking in funding certainly for the announced in perspective deals with this approach we continue to have some near to the illusion.
But we believe this capital ensures that we have the balance sheet flexibility needed to close suddenly announced transactions and provider shareholders with very attractive long term growth.
The remainder of a long-term funding needed to close the Eldorado century in Cleveland pistol down transactions as well as the refinancing the existing secured CMBS loan currently on Caesar's Palace Las Vegas.
And to access the debt markets through a combination of term loan and unsecured bonds on of leverage neutral basis.
Or total outstanding outstanding debt quarter end was 4.1 billion with a weighted average interest rate of 4.96%, 98% numbered that is fixed with the remaining to present floating providing clarity to our future interest expense. The weighted average maturity of our debt is approximately 4.3 years and we have no debt maturing until 2022.
We ended the quarter with approximately $1.8 billion in liquidity, including approximately $774 million cash in short term investments and availability of $1 billion under a revolver.
This 1.8 billion in liquidity does not include the Ford equity component of 1.3 billion referenced above.
Finally as of September 30th our net debt to LTM was approximately 4.2 times well below the low end of our long term target of five to five and a half times.
Regarding our acquisition activity, we continued to pursue consistent the creative growth in a work to close that transactions, we have announced in 2019.
John mentioned, we closed on the Jack Cincinnati transaction on September 20th, adding approximately 42.75 million annual cash rent at a 7.7 cap rate, we funded Jack Cincinnati using cash on her balance sheet.
With respect to the Jack Cleveland This'll down acquisition that we noticed that October 28th we will not need any additional equity to find this transaction on a leverage neutral basis as I mentioned, we had proved we raised all the equity funding required in our successful June 2019 fallen offering.
Between the three announced pending transactions century portfolio, Eldorado and Jack Cleveland Thistledown, We will add just over 343 million annual cash Rand, increasing our anyways the rental income by approximately 37% on a runrate basis.
Terms of timing.
The century Port boy to close by your ends and expect Jack Cleveland Fissile down to close in early 2020, and the Eldorado transaction is target targeted to close in the first half of 2020.
With respect to guidance, we will continue to present or guidance in absolute dollars as well as on a per share basis to provide additional transparency.
We're updating our full year 2019 guidance to reflect the closing object Cincinnati on September 20th.
And the acceleration of the differ financing fees that have been incurred in connection with a 4.7 billion dollar bridge facility for the Eldorado transaction.
The <unk> reflect the dilute of impact of the additional 50 million shares of common stock issued on June 28th as well as an estimate of the additional shares from the board sale agreements that are required to be included in the dilutive earnings per share calculation under the treasury stuck method.
Now expect apropos to be between 645 million and 650 million or dollar 47, and $1.48 per share versus our prior guidance of 635 million to 645 million or dollar 45 to $1.47 per share.
As always our guidance does not reflect any of the pending acquisitions or prospective capital markets activities.
Honored dividends for the second year in a row, we announced an increase in our annual dividend during the third quarter repeated dividend of 29, and three quarters sense based on an anyways dividend of $1.19 per share representing a 3.5% increase from prior analyze dividends. The dividend was paid on October 10th to stockholders record on September .
27th with that operator, please open a line for questions.
Yeah, if you would like to ask a question you will need to press, Taiwan on your telephone keypad to withdraw your question. Please press the pound or the hash key.
Your first question comes from Carlo Santarelli from tight your bank.
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Hey, guys. Good morning, and thank you very much for for all the commentary on questions. You are obviously going to get.
When you think about kind of the the incremental entrance into the space and not just referring to the recent Blackstone deal, but others that are suspected to be milling around and potentially doing some work.
Do you think it affects we could all kind of debate I guess, you your cost of equity and how it affects your trading multiple but how do you think it affects your cost of capital on the debt side meeting in your discussions with with lenders, which presumably you've been mired in for quite some time now.
As you get ready for it for the upcoming deals <unk> has has the tenor changed as more kind of entrance come into this this space and people get more comfortable with what exactly. It is you guys are doing.
Yeah.
It's a great question.
And I think we can apply that term I use in my opening comments cognitive arbitrage to the credit markets as well.
This is a new real estate asset class and real estate lenders have had to work to understand it in much the way that real estate equity investors have had to work to understand it.
Because obviously they need to understand the key investment characteristics of our assets and the key characteristics of our credits are 10, sorry, and their credit quality and I think you could you could presume that over time, we believe at least that <expletive> credit market will under right our real estate.
A way that it will it will start to more resemble true institutional real estate.
Quality underwriting.
Great. Thank you very much and then David just just I'm fairly sure I know the answer to this but I want to make sure I, 100% clear. The garbage guys provided I know you said you expect century to close but certainly not included in your implied fourth quarter guidance correct.
That's right Carla can just surveys glare everything that has been announced.
Is not included in the guidance. So the guidance has been updated for the Cincinnati closing as well as some changes in some differed financing fees, but guidance does not include century, Eldorado or the recently announced Cleveland This'll down transaction.
Great. Thank you guys.
We should.
Your next question comes from John Decree from Union Gaming airliners open.
Good morning, guys. Thanks for all the colors. So far appreciate the questions.
And you're prepared remarks, you spoke a lot about the biological transaction, which is really helpful. There were two other transactions in and around the strip Circus Circus in Rio.
I think those kind of come with a little bit of development opportunity and some land I was wondering if you could give us your thoughts on on those in there is some development on the strip resorts World to drew Las Vegas is.
Just wanted to get your thoughts on what development and those types of projects look like on the strip in the context of.
Additional opportunities that did you see for yourself.
Yeah, John I'll start this and then alternate over to my colleague John Pain, I think the starting point for US as we are tremendous believers in Las Vegas, the market as a whole the strip downtown locals.
And we just think that the fundamentals of Las Vegas, or so strong when it comes to truly being a global city with the infrastructure to support.
The the volume of activity that does take place there will continue to take place there from so many different visitors segments in the particular case of Rio and Circus Circus I think I think we see those is both redevelopment repositioning opportunities.
And at this point, we didn't see.
Compelling neater opportunity to participate in those.
Absolutely wish that new owners of those both of those who assets the very best.
And we believe they can succeed.
Smart investors and operators in both instances.
And beyond that I'll turn it over to John for his further color.
Yeah look I think John Great question and touched on almost all of it.
In his opening remarks, he did refer to the to row first we have in Las Vegas.
With Caesar's that were quite excited about for the long term and will continue to watch out the the new developments.
Opens up as you know there has not been new development in Las Vegas for.
Almost a decade in them be exciting to add new product into that marketing continue as Ed said.
To be this world class destination resort market that caters to a wide variety of.
Demographics and age group so.
He does open.
Except that's helpful to stay on Las Vegas trip for a quick follow up John maybe a question for you.
To row furs, and you think about your portfolio.
Thought or any concern about taking too much exposure to a singular market like Las Vegas, that's something that you would be focused on or right now is kind of.
The whole map still open and kind of agnostic till location at this point.
No I mean, we think about that obviously and what we'd like about our portfolio. Today is how diverse it is and where we do have Los Vegas exposure and we have large regional exposure and we're also continuing to grow our pie and so we see this opportunity to continue to be diverse.
And and many different markets and we realize we said from the start of the company, we really like.
Las Vegas, we'd like to strip, we like the locals market and we like downtown as well and so will continue to evaluate opportunities there, but we don't think there's overexposure because we also planned to continue to grow our company in other ways outside of Los Vegas.
Very helpful. I appreciate it and congratulations.
Successful activity.
Thank you John .
Your next question comes from very John S. from the Sun Trust. Your line is open.
Hey, guys good morning.
Just.
Two questions first we talked about golf operations for the quarter came in a little bit lower than what we were thinking on especially just.
Just to any color there and maybe what's the right way to think about that this is going forward.
John you want to take that.
Sure It was a little off again remember the third quarter.
Quarter, where we see.
Los Vegas in particular, where the courses due out the clothes for receding.
But we've been quite excited about the team we put in place and.
It's now going on almost two years of run it remember these courses were run.
<unk> in Las Vegas Casino courses, they were a manatees too.
Casino operations and now they're run by a standalone and we've seen nights growth.
Variety of areas not only in the Gulf business.
But also in and weddings and other.
Others, where we see.
Ways, we can use the facility differently, so a little off in the quarter, but.
We feel quite good about the consistency of the business that we're going to see him 2020.
And I ran it.
Oh.
Inside the golf courses that actually grown their revenues quite strongly in that in terms of both grounds and revenues.
Outperform their market substantially this year.
Great and then you know look I think the the deal with rock gaming is really interesting and some of the comments about the potential to work together in the future just.
Asking sort of the the the standard non gaming question is is is moving to non gaining something that could happen sooner than later at this point or just any color that'd be great.
Yeah, I'll start and again John can jump in.
<unk>.
It will happen, we're we're seeing very compelling opportunities across a number of nongaming sectors and when it comes to the Gilbert group.
We're obviously very excited to be partnering.
With Jack Cleveland and This'll. We're also very excited to be affiliated through Jack with with the bedrock group of companies.
Who have so much going on in both Detroit in Cleveland, We're very excited about their developments in and around our assets.
Our asset in downtown Cleveland.
And John and I were in Detroit about a week ago and what bedrock has on the go there is so exciting.
You might have seen they just announced a big project in Detroit right next to our Greek town see no.
With Steve Ross or related.
That that is not an experiential asset that we would have anything to do it but it's part and parcel of their ability to remake.
Urban landscapes and to the extent they ever build experience will assets that we could potentially be a valuable partner in with obviously love to do so.
You want to add some color on top of that.
No I think you nailed it I think being associated and partners with very successful merchant developers.
Over the next decade will open up opportunities for us, we think whether we decide to do it or not but.
Yeah. This team is incredibly creative and what they do and what they've done in Detroit the Lamb they have in Cleveland around the assets that we just acquired.
Some more to come on that but it's exciting we're excited to be partners with them.
Great. Thanks, so much guys.
Your next question comes from Daniel <unk>, Some namara inside Tibet. Your line is open.
Hey, guys. Good morning, Thanks for taking my question.
First off congratulations on announcing yet another large and a creative deal in the corridor.
Which actually leads me to my first question, which is how big.
Want to be ultimately and related to that.
Horizontal merger with one or the other gaming reads makes sense, maybe to accelerate your scale unexplained <unk> arbitrage opportunity that exists within within gaming, while you're still still can.
Yeah, Daniel good to talk to you in terms of how big can or should VTB I mean, it should it should be as big as it can be while continuing to truly grow shareholder value.
In a risk adjusted way does not put shareholder value at risk, which is to say getting bigger simply for the sake of getting bigger is not a strategy would ever pursue and in terms of how we look at opportunities across the full spectrum of opportunities.
We've got a team as has been demonstrated in these two years that has a tremendous amount of energy and a tremendous amount of capacity. We will always be looking at every option, we have to increase shareholder value in right now.
We think we've got I really nice full plate pursuing the exactly the kind of strategy. We've been pursuing these last 24 months.
Okay, that's great and I totally agree for when it's worth.
My second question is related to.
Increasingly all strategic focus on becoming.
I'm wondering to what extent you think M.G.M. strategy shift will lead to other owner operators, who maybe previously.
Wouldn't consider sally's backstage to reconsider.
Thanks.
Yeah, Yeah Daniel.
Yeah, I I pause I. This is going to sound like a Pat answer, but I think time will tell.
There are obviously, a tremendous number really smart people involved.
In the development in execution of the M.G.M. strategy and.
<unk> give evidence of that with with the very compelling transaction they did with Blackstone.
And we wish them, we sincerely wishing the very best.
We believe they did as a favor with that deal and we thank and congratulate them for that.
And as time goes on.
They have the opportunity to demonstrate that an asset lights strategy can be value, creating and again.
Will only say, we wish and the very best.
Great.
<unk>.
Thanks, Chris.
Your next.
Your next question comes from this means rose from Citi. Your line is open.
Hi, Thank you.
And I just wanted to ask you a little bit more about some of your comments around valuation, particularly in.
No markets versus Las Vegas.
And it just seems like.
To me that the value regionally is more related to the license to conduct gambling versus the underlying value of real estate for some sort of alternative purpose and value would be connected to the scarcity of those licenses.
Which often become more available in states are interested in raising more tax revenues I'm just trying to think about you know.
Yeah, maybe putting Las Vegas, aside how do you sort of I guess underwriting risk around.
Well I guess regulations on the state basis, either expanding gambling or you know more or you know.
Raising taxes on the operators et cetera.
Yeah, well Smedes isn't it's a very good question and I would I would absolutely agree that there is value in the license and in terms of the degree to which the values. The license can be subject to risk through a license.
And that is indeed, a risk, but I think it's interesting to see what has unfolded in Pennsylvania and appears to be unfolding in Illinois, when a jurisdiction will put incremental license upper auction and the market participants acting very rationally.
Tell tell the jurisdictions well, we don't actually want to buy those.
Because we think the market is adequately supplied so right now I think you have a you have at least for the time being a rational market when it comes to supply demand balance.
Even when.
And given jurisdiction might want to increase supply.
And then in terms of the intrinsic value the real estate, while it may or may not have alternative.
Uses it is truly bespoke real estate. It is mission critical real estate. It is very difficult to reproduce it is very expensive to reproduce and is absolutely mission critical to operators, who is economics are so compelling they're going to want to continue to occupy it. So I would just reiterate that while there may be degree <expletive> .
Differences of degree in value.
I would say that they will not be differences of kind, especially for good solid regional assets in good regions, where the tenant is a is a very solid occupancy.
I'm going to say something I, probably shouldn't say, but I believe I could make a rational argument.
That MGM National Harbor, which is one of the great regional assets in America could could be valued at a cap rate even sells the biological is it 24 hour city, its incomparable piece of real estate and incomparable location.
I think theres, a very very healthy and exciting and energetic debate that can be had around how to underwrite good regional gaming.
Having assets and the degree to which people think they deserve a substantial discount to assets on the strip is potentially losing sight of real value.
Okay. Thank you I appreciate that.
Your next question comes from John Massocca from Ladenburg Thalmann Your line.
That's helpful.
Good morning.
And John John .
It's kind of a follow up to that last question I know, we're early days here with the block you transaction, having you know just been announced but are you seeing.
Yeah I understand your your view is that regional gaming could potentially have the same valuation is biggest.
Gaming.
Does that has that played out though in terms of demand. I mean are you guys seem maybe more demand for Vegas gaming from other Instacart for Vegas real estate from other institutional capital sources, just given it's a more familiar market. It's.
Probably mark do you put more money and working quickly or how how is kind of the.
Petition shaping up between Vegas, and what you're seeing when you're going out and looking at assets and honoring regional market.
Yes, it first of all done I want to clarify that if I if.
I seem to suggest that regional assets should be valued equally or the same as vegas assets I did I I'm, sorry, I didn't mean to say that for.
Regional assets I believe I could make an argument.
And I could be defeated and the argument that there are select regional assets it could be considered even as valuable or even potentially more valuable thing good strip assets.
I think generally speaking again regional assets will probably trade at some slight slight or or discount to be determined to.
Las Vegas real estate in terms of how the market is looking at regional real estate.
In light of de Blasio transaction, I think I should highlight that it is only about three weeks ago. So it's a little too soon to tell although I will tell you that we had a call from somebody on the I think the Blackstone announcement was made on him went on a.
Good day and on a Friday somebody called said you guys have rerated yet.
Three days later, so it will take a little bit of time.
But I think you've seen indications from from other parties like EPA are very very good rate of their interest in in gaming regional and otherwise.
And and I think.
You will see increased focus because again.
As people realize that there is value in the very intrinsic nature of this real estate they will realize that real estate outside of Las Vegas has value as well.
Okay.
Stood and then specifically with regards to the loan.
That was announced as part of the.
Cleveland and this whole bound transaction.
Can you maybe describe what types of properties or or Collateralizing alone.
Let's take color there.
Yeah its a.
So secured first lien on the he'd be building and then make company garage, which is all part of rock, Ohio ventures as our ultimate.
Sure.
Okay understood and then.
Lastly is there anything maybe structurally that would prevent you from putting in place another forward well like a forward equity transaction.
If say you saw new influx of deal volume I understand you can fund to the current pipeline with with the existing.
And kind of capital raised in equity that you could equity on a forward today, but if you need to put another one in place there's nothing structural that would prevent you from putting a new one in place before you take the old went down is that correct way to think about it.
Are you seeing I agree you know others do have multiple forwards outstanding at the same terms so no there's nothing.
Actually occurred system, it's an equity offering with a derivative components. So we could do your point if there was something out there sure.
Okay.
Oh, that's it for me thank you very much.
Thanks.
Your next question comes from David Katz from Jefferies. Your line is open.
Hi, good morning, everyone.
I.
I question for John I want to make sure that I heard.
Some of the commentary appropriately about the prospects for growing into contiguous.
All right alternative or non gaming forms of real estate I think you may have said.
You know opportunities over the next decade.
You know, which leaves us quite a bit of latitude. There I just wanted to go a little farther and and you know ask do you think that this is something that could occur or evolve over the next.
Two or three years.
Or is it a much longer term evolution that we should be thinking about.
Yes, David Good good question I know I'm glad to clarify my comments, the referring to the decade was to the partnership with the rock venture family of companies and working with them to develop as it pertains to my comments about hospitality.
It is an experiential I think.
More in the near term than that so to your point about two or three years opportunities. There I think we've been quite clear that we are spending time better understand in certain sectors spending time understanding great operators in those sectors and are there opportunities.
For us to continue to diversify our portfolio with the.
The goal to continue to.
Be geographic and have tenants and sector diversification that clarifies my comment.
Got it and if I can just follow that up it is.
Is it a necessary.
You are link that involves an owner or developer of gaming assets, who also does other things or you know just using is an example, a project like pompano.
Which has a casino as a hub, but it was intended to have a variety of other.
Asset classes within the entirety of the project should we think about gaming owners and gaming properties as really the bridge or link.
No we like that link, but it doesn't have to be that like I guess is the way I would put it. So there are opportunities that are adjacent to.
As we own or others that aren't and they're developing experiential hospitality assets that we like and we can be involved we sure do will study and I understand that's right for us but by no means does it have to be linked to a gaming operator or gaming facility and in fact.
We're spending more time.
On on.
Areas that are not going but so that that's really kind of where we are.
Perfect. Thank you very much.
Thanks, David Thank you.
Your next question comes from Thomas Allen from Morgan Stanley . Your line is open.
Thank you so so.
And your initial remarks, you made the point, a private and public market values converge eventually.
I don't think that always happens so if it doesn't what do you do.
Yeah, I know you're absolutely right time is there can be situations in which they.
And you would know be even better than me, but I mean hotels, maybe a case in point right now where private market values are in excess of public market values and when and when that disparity evaluate exists. It does tend to correct overtime, if nothing else the private market starts to scoop up.
Underpriced public market Act assets. It does not tend to be a permanent condition, unless there's something inherently wrong with the assets.
Or the portfolios as a collection.
And and I suppose one of the options for public players in any SEC real estate.
After when they when the public market continues to undervalue them.
Is again see if the private market will pay you more than the public market is willing to pay you today.
I I do you ever have conversations where people about selling for selling single assets.
Oh.
Yes, we do occasionally, but it's not because we feel they are undervalued, it's because somebody else.
He is interested in them for various strategic reasons on their own part and after two years. Obviously, we're still very excited about what we own and we're also very excited about the progress. We've made in two years such that we are not in any sort of.
State of frustration or patients at this point as to how the market is valuing us.
We believe the markets understanding of our value proposition continues to grow quarter by quarter.
While there is occasional noise in the in the equity market overall and in the RMC, we like the progress being made and were.
Certainly not a patient at this point.
Alright, thank you.
Thank you Thomas.
Your next question comes from Rich Hightower from Evercore. Your line is open.
Hi, good morning, guys.
Hey, rich rich.
Yes. Thanks for thanks for taking the questions, obviously covered a lot of ground here, but and I want to.
You know maybe this is a hard question to answer.
Thank you know given given a lot of the differences in addition to the similarities but I wonder if you care to gander on what what a cap rate spread between the logic, though and it's.
You know current structure and like your CPL the age the or at least on the other side of the strip.
As we think again about that sort of ripple effect in cap rates that you know you mentioned and as I referred to.
But other times.
Rich it's a very good question, it's a very fair question.
It's a question I've definitely mold over in my mind and.
And I'd be a full to tell you that that I have a highly confident answer right now, but I would say that in this I think true rich you know you know real estate very well in any asset class you look at each opportunity.
Okay.
Its own merits and with its own particularity. So in the case of Blasio. You would look ethic is trading cap rate of five to three quarters and you would evaluate that cap rate not only in relation to the property its quality its location that credit quality. The tenant but you would also look at will what what were the lease.
Terms associated with that five in three quarter cap right and then any other asset you look at whether BCP lv or any other really higher end strip asset you would ask okay. What should the cap rate be in relation to the particularity of the asset its lease the tenant and its credit and I would simply.
Say that we absolutely love Caesars Palace is an asset we're very excited about what Caesars has been doing with it we're very excited about what the new Caesars management team will be doing with it we love. The fact that it's got land out front. The seven acres that we talk about or investor deck that.
We believe are the most underutilized seven great acres in American commercial real estate those being seven acres at the at the intersection of Flamingo in Las Vegas Boulevard, otherwise known as the strip.
So yes.
I'm just going to leave it at we love the Hell out of that asset.
No. That's that's good I mean, I know that as you said it so there's a lot of moving parts, but it's interesting to hear your HM.
Perspective on that I I'll follow up on another question here too.
You know maybe actually combining a couple of other questions that have been asked but as you think about vittachi over time, and you know what a lottery do.
As they as they get to a certain size and they look at asset recycling is there potential source of equity mentioned think about you know additional private market players getting into the space that the beachy resides and what do you think the opportunities are maybe not today, but over the next 234 or five years.
To think about selling.
Assets as a source of equity for new deals and trying to get that.
Get that machine working in that direction is that a possibility that you know ones is on the horizon at some point.
It definitely should be rich I I don't think we would be very good real estate portfolio managers, if we weren't always asking.
And if the given asset in the portfolio might be worth more to someone else than it is the us. So we would not be doing our jobs. If we did not overtime engage and that kind of rigorous portfolio management asset by asset.
And so I think to your point rich it's it.
It will be evidence of the further maturation of the asset class as an asset class and it will give further confidence to market participants that that there is a liquid market in the assets and that values can be established with confidence.
Perfect. Thank you had.
And your last question.
Comes from Smears Rose from Citi. Your line is open.
Hey, it's Michael Bilerman hearing AIDS.
Good.
Sort of wanting to talk a little bit about from your opening comments as well and certainly Blackstone coming and then and paying what they did at the cap rate justify sort of value of real estate.
But also leads to cap rate compression that if you don't have commensurate decline in your own cost to capital. Your investment spreads are going to narrow and you won't be able to great. The same level of accretion and so on one hand, one and you know justifying the institutional quality of the real estate.
But it also makes it perhaps.
It's more difficult to generate the same level of accretion if you're not going to get the same lift in your own cost of capital I guess, how do you sort of think about that aspect.
Yes, no we think about it in a lot Michael and we're glad to heavy on the call.
It it will go back to that remarks.
I'll go back to the scripted remarks, I made which is that we have to count on the market. If you will marking our assets to market and are getting the the cost of capital improvements that would go with that.
Is that we're not to happen we would we would have to be looking at assets we cannot.
Afford and May have some strategic advantage in bidding for I will say Michael that in this case, we really.
Put tremendous value on especially John pains relationships across the gaming sector and our ability to is forged relationships with the operators that in some cases as you've just seen.
This week.
Give us a competitive bidding advantage, but again only time will tell you raised the question that they could play out we're hopeful and confident that it won't.
If we can continue to demonstrate our part.
We're very shrewd.
Energetic acquirers of assets at the right prices.
I think about the net lease model and you look at the traditional net leased rate.
They're competitive advantages their cost of money.
Then the ones that have been able to distinguish themselves as the relationship based investing.
That you've been able to have right and so you mentioned John pay those relationships for you.
So it gives you an additive and.
And added bonus relative just to the cost of your money.
But those companies trade at big premiums to the underlying value and I guess, Thats, eventually where you want to get too.
You are absolutely right, you're absolutely right and I and I do think that it is this iterative process, where the demonstration of competitive advantage tends to improve the cost of capital, which in turn increases competitive advantage. So what we want to achieve I guess Michael is is.
His virtuous cycle dynamics.
Or flywheel dynamics to choose whichever metaphor you want.
And again, we will be patient, we will not get out over our skis in terms of.
Paying what we should not be paying and or somehow try to demonstrate to the world we should be valued.
At higher than in the market is valuing us at that time.
You mentioned skis, where are you right now in terms of other verticals outside of gaming.
Relentlessly in energetically investigating and again I I think what were when we look at every sector that we look at.
Outside of gaming, Michael we really look through four key filters.
Is it a highly cyclical sector. If it is where is frankly not as interesting is it a sector that is vulnerable to secular threat, which in if you will the place based business means can Amazon put what is experienced in that place in a box.
Box and ship it to your house, that's one of the principal secularists. So many sectors are facing right now.
The third one is the supply demand dynamics is it a sector that is vulnerable to over investment, which would lead to oversupply, which would lead obviously to poor economics, and thus poor returns and then finally at the heart of.
Of the real estate is there an operator offering in end user experience that is proven to be durable.
For decades, going backward and is likely to be durable for decades going forward. What we're excited about as we're identifying a number of sectors that have those characteristics.
Some of them may or may not have tremendous.
As macro trends.
Ski you you mentioned it.
It does not have tremendous macro trends over the past three decades, we've got a couple of players surely who are demonstrating they can be very very successful and create an awful lot of value against another why sluggish macro backdrop because of the competitive.
Is there achieving through among other things network effect.
You don't feel that online gaming and the potential for increases in that Avenue and I recognize the.
That there's more to it but you don't feel like that longer term secular threat.
To the gaming.
Yes.
Yes, when it is not right.
Yeah, Yeah exactly at this point it does not appear to be online gaming has been active now in the U.S. since 2011, and there's really very little evidence that it has cost brick and mortar visitation.
You do have examples like New Jersey sports betting.
Where there is an awful lot of mobile activity, including those who take the path trained to Hoboken and surface in Hoboken. So they can place a bet.
But at least in that case, the revenue is funneling back through the brick and mortar facility, but by and large the reason people go to casinos is to get out of the house and we.
I think the human urged to get out of the house is a pretty enduring one.
Well those people should has got a private VPN rather than taking the trend Hoboken, that's a separate [laughter] I appreciate your time. Thanks.
Thanks, Michael.
There are no further questions I'll turn the call back over to the presenters.
Thank you very much operator in closing we have each year more excited than ever about the institutionalization of this real estate asset class, we continue to make significant strides in executing our strategy as evidenced by our activity in the year to date and we have no I repeat no plans is slowing down our growth pipeline continues to be robust and we.
Leave we are well positioned to continue growing our portfolio in driving superior shareholder value. Thanks again for your time today, we look forward to providing an update on our continued progress when we report our fourth quarter and year end results. Thank you all.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.