Q4 2019 Earnings Call
Earnings Conference call at this time, all participants are in listen only mode. Please note that this conference call is being recorded today February Twentyth 2020, well now turn the call over to Samantha Gallagher General Counsel Council with Beachy properties.
Thank you operator, and good afternoon, everyone should have access to the company's fourth quarter 2019 earnings release and supplemental information.
The release and supplemental information can be found in the Investor section of the BG properties website at Www Dot Beachy properties dotcom.
Our 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 we'll expect should guidance intends projects, where 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 that I.
I refer you to the company's FCC filings for a more detailed discussion or the risks that could impact future operating results and financial condition.
During the call we will discuss non-GAAP measures, which we believe can be useful in evaluating the companies operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with gap.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2019 earnings release, and our supplemental information.
Let's turn the call today, we have at Tony <unk>, Chief Executive Officer, John Pain, President and Chief Operating Officer, David Kiosky, Chief Financial Officer gave Wasserman, Chief Accounting officer, adding team will provide some opening remarks and then we'll open the call. It a question with that I'll turn the call overtime.
Thank you Samantha and good afternoon, everyone on this call we greatly appreciate you joining us.
Over the course of her opening remarks and over the course of the call. We will discuss with you. Our 2019 Q4 and 2019 full year key activities and results.
John will cover our portfolio and business growth activities in results David will cover for you our financial results and the continuing institutionalization of our capital structure.
I'll begin by sharing our thoughts on 2019 as evidence of what we've been building over the last two years or so since he was born.
For BG is really is days, we've focused relentlessly on the methods by which we will manage and grow your read.
Taking advantage of our collective read experience as a management team and as a board.
We've attacked the following two questions with as much energy and rigor as we can manage question number one what's the character of the culture did a great read grows out of.
How do we attract and retain the best people on both our board and our management team. So that we can live up to what I believe is axiomatic in real estate investment management and that axiom is simply the best people plus the lowest cost of capital wins.
Question number two what are the partnership principles and methods the build and sustain a great great.
With our own people Weve transaction partners with advisory partners with capital partners, both equity and credit and with long term operating partners or tenants.
We focus relentlessly on these two questions. This because we believe finding the right answers to these questions is key to instilling and maintaining the right methods for managing governing and growing the right.
Hey focus intensely on our methods or means because we fundamentally believe the scale ability of our risk management and governance methods ultimately drives the scalability of our read results or end.
Our 2019 achievements were of a magnitude matched by very few other American rates in 2019.
We had one of the most productive and value creating years of any read in recent history.
Out of our achievements, but I'm, even more proud that the outcomes are the result of the management team and the management method that we've been building since Beachy day one.
And that's because the results of 2019 are done they are history. The water management team and method can and will achieve and 2020 M.B. odd represents our future and the value. We can continue to create first stakeholders.
Here's the essence of our strategic method growing relationships. It is absolutely as simple as that if we grow the right relationships in the right way, we will grow and sustain the value of the right and the right way.
The right way comes down to growing and constantly bettering our business by growing new relationships with new partners and sustaining and broadening mutually beneficial relationships with existing partners.
Let me quickly run you through our key partnerships number one our people.
In 2019 in her second full year of operation BG was one of only eight American reads to win certification as a great place to work.
There are using the great places to work program to ceases, we monitor and improve the experience of our people.
Because beachy success depends on the unceasing energy engagement of our people number two gaming partners in 2019, we grew and bettered our portfolio by growing new relationships with operating partners in Reno, Nevada, Eldorado Hollywood, Florida hard rock Vienna, Austria.
Century casinos, Detroit, Michigan, Jack gaming in doing so we added to the relationships, we already had with great partners in Las Vegas, Nevada, Caesars, and why I'm missing, Pennsylvania and gaming.
Number three equity partners in 2019, we grew and bettered our capital structure by growing our relationships with the equity investment community, becoming by the end of Q4 2019. The most don't triple net rate by Americas dedicated reason investment managers as measured both as a percentage of market cap and in apps.
Hello dollars and it will come when it comes to Europe's top real estate investors BG was there number one triple that holding at the end of Q4 2019 number for credit partners in late 2019, and early 2020, we better and our capital structure by initiating and quickly growing a relationship with it.
Fixed income community raising nearly $5 billion of unsecured debt at some of the best pricing achieved a recent history by our grade of credit and we achieved that because in part we are recognized and given credit for our ambition to become an investment grade credit.
Number five learning partners. It is through our relationships with great operators and knowledgeable advisors that we learn about the gaming marketplaces, those where we already own gaming real estate, and where we will potentially acquire more gaming real estate finally number six potential new sector partners. It is also by growing relationships with.
Operators, and NASA controllers, and advisors and other experience will sectors that we are learning and we'll learn about these other sectors learning that will determine if when with whom and how we will invest in other experiential sectors.
It's fundamental strategic method growing our read and our value by growing our relationships with valuable partners sounds simple in basic and it is but during my career in real estate I've been struck over and over by the tendency of real estate investment companies and many different sectors to sacrifice relationships for this.
Sake of maximizing their take in a transaction.
They sacrifice potential future growth by leaving the current counterparties, saying to themselves and others in the marketplace I will never do business with that company again, if I can help it.
That is not who we are BG not today not tomorrow not ever we're relationship builders not destroyers and by doing so we believe we are value creators.
Since our very first day beaches business development has been led by one of the very best relationship builders and American commercial real estate, John Pain, I will now turn the call over to John and he will tell you about the relationships and value. We built in 2019 and how we're approaching growth in 2020, John over to you, thanks, and good afternoon to ever.
Anyone and then highlighted 2019 was a transformative year for BG, our investors and our team over the course the year, we were by far the most active and led the gaming read sector and acquisition activity. Indeed, we were the only gaming read to announce arm length transaction.
In 2019 in total we announced $4.9 billion of transactions across regional in Las Vegas assets at a blended 7.9% cap rate.
Including the pending Eldorado transaction, we increased our annualized rent by approximately 45% double our roster of best in class tenants and demonstrated consistent accretive acquisition activity for the third consecutive year, we believe our independence focus on relationships and ability.
To structure creative transactions that work for BG and our partners over the long term will only add to our momentum for years to calm.
During the fourth quarter on December six we closed the acquisition of three regional properties with century casinos. This 278 million dollar transaction adds 25 million of annual rent under a master lease representing an attractive 9% cap rate. This transaction has important strategic significance and.
Got it creates a partnership with century casino.
An expert operator small to midsize assets with ambitions to grow their U.S. platform and demonstrates that we can partner with operators of all sizes.
Just a few weeks ago on January 24th we closed on the acquisition of Jack Cleveland Casino and Jack This whole down receive though in a sale leaseback transaction with Jack Entertainment, we paid a total of $843 million and added $65.9 million of annual rent to our portfolio.
Through a master lease, which represents an attractive 7.8% cap rate for urban core real estate in Ohio, one of the fastest growing regional markets in the country.
Additionally, on January 15, we announced the disposition of Harrah's Reno for $50 million not only will we received $37.5 million a gross proceeds for the sale. We will also have no change to the existing annual rent under the master lease with Caesars. This is a great example of how BG works constructively.
With our tenants, while redeploying the sale of proceeds towards other attractive growth opportunities.
As we head further into 2020, the transaction environment remains active and we see plenty of opportunity both within and outside the gaming industry. We also remain remind you that we have worked diligently to secure in embedded growth pipeline that ensures the company maintain visible long term growth.
Upon the closing of the Eldorado transaction. This embedded pipeline includes two ROE for opportunities on Las Vegas strip assets.
I would call option on two high quality assets in the growing Indianapolis game market, although for on the World Class Caesars form Convention center in Las Vegas, and an additional ROE for on an urban core casino in Baltimore, We believe each you remains in a great position to capitalize on opportunities that the market presents.
And we will continue to put your capital to work growing our portfolio Accretively building in a world class read and driving superior shareholder value.
That I'll turn the call over to David who will discuss our balance sheet and guide. Thanks.
Thanks, John I want to starting their balance sheet since their emergent just a little over two years ago, we brought relentless focus to ensuring that we have a capital structure that will whether all cycles and provide the safety and protection, our equity and credit partners deserved during 2019 and into the first part of 2020, we continue to transform our balance sheet through extremely difficult.
On capital allocation.
Summarized in June 2019, we raised 2.4 billion of equity through the largest read primary share offering ever to fully fund all the equity required for the Eldorado transaction as well as object Cleveland This'll down transaction as a reminder, we upsized the offering 250 million shares comprised of a 50 million share regular way common stock.
Offering resulting in an immediate net proceeds of approximately $1 billion with such shares being added to our total share count on June 28, We also entered into forward sale agreements for the additional 65 million shares bought settlements before component of the offering is anticipated rates remaining net proceeds.
From a 1.3 billion.
In addition in March 2019, we officially raised 128 million net proceeds through our ATM program. This efficiency was demonstrated again earlier this month, where we sold 200 million of equity via the ATM to ensure funding for active transaction pipeline.
We upsized our line of credit by 600 million in May 2019, increasing the total capacity to 1 billion enhancing our liquidity profile and extending the maturity from 2020 to 2024.
We continued our mission of strengthen our balance sheet with the ultimate goal of achieving an investment grade rating.
In November 2019, we executed our very successful inaugural unsecured notes offering within upsides offering of 2.25 billion, which was 3.6 times oversubscribed.
Comprised of 1 billion in a quarter of seven year nodes.
4.25% and 1 billion of tenure nodes at four and five 8%. The proceeds from this offering were used to retire the secured CPL. The CMBS debt, where we replaced a standalone secured mortgage that carried a rate of 4.36% with a blended rate of 4.32% on the new unsecured notes that were used.
To retire the secured that we incurred total breakage cost of 110.8 million, but as part of the Eldorado transaction, we will be reimbursed for half of these costs upon the closing of the year DRA transaction.
We took advantage of this partnership from the credit markets and on February five 2020, we closed subsequent 2.5 billion dollar unsecured notes offering which was 4.9 times oversubscribed comprised of $750 million a five year notes at 3.5% $750 million 70 or nodes at three in seven 8%.
On a billion of tenant half your nodes at board and 8%.
$2 billion or the proceeds from the February notes offering were put into escrow and along with the proceeds from the equity forward agreements from the June equity offering. We now have 3.2 billion of capital earmarked for the Eldorado transaction.
The remaining $500 million proceeds from the February notes offering were used to retire the 8% secondly notes, which were deemed earlier today.
At this debt financing significantly improves our composition and weighted cost of debt at emergence, we added 100% secured debt with a weighted average interest rate of 5.49% and a weighted average maturity of 2.9 years as we sit here today post the activity in early 2020, we have 6.85 below.
Total debt outstanding 69% or debt is unsecured with a weighted average interest rate of 4.2% a weighted average years.
To maturity of 7.1, and we have no maturities until 2024 significant improvement providing BG with the ability to continue finance highly accretive transactions.
Overall 2019 highlighted our guiding principles on how we approach our balance sheet maintain a very disciplined composition and laddering of debt whereby in any one year, we strive to have less than 20% of our total debt coming due safeguarding the company's balance sheet against future market volatility.
Opportunistically access the capital markets to lock in funding certainty for all real estate transactions and develop continued access and partnership from the equity and credit markets, So finance accretive acquisitions.
Maintain a long term target leverage goal of five to five and a half on a net debt to EBITDA basis, which we will be well within pro forma for all the transactions, we have announced and migrate the balance sheet to an unsecured issuer and ultimately achieving investment grade rating.
In terms our financial results. This afternoon, we reported the total revenue in Q4 90, excluding the tenant reimbursement for property taxes increased 15.2% over Q4 18 to 237.5 million for the full year 2019 revenues increased 9.6% over 2018, excluding the tenant reimbursement of property.
Texas.
These increases were the result of adding 146.6 million of annual rent during the year from the Margaritaville Greektown, our rock Cincinnati and a century acquisitions, which all closed in 2019.
Finally, the 176.6 million or 37 cents per share for the fourth quarter, bringing full year 2019, AFFO to 649.6 million or $1.40 per share inline with our 2019 guidance.
FFO increased 23.6% year over year, while AFFO per share increased approximately 3.5%.
Over the prior year, which is due to the increased share count, resulting temporary dilution from the June 2019 equity offerings.
Our DNA was 5.1 million for the quarter and as a percentage of total revenues was only 2.2% for the quarter, which is in line with our full year projections and represents one of the lowest ratios in the triple net sector.
Our results once again highlight our highly efficient triple net model as flow through of cash revenue to adjusted EBITDA was approximately 100% as always are just additional transparency. We point you to our financial supplement for detailed breakdown of our cash rent by lease which is located in the investors section of our website under the menu heading financial.
And as always we welcome any feedback on the materials.
As John mentioned on acquisitions, we closed on essentially portfolio in December six, adding 25 million annual cash rent at a 9% cap rate. We funded the century acquisition using cash on our balance sheet. We closed the Jack Cleveland fiscal down acquisitions subsequent to year end on January 24th, adding 65.9 million an annual cash rent at a seven point.
8% capitalization rate, we funded this transaction using cash on our balance sheet.
We continue to expect the at El Dorado transaction to close by the end of the second quarter, we will add $253 million of annual rents increasing our total annual rent by approximately 25%.
As for guidance, we are continuing to present, our guidance in absolute dollars as well as on a per share basis. The pressure estimates reflect the dilutive impact of the additional 50 million shares of common stock issued on June 20, 828 team as well as an estimate of the additional shares from the unsettled forward sale agreements that are Rick.
Acquired to be included in the fully diluted earnings per share calculation under the Treasury stock method.
We estimate AFFO for the year ending December 31, 2020 will be between 728 million and 748 million or between a $1.50 and $1.54 per diluted share as always our guidance does not reflect the pending Eldorado acquisition, nor any other potential acquisition activity.
Finally during the fourth quarter, we paid a dividend of 29 in three quarters sense based on the annualized dividend. The dollar 19 per share. The dividend was paid on January nine to stockholders of record as of the close of business on December 27 with that operator. Please open the line for questions.
Certainly at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Stephen Grambling from Goldman Sachs. Your line is open.
Good afternoon, Thanks for all the color on the guidance.
David to simplify you filed an 8-K along with one of the recent financing transactions outlining I believe is $1.85 and pro forma AFFO per share for all the transactions you have in process can you just talk to the puts and takes of this pro forma now pro forma number as we think about what has changed since that filing which included or excluded and also.
Comparing contrast that to the guidance from a dollar for dollar 54. Thanks.
Yes, Stephen this is that I'll start off in turn it over to David Yeah. What you cited is a number that represents an annualized run rate.
Once the El Dorado transaction closes.
And.
That again I must emphasize does not constitute our 2020 guidance, our 2020 guidance, which David just shared with you. Obviously does not include the impact of the El Dorado closing, we obviously do not yet know with precision exactly when our old El Dorado transaction will close and when the new rent will start coming in.
But once the new rent starts coming in if you annualize that over the forward 12 months you get to a number very much like the number that you picked up on the offering men memorandum in the high yield document.
And as to how that might or might not have change any sense, then I'll turn it over to David and he can address any other technicalities, yes. The only thing I'd add Stephen is obviously, it's an annualized run rate for Eldorado, but for all the other transactions that we have announced obviously we've done a lot in 2019. So it's the annualized run rate for century for Cleveland.
Jack Cleveland This'll Downs.
The bulk 85 is based on the pro forma share count that then there's obviously, there's some slight changes to our share count with the ATM.
7 million shares that we issued under the ATM just recently, so but the run rate number is a good good number based on a full year impact of all the transactions that are pro forma done that number.
Got it that's that's helpful and then million unrelated follow up.
So now that you've had a little bit more news and action in the space from private equity and MGM, but also one of your peers are you seeing any change.
The opportunity set for gaming deals in other words or our owners changing their view of real estate value.
And their willingness to think about monetizing that thanks.
Yes, I'll start off and turn it over to John Stephen Yes, absolutely.
We're seeing increased interest in the sector, which we have always told for at least four we cannot claim that this is a sector deserving of institutionalization their potential cap rate compression. If there is not increase better interest in it that is fundamental to any institutionalization or cap rate compression story and as.
As operators are asset controllers have seen this level of activity and I've seen the valuations are understanding the role that reads can play in helping them grow their store count or crystallize value and I'll turn it over to John from right now I think I'd describe it very well I mean, we can't be a company that started three years ago and talked about what.
Great Real estate. These gaming assets are not expect there to be others, who notice that so it's a great time in space and operators are understanding how.
A rig can help them grow their business. So it's.
That's great.
Great I'll jump back in queue. Thanks, so much.
Your next question comes from Somebody's Rose from Citi. Your line is open.
Hi.
Hum along those lines.
I'm just wondering do you think that at some point.
You would be willing to or may need to partner with some of these larger private equity firms that say now start to maybe focus more on this.
It's kind of one of the last sectors to be kind of institutionalized.
I think they have sort of an inherently more competitive cost of capital.
You need to kind of.
How do you think about that.
I mean, we will certainly be open minded about its needs.
If if in a given the situation.
We could get the best outcome for our shareholders by partnering with another capital provider. We absolutely would I would just maybe gets is maybe a bit of a nuance, but what do you have seen as the entrance technically have not private equity you've seen the entrance of the non traded REIT.
There is a difference there insofar as.
Nontraded Reits like high quality non traded REIT like the Blackstone rate is unlike a private equity Blair unlikely to say, okay. Five seven years from now we're getting out.
The be read as it's known is really a permanent capital vehicle and and we think that it is permanent realist institutional real estate capital that has come in as opposed to private equity per se.
Okay.
Distinction thank you for that.
And I guess my other could your question is just be in general are you waiting for Eldorado to close and then you have a pipeline.
That would be in place along with that.
Transaction.
So do you feel I mean would you expect to be looking continually at other things as well or would you maybe take a pause why you consider.
What come to you through the El Dorado transactions.
I didn't know has allowed to take a pause.
But [laughter].
But no I think we are operating the same way that we've been operating since we started the company were out as Ed started.
This call about relationship building and making sure people understand how we would structured deal or look at a deal. So yes. We've got this great transaction that we have the close by the middle of.
This year with Eldorado and we obviously have spent a long time developing and our our embedded pipeline, but that doesn't stop us from continuing to grow the company, where we see unique opportunities with great real estate.
Thanks, guys.
Your next question is coming from rich Hightower from Evercore. Your line is okay.
Hey, good afternoon guys.
It's a rich.
I want to go I think.
You may be glossed over this quickly in the prepared comments, but the the ATM issuance is that related to a on announced deal or is that related to something that's already been announced just to clarify that.
The agenda, neither it just taking advantage of an attractive.
Talk price in a very efficient.
Tool to access the equity markets to make sure that we've got funding for the for our future pipeline or any future needs the do arise.
Okay. So it was just it was just totally opportunistic in that sense and just maybe secret have a little extra equity on the balance sheet basically.
Exactly yes.
Okay fair enough.
And then maybe bigger picture on the topic of.
Non gaming assets can can you maybe help us define the landscape of non gaming hospitality opportunities out there. How do you think about how do you think about operators in the space.
And our you discovering any any hospitality focused operators that might be interested in a net lease structure.
Along the lines of the way the casino companies have done it.
Yes, I mean, the way we.
And we May have talked with you previously about this but we look at we look at other sectors through the lens by which we evaluate and value gaming.
We're looking at sectors were working hard to identify sectors that have low cyclicality is lower than than average consumer discretionary cyclicality much as gaming does.
We obviously want to be looking at sectors that are not under secular threat that are fundamentally sectors built around people sharing and experiences same time same place, which inherently Amazon can put the box and shift your house number three were looking for healthy supply demand balance.
Given that over investment tends to be the curious weighted destroying capital value and then finally number four and this is probably the key filter.
Making sure that at the heart of the real estate is an end user experience to which the end user has demonstrated decades of loyalty going backward and likely going forward.
We're certainly seeing sectors that have some of those characteristics were meeting operators, who have great operating platforms very strong relationships with the end user CRM systems and network effect.
I think we've mentioned the number those sectors in the past.
We believe the demographic trends, whether it be the aging of the baby Boomer millennials going through family formation are going to mean very strong tailwinds for these sectors and certainly we are looking for sectors that either have an established triple net model.
Which you've referred to or are capable of supporting.
A triple net model and so much of that comes down to the operators business being in a business, where the operator is highly incentivized and highly rewarded at owning the operating leverage the business I mean, you and I talk about hotels lot and one of the struggles and hotel business right now is the misalignment as to where owner.
The ownership of operating leverage resides which is usually with real estate owner almost always real estate owner and where operating responsibility. If you will tensar reside which is I am not with a real estate owner.
That's a model, we'd rather stay away from and and so we're going to prioritize sectors, where the operators economics can support our kind of structure.
Got it I'd appreciate that color. Thanks.
Your next question comes from Sean Kelly from Bank of America.
Okay.
Hi, Thank you I think most for question for already answered appreciate it.
Thanks, Thanks, a lot.
Your next question comes from David Katz from Jefferies. Your line is open.
Hi, just asking on behalf of David.
Given the ATM insurance.
Hi that actions you have some excess cash.
She.
Do you anticipate going to them that market again soon for.
The acquisition pipeline.
Yes, it's as we think about future acquisitions, obviously, our playbook to date and will continue. This playbook is upon announcement of a transaction if theres a requirement for equity we would go to the market that day and raise equity match fund the equity side.
But just to clarify the debt proceeds that we are the debt offerings that we've done to date, all that's been earmarked either for the Eldorado transaction or the refinancing the second liens that happened today.
And so the ATM again was just an efficient.
Use.
Mission way to access the equity markets and raise a little additional capital for the active transaction pipeline we have.
Okay. Thank you.
Your next question is from Carlo Santarelli from Deutsche Bank. Your line is open.
Hey, Steve puzzle on for Carlos Thanks for taking my questions first we just wanted to clarify one thing with respect to the $50 million extinguishment charge does that relate to the CMBS and will there be a reimbursement for me.
The transaction as I believe you we're splitting the cost of the breakage.
Yes, David David and just as I as I mentioned in my remarks, the total charges 110.8 million.
We split that 50 50 with Eldorado. So the 58 million that shows up on our income statement is 55.4 that plus some transaction legal fees related to the retirement of that debt.
Okay. Thanks, that's helpful. And then given one of your competitors has some circumstances at present.
One can imagine puts them potentially add a bit of a pause do you believe there to be opportunities that present with less potential competition presenting themselves.
We really never look at.
These deals that theres less competition, especially back to our opening remarks about how attractive. This real estate is and how we've been communicating that since we started the company. So at least from our philosophy, how we go into looking at a deal, especially one that we know is on the market I don't think we approach at the site, there's there's less competition today.
There has been in the path.
Okay, great. Thank you.
Your next question comes from Daniel Adam.
And so on that.
Line is open.
Hey, guys. Thanks for taking my questions.
Given your cap rate compression and the recent lifts that we've seen and publicly traded opcos in recent months.
Then.
I'm wondering if you're noticing increased willingness at all would be sellers to.
To trim transact.
I don't know it is because of the last activity that you are talking about and they're seeing their opco multiples are going up I think it's just a matter of as we've said before as more people are educated on space. There are understanding how a re can fit into their portfolio. How we can help them grow their businesses.
I think you may be seen some of that I'm not sure necessarily has to do with the stock price moving on the Opcos or the prop goes right now I think it's just a matter of theres been years now.
Helping folks understand that.
And then I think there's increasing understanding through the work, we're doing as as well as as our colleagues in the sector.
Have a better understanding.
Dan around how to think about the cap capital, we provide whether in a sale lease back or by partnering some with someone when it comes to helping them increase or store count by by partnering with them on their purchase of the Opco and our purchase the propco and I think there's a greater and greater understanding that we ari.
Permanent capital provider the capital we provide does not have a maturity date. It does not need to be paid back and I think as everyone thinks over the long term about how they're managing their own capital structures and the risks associated with their capital structures, they realize the value of not having.
Large bullet maturities to the extent that doing either sale lease back with the gaming read or partnering with the gaming right to acquire an opco.
Creatively enables them to reduce their risk profile over time when it comes to again the laddering of their liabilities.
Great.
I color is very helpful.
I know that you alluded to this both in the prepared remarks, well I think John and that in the prepared marks and add and another question but.
It's interesting that this morning.
Question monetizing real estate actually came up on six flags earnings call.
And I'm, just wondering what opportunities specifically, what experiential markets in particular do you see the biggest opportunity outside of the gaming space.
Thanks, yet again, Dan I think it would be in the context of that that if you will that for lens framework I guess I spoke of regarding cyclicality secular threat supply demand balance and durability. The experience certainly the theme park business looked at broadly.
It is a business that has certainly proven its durability overtime the supply demand balance tends to be pretty healthy in so far as these are very expensive assets to build I don't know when we last had a greenfield asset in the theme Park American theme Park sector.
It is again not something Amazon can ship to your house and generally speaking, especially drive to theme parks have tended to weather.
Economic downturns quite well so it would be representative of the kind of experience will center sector, sorry, the ticks those boxes.
Okay great.
Thank you.
Your next question comes from RJ Milligan from Baird. Your line is open.
Hey, good evening guys.
A question on the 185 run rates.
For all post announced transactions that does include all financing for those transactions is that correct.
That's right yeah that the pro Formas in their reflect over the recent high yield and obviously that the June 2019 equity offering, but again, that's not our that's not our guidance at the pro form 8-K number.
Fair enough fair enough.
Is it fair to assume that you continue to continue to pursue deals only deals that are accretive.
Absolutely our Jay I think weve.
Shared with you.
Read has an opportunity to one bad deal because after that.
We won't have access to capital of the supported the credit markets with the equity markets to continue wants to know anything we do will will be accretive.
Okay. So then we don't plan to do that one bad deal yes.
Yes.
So I guess, it's fair to assume then if you take the Dollarseighty five run rate.
For the trends once the transactions are close on a pro forma basis, if you to assume any additional.
Transactions or acquisitions that it would therefore be higher than that dollar 85 run rate.
That's a fair assumption, yes, yes.
Our board certainly wouldn't let us get very far we came along and said yeah. You know that Buck 85 wells actually now Bucky Threeq as we just did a bad deal.
Not to want to bring anything that's an important to first place, but I can tell you they would.
Certainly say pascoe.
Yes, no we're always going to be really determined to generate accretion.
It is what our investors reserve it is how value it gets created and frankly RJ. It's how we get paid we get paid on total return and Needless to say total return is likely to suffer whenever we do a deal the causes our AFFO per share to decline on a per share basis.
Thanks, that's helpful. Im just looking at 2021 consensus is below that dollar 85 run rate. So it seems like numbers.
To change.
Yes, and I think in fairness, RJ, Weve, who where were we feel for everybody in the work they have to do out there like you do because BG has been a case of many moving parts and a lot of complexity.
Over the last especially whatever it is now 910 months since we announced our transformative deal with Eldorado.
So in fairness, everybody, it's been hard to piece things together.
But what we did achieve with the January financing I guess, who closed in early February.
Cost of funding clarity.
For every every dollar that ends up paying for the El Dorado deals that a good way to but as David absolutely.
That's helpful and my last question is just I think maybe you mentioned this but if I may have missed it.
Any thoughts on timing on looking at the ROE for assets.
Well it depends on what drove for is you're talking about I assume you're talking about the Las Vegas ones and I think that.
This is one where we're going to be prepared.
Should Tom and truly up to Caesars and Tom rig running that business. If they would like to transact on one of those were going to be prepared to do that.
Whether that's in later 2020 or on the further years.
Okay. Thanks.
Your next question comes from Ricardo Cancilla from Deutsche Bank. Your line is open.
Hi, guys. Thanks for taking the question.
Hey.
Side is that Las Vegas and had interest.
We're having quite sure about the new Caesars.
I know that you guys have contractual obligation contractual rights.
The real estate for that for that asset.
Hypothetically if on the biggest sense or any other operators wanting to acquire that asset.
I'd worked out given that you guys have contractual right on that asset.
Thank you.
Yes, well Ricardo I'll start and John can add in.
First of all we obviously don't as a as a practice, we do not comment on rumors and we don't really speculate on hypotheticals I think what we'll just emphasize to you is it seizures has built a magnificent new convention center in back of Harrah's, Las Vegas, which we obviously own.
And.
We encourage everybody to be there it try to be there in April John because the NFL draft. We hosted there. This yes. It will yeah, so well so I am sorry, we can't help you out on the rumors or this or any kind of hypotheticals Ricardo but.
We will just leave it that it is a beautiful structure upon which we do have what you referred to which is a foot call arrangement with Caesars.
Perfect. Thank you so much.
Your next question comes from John.
Okay, sorry from Ladenburg Thalmann. Your line is open.
Good afternoon.
John John.
Touching on the Carla's question, and maybe kind of a different angle. If there was a transaction that occurred because of the put call youre right would survive any transaction correct.
Yes, that's correct that is correct.
Then I guess.
Shifting over to the balance sheet, when I think about the pricing on the private placement debt you closed in February how do you think that would've compared from a rate perspective to what you could have gotten had you been an investment grade issuer.
And John you've seen the just earlier this week I think you know national retail properties went out and what did a 30 year bond that low threes. So there's 75 to 100 basis points.
Pending on the conditions of the market that overtime, we can look to take off.
President that capital.
It's significant John.
Yep.
And I guess outside of that are there any other kind of leverage you think you can pull.
With regards to the balance sheet today.
Given.
Yes.
The.
Prepayment of the second lien notes.
The balance you kind of looked like how you want talk long term or there's some other levers that you could potentially pull.
I mean, the next the gating item now John is just to get rid of that term loan.
Swapped we're going to swap the rolls off early next year in a swap the rolls off from 2023, but the term loan Encumbers every one of our assets so secure.
Over assets are secure but are secured by the term loan.
And so thats the gating item for the agencies and.
What would trigger us to become ultimately.
Allow us becoming investment grade rated so we want to work on.
Repaying that it officially and minimizing the breakage costs and those swaps overtime.
Understood and then one last detail question.
Is the ATM issuance in once you 20 is that baked into the guidance number you put out.
It is yes, okay.
That's it for me thank you very much.
Thanks.
Your next question comes from John Decree from Union Gaming Your line is open.
Hi, guys. Thanks for all the color I think you've you've answered just about all the questions, but just I guess to get your thoughts.
There's at least handful of casino properties around the U.S. that have.
Received a lot of capital dollars lately, whether new or renovations.
We have pretty substantial real estate or replacement value, but have not yet ramps cash flows.
Just wanted to get your thoughts on how you kind of look at maybe some of those opportunities and how you kind of think about the value of.
Of acquisition targets between actual values of real estate, it and maybe cash flows it might take a little longer to get to what are they should be there is there an opportunity to do something or is it kind of just.
Wait and see from your perspective.
Well I think I think guiding principle John.
If you if you're going to be the real estate on Harvard asset. The thing you. Most won is for the operator or the tenant the occupancy to be as successful as possible and is absolutely comfortable and confident with their own economics as possible because it's just simply never all that good to have a tenant op.
Operating.
Really.
Tight margin literally are figure Italy.
So we would always obviously talk to anyone and everybody about how to how to be helpful to them as a capital partner as it real estate partner.
But I think as you may be hurt us say in the past, we kinda live by an outage talk to us by our board member Craig Macnab, which is that the rent should be as low as possible.
As a percentage of the operators economics, and and so obviously the the greater the degree to which the asset has stabilized and revealed what is likely to be its run rate economics. The more confident both the operator and the real estate owner can be in their underwritings, such that the resulting opco propco.
Oh arrangement, the resulting lease is highly sustainable.
Thanks, that's definitely answers my question. Thank you.
And your last question comes from Jay Kornreich from S. M. B C. Your line is open.
Okay, given the best for less thanks, guys.
As as we think about diversification pro forma the El Dorado merger, you will have about maybe 3% rent exposure to El Dorado Caesars. So considering your robust in place pipeline and your comments to form new relationship how should we think about both growth and diversification going forward.
Well, it's you can see from when we started the company a couple of years ago that we've been on emissions to diversify.
Our tenant base and I think we've done a good job in a short period of time, but we're not done yet so we.
Started his comments this is about building relationships understanding.
On the operators and how we may help them continue to grow so I.
I don't know if that exactly answers your question, but we are still looking for opportunities not only with our growth pipeline as you talked about but outside that with new operators in gaming and outside gaming as Ed mentioned.
Just maybe put into context.
As we as Weve.
Revealed are disclosed in our investor decks, you know our run rate rent.
Once everything closes I think around 1.2 billion 1.25, if 1.25 billion. So obviously a point.
That is 12.5 million right and so you know with every deal. We can do that might involve say for argument sake 50 million of rent right. We do we can take that down potentially four points right. So.
You know, it's something we worked relentlessly on I'm not that's simply to diversify for the sake of diversifying we wouldn't do a bad deal just for the sake of creating any kind of further diversity of the rent roll.
But certainly in adding new relationships that we've added through John's leadership with with Penn with hard rock with century with Jack we've made it for a better portfolio and and obviously better risk adjusted returns.
Got it.
Makes sense. Thanks, and then just one follow up as we see.
As we have seen Blackstone come in and ticket.
Further entrance into the space as you guys talk to operators have you seen any cap rate compression and either Las Vegas or regional casinos.
I would but no I mean, I think you're seeing you've seen the transactions that have been out there obviously, the you're talking about the Blackstone transaction with philosophy, where they paid a 5.75% cap rate.
When it comes to you have to really take this one asset at a time one location at a time when region at a time, but we've had again as we've talked a lot on this call we've had good conversations.
With potential sellers and we'll continue to do that.
Yeah, and I know on the Threeq you call, we talked about philosophy, but just seeing that blackstone's involved with.
Do you find Mandalay Bay, and MGM Grand It's a 6.35 cap rate just seen them coming further wondering if that's changed any conversations between you and potential operators.
Oh, yes, there are obviously paying attention. There also also obviously paying attention to the fact that our cost of capital along with the cost of capital of.
Our peers is improving as well.
And this will be a fluid marketplace.
There will be a lot of data points people look at when it comes to a estimating are negotiating for value.
But again this is something is real estate people were very comfortable with 'cause it isn't the nature of institutionalizing markets is there will be this fluidity and as long as weaken main maintain a positive investment spread based on our cost of capital and the income yield that we're buying.
We believe we're creating value for our shareholders through accretive additions day AFFO per share.
Your next question comes from Stephen Grambling from Goldman Sachs. Your line is open.
Thank you for sent me back in.
One quick one you mentioned being.
Secondly partners and capital allocation with your tenants I guess.
Broader question around.
Right Capex requirements for any of the properties that you own or otherwise is there any kind of rules of thumb given your background. The industry that you would point to is really being the right level of maintenance Capex for.
Your properties. Thank you.
Yes, it's a very good question and it really depends on the asset that we're talking about as you can see with the deals that we've done.
Starting with with Harrah's Las Vegas, we negotiated a $171 million capital of the come in because we thought it was critically important for that business to grow and the numbers that we are underwriting to add that capital you really need to take it.
Property by property age by age what a new property like Jack Cleveland, Our Jack This'll down, which are brand new properties and what they need and made capital is very different than an asset that had.
30 years old and as capital so it's hard to give the range, but as we look at deals that we do that's the type of stuff that we spend.
Time with on the property with the operator understanding not only their maintenance, but their growth capital.
Yes, Stephen I'll, just add and ill [laughter] given your other coverage areas. This is should resonate with you and in my case is somebody is run two hotel Reis I got to say like this business model a whole lot better.
Because the Capex belongs to the operator, who owns the operating leverage and.
It is the operator, who will suffer first then suffer most consequentially if they fail to invest in their property and keep the competitive because again they own the operating results, but on the looked at on a more positive way. The operator gets the reward they deserve to get when they invest in the property.
And they come in and they improve the performance of the property whether through Capex or improved operations. So we think that this is a much better model for incentivizing a rewarding.
Proper stewardship of the asset by the operator, both again in terms of.
The continuing investment in the property and continuing to improve its performance.
Maybe without taking you down too much from deep would you generally think the capital intensity is higher.
Like for like for.
Las Vegas or destination assets relative to regional properties are generally thinks that the capital intensity of a casino is higher or lower than a hotel.
Well the largest capital expense for maintenance for casinos is the hotel.
Yes, so if you're if you're in a destination resort your most likely going to have a hotel. So the way I look at it is as as a non gaming guys. Steven is that if you look for instance in Las Vegas is the capital intensity of a Las Vegas asset higher than the capital intensity of regional asset absolutely, yes the thing.
They'll have to ask at the same time is the revenue intensity of a Las Vegas asset higher than the revenue intensity of a regional asset and I'm going to put Danny on the spot because Danny you shared with me a statistic for instance, as to the revenue productivity per gaming position in Las Vegas versus the region's yes, it's a multiple depending on the mom.
Market and I.
I think certainly in Las Vegas, you also have to take a tax rate into account because you're only operating with attach rate sub 7%, yes, but there is there is a multiplier effect in terms of the revenue intensity per position for instance slot machines I think it was that it was a it was the multiples that was well into the whole numbers.
As to the revenue intensity per position. So you can support higher capex when the asset has a much higher revenue productivity character to it or to put it another way one of the things I don't think the gets paid enough attention to end gaming and frankly other sectors is the revenue to asset ratio.
You know how many pennies of revenue are you producing per dollars of capital deployed and once you get to Vegas, the revenue intensity and thus the revenue to asset ratio I think is very positive.
That's great color. Thanks, so much.
And your last question comes from John Massocca from Ladenburg Thalmann. Your line is open.
Just a quick follow up on guidance.
Generally speaking what is the isolated impact of the treasury stock dilution on guidance.
Yes, John its.
60 million shares given that reflects the dilutive impact from the forward sale agreements under the under the Treasury stock method that we can walk you through that up the number.
Thank you very much.
There are no further questions at this time I turn the call back over to add to Tony CEO for closing remarks.
Thank you operator, and thanks again to everybody for your time say, we look forward to providing you an update on our continued progress we reported first quarter results and again. Thank you for making time. This late in your day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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