Q1 2020 Earnings Call

Good afternoon, and welcome to the MGM growth properties first quarter 2020, <unk> earnings Conference call.

Joining us on the call today from the company, our James Stewart, Chief Executive Officer, and Andy Chen Chief Financial Officer.

Participants are in listen only mode. After the company in his remarks, there will be an opportunity to ask questions.

Please note. This event is being recorded Oh, no like to turn the conference over to Mr. Andy chat. Please proceed sir.

Thank you good morning, and good afternoon, welcome to MGM growth properties first quarter 2020 earnings call.

This call is being broadcast live on the Internet MGM growth properties Dot Com and we have first our press release on form 8-K to the FCC. This morning on.

On this call we will make forward looking statements under the safe Harbor provisions under Federal Securities laws.

Actual results may differ materially from those projected in the forward looking statement.

Additional information concerning factors that could cause actual results to materially differ from these forward looking statements is contained in today's press release and in our periodic filings with the FCC.

During the call. We'll also discuss non-GAAP financial measures and talking about a performance you can find reconciliation to GAAP financial measures in the press release, which is also available on our website.

Finally, please note. This presentation will be recorded I'll now turn it over to James.

Thank you Andy I'd like to welcome everyone to M.D. piece first quarter 2020 conference call.

I'd like to start off by saying that our hearts and thoughts go out to all those in their families who have been affected by the virus.

And our deepest condolences to the loved ones of the 11 members of our partner in China, MGM resorts, who have been lost to this terrible stickiness.

He'd MGP would also like to extend our thanks to the many great people who've been working tirelessly on the front line to help all of us get through this including the first responders medical personnel and their own working men and women at M.D. peak with stepped up and major things continue to run at our company as smoothly as possible.

Before we discuss the impact of the pandemic on our business.

Let me start off by welcoming policy element Corey Sanders to our board of directors.

Joining us the new chairman of the board.

Look forward to working with them both.

From the very formation of the company M.G.P. was created with an eye to the future where the core strategy of having the ability to when do you work all kinds of economic environments.

That foresight and planning is bearing fruit for us today or low leverage strong tenant profile beautiful well maintain properties geographically balanced portfolio low levels of S. DNA and high levels of liquidity put us in a strong position.

Although all of our properties are currently close to the public I remain confident in our ability to successfully whether the situation.

Maintaining access to meaningful amounts of capital has always been a priority for us and today, we have approximately $1.8 billion in cash to put that number in perspective. This is enough to cover all of our expected operating expenses interest and dividends for about two and a half years.

We've always maintained a keen watch on her asked you Naylon and our adjusted EBITDA margin is currently an industry leading 98.6%.

[laughter] our tenant MGM has also disclosed a series of very prudent steps to fortify their balance sheet, everybody was financial leverage that's continued to take aggressive actions to reduce expenses and improve its liquidity position during this crisis.

They currently have approximately $4.6 billion in cash providing sufficient liquidity to cover their estimated cash outflows for the foreseeable future. In addition to the cash in their balance sheet. We've agreed to provide MGM resorts with up to $1.4 billion in cash in exchange for their operating partnership units should they elect to have them redeemed further bolstering their.

Our already strong liquidity position.

MDP is timely received all rental payments due under its leases and currently believes that MGM has sufficient liquidity to cover its expected rental obligations.

At this time MGP is not engaged in any conversations them G.M. to modify the terms of these leases.

We'd MGP remain confident both in our own added MGM resorts resiliency and ability to whether these economic conditions. Our industry is based downturns in challenges in the past it has overcome each one coming out stronger and more resilience each time.

Prior to the crisis 2020 was off to a strong start for us and we were executing on all fronts of our long term business strategy, we formed a joint venture with Blackstone to acquire in majority ownership of the MGM Grand Las Vegas, which was completed on February 14th.

Joint venture also acquired the real estate assets at Mandalay Bay and entered into a long term triple net lease with MGM resorts, providing for an initial annual rent of $292 million with fixed annual escalators robust minimal capex requirements <unk>.

Properties required for aggregate consideration, representing a 6.35% cap rate, where a multiple of 15.75 times rent.

We've been asked the joint venture at a relatively conservative 65% loan to value ratio and at a very attractive interest rate.

On April 1st MGP received its annual master lease escalator or approximately $15 million, bringing our pro rata annualized rental revenues to $974 million demonstrating the predictable growth inherent in our business model.

Mgps rental revenues are growing 77% since our IPO and most importantly, growing and they sustainable and secure manner over.

Over the last four years, we have prudently diversified our geographic exposure from 70% Las Vegas at IPO to currently around 50% through the acquisitions of the Borgata MGM National Harbor.

MGM Northfield Park and Empire City Casino.

Properties are also diversified in terms of revenue sources and are not overly reliant on any single source of business store customer demographic.

Our competence in both our company and our tenant was demonstrated when we increased our first quarter 2020 dividend to an annualized rate of $1.90 per share, which represents a 33% increase since your IPO. It was a 10 dividend increase out of the 16 total dividends paid to date.

We have continued to communicate frequently with gaming operators and remain open to sale leaseback transactions that would help them generate liquidity will provide them with an opportunity to replace financial debt with predictable long term leases.

We remain committed to our long term business strategy of sustainably growing our FFO and the dividend.

It's unprecedented shutdown of the U.S. economy is a great challenge for all businesses, but we remain confident that MGP will end up stronger than ever due to our prudent and disciplined approach to the business I'll now turn it over to Andy to discuss our financial results.

Thank you James I'll start by providing some highlights for few items in our first quarter financial results.

Recognize 203.5 million of rental revenues on a GAAP basis, or 238.3 million on a cash basis.

Consolidated net loss was 125.3 million, which includes 193.7 million a property transactions net relating to the MGP be read venture transaction.

Yes, it's always 182.8 million or 56 cents per diluted operating partnership units <unk>.

Adjusted EBITDA was 234.1 million gene expenses for the quarter were 4.9 million, which included about $1 million related to expenses incurred transactions that did not Santa clause.

For the first quarter or dividend increased to 47.5 cents per share.

Which represents $1.90 an annualized basis as James mentioned, we completed MGM Grand Las Vegas, and and Mandalay Bay joint venture transaction.

Finally, as an attractive CMBS financing.

Blackstone 800 million dollar cash equity investment in the JV and their direct investment MGP through the purchase of $150 million class a shares.

At quarter end <unk>.

Cash and cash well, let's have a $1.8 billion after drawing on our 1.35 billion dollar revolving credit facility.

Like many of our beef years did.

The revolver draw together with cash on hand puts MGP in place to fully fund the 1.4 billion LP unit redemption at anytime.

In the interim we have about 2.2 billion up net debt, excluding our 50.1% interest that into debt at the joint venture.

Including the share of the debt at the short joint venture net debt would be approximately 3.7 billion against 936 billion of annualized adjusted EBITDA.

Even if the redemption were to occur we will remain within our stated pro rata <unk> leveraged five to five and at times.

Our doesn't have our disciplined approach to crafting a strong balance sheet and diversifying our financing sources.

Not only put us in a great position to get through these challenging times.

But also the position MGP to continue to execute on our business strategy with that let's turn it back over to James.

Thank you Andy we'd like to thank all of our investors for their continued support operator, we'd like to open it up now for questions.

Thank you we will now begin my question and answer session to ask a question you made a bright star then one on your Touchtone phone.

If you're using to speakerphone. Please pick up your handset before pressing the keys. If your question. It's been answered and you wish you withdraw your question. Please press Star then too.

At this time, we will pause for one moment to assemble our roster.

Our first question today will come from Joe Greff of JP Morgan. Please proceed with your question.

I'm. Good afternoon, good morning, everyone, who fall human yours are up well unhealthy.

James question, we've been getting.

Last week.

Relates to your dividend this isn't necessarily coming negative plate I think it answered here will be perspective, what did for us on the call today.

Question isn't it under what realistic scenario its could you see your current dividend.

Not fully paid in cash over the next two years.

Well. The next two years are very very long time to look out, but I would say this.

We have the liquidity MGM has the liquidity.

MGM stated on its call very clearly that it's very committed to paying the rent.

So we certainly have no plans to do anything other than pay our dividend.

In cash as planned.

Okay and then my second question is given the change in Mgps Board composition.

And with Paul taking the chairman spots from Jan do.

Do you foresee any other board composition changes.

Do you think.

You should see an acceleration in any corporate governance enhancements coming down the Pike <unk> change in chairman and that's all for me.

I think that strategy as it relates to our company and how it fits into MGM is going to remain the same.

And with our current board composition as it did before and I wouldn't really expect any meaningful or major changes on any of that.

Oh things that we were pursuing prior to the change and you know under the current situation. So I think it's pretty much for us a steady as she goes in terms of from the board and the Big picture strategy for the company.

Thank you very much.

Thanks, Joe.

Our next question will come from Nick Yulico Scotia Bank. Please proceed with your question.

Hey, Good morning, this is great and Dennis on the snack.

Hi, James on the MGM called management.

50% occupancy was needs on the strip those assets for operating is access to make sense any indication, that's what that level occupancy or traffic.

At the regional casinos to breakeven profitability and then scenarios Im sure you guys running what's the current base case return it business by year end compared to 20 Nike.

Well it's.

Well the questions are probably honestly best directed to MGM. It was of course responsible for the operations inside the buildings.

Each property and resort.

And its location.

His unique some have no hotel for example in some have a hotel so the occupancy stat wouldn't up the applicable to all of the regional assets.

I would say, it's probably a gain a question that's put forward to MGM and I would say, though we are very nicely positioned as we look at our portfolio just given the geographic distribution that we have the different nature's up the type of activities that go on inside each building so were.

Not.

Highly reliant on any one narrow business line like some of the.

Regional properties that we look at maybe for example, almost all of our buildings are very big with multiple activities going on inside driving revenue from a series of broad source as opposed to looking really primarily the slot machine revenue or something like that so its difficult to tell.

Where things will go on a region by region basis, it's heavily dictated by.

Oh governmental regulations controls and dictates and guidance from the gaming control board of each region, but all in I would certainly take.

Our hand versus I think or anyone else is right now and I feel pretty good about our rate business Andy anything else.

The only thing I'd add there James is the in terms of they gaming tax rates in each jurisdiction there.

Three different right in Nevada, it's a single digit number and a lot of the regional jurisdictions its double digit as high as 50%. So that mathematical answer is different depending on that as well.

And then.

Andy could you give us some insight in the white house current to drawn down the line balance.

James committed paying rents that just to ensure on their available they asked for the LP unit redemption.

There are substantial that's not ginnies out there and at what point would you consider paying back some that balance to save money.

Sure and.

Like it was at a out of an abundance of caution we did it towards the end of.

Q1. So this is still March when things are extremely volatile.

You know, we still have the redemption, that's still a potentially outstanding so once we get some clarity as to whether or not that's unlikely event this quarter or not we can start thinking about no repaying that line to save on your expense and the interest expense on a net basis is inside a 3% because we're earning interest.

On the income we would pay commit fee. If it were not drawn so I would say the interest burden is a nice insurance policy for us to ensure that the funds are available come hell or high water.

Great. Thank you.

Thanks, Greg.

Our next question will come from Barry Jonas at Suntrust. Please proceed with your question.

Great guys.

Stuart.

Blackstone recently announced investment Australian operator, just curious what's your level of interest in that market.

Okay.

Hello.

Ladies and gentlemen, my apologies if we have here that we have lost both on the speaker lines.

Thank you for your agents, all but put on hold music back on and I'll join US once we get them speakers back in all join the Bakken. Thank you for your patience.

[music].

Ladies and gentlemen, thank you very much for your patience I have reconnected the speaker lines and we have Barry Jonas still on the question. The question podium. Please proceed.

Hey, guys you back.

Yeah, sorry, very no.

No you know a reflection on the question [laughter] looks to be a technical problem, what a phone service where all the speaker line got cut off so apologies.

No no worries. So yeah I was just wanted to get your thoughts on the Australian.

Market injured I think we've talked about international opportunities in the past just interesting how your partner another arm of your partner made an investment in Australia.

Yeah. It's.

I I think where we sit right now I feel like we have more than enough activity opportunity.

In the United States and its jurisdictions here that we obviously know the best that we understand all of the angles around the legal system the.

Governmental overlay tax regimes, and so will start to say that we wouldn't look at other potential opportunities in countries, where we also feel like doors.

Elements of the environment are stable and predictable, but for now we got more than enough in terms of opportunity on our plate domestically versus a feeling that needs to go and look internationally.

Great and then just a follow up to that you know I think MGM was was it was pretty clear in terms of their view on a recovery in the strip versus the regional markets. So like how does this all shapes your.

On on on future M&A in terms of geography within the U.S.

Yeah. It's a good question I, we have never had a an absolute specific geographical mix that we target.

It's more of an analysis, where we look at the specific opportunity meeting the the property or properties in any one deal and then you.

I have to make a judgment call as too is that property, you're building going to be able to generate the capital such that it's going to pay the rent.

You know every year for the next 30 years, if you feel like that component is there and then on the you know the next factors would be the lease is strong and protects our shareholders and we have five trust and faith in the operator that they're going to.

Do a good job then pay their rent on time and so onto the next 30 years. That's a deal that we should do if it's accretive on an on leveraging basis, whether that is in Las Vegas oriented, Ohio or in New York state or wherever so it's not so much that were looking to target a regional Vegas balance although.

Very much like the balance we have right now.

So much as if you have faith in the building the lease the operator and its attracted to our shareholders. Then that's a deal you should.

Great. Thanks, so much guys.

Thanks Barry.

Our next question will come from Carlos Santarelli of Deutsche Bank. Please proceed with your question.

Hey, guys good afternoon, and good morning.

Hi, Eddie Jones, just this one might be a little bit tricky to answer because obviously some of its out of your control, but when you you look at the cash on the balance sheet today.

Clearly the billion for that sits within that cash earmarked for the LP redemption.

I, just think about either not levels considerably higher than where the stock is today, the net effect of that transaction being double digit accretive to assets. So how much does your value, obviously, which I believe would would rise on on that redemption.

Impact how did the discussion and or the timing around.

Thank you.

To go about making that decision.

Yeah, It's interesting question and there's a series of different.

Countervailing sort of forces that come into play when one thinks about that first thing I would say is it that MGM resorts auction exclusively so it's it's really up to them, but when one looks at it. It's as you pointed out very nicely accretive to us because at these levels because.

We're funding.

Well, Yeah. That's you know three or sub three on a net cost then we're buying equity with a cash cost of somewhere around 8%. So that's a very nice arbitrage for us.

And you can add that is one you know benefit for us anyway. It probably does make the stock go up but I would concur with you. The other side is just the absolute Rob value that MGM gets for it shares which I don't think anyone is you know, particularly excited about the shares is where they sit now versus I think where they could be.

Once things get back open we start you know reestablishing the business in a more normal course, the other angle to think through for them is just the value of putting the cash onto their balance sheet as opposed to the dividend.

And the relative value between the two share so there's all sorts of different things that come into it it's exclusively at their option. So you know I would say at any one point in time those are all the components that one would have to think through as to whether or not too.

Execute on that war out hold off.

Andy anything else.

No I think you covered again.

And then if I could just one quick follow up maybe Andy E.

The handle that it comes out of the reporting going forward, obviously, what we saw in the first quarter.

Hi, guys are reporting for the joint venture with Blackstone that.

That is chosen methodology you guys will keep equipped with the current consolidation approach that you're taking that you took with first quarter earnings.

That's right. So we'll continue accounted count for the joint venture as an unconsolidated affiliates and will going forward, probably starting next quarter provides more detail on how that breaks out so that we have a full quarters worth of those results.

And I know it looked like in this period, obviously used to stop that for your adjusted EBITDA percentage up that's the back half of.

That 14th at March 31st is my understanding of the result is what it looks like that that's correct. We took our pro rata share.

Yeah, so from the joint venture as well as for EBITDA.

Great. Thank you guys.

Thanks Carl.

Our next question will come from Daniel Adam Nomura. Please proceed with your question.

Hi, guys. Thanks for taking my question Oh, just one housekeeping item actually Oh, I think James you mentioned in the prepared remarks that.

Base rent component did meet a revenue to rent ratio requirement for the 2% escalator in April that correct.

Hi, Dan as far as the revenues or rent that doesn't come into effect until it doesn't come into play until April of 2022. So the escalator. This past April as well next April it's 2%, there's no hurdle to meet.

Okay got it and then just with respect to the percentage rent component, which but that's a five year recent rich Richard April next year right.

Well, what a I guess at this point, it's pretty difficult <unk>. What are you guys modeling for.

For that so as far as the percentage rent a that first to reset is actually April of 2022. So it's another two years out you're correct as far as what how it's calculated at the five year average trailing revenue.

From that April 20 to date and that would include two years 2017 18 19. This year next year in that average.

The three out of the five years, we had the results for those but obviously there's still this year next year that are still unknown in that equation. So.

For now it's not a number that were spending too much time modeling or worrying about it we still got plenty of time to look through that and as far as the impact it's going to be applied to the 78 million out of our total 974 million a pro rata rent and so it's not going to be very impactful weather.

It's up flat or up significantly or even slightly down.

In into that's helping them.

Got it and then just I guess more at a high level.

How you know at this point are you guys thinking about M&A or you know either opportunistically in terms of horizontal M&A or <unk> you know.

Going out and being a more strategic or <unk> or finding opportunities individual properties or or I'm just in general your thoughts right now.

In terms of de Novos [laughter] I'll start and then a Andy please.

I mean, after but I would say a we are as we usually our very much in dialogue with a number of different property owners and operators.

And I think that the attractiveness of.

Taking.

Financial debt and replacing it with the very predictable very long term leases that we offer it's going to become increasingly attractive to adapt and its environments like this demonstrate the.

Safety that comes in from that model.

As it relates to the.

Chance of an M&A transaction happening during this period, it's always possible and we're always on the look out for such things, but with.

Stock prices, particularly the operator stocks gyrating very very significantly and having a very great deal of volatility as well as the cost of debt for a number of the operators.

[music].

Having much more volatility the normal it makes it very hard for a seller of an asset or a buyer of an asset to make a determination as to what value. The public market is putting on any one specific asset and you need to have that number. So you can compare it to what the private market would put on it or what we would put on it.

So.

Uh huh.

Volatile, particularly stock prices, but also interest rates make transactions more difficult to execute on and I think until we have a degree of stability and people are really able to make that businessman's decision around what value. They currently are getting versus what they could get from another source.

That the real likelihood of any kind of meaningful transaction is reasonably low that said there is a lot of dialog going on and I. You know we're always in the market to do something that's going to enhance our share price and create value added.

Yeah, and I'd add to that and in terms of star on cost of capital from the debt and equity side to the extent, it's a transaction that would require us to de leverage I never end or raise New act debts. You know those are things that would come into play from our perspective.

And lastly, I'd add that as as we you know work towards.

Recovery of this industry up our own than the economy.

All the companies that have properties that are shot.

Every day is on leveraging right, they're going to have more debt at the end of this and they started.

And I think a sale leaseback as a quick way to get them back where they want to be it financial perspective. So I think on the other side of this as James talked about I think there's going to be hard look at potential sale lease backs to get balance sheets back into a place where companies are more comfortable given that they've worked really hard over.

The last eight or 10 years to de leverage has the financial crisis too.

The point that they were at the early part a outside of this year.

And to really have a brighter future.

Go for it so I think the opportunities will come.

Okay, great. That's helpful. Thanks, so much faster.

Our next question will come from Rich Hightower Evercore ISI. Please proceed with your question.

Hi, good morning out there guys, so Paul as well.

Rich.

Hi.

Just just to Andy just to clarify one of your earlier comments the million dollars for forgone transaction costs or maybe maybe forgone not the right term there but is that a deal that is still in negotiation or some other phase or just to clarify one point there.

So we did not assign to close it in the quarter, but I can't comment on where we are in terms of the process.

Okay Fair fair enough and then.

Just a.

Broaden the a the M&A.

Discussion topic.

In a different way, but.

I don't know yet what lessons you know, we all sort of take from you know from the this cobot episode in terms of diversifying outside of gaming given that.

Pretty much everything is shut down at this moment, but as you guys. Good questions from investors and as you guys think about what you want the portfolio to look like over the next three 510 years and beyond.

Have you what lessons or takeaways.

In terms of diversifying outside of gaming do you think you can come away with at this point that you'd be comfortable discussing.

Yeah, I'll start and then again turned to Andy It is.

It gets back a little bit rich to a comment that made before which is to the extent that we have an opportunity with a property.

Across any sector, where we can do a transaction that's accretive without the use of high leverage.

And attracted to our shareholders, yeah that though line and dividend that's a deal that we should do.

Assuming you know that you're very very confident that that.

Operator is going to pay the rent for the entire lease term right. That's like the fundamental that we look at I would say I still think the opportunities on the other side of this crisis are going to be more attractive in the gaming business said in other sectors due to all of the same factors that have come into play.

Okay.

As to why I always felt it was more attractive over the past four years, which is a very limited number compared to most assets that are non gaming very limited number of buyers and a lot of regulatory overlay in terms of.

Licensing and very unique tax structures and so one so once you develop an expertise and knowledge in that area Act itself as a barrier to entry to others, who.

May want to come in and that resulted in transactions that I think are more attractive in the gaming space than they are another spaces that said the extent that there isn't deal that's or that is accretive on a non leveraging basis that you know we dig drives up they AFFO drives up the dividend is attractive to shareholders were confident that.

That.

The rent is sustainable and stable at to deal we want to do Andy.

Yeah, I think what's become very clear in this environment is that.

You know a lot of things that people focused on you know, whether it's a regional property or Las Vegas or focusing only on one metric for example, only rent coverage or this or that lets come out shining brightly is that the tenants credit quality is paramount and that's the most almost one of the most important.

Things as you look at your tenants do they have liquidity valves in an environment like this right do they had access to capital do they have large revolver debt cash balance to have contingency plans for things like this and you look at other asset classes that are true net lease you look at retail net lease.

And the rent collections are below 100% rights in some cases as low as 50 60, 70% of recollections were received and in April and May So.

Looking at our industry and our company and Weve collected 100% apartments, because we have a tenant on the other side that has financial wherewithal as seeks balance sheet fortress balance sheet as they say well and we agree and so we had great rent coverage, but we had a strong creditworthy tenants and I think on the other side. It is that's gonna.

To be one thing that.

Is going to be a lot more important for all.

Companies are looking to buy net lease is candies tenants paying rent.

Got it thank you guys.

Our next question will come from Jay Cordray S. M. B C. Please proceed with your question.

Hi, Thanks for taking the question I'm wondering how you view that MGM Grand acquisition today as its an iconic asset the close before the pandemic at a likely lower cap rate than it would go for today.

Well, we are very happy that we have done the transaction.

<unk> percent of the rent this coming in.

We view. These you know this situation will be temporary.

And it was immediately accretive where they're fantastic partner fantastic methodology around capital raise a resulted in.

You know I think a great deal overall I don't think anyone could have foreseen that every gaming property United States is going to be shot a few months later, but I from my perspective, we couldn't be happier redid, the deal, Andy and and Jay Weve or as we talked about we locked in the financing rate of 10 years.

Fixed and so the you know the cash income the cash flow that comes in the entity is extremely predictable we have escalators that don't have hurdles and that lease we have very robust capex requirements on those properties and you know the returns on that.

I'd ask that are going to be very predictable for us and our joint venture partner for the foreseeable future and we're very happy with it.

Got it seven cents and then just one follow up.

The other thing, but I'm, just wondering capital through new that would first look can sell this asset or GP LP units.

[noise].

Again, it's a you know for redemption it sucks, it's at their option.

Springfield would be a transaction on which we have our right of first off or on the.

Real property, there that would have to have a meeting of the mines in terms of cap rates and you know terms and so I.

Oh my.

So.

Given the size of the redemption.

And the ease of executing it my guess would be that that would come first but.

You know.

Predicting the future is always a risky so you can't be sir.

Oh, Yeah, I'd add to that James in terms of MGM himself at 4.6 billion cash.

As I talked on their call their operating expense notice about 270 million per month, which includes rent and that would less than in the full shutdown scenario here and a half you know maybe longer.

And we're not talking about four shutdown scenario sort of you know for the coming months here right because it 'cause states the company's they're talking about reopening timelines and things like that so.

I think that Cal calculus will no longer be help what is the cash burn rate but.

What does the ramp look like and how much cash you need for ramped versus what was more important a few weeks ago loves the cash burn rate in a full shutdown scenario, which is still on the case.

Mm Hmm good points, okay that makes sense. Thanks, so much.

Our next question, what kind of Jordan vendor of Macquarie. Please proceed with your question.

Good morning, guys. Thanks for taking my question on so operators.

They spoke about selling parcels of land in and around the strip and its walls and the data even prior to.

The pin dammit, so with operators looking to free up liquidity is buying parcels of land for future development something you guys. It that you guys would look at at this point.

No I would say that we would not Jordan one of the reasons is for US our cost of debt is obviously a cash cost you have to pay your interest our cost of equity is also very much a cast cost because we you know investors rely so much at our company on the dividend.

Land in of itself does not generate.

Enough income off any income off at the cover our cost of capital and actually frequently cost you money due to property tax and Oh.

A safety requirements and so on and we are more in the mode of having someone else Gayla you don't take the opportunity to develop an asset in gain the potential returns from that and then we would come in post development once things are stabilized and job by the property from them.

But the concept of buying land for us just given our cost the data our cost of equity in the need for media cash returns for the assets that we look to acquire doesn't make a ton of sets.

Okay, and then for my follow up here I I kind of got the sense that you're pretty comfortable with your dividend at this point, but how do you think about a withheld choppiness maybe in the next couple of mines in terms of your payout ratio versus your historical payout ratio.

Andy I think I'll take that James yet in terms of the where we sit in terms of the dividend. We're very comfortable where we are rental income is very predictable. We got her escalator amplifiers James talked about went on comes actually gone up.

From the start of shutdowns till now in terms of the payout ratio. Obviously, we'll have some uncertainty around the timing of the redemption, but we are comfortable where we sit today in terms of on the dividend level payout ratio will have a little bit of variability over the next quarter.

Her quarters, depending on the timing of the retention I talked about but well we don't foresee any.

Changes from that perspective.

Okay.

Yes.

Thanks Jordan.

Our next question comes from Smedes Rose of Citi. Please proceed with your question.

Hi, Thanks, I wanted to ask you a follow up questions on the redemption I know, it's a two year window now, but how hard is that number or is there any flexibility and get back yet said, we'd like to make this window a little bit longer.

Where it sits right now its two years from the close of the transaction, which is around fed 14.

So are you know like any transaction to the extent that there was a meeting of the mindset.

You know we want to cut.

Deal with them.

For such a change it's a possibility although I would just say theres been absolutely no discussions around that concept at all zero.

And he is.

No.

<unk>.

I just put it out so you mentioned, how youre model, maybe more attractive.

Operator.

From your perspective, and kind of the has covered world is the pool of potential assets has it gotten bigger or smaller you are there any would you.

I mean, it's the way that you'd be underwriting Oh, those properties going forward.

Yeah, It's a very interesting question actually smedes, because I think.

That at least in the.

Near term that you, meaning that it's kind of year or so you would you would probably would change the way that you would look at something you'd have to make sure that the property was one that you were confident was going to continue to.

Make enough to EBITDA.

In order to easily cover the ranch and leave your operator, you know successful and that.

<unk> is going to be a little bit different now than what it would have been see a year ago, where historical metrics are looking at John results through other potential crises, such as a great financial crisis, where indicative of outside.

One could use as a tool to make the call as to what the future was going to be now I think there'll be another layer added then I've, just operator liquidity operator commitments paying the rent ensuring that the lease has protections against you don't things like this recurring again and what the ultimate cash flow generating power of these out.

That are any one of the assets in our you know target list.

Is oh coming out the other side of this for a company with you know a rough number you know 12 to 15 billion dollar enterprise value, we need to do transactions that actually move the needle, which dictates a reasonably large asset we sort of set the threshold.

Wanting to be not smaller than $40 million of.

EBITDAR.

And so that limits us in terms of we're not going to want to go out and do a deal for an asset that's doing less that just because it doesn't move the needle and it still takes up time and resources. So making got call also probably be a little different because.

You know there may be different profile of what assets are making enough capital not EBITDAR pardon me two of them to make it worth our while for the capital to work versus where we would've been a year ago and any thoughts from you on that one.

I had one thing and just in terms of the pool of assets you know that pulled assets that we target.

I think remains unchanged, but I think the number of willing parties may grow as you know James' comments my comments earlier talked about in terms of where balance sheets will be for some of these operators and where they were kind of want to take leverage.

And try to do so quickly with the sale leaseback and so I think that May open some new avenues.

Okay. Thank you.

Our next question will come from John degree of Union Gaming. Please proceed with your question.

Hi, James Andy Thanks, you answered my questions already.

Thanks, John.

Thanks, Jeff.

Our next question will come from John Misaka of Ladenburg Thalmann. Please proceed with your question.

Good morning.

Hey, good morning.

So just as we can think about the kind of $1.4 billion you an option that at MGM has I mean, and I know, it's still the tough because you know they they're gonna have that option for a long period of time, but.

What happens essentially if they don't.

Exercise, how do you guys think about Dan using that capital if they don't exercise.

Well I feel pretty good about having it either way I think that you know I think over a two year period, the likelihood of not exercising is reasonably low that said.

I'm very pleased that we set up the company, where we meaningfully expanded the size of the revolver and made sure that we had.

Alternative types of capital available to us.

Because that planning has really borne out very well for US right. Now so you know I am not uncomfortable with having the excess.

This high level of capital available to the extent that the redemption just disappeared, which again is it you're talking now two years out.

You know, we would devoted I think to the normal course of business, where we which we always are on the look out for which is accretive deals on a non leveraging basis that.

Are going to pay that ran for 30 years increase are you AFFO, thus increase our dividend and enhance shareholder value. So that would be a that would be where we would that looked at deploy the capital otherwise.

Okay.

And then as we kind of come out of of the current economic situation and potentially maybe have.

A a slower ramping in Vegas, all that well see how that happens how do you guys. You kind of long term leverage I mean are you happy it kind of pro forma leverage you're going to come out of I'm kind of assuming the redemption or or would you like to kind of have that trend lower actually maybe think long term.

And I take it.

Yeah in terms of our leverage targets as I mentioned in the prepared remarks, you know we're still comfortable on their side, the five and a half times and now we're including in that side of the asset five to five enough times to our pro rata.

Contribution from the joint venture.

So that leaves our.

Non joint venture in traditional balance sheets, even lower than where we started right and so I think we're very comfortable continuing on that stance given that we'll have this.

Blended capital structures on one side very safe on the other side.

Very secure safe, but a relatively conservative loan to value, but high on a debt to EBITDA.

And so five to five an AFE, where we're comfortable that.

Okay.

I appreciate the color that's it for me he has very much.

Thanks, John.

Our next question will come from Sean Kelly with Bank of America. Please proceed with your question.

Hi, everyone not hope everybody has a safe and healthy out there.

Two.

Just just really one quick question on Yeah, I think we've talked a lot about some of the scenarios around the LP unit redemption, but yes, we think about eight yeah that was sort of part of a possible process time to potentially lead to either deconsolidation of MDP front MGM or at least less control.

You know is we kind of reach back to what wasn't that long ago, but but feel very long time ago any kind of the pre Kobe period.

You didn't really change anything other than perhaps the.

Hi mine in terms of the ability to okay. Yeah, I guess get mgms ownership in MDP down below 50% or those levers different has anything really changed on out or is this you know is that still very much on the table as it relates to you and I appreciate a lot of its really their decision that pattern, but how do you think about that.

Yeah.

Well the first thing I'd say, Sean is it really is up to the owner of the equity right I mean, it's their equity and they can determine when they want to monetize it I would say that the commentary that they have made on the earnings call. It in other sessions with some investors.

Has been very much on track with where they were before with pursuing an asset light strategy, which in of itself would entail lightening up on its a MGP stake. So although I would say you know it's a question best directed to MGM everything.

That I have heard from MGM resorts is that the same strategy of asset light is very much intact.

Great I appreciate it thanks James.

They shot.

Our final question will come from Robin Farley with you'd be yes. Please proceed with your question.

Great. Thank you Ive two questions and I am sorry. My line was also out for some of the call. So I apologize. If this is that's already but I heard some of your comments about.

The potential future transactions and how the current environment may impact out and I think that questions that people are asking what sort of getting around <unk> around the idea of the concerned that could be tough in the near term given that rents would be so low that you may not want to commit to getting new rents that are its absolute levels right that you wouldn't want that even if the regional operators.

Balance sheet help so I guess my question is.

There are there have been.

Actually this is that sort of made comments about consolidation among gaming.

Not necessarily you guys, but I'm just curious what your thoughts are.

With that make more sense, because you could potentially be acquiring rents that were set pre pandemic because I wouldn't think there's too many attractive rents out there to you and in the near term in terms of any other transactions.

Okay.

Where we although we would not always want to look at any transaction that we think makes sense for our stakeholders and shareholders.

If I look at our positioning right now and I would say the entire industry of gaming reads.

We'll likely emerge out of this situation.

In a much stronger position vis-a-vis traditional triple net universe of retail oriented reads.

Amongst any of that universe of all Triple net Reits I really take to hand, we've been dealt before I would take anyone else's just in terms of the strength of our Ted they're all levels of liquidity, they're staying power their expertise in management the nature of our buildings you know beautiful.

I'll maintained many activities going on inside them, a places where people want to be and want to go buildings that are critical to their John jurisdiction in every single jurisdiction, which they operate so that you get governors and mirrors and you know district leaders.

Very much wanting them to be successful I look at our own position in terms of our lease the strength of it or escalator position and so on and I think that.

Our relative position is very strong.

And I.

I would be hesitant towards taking on.

Yeah, I would rather keep ours as it is right now.

ER than necessarily have someone else's hand thrown into the mix that said, we're always open to something that is going to enhance shareholder value and enhance the company, but I just think there our position is so strong right now and that we're going to come out of this.

Very very successfully and that the market ultimately will.

Reward MGP shareholders for the.

For the value inherent in the company.

Okay.

That's helpful. Thanks, and then on the other question Sam.

I guess every other some reports about kind of potentially.

Yeah, maybe looking for other uses for some of its properties since they will all be opened at the same time and there were some talk about potentially offering them as.

Like a quarantined campus for maybe a pro sports League.

I'm sure you [laughter] seen <unk>.

Is there anything in your lease agreements with them that prevent them from leasing property to others. Just curious if there's any limitations on that.

Andy you want to take it.

Sure.

And there was there a broad use guidelines within the master lease and all of which are pretty markets.

For for when we struck to leases for some other uses that I've been talked about in the press obviously will.

Valuate those to the extent.

We need to evaluate them when those things come to fruition, but for now.

Nothing is concrete from a lot of those stories and there's there's nothing that we're discussing with MGM on that front, but they obviously, probably having their own discussions that we don't need to be or not involved in at this point and there's lot of uses that are permitted within the leases and you know certainly some of those.

Things that are broadly speaking entertainment I would say I would think.

Without looking at the language.

Broadly fit.

So it sounds like there's some sort of broad language and the lease and also you can just agree it sounds like as well right that you guys can just agree they wouldn't there's nothing prohibiting correct.

No I can always.

Yeah. So at least permits it then it's fine okay.

Okay, and you know what if it if the.

In almost any scenario I can think of it if MGM resorts wants to do something that means it's gonna be economically attractive and it's economically attractive to them then we would.

Yeah, you know that it's gonna be economically attractive to us so we'd be very supportive.

I play into that makes sense I just wondered if there was something that prohibited and the lease but it sounds like not so that that'll makes a lot of sense. So thank you very much. Thanks. Thanks Robert.

This concludes our question and answer session I would now like turn the conference back over to Mr., James Stewart for any closing remarks.

I just like you say, thank you very much to all of our investors for joining us on this call and for.

Being part of our company I think they'll be many greater things to come. Thank you all.

The conference has now concluded. Thank you very much for attending todays presentation. You may now disconnect.

[music].