Q2 2020 Gaming and Leisure Properties Inc Earnings Call

Greetings and welcome to the gaming and leisure properties second quarter 2020 earnings Conference call.

At this time, all participants are to listen only mode.

He brief question answer session will follow the formal presentation.

If anyone should require upper your assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Joe Giovanni Investor Relations. Thank you Sir you may begin.

Thank you Christine and good morning, everyone and thank you for joining gaming and leisure properties second quarter 2020 earnings call and webcast.

The press release distributed yesterday afternoon is available on the Investor Relations section on the company's website at Www Dot G al prop Inc. dotcom.

Today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act like 95.

Forward looking statements address matters that are subject to risks or uncertainties that may cause actual results to differ materially from those discussed today.

Forward looking statements may include those related to revenue operating income in financial guidance as well as non-GAAP financial measures such as that that FFO and AFFO.

As a reminder, forward looking statements represent management's current estimates and the company assumes no obligation to update any forward looking statements in the future.

We encourage listeners to review the more detailed discussions related to Rick fact factors and forward looking statements contained in the company filings with the FCC, including its first quarter kind of Q and the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.

On the 20 call, we're joined by Peter Carlino, Chairman, and Chief Executive Officer, and Steve Snyder, Chief Financial Officer gaming and leisure properties.

Also joining todays call our Deseret Burke senior Vice President and Chief Accounting Officer, Brendan more senior Vice President General Counsel in Secretary, Steve Gladney, Senior Vice President Finance, and Matthew Demchak Senior Vice President of investments.

With that it's my pleasure to try to call over to Peter Carlino. Peter. Please go ahead.

Thank you Joe and.

Good morning, everyone and thank you for joining our second quarter earnings call.

As you all know there have been eventful it on precedented challenges that we and our triple net competitors have faced this quarter, but I.

I think on balance sheet LPI has weathered the crisis extremely well.

As always our team has issued a very detailed summary of activities over the quarter.

So I'll limit my summary remarks, but I think the important that result is that we have received I knew that 99, if I get that word out per cent of our contractual rent through July.

Additionally, I think we've proved to be very flexible and helping our tenants meet liquidity or other business challenges in order to ensure their long term viability and success.

As you all recognized by now the partial opening up all but a few of our tenants properties has produced stunning and unexpected results business volumes are surprisingly strong.

But margins are proving to be even stronger we expect to hear the same result from Penn National when it reports on August six.

This is probably the best time for me to say, what I've been saying for years and that is my belief that the real strength of our industry lies with the regional properties not on the Las Vegas strip.

Not only is the cash return on invested capital better certainly all the properties I've been involved with over the years, but you're about to see again that the resiliency of our tenants regional properties.

Far exceeds that of destination properties in Las Vegas, However, wonderful unexciting they might be.

Let's be clear I'm, not suggesting that they get properties are not extremely valuable. They are what I want to make the case and I think this demonstrates it that regional properties have long been undervalued, and we deserve equal or even greater appreciation for that.

Another bright spot that I would highlight is that within the triple net space.

Our company is uniquely will collect virtually 100% of our rental income.

Further our tenants are largely distinguish public companies, whose earnings in issues are largely transparent.

Not a lot of gets worked for investors about the health of gaming about gaming to read earnings pretty open book, So with that let me turn the.

Call over to Steve Snyder Who'll give you a lot more detail Dave. Thank you Peter and good morning, everyone Hope everyone is staying safe and healthy through these crazy times I'm just to clarify although we've been trying since last evening, we did file our second quarter 10-Q. This morning in spite of some interruptions to the Edgar system with the FCC.

Before I move into the quarter I just wanted to touch on some personal things and bear with me. This will only be a few minutes.

Obviously, my retirement is something that I've been thinking about for quite some time.

Just having reached the age of 60 believe it or not and are about to be a first time grandfather, my wife, and I bought a place in Nashville, and we look forward to spending a lot of quality family time in Nashville in the next years to calm and so it has been a fantastic run its year edgy OPI and previously at Penn I joined Peterborough.

I can that lead 19, nineties and I'll be forever grateful to Peter to the board here or do you Hope you high answer the board at Penn originally for giving me the opportunity to contribute to chew transformative companies I think while we work and we laid the foundation for pen to now be the leading regional game.

And operator here in the United States and certainly over the last seven years, a GLP Guy we've created a new asset class in the Triple net lease space, which others have come to copy which to me is the highest moral collateral.

Finally, the value creation that we've been able to achieve at both these companies is a testament to the talented and dedicated team members I've had the privilege to work with over these many years and I'd be stepping away with a very talented group of the next generation of leaders for this company I'm. So I look forward to it.

Moving forward into the quarter.

It certainly was as Peter mentioned, those plus strong quarter. It exceeded even the most optimistic scenarios that we looked at back in the dark days of March and April in trying to evaluate what is unknown pandemic would mean to our businesses.

Clearly, it's not over Oh, it seems to be sheeting up in certain parts of the United States to <unk> and gaining a little bit less traction in other parts of the United States, but we think the company and most importantly, our operating partners, our tenants are well positioned to weather and get to the.

Other side of this unprecedented pandemic that we're currently seeing.

Part of the outperformance that we've achieved has really been across all variable items in our business.

As a percentage rents in our Columbus in our Ohio businesses since they were able to reopen in June exceeded our expectations. The operating performance in our two operating assets in our taxable REIT subsidiary just wildly exceeded any assumptions that we had made when we scenario plant back in.

March and April I give a lot of credit to our VP of operations met High school.

Harry Gold Who's also the GM and very Bill is relative junior magnet for out our GM in Baton Rouge, and their teams for very effectively and efficiently literally shutting down a business furloughing folks and then bringing those business is back on line with on precedent and performance over the course that we.

They have been open.

Lastly on the expense side.

We really were able to also outperformed permanent interest expense standpoint, and you'll see that in the press release in terms the effective execution that we did achieve in accessing the capital markets to term out some of our variable rate debt.

Also during the quarter it Peter touched on this we spent a great deal of time collaborating very closely with all of our tenants and that's evidenced in some of the items that are highlighted in the press release spent a lot of time with our resident across the parking lot at Penn coming up with rent credit program that really allow.

Dam and proved to be the catalyst for them to achieve some pretty significant performance with respect to access the capital markets and most recently performance with respect to their assets also the new Caesars team. We spent quite a bit of time with then you saw that as evidenced by the lease amendments that we end.

Her into which I think really help them set the stage, we're getting the final regulatory approval with the accommodations that we work with them on with respect to the substitution of the asset in Indiana, So I'm certain.

They will perform quite well now that they've got their new platform under their belt and lastly, we also spent quite a bit of time during the quarter with the folks it would as evidenced by the approval of the Ohio Racing Commission to own the real property assets of Belterra Park, which now does stand in a separately. So we have taken that real estate on.

For the balance sheet and no longer have alone in place with respect to that asset.

So with respect Jordan public tenants in all cases, we spend quite a bit of time, providing them the necessary relief from non payment covenants in all of our leases to give them runways back to normalization because these as I've said or truly unprecedented times and there's no point.

In using these times square foot fault under our existing leases they need to get through to the other side and are well on a trajectory to do that.

Lastly in terms the portfolio.

We spend quite a bit of time during the quarter with the folks at casino Queen They were successful in procuring alone under the payroll protection program planned at the Federal government did put in place. We did get as you will see in the earnings release, a partial June rent payments of about 250 to $250000 and we do expect.

To execute a deferred rent agreement with the new owners of the casino Queen that will get us paid in full by year end. We have elected to go to just cash recognition of the rent receipts from casino Queen given the situation that we find the men at this point in time.

Finally from a liquidity in a balance sheet standpoint, we ended the quarter with an undrawn revolver with the complete capacity of 1.175 billion. We ended the quarter with $74 million a cash on the balance sheet in terms of any near term maturities. We've got to 224 million dollar term loan a one that is due in April of next year.

Sure, but beyond that there are no other maturities until 2023. So the company has been a tremendous liquidity position at this point in time to get through what remains of this pandemic.

As it relates to leverage you will note that our leverage did tick up modestly in the quarter relative to our EBITDA.

Because the debt increased the opposite but because of the modest decline in EBITDA affected by that pandemic and we did as noted in the press release pay our second quarter dividend, 80% in stock issuing about 2.7 million shares and I will note for those on the call, but that 60 cents quarterly did.

But in ended up being the lowest payout ratio, but the company has ever paid at about 71%, though the 84 cents FFO that we reported.

Because you will see from the press release that our performance did exceed.

Any of the consensus estimates that were out there on wall Street.

Finally, as GLP I'm moves forward, we clearly are still in the fire of this pandemic, but as Peter mentioned I'm very comfortable that regional gaming assets and our operating partners in particular will lead the recovery of this asset class and once normalized our tenants will achieve the strongest four wall coverage of there.

At lease obligations in the entire asset class so with that operator, why don't we turn it over to the participants for any questions they'd like to address to the management team.

Thank you we will now be conducting a question answer session.

I would like to ask the question. Please press star one on your telephone keypad.

Information told will indicate your line is in the question Q.

The press Star Q, if he would like to remove your question from the Q.

Participants using speaker equipment, it may be necessary to pick up you had said before a person is dark keys. One moment. Please go away poll for questions.

Thank you. Our first question comes from the line of Barry Jonas with Suntrust. Please proceed with your question.

Great. Thank you first off Steve I, just wanted to say congratulations it's been a real pleasure working with you over the years. So so thanks for everything.

And I guess I'll start just with the dividend is this the appropriate level. There's just the appropriate rate here and how are you thinking about payout ratio going forward.

Well, let me take away as Peter Let me take a quick whack at that look we're going to do that ever is prudent looking ahead.

As Steve said earlier, we've matched what we're paying out in cash to what we get in cash we expect the fall to be.

Actually excellent and so that will be taking a hard look at what the next quarter might offer exactly but.

We're not going to make any commitment about that now, but all I will highlight that as a shareholder who kind of loves dividends personally that we'll get back to a normalized rate as early as we think is prudent and that's really the best answer I can give you.

Okay fair enough.

Next maybe this is a question for Matt, but maybe just talk generally about the M&A environment. What is the pipeline look like what's your appetite here.

Sure, Yes, so the top that answer is really that the stage seems to be set.

At least partially set for there to be some activity in the space.

Theres one thing that cobot taught us it's that there's certain important the solvency and the value of permanent capital at our lease structure is really a permanent as capital gets.

You can also look at where operators that price debt in recent trades and that suggests that our capital as attractive from a cost perspective.

And when we look at our capital sources, we definitely see a functioning capital market, but from a bottom up perspective, it feels a bit too early or soon operator has really been focused on survival successfully reopening their properties and the real questions going to be when they're going to be strategic reasons beat a rationalization can solve.

Nation regulation for assets to change hands, and when that happens because of the ability to both help in pricing for transaction and also the help with permanent capital and that maturity risk question. Our sale leaseback structures value proposition is really is relevant as ever ever definitely have been working to ensure that we have this.

Seat at the table for all those discussions.

Yeah.

Great and then just a final one.

Can you kind of touched on this but as you look across the triple net sector, maybe maybe even beyond that how do you see GLP gaming <unk> position in a long before Corona virus. There was an argument for cap rate compression, where do you think that stands now I can give you Corona bars, you kind of know what my answer is gonna be Barry it's better than.

However.

Look we always said that these are state sponsored businesses in most areas that rely heavily on the kind of revenue that we generate for them.

And that these places essentially don't close even through tough times you saw it Caesars.

No. They operations still continued life would on maybe the ownership kind of changed hands, but.

This stuff is about as bullet proof as it gets it I'm not going a little bit I said, because there's always some surprise it they maybe in the future will appear but I think this demonstrates perfectly how rock solid the income coming out of not just us, but our gaming partners gaming re partners really is.

Perfect. Thanks, so much thanks Bert.

Q.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.

Hey, guys, how are you and Steve congratulations.

Hi.

The way Youre thinking has evolved as it pertains to potentially works with somebody in some form of excuse versus outright sale at the property versus any other.

Exactly you could potentially have at this point.

Well, if there's an easy answer to that and that is that as things settle out and they're certainly not settled in Las Vegas right now it's hard to.

To guess, who will do whatever makes economic sense for this company period, well look at every opportunity all opportunities partial sale parts of the sale leaseback ground leases you can go through a litany of things that we're open to and even after having some discussions, albeit premium you know early.

That.

We will lead us to the right answer I think the key is we have a valuable piece of real estate Las Vegas, We got fairly price, we feel very confident about that and is this evolves. We're just going to try to maximize value for for all of us here and for you.

Yeah, and Karl just to amplify on Peter's point, I I would make it clear that these 35.1 acres are script frontage others talk about strip proximate theres nothing proximate about being on the corner of Las Vegas Boulevard and Tropicana Boulevard. This is the corner of main and main and you know everything that's going on down.

There with respect to the stadium opening and everything else. So it's really a matter of being patient letting Las Vegas come back to some feeling of normalization, but in spite of that to Peter's point. There. There have been folks would have been making inquiries. Because this has been an ongoing process and in spite of the law.

The biggest review journal just sort of suggesting it's just been listed we stepped independence shoes in this process and they had started this process well over a year year and a half ago. So.

It is something that will continue into Peter's point with the goal being maximizing value for GLP.

Great. Thank you both guys. That's if it could it's been a question that's come up for years in terms of absorbed interest outside of the gaming space and it's never been something that that made a ton of sense, but it beats in the current environment where.

Some of the entertainment related companies, maybe aren't see that the multiples that that made the transaction so little bit more difficult from an accretion perspective in the past has there been any and some of that is southern Validus dolls are very troubled at this point, but but has has there been any change your view of non gaming related assets.

It's a pandemic.

Well.

It's Peter.

As I had indicated earlier look we're happy to be in the space. We're in and thank we're not in some other spaces right now where people are hurting a whole lot more so but we use what youve asked is does that open opportunity and some other sectors look I think it again, we have to wait to see how things settle out it may.

Creates some opportunity for us, but again the struggle has always been and I said this a when we started seven years ago sensing doing this.

Showed me a better business in the one were in show me a business. It has the cash flow certainty that we have and we're about to prove it we're proving it now so that's always been to struggle.

Well, we're on the road talking to investors into all of you. It's really a matter of we're trying to make the case, we are in the business. It as bad as bullet proof is it can get it's not about occupancy is not about tenants canceling. It's none of that can happen. So we're looking something may well emerge I mean, I've always said they used to say independence side there.

It is alive and breeding you can imagine we're looking at I mean, it still is kind of our philosophy, but we're going to be pace. It we're going to see what may change a and we're looking to the future growth of this company, but again prudence.

Caution membrane, who we are staying close to the you know to to our core value of of safety.

For shareholders isn't going to change so we'll see we'll see you you may well have.

Good observation that is going to open up something for us and if so we hope to identify it.

Great. Thank you guys were opened anything I mean, that's pretty much the answer.

I appreciate it.

Thank you. Thank you very much code.

Our next question comes real I know Jared show Jain with Wolfe Research. Please proceed with your question.

Hi, Good morning, everyone. Thanks for taking my question going to guard.

So if casinos are going to come out of this crisis, and a new normal of higher profitability, but potentially lower revenues like what we're seeing right now.

How does that affect you with the rent escalators tied to revenue and is there anything you can do to address that or does it frankly not matter to you because the overall corporate coverage would just be so much better.

Well it matters heavy [laughter], certainly matters again, I'm going to I'm going to part maybe Steve or Matt has the or see gladney has an answer a different thought about it but look like everything else. We're gonna have to wait and see how things go I look I have faith in ultimately getting back to the kind of levels we were at before.

It may take though a lot longer than we ever would have imagined in the meantime, I think companies. We're already working certainly Penn National wasn't and everybody else is well on improving margins now look let's be real I think the level the margin level that we're looking at right now is likely not I mean is not sustainable.

Let me right now we're kind of the only game in town I think in terms of entertainment and things that people can do and get out and.

But I think there has been a permanent shift companies are going to operate more profitably and we'll have to wait to see what the net result of that is Steve you want to that first of all Gerard I welcome and thanks for the work that you've done in understanding the asset class and initiating in June so it's great for you to take them.

Timed to drill down into heavy join in terms of yes. The escalators clearly as Peter mentioned, we do expect to see permanent margin improvements in these businesses, which will drive four wall coverages. So that there is the ability to realize escalators, but I think the bottom line is look at the.

Amendments that we've made with new Caesars under the Tropicana lease and see what is in those amendments that drive known future same store sales growth in the form of escalators.

And those are the kinds of things to look for on a go forward basis in my mind from GLP I just to be specific with respect to your question.

It's fair answer everybody else with the table would well I'll just add if you look at it for perspective, the vast majority of Iran is subject to escalation based on EBITDA. So the bulk of it does get the benefit of some of these trends.

You think about variable right, you're right there could be add when but we're working to protect and protect our cash flows through steps like these brought up with Eldorado and also going forward you should expect us to continue those efforts help the value of the cash flow.

Thanks, guys great. Thank you and then assuming seizures decides to swap out Tropicana Evansville out of the lease as Youve granted that option and then they look to sell it for regulatory reasons is that an asset that you would bid on.

Oh, absolutely Oh, yes.

Steve Let me just for fun, you'll be you've been solid for a bit you've been keeping a wheel hub, but.

Yeah, No I think look I think the short answer is yes, we we own the asset now we'd like the asset it's performed very well and it's a it's a quality quality property with known competition.

I think we would definitely have an interest in it I do think it'll be interesting to see how.

That entire process rolls out because as you're well aware the other two divestiture requirements in Indiana are both least currently to one of our competitors. So well, we'll see how we can be involved in that process, but we do have an interest.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Finbarr with Bank of America Merrill Lynch. Please proceed with your question.

Hey, guys. Thank you like to echo the sentiment toward Steve.

A quick one from our side of things about the Trs property. It specifically Baton Rouge, you guys go through some of the long term strategic importance of that or do you see it having a place in your portfolio or would you look to do something similar to parity bill.

Look I think we've been pretty public about that I I personally have a great affection for that property is one of the early ones that we bought ahead.

Really do but look I think ultimately we're right and that's probably where we're going to need to be I say that but happily. There's some interesting opportunity and that of course is the possibility of moving that bode landside.

We have walk straight infects Steve Snyder had a directed at effort with the team that we views and all of our Hollywood properties.

And guys I've worked with from the very beginning done banger and the Genesis folks in California to do a Hollywood thing facility land side for a relatively modest budget, it's pretty exciting I'd like to see that see that throw the some other things happening in baton Rouge that are actually very appealing. So there is a real opportunity to do something good with that brought.

30.

Beyond that you know I'm not sure what happens but.

I I would like to see through assuming we get approval data in effect of this month August coming.

We get approval to move land side with a modest but very attractive facility. The spend is going to be very cautious, but I've seen plans. There terrific. We just got to sell them to the folks in Louisiana.

And.

So I stay tuned for that I think that property has some room to move and we'll we'll see.

Great really appreciate it that's all from our side. Thank you. Thank you.

Our next question comes from the line of Jordan vendor with Macquarie. Please proceed with your question.

Good morning, Thanks for taking my question first off Thank you, Steve for everything and best of luck retirement.

So my first one here he can touch on the CFO search.

Is there anything you're looking for within a candidate someone with read experience gaming experience. So anything you can provide there.

You know look I I'd love to answer that question, but I don't think thats, an appropriate or this is inappropriate for him for it. If you want to give me a call directly be happy to chat about it and so forth, but in an open call like this I think it's much requires a much more nuanced answer that I would be prepared to give now so if I may.

Hey, it's one of the few times the Dodge requested.

No worries.

But I'm happy to discuss it separately later.

All right [laughter] and then do you expect to restructure the lease with casino Queen given that it's been under the minimum coverage for sometime now.

Steve let if you want to take that.

Yeah look I think we're we're we're currently.

In discussions with the current management team there as well as the current secured debt holder.

Around that transaction and what's going to happen would that property going forward. As you may have seen they just announced the Draftkings transaction, which you know from our perspective is very positive should support the other performance of the property and therefore enhance our rent coverage. So there are there are a number of things going on behind the scenes.

And we're working on with them, we are working closely with them and we hope to.

I have that entire lease in a much better place going forward.

Yeah, It looks like I mean in summary, a much improving situation there.

Okay. Thanks, guys I'll pass it off.

Thank you.

Our next question comes from the line of Thomas Allen with Morgan Stanley. Please proceed with your question.

Thank you so and Steve Thanks, all your help with us through so so Peter you've been around the industry for a little but you made some interesting comments earlier the only go into threeq here, but that the margin levels were seeing right now are not sustainable and six units to the only given town. If you look they.

Regional properties and true result property EBITDA, it's right now growing almost on a mid to high teen.

What do you.

Like if we go out a month or two in the time environments sustained when do you think.

We have a dog growth is going to be for retail properties. Thank you.

Well [laughter].

Steve you, what you're going to say.

Yeah, it looks like he's ready to good morning, Todd Let me give you a couple of data points, because I know your data junkie Almond data junkie I'm looking at our Trs properties earlier. This week in July I mean, our volumes in the two properties were up nearly 6% on a year over year basis.

And our EBITDA was up over 30% on a year over year basis in those two properties.

That does not feel sustainable the issue really is where does the world normalize when we get to the other side of this whole covert 19 situation and there's still a risk because you got 50 governors out there of course, only 16 of them affect us that you might.

Let's see governors roll things back as they're starting to do but I think we as an industry have proven our ability to provide adequate social distancing, we and our regulators have enforced mandatory masks for anyone coming on our gaming properties and those are the things.

That have allowed us to realize the performance that we've realized in our taxable REIT subsidiary in our operating partners are realizing in the facilities that they operate which we own so.

It's too early to tell it is really the bottom line I think the Peter's point I don't know about the volumes because again. These are capacity limited and yet we are doing these upticks that I mentioned, but I do think and others have said wait on their call you we've heard from Caesars new Caesars in their upped.

Great and we'll hear from Penn next week I think it operating expenses have permanently been taken out of these businesses and that's where the margin improvements will come from and that's what I think will drive the four wall coverage improvements that these facilities, we'll see in not too distant future. Once we anniversary this yeah Penn that always already.

Was the I think at a high highest margins across the board and that in the regional markets Anyhow. They were committed to it's still a margin improvement program that you. It's been well publicized and then you put all this together I think.

You're going to see that all businesses certainly in the regional sector are going to be able to operate a lot more lamely than they ever did before so we know it's going to be better just all the way it's going to settle out as Steve said, we've just got to have to wait and see but look this.

Thrilled with the early early results.

And just a follow up looking your Trs properties, Kansas discuss the demographic that are coming through the properties and driving that 6% volume growth and is there any way to read into the stimulus.

Wear off today includes over the last the.

What that impact could be.

Hey, it's it's too early to tell let let me answer the easy one first which is the demographic slightly younger seen more table games drop and then historical norms because of that younger and a little bit more male oriented demographic and these data points, just from Perry Bill, Maryland and bad.

Rouge, Louisiana, So don't extrapolate these globally.

And we're also seeing a much higher participation by from unrated play.

We're just seeing much more unrated play because remember.

We have not marketed aggressively cause a capacity limitations, we've been fortunate Louisiana has provided $5 million in annual tax free promotional credits one of the reliefs that they've provided the industry. As a result of this whole covert 19 situation. So it just went into effect. So the these things are.

Still playing out but.

Generally younger demographic more mid week midday business than we're accustomed to seeing greater unrated play and higher spend per visit.

At a high level or the demographics that we're seeing.

Alright, thank you.

Thank you. Thank you yes.

Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi, good morning, everyone.

And Steve all the best none has been more engaging and enjoyable.

So well earned.

Okay.

We've covered an awful lot of information, but I just wanted to propose the notion of getting involved in a category of assets. That's tangential. So what you have you know what was what we're hearing more and more about our you know hard assets that May house. So.

Ports, but other than casinos that could be sports venues. It could obviously LTB is are you know near and Dear.

But how much looking or thinking you're done around those kinds of hard assets.

Particularly in a world, where all things digital seem to be top of mind.

Oh.

Look I think we spent a lot of time looking at both opportunities or potential threats to our business as we look to the future. So for the quick answer is we spent a lot of time talking about that here.

Remember that this is going to unfold, though in a state by state basis. Some states are going to be completely bricks and mortar oriented.

There's a potential that in some places like I guess in Washington, DC or I understand that the Michigan, maybe is talking about anybody and as you know their.

Kittens couldn't get us license to do this I mean that just opened to the almost anyone that to suggest it hasn't happened, but so we have to see how it's going to unfold look the states has an i. I can speak a little bit with about Penn National I do think they are largely focused on legislation that supports their bricks in.

It is plenty of reasons deployment other.

Wise that the state's ought to be sensitive to that but the truth is it'll be up and down some states will be highly.

Sympathetic to the bricks and mortar protection other states may be less so we're very early in the game and I think we just kind of have to keep an eye and see how this unfolds that would be my answer around the table anybody want to.

Does that David when you think about things outside of gaming. The gating factors are really does it fit our competitive advantages and our institutional skills that does it have durable qualities similar to the assets were already on that but at an attractive risk adjusted return profile.

Predictable growth profile and also margin of safety and if we can find those attributes in some of the areas that you're suggesting make no mistake. We're looking at will certainly move when prudent.

Hey, if I may just follow up I know, we've talked a fair amount about the Tropicana Las Vegas.

I is itself of us and assume that the whole range of options, including you know you continuing to own the real estate and bring in an operator.

He is on the range of outcomes.

[noise] cancer is if we look at everything together Youve heard me say that I'd nauseum.

It's hard to guess, where this is going to go I mean, I think we've tried to leave the impression that we're very open to look at anything that is profitably safely prudent for this company and that could be as just a straight up sale for the highest dollar we could get or something more long lasting that we believe creates value for our shareholders. That's what.

Drives the entire thing so we suggested until the market kind of settles out we're going to be patient, we're going to look at a lot of things. There are people as Steve Snyder offered before that our you know that are talking to us about stuff well, okay, let's see a check and or let's see a concept that we can accept so I I again, it's it's a it's a squishy answer.

There because frankly, that's where we find ourselves right now and the outcome, probably we'll have some sort of counterparty that once the brand capital to the table at some point because it does seem the highest and best use is not the exact configuration that the properties in right now.

Got it thank you for taking my questions.

Thank you.

Our next question comes from the line of J clarity with C. S. MBC. Please proceed with your question.

Hi, Thanks, very much guys. So to follow up on the acquisition potential is the pin debit, creating any new opportunities for you as hotel operators may be looking to raise capital by selling to real estate for the first time.

[noise] role role they buy me again, I, probably the I'm not sure I understood. The question. So maybe unless that you kind of got it you mean kind of just originated new sale lease backs as an alternative capital source.

Yeah, I'm, saying Theres, if there's a number of I just you know because you know operators that on a 100% at the real estate not yet working with beginning right. So does this environment provide incentive for them to look to raise capital by working with you guys or to sell their real estate.

We hope so [laughter] it definitely could and the real good.

Where's the public market pricing, there, they're entities and as it giving them appropriate value or not.

Arguably right now I mean, there's certainly dislocation and pricing if that persist for a longer period of time, it certainly could be an opportunity, but I'll point you back to their original comments right now it's really too early to tell we're certainly in engage though and in dialogue and we make those suggestions all the time because not only do you get some some balance sheet arbitrage.

You also get the permanent capital that we talked about which could ultimately lead to higher values for the company. So computers part we certainly hope so.

Right. Okay. Thank you for that color and then switching gears relating to the approval to own got them year place Casino is this a new single asset at least like you said were similarly did but that Belterra park loan and if so why not yet.

That's what I get the protection that comes with place here in the operators Master lease.

But let me just for fun, because he hasn't done anything yet.

Our general Counsel branded Morgan, let's talk about how weve structure that.

As to where it goes thereafter, and what go ahead, Brandon I think the future of whether or not that remains in a single property lease is something thats far down the road at the moment. The the Missouri Gaming Commission permitted that property to be transferred to gaming and leisure properties pursuant to a one off single lease and so at the moment that.

It's where it will remain.

And as I said in the future we can take a look at that but for now that's where it will be.

Jamie one of the other things that that you should be aware of two as part of the regulatory approval for that our operating partner to our tenant there new Caesars has committed to investing capital in that facility and they've made it very clear that this is a key asset for them and a key.

Market to be in Saint Louis So in terms of the risk of a single asset lease a I would suggest to you that the tenants disposition should be the counterweight to any concern that you might have or anyone might express by the fact that this is going to be a singer.

The last at least to satisfy the regulators.

He looked a very very high quality property, we're delighted to Oh in any case, so again I have a lot of confidence in the real value there whether its current operator, which we expect it will be forever or somebody else, it's a quality asset and we're delighted frankly, the and I credit Brandon with tremendous work.

I get that done in Missouri, So it's a big accomplishment this quarter huge accomplishment for us and we appreciate all who made it happen.

Got it okay. Thanks much guys.

Our next question comes from the line of Spencer L.A. with Green Street Advisors. Please proceed with your question.

Thank you.

Hi Tech economic backdrop I'm, just curious have you considered waving your tenants capex responsibility on embedded in that lease agreements that something I'm truly tenants liquidity over the near term.

Well, it's so small yeah, I look I know one of our peers talks about that frequently hour you look at our leases our leases capital expenditure requirements are 1% of revenue and it's pretty easy to satisfy that in zero revenue months. So unlike our peers that his.

Not being a topic of great concern among our operating partners. Yeah look we've made a judgment early then if tough times got tough remember we created this industry and we set up but you know <unk> and maybe in hindsight. There's some things you might have done differently, but we made the judgment that if things were tough because they spend more than that any out right. So we.

Just wanted and that in a tough situation that put them out and that was just a nominal amount they spend more than that and just refreshing. The casino floor at year end year out. So it's such a de minimis burden that Uh huh.

It just doesn't really apply in our case.

Okay, and just regarding fees upcoming retirement I understand you don't want to comment on the specifics of the search but given their retirement date is fast approaching should we expect to see an interim CFO named us as a successor is on identified a relatively soon.

Just not prepared to answer that question either right now.

So I can't tell you what do you expect except it will do well do something that smart and sensible. There are a number of alternatives. Obviously, we're talking about that internally right now so I'm going to Dodge that way, that's two questions and in one outing here.

Okay. Thank you <unk> that I have dods I'm, not sure successfully but I'd add to them.

Our next question comes from the line of John Massocca with Ladenburg Thalman. Please proceed with your question.

Good morning, everyone.

Good morning.

So first Steve let me Echo all the sentiments with regards to help you've provided to kind of everyone. On this side of the phone with understanding you hope you're right. It's always been greatly appreciated.

Thanks.

Looking back to kind of the lease modification the complaint with senior they talked about a little bit, but any I guess me looking forward to potentially trying to do more of that type of thing has the window, maybe for that close given the kind of recovery or tenants still open to those conversations or is that maybe.

Less attractive now given the outlook for the industry seems to be better.

It's hard to say I mean look I'm not a tenant doesn't want to give up any FEP favorable arrangement that they presently have but look these things are always tradeoffs negotiations as as as they need something that we might need something so well take advantage of opportunity to fairly negotiate with 10.

It's to our advantage, where it makes sense and where we can offer something in exchange that makes sense. Then it's it's an ongoing process and you could always assume that we're looking to improve our situation, where we are reasonably Ken.

Okay.

We've done all along the way, but go ahead. Please John.

Oh.

Okay switch gears you have any other color on that.

Thank you switching where the acquisition side of things I mean, I know, it's still early days has kind of the.

Activity over the last couple of months is that impacted pricing on transactions specifically we.

Yeah, I mean that increase your kind of return threshold, you're looking for any potential future acquisitions.

With.

Got you want to go Yeah, I'd, just say that Hey, I mean, if you look at the few things have happened I mean, the key one that we point to is our sale lease back one of the land at Morgantown right at a 10 cap, but that came from very unique circumstances.

Going forward, if you look at the pieces of what we're looking for a strong operator, a strong asset and credit support to strong full coverage and counterparty balance sheet the ability to access capital that last piece of the puzzle is obviously more important than it has been for a long time, that's been something we've been very adamant about getting so when we think about.

Risk adjusted returns to our cost of capital. It I don't think that's changed but I think about the definition of risk and the way, we look at it and that being relevant and it might it might steer the types of Counterparties, we might want to deal with near term into specific direction, but the math is the math and you can see we've got efficient.

Or at least effective capital markets that are functioning we've just access that in the debt markets and we know well costs capital would be.

So the short end, how does not not necessarily.

Okay. That's very helpful and that's it for me. Thank you all very much. Thank you.

Our next question comes from the line of Robin Farley with you B.S. Please proceed with your question.

Great. Thanks, I'm most of my questions have been asked you already just one follow up though when you were talking about.

The sustainability into July and the level. So far you made a comment that you know it didn't feel sustainable and he said something about governors rolling back.

It is is that I guess im just want to understand it's that we think is not sustainable that there will be changes and some state regulations or did you mean not sustainable because.

Mid single digit demand is just not how the industry normally grows or did you mean not sustainable.

Because of that.

That essentially for competitive reasons, some marketing will come back and maybe margins will be able to be is good I just or all of those things I guess I just want to make sure understood. What you were saying.

Yeah, <unk> Robin you really parsing my words this morning. Thank you.

The bottom line is we are living in just completely uncertain times and.

Planning for next week is is difficult planning for next month or next quarter is impossible.

So I I didn't mean anything specific I just like you read the headlines watch what's going on throughout the world and very concerned about it but at least what we're seeing right now does provide us with some glimmers of hope, but that hope could be very fleet.

Adding depending on on how this progress is and I have not met anyone yet whose forecast as to how this is going to progress I have any faith in.

Maybe.

Maybe one other question just thinking about.

To the degree that the margin that's come back from maybe not having a buffets operating or some of the there's lower margin things.

I guess.

How sustainable is that if you know as as volumes search recover over time or.

Say it yourself can teach her cover over time.

Yeah, when somebody else opens a buffet that then you have to as well and all of US right into the same thing with all of the marketing that kind of <unk>.

Margins, where they are right I mean, I guess, how do you.

Keep from going back to that if the competition does that too.

To get more market share.

Look that that's a fair question and that historically has been the problem in regional gaming, whether it's in Atlantic city, or the Gulf coast or different regions around the country. There's always been a race to the bottom at times I shouldn't say always there have a times being sort of a race to the bottom in terms of giving away business to drive unprofitable.

And it's quite frankly, where I personally and I'm sure, Peter and I and others around the table get their comfort is this industry has been vastly consolidated over the years. This industry is now dominated by a large publicly traded companies the presence in the industry of the data at.

Analytics capabilities have improved dramatically in recent years, and I think and I Hope you would agree any conference call that you listen to whether it's Keith and Josh Boyd or Tom and bread at Eldorado or Jay and his team at Penn.

They are very focused on profitability you are correct. There is a risk that somebody gets out in front in a market, but I really do think that this new focus on profitability is going to lead to the sustainability of the margin improvements not to the.

Degree, but directionally that we've certainly seen over these last few weeks.

Look I think Steve has provided the perfect answer I know through our time at Penn and there were years ago back historically since the industry came regional in the early nineties.

There were a lot of places where competitors were were blowing their brains out those days are over I and I recall, when I was running pen on a day to day basis that.

You know we had a discipline around that we just simply said, let it go let him go when it was some business in the meantime, they'll all come back. So we always had a very strong discipline I am I never said certain that each of the company's you're talking about now has a much more sophisticated view of markets values of customers and so forth. So we're looking at a different time it.

Well it I'm not overly worried it could happen on a a property to property basis in a certain city or town that they put the buffet back as you illustrated and maybe a GM will decide that that is necessary, but I think there's a lot more discipline in the industry today and certainly this whole cobot mess.

As shown companies that they can operate very profitably with less so I'm I'm not overly worried that it's going to quickly.

Fluctuate all the games that have been been made.

Great. Thanks very much.

Thanks, Robert Thank you Robin.

Our next question comes really Joe grass with JP Morgan. Please proceed with your question.

Good morning, everybody.

Steve Congratulations on a great Korea, and best of luck to you or your retirement.

The thing that accessible helpful and thoughtful so thanks for everything.

So my question doesn't exist with your.

Payout ratio most recently at 71% of there that's selling and all the things that you've done to.

Strengthen your lease structure.

And then at the new tenants Port performance and obviously, all the things you're talking about two to improve coverage ratios with that kind of margins are improving the way it is.

What makes you increase that that payout ratio is where is it really a function of once you kind of get pass this year with out having a stock component then that would allow you to go back to that upper 70, 80% payout ratio how are you thinking about that.

You know Joe I that was a question earlier, but I'll, let me emphasize again, we're going to get back to exactly where we were before at the earliest moment quarter day, our that we think its.

Prudent for the company period, we like where we were I.

I think shareholders liked it and we're going to get back there as soon as we're satisfied that are the stability of our cash flows justifies it so.

I I just can't answer, but I just had another way maybe asking it just it just to get a sense of how many of your thinking about Peter if you're 71%.

It would still be the scene.

Consideration matrix Oh, it's as it would be if it were 80 20 stop cash.

I mean, no I listen I think it's going to be the same ah okay.

Not going to not going to change.

I'm looking around the tables have if we had the different point of view, but no I mean, I expect to get back to exactly where we were exactly at the earliest plausible moment, but again you know, we're not going to be down a and and get ahead of ourselves or get ahead of the markets. It is this about certain even worse satisfy the cash flow recognized.

Look we view ourselves as an income generating company for investors I know I like and value that so we're focused on generating income for our shareholders.

Among other things, but that's probably a primary driver as a read so getting back to the highest possible number in the early as possible time is kinda driving me a lot. That's why we work on our balance sheet and do all those things that we do to improve our ability to do that.

Great. Thank you guys.

Thanks, Joe.

Thank you. Our final question comes for line of John Decree with Union Gaming. Please proceed with your question.

Good morning, everyone and thanks for taking all the questions.

That's the best of luck here.

Yeah.

A two part question Peter you might might be best suited for this one on for Steve will happen opinion.

To get you a little overall view of development of casinos in the U.S.

Going forward I think you've kind of addressed sports betting you know TBS familiar in a prior question but.

As we look to economic cycles casinos have been large tax payers intangible creators for state governments. So that's my question is as you look ahead.

Where do you see the appetite from state governments and regulators to look to casinos again, and what do you think that appetite for casino developers.

And in your loan growth.

Would be kind of going forward here, there's there's some opportunities left as their appetite I was just kind of overall outlook on could we see.

Another wave of development on the other side of the pandemic.

It's no look if you're looking at existing stage, sometimes for their our constitutional limits on how many properties can be there. Some there are certainly legislative limits, but look there have been states. It made changes our own state here in Pennsylvania has done some I called dumb things frankly, I don't mind, putting that in print.

But the industry still will flourish and is strong and so forth you might see things on the market and you see what's going on in Illinois, They're always something.

Odd going on in that state.

As I look I think there's development potential I hope somewhere in my lifetime, you see a georgia come around because it's a great opportunity we'd like to be there.

And be part of anything would happen there and by the way, we'll look at new opportunities ourselves partner with others or even directly if we had to to be a competitor to put a stake in the ground to make sure. We're it any new in any new market, Texas I hope in my lifetime finally comes around to a two allowing gaming in that state not giving the money away to Oklahoma and to that.

Wheezy at and so forth no criticism of either those states, but they're leaving a vast amount of dollars on the table. So I hope some day, that's going to happen. So I think you're going to see there are some major markets. It's still are open and we've seen it everywhere right sooner or later, they're all going to get there.

HM two existing states yeah, you can see some things on the French that would occur maybe opportunity maybe opportunity. It's hard to its it's kind of hard to know anybody else want to add to that I mean that we're talking crystal ball stuff and.

[laughter], John we talked about this obviously over the years I I mean, we consciously looked at the environment. When we spoke on the the real estate out.

There aren't too many states left whether it's because of the incumbents that obviously lobby against because of tribal interest that lobby against or in the case of Texas because of conservative interest that lobbied against.

It is a very difficult task to go from no commercial casinos to allowing commercial casinos that being said, obviously markets like Arkansas, and Virginia arms developing new casinos at this point in time, so there will always be some limited on.

Opportunities, but I think the big opportunities for better or worse are behind us.

Let me add more recently in relatively recent years, you had Maryland, and you have Massachusetts. So it is a slowly evolving process, but steve's right. The number of real opportunities is dwindling, but there's a big ones.

And I'd just point out when you think about the incentives I mean, you've done states that half the balance their budgets in the short term immediacy of the cash flows for them. If you look at casinos isn't the top of the hierarchy right. There's a lot of other things. They can do that can generate revenue more quickly, especially when you look at the time lag in Massachusetts.

Enablement legislation to when things actually got caught the golf in the cash flow into the state I mean, there's multiple years in between there.

Right.

Got it gets Dan Thanks for all the inputs and that we could probably talk about battling for hours, but I'll leave it at that thank you and good luck.

So we'll hope for more event venues to open and that's part of our job to be alert to that so look we thank you all for joining us today and publicly let me thank Steve.

For more than 20 really incredible years, and I can't since I hadn't planned to say this but I don't mind staying in front of Steve.

Much of the success of this company is built on of course comes to my years, It Ben and and no one had a greater influence on the success of that company then Steve Snyder. So thank you Steve Thank you Peter.

Thanks, all operator, thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.