Q2 2020 VICI Properties Inc Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the D. I see I properties second quarter 2020 earnings Conference call.
At this time all participants are any listen only mode Super recorded today July 30, 2020, I would now like to turn the call over to Samantha Gallagher General counsel would be I see I property.
Thank you operator, and good morning, everyone should have access to the company's second quarter 2020 earnings release and supplemental information.
Releasing supplemental information can be found in the Investor section of the BG properties website at Www Dot Beachy property dotcom.
Some of our comments today well be forward looking statements within the meaning of the federal Securities laws.
Forward looking statements, which are usually identified by the use of words, such as will fully expect should intends projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results could differ materially from what we expect therefore, you should exercise caution in interpreting.
And relying on them I refer you to the Companys FCC filing.
A more detailed discussion of the risks that could impact future operating results and financial condition.
During the call we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with gap.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2020 earnings release, and our supplemental information.
Hosting the call today, we have added to Kodiak, Chief Executive Officer, John Pain, President and Chief Operating Officer, David <unk>, Chief Financial Officer, and gave Wasserman, Chief Accounting officer and in team will provide some opening remarks and then we will open the call to question with that I'll turn the call overhead.
Thank you Samantha.
Good morning, everyone and thanks for joining us.
Here's what remains foremost for us at this time, we continue to show that all are stakeholders are weathering. The scope at 19, Craig We held our last earnings call on Thursday made first in my opening remarks, I focused on what because of cold in 19, we did not know with any certainty the time, we did not.
No winter Roches reopened what the recovery pace of our tenants businesses would be when exactly or 3.2 billion dollar transaction with Eldorado seizures would close.
Finally, when beachy would be able to return to an offensive portfolio growth strategy.
Here today July Thirtyth, we now know four key facts number one.
Actually all of our assets it really.
Number two our operators have seen strong operating recovering in or regional assets and through the end of June were seeing improving results that are to Las Vegas assets number three.
Grotto seizures merger closed on July 20, it and our 3.2 billion dollar portion of that overall transaction.
News annual incremental read some $253 million at a 7.8% cap rate, while also replenishing e. cheese embedded growth pipeline number four we returned to offense and continued our opportunistic growth on June 15, when we announced our intention to provide.
400 million dollar mortgage loan on the brand new seizures form Convention center and purchased 23 more acres of strict proximate land, giving us a total land assemblage of 50 strip proximate acres, giving beachy the only large scale opportunity to deepen the Las Vegas strip Center.
And to participate and potential so long term growth that this land represents.
It all added up to another quarter, it validated fiji's business model and generated market leading growth.
For second quarter 2020, and in July Beachy collected 100% of cash right from all of our tenants, which Gary to American reach we're able to do in Q2.
This contributed to BG, achieving 20.4% growth in adjusted EBITDA year over year, which we believe will be among the various very highest EBITDA growth rate among all American reach for the quarter.
In a moment, John paying will discuss our operators performance and the benefits of the seizures merger in more depth and David Kishi will give you details about our own financial performance, Let me take a moment to speak of the root causes of our Q2 2020 performance.
We believe beat was able to continue collecting one on first one 100% or Brent.
Delivered 20.4% EBITDA growth and Opportunistically go back on offense in Q2, 2020, because fundamentally we have high quality tenants.
For any rent collecting multi tenanted reach the strength of the reach business model is the aggregated strength of its tenants business models.
All of our tenants at this time, our gaming operators and during Q2 gaming operators generally and are like gaming operators, specifically, namely Caesars Penn National hard rock century, casinos and Jack Entertainment.
Shows the strength liquidity durability and agility of their business models.
As most of you know I've spent time in have experience in a number of leisure recreational and hospitality sectors.
Operator, and as a real estate investment manager.
Skilled energetic decisive and driven they are.
Here's what they have shown over the last few months.
Quick and effective action to shore up there liquidity.
Quick.
And effective action to minimize costs in Casper and rates during the period of closure.
Quick and effective action to be ready to reopen safely once given the green light.
Finally, quick and effective action to restore revenue and EBITDA when many other leisure sectors haven't even reopened yet.
Well, we're also seeing as it or operators businesses are key factors to the health of their local economies into their state and local treasuries as long as are all burgers can operate safely their states in cities want them open for everyone's benefit.
A V G where silver very silver in fact about the fact that the Colbath 19 crisis is not over.
Cannot rule out the resurgence of the virus could depress demand for or potentially lead to re closures casinos.
But in what we've seen so far for a gaming tenants Center Beachy. This crisis may ultimately provide strong proof of the strength and quality of the gaming read business model, which is built in turn on the strength and quality of our attendants businesses.
To hear more about her tenants on the I'll turn the call over to our President N C O O John pain John.
Thank you said good morning, everyone. The second quarter of 2020 was another very productive quarter for beachy over the past several months, we've worked jointly with our tenants, including Caesars century Casino and Jack Entertainment to provide limited short term relief with respect to certain non.
Rent related requirements under our leases.
As we said in the past will work to provide short term solutions for our partners as needed based on each individual operators unique circumstances.
Accordingly during this quarter, we've announced agreements two modified certain near term capital expenditure requirements procedures and century.
Additionally, as noted in more detail than our earnings press release during the second quarter, we partnered with Jack Entertainment and agreed to fund a gaming expansion at this'll down receipt O yielding more rent for V. G. Commence in in April 2022 at an attractive 10% cap right well also modifying.
Existing loan facility to provide certain temporary covenant relief and to add an additional five years to the initial lease term as well as increasing the principal on the existing term loan and providing real vulgar facility to Jack.
Agreements in short term modifications help ensure that the operators we partner with are able to focus intently on reopening and operating their business through the current pandemic. While also protecting the integrity of our lease agreements and preserving long term value for our stakeholders as.
Many of you have likely seen by now the reopening of casino properties throughout the United States has been met with very robust consumer demand property across the regional landscapes have experienced healthy volumes and in many cases profitability is exceeding pre covid and prior year levels.
We view this as a testament to the resilience durability and longevity of the brick and mortar casino experience, while destination and fly to markets may take longer to recover we remain believers in markets such as Las Vegas, which has proven over value proposition over decades as real estate investors we.
Think about investing in assets it markets over long periods of time and believe the geographic exposure, we have engineer with approximately 70% of rent coming from drive to regional markets and the remaining 30% from the Las Vegas strip represents a good balance for V. G N R shell hurlers during.
This time.
Over the past nearly three years since we started beachy, we have communicated our firm belief in the attractiveness of gaming as a real estate asset class.
We believe the gaming industry through early reopening results is showcasing superiority to many other real estate sectors, while the gaming industry is unique and at times complex. We are fortunate as real estate investors to have decades of gaming experience within our management team, which greatly benefits.
S. As we continue to navigate depend demick and ultimately focus on investing for the long term and growing V. G through accretive transactions in terms of acquisitions in the outlook for growth on June 15th we announced that plan 400 million dollar mortgage loan transaction with scissors, which will be secured by the Caesar's for.
[noise] Convention center in Las Vegas.
This structure allows V cheetah benefit from $38 million, a incremental annual income upon closing, while providing flexibility for the asset to ramp before ultimately converting to an opco propco structure accelerating our call option from 2027 2025.
Simultaneously with the mortgage transaction, we announced the intended purchase of approximately 23 acres of land from seizures at a very attractive value situation of four $5 million per acre defense. That's adjacent to the center of gravity of the Las Vegas Strep surrounded by assets that have proven their financial viability over decades.
And combined with our existing 27 acres along the same corridor gives us approximately 50 contiguous acres overtime, we will seek to partner with third parties for the development of that land with the goal of continuing our market leading growth well into the future.
And finally 10 days ago on July 20th we completed our transformative transaction as part of the El Dorado Caesar's merger, we acquired Harris Atlantic City Arrows, Laughlin, and Harris, New Orleans, and modified our existing leases with Caesars for total consideration of $3.2 billion. This <unk>.
Action adds $253 million, a incremental annual rent for beachy. It strengthens the terms of our leases with Caesars and restocked are embedded growth pipeline through loafers on to Las Vegas strip asset.
Put call agreement on Harris, who is your park in Indiana, Indiana Grand in Indianapolis in a row for on Horseshoe Baltimore.
In addition to this robust and unmatched embedded pipeline of opportunities. We continue to maintain a very active dialogue with our operators across gaming and other sectors and believe our broad investment spectrum will continue to yield consistent accretive growth for V cheese stockholders now I'll turn the call over to day.
Who will discuss our financial results and balance sheet David.
John.
Touch briefly on or financial results for the second quarter, and then moved her balance sheet and liquidity.
Before I discuss the quarter, let me just acknowledging express my fear gratitude to our team across accounting ask that matter efforts clothing with quarter remotely. During this pandemic while at the same time, we were at closing at 3.2 billion dollar transaction.
[noise] Beachy are lucky to have such a cohesive team.
For the quarter total gap revenues and cute to 20 increased 16.8% over cute to 19.
257 $9 million.
Total cash revenues and Q2 24 $261 million an increase of 19 five person over cute 220 19.
A year over year increases, where the result of adding 44 $4 million a rent during the quarter from the Greektown hard-rock Cincinnati in this century acquisitions, which closed in 2019.
Jack Cleveland, This'll down acquisition and related loan, which closed on January 24th 2020.
<unk> was 176 $3 million or 36 cents per diluted chair for the quarter percent over cute to 2019, while are weighted average diluted sure count increased approximately 18 five per cent as a result.
A R June 2019 equity offering 19 forward sale agreements, which added 65 billion shared store balance sheet in advance of clothing on our portion of the El Dorado.
[noise] transaction.
F F O for the quarter was also negatively impacted by approximately $23 million a negative interest expense Kerry related to the February bond offering for the El Dorado transaction being held in escrow for the entire quarter and approximately $3 million less than an interest income on a year over year basis due to the.
Decline in interest rates.
R. G N a with 7.5 million for the quarter and as a percentage of total revenues with two 9% for the quarter, which is in line with our full year projections and represents one of the lowest ratios in a triple in that sector.
Ah results. Once again highlight are highly efficient triple net models two two adjusted EBITDA with 99, 2% for the quarter.
Call beginning January one 2020, we adopted Cecil current estimated credit losses, a new accounting.
Record and non-cash provision or allowance for future credit losses related to all existing.
Any future investments in regular assets.
These always applicable to V G as weird count for investments finance leases.
Which are subject to the accounting.
Standard as opposed to operating leases like our gave me a root beers, which are scoped out of the standard.
And the second quarter, then non-cash allowance related deceitful was a reversal of 65 $3 million from the allowance for Q1, 2020, which drove a 13 cent increase in net income per share.
I'd like to again make the point that this is a non-cash allowance and as such there is no impact I F. F O R. A F F O for sure.
We continue to point investors to <unk> and <unk> for sure as we believe that should be the primary metric used to evaluate our financial performance and our ability to pay dividends.
Turning to our balance sheet and capital markets activities on June 2nd 2020, we settled in full the June 2019 forward Zale agreements, realizing that proceeds of approximately where balance sheet.
On June 19th in connection with the announcement of the pending Caesar Forum Convention Center mortgage.
Three acres of land.
<unk>.
And then Upsized primary follow on operating of 29 9 million chairs $22 and 15 per share.
Gross proceeds of 662 $3 million through a forward sale agreement.
Proceeds remained subject to.
Settlement pursuant to the terms of the forward fail agreement.
Is that in John had mentioned on July 20th 2020, we closed on our portion of the El Dorado, Caesar's transaction, adding $253 million a annual rent to our portfolio to the acquisition of three hairs assets and the acquisition of incremental rent from our Caesar's Palace and heroes Las Vegas assets.
Your total consideration of three $2 billion in cash.
Utilize the proceeds from the settlement of the June 2019 forward Zale agreements as well as the 2 billion a proceeds from the February bond offerings that were previously in escrow to fund the transaction.
Following this way of approximately $400 million of cash on hand.
Our total that outstanding at quarter and was six 9 billion with a weighted average interest rate a 418% weighted average maturity of our that is approximately six six years and we have no that maturing until 2024.
As of June 30th or net debt to LTM EBITDA was approximately three four times below our stated range and focus of maintaining that leverage between five and a five five times. This does include the impact of the June 2nd forward settlement and restricted cash that.
We currently have approximately one 4 billion and available liquidity comprised of the approximately $400 million in cash on hand.
For the under a revolving credit facility, which which is Undrawn. In addition company has access to approximately.
$830 million and net 29 9 million chairs.
Subject to the forward feel agreement entered into in June 19th.
During the second quarter, we paid dividends of $29 and three quarters since.
For sure on the annualized dividend of $1 and 19 per share quarter was 83% slightly above a long term.
Range of 75% as a result of the June 2019 equity offering.
With that operator, please open the line for questions.
As a reminder to ask a question you would need to press star one on your telephone would you want your question Presstv Humke.
Bye bye.
Sure first question.
Carlson.
With Deutsche Bank.
Everybody. Thanks, guys for your comments good to hear from you and thanks for taking my questions.
For starters, maybe maybe maybe this one is kind of the best for John.
John is thinks of evolved coming out of obviously, the pandemic to closer periods et cetera, and as you look ahead and trying some kind of your deep industry knowledge and whatnot.
Think it would be fair or at least from my perspective would be fair to say that we do likely see some traction of the go forward.
In terms of trends that we're seeing right now.
In the event that that happens and we do start to see a little bit upset the macro economic impact of the paint that make it kind of trends.
You believe in this new interest rate paradigm, and where we are right now and kind of what we've seen in terms of.
That issuances from from some operators coming in meaningfully higher.
And then what we'd see previously spreads that there will be a squirrel was kind of new opportunities is kind of be trading multiple versus the clearly in favor of promoting more transaction activity.
Yeah. It's a very good question again, I think it's important to remember because we move so fast that just back in April the focus of these operators was really about getting open right and ensuring liquidity. We now are sitting here in July and it's about staying open and I think to your point Carlos you're asking about now are they.
Starting to think strategically and are they are going to the opportunities for us.
I would tell you this from our perspective, and I think I've communicated does not only we've been working with our current tenants through this pandemic state active with really almost every operator in the gaming industry understanding their position how their business doing what they're saying from their consumers and letting them know due to.
R R positioning that David and added put us in with ample liquidity that should there be an opportunity for us to transact with them to help them grow their portfolio of provide liquidity or do a sale leaseback that.
We are available and we'd like to talk to them that doesn't really answer your question about predicting the future.
But what I would tell you it's our job to make sure that if there are transactions that at least we're in the mix and and people understand that we're moving from is Ed said earlier in his remarks from being completely on the defensive to back is that we've shown over the past weeks back on the offensive side.
The ball a little bit.
David should also way in on that question.
Yeah.
Carla.
You have rightly identifies the fact that for a lot of operators and gaming as frankly across every leisure nationality sector of the classic capital has gone up meaningfully in the last few months, both the cost of that capital as you've cited but also the cost of equity capital N and as I think you've heard is talk about.
Before we actually see the capital we provide throw a sale leasebacks as in fact being another form of equity it is permanent capital.
The recipient of it does not have to pay us back and the cost of the capital we gave them it's simply the rent they pay it.
Look it and ran as expressed as a cap rate is generally much lower than their cost of equity currently in probably for a while yet and to your point it is becoming competitive with their cost of that so so based on that and also based on the fact that I think we're already starting to see the operator, especially.
Regional operators.
Those who do want to grocery store count are very focused.
I am partnering with reached in order to win the bit because it'll otherwise be very hard for an operator, who wants eurostar count.
When the bidding if they have to bid against an optical practical bidding combination.
Yeah. That's very helpful. Thank you both of them David if I just could one quick one I think if you're kind of looked at fourth quarter run right EBITDA relative to kind of your current that levels et cetera.
You guys would probably be looking at leverage civil route five.
Certainly does provide a little bit of course and a lower.
Great environment so.
You guys to go out and potentially take on some leverage.
Could you comment a little bit about how you thinking about the capital structure here moving forward. It in terms of the hypothetical potential transaction.
Yeah.
Talk to you.
Right will be would be just kind of seven five times on a pro forma run right basis for everything we've announced.
We talked about what the.
With the equity raised in June.
Likely match fund that equity with that at some point in the future which gives us.
Two order of total buying power if you go out and thinking about raising six $700 million of high yield here at some point in the future. So.
Ultimate leverage neutral basis of the balance sheet, we've got.
How can I like the flexibility and obviously the capital markets or it can do some backdrop right now for that so.
Great. Thanks, guys. Thank you all very much.
Your next question comes from the line of Orange J Miller skin with bear.
Hey, good morning, guys.
You mentioned.
<unk> pipeline.
Especially the captive pipeline with the closing of El Dorado and seizures, just curious on your thoughts on timing of.
Executing on any of those growth opportunities.
Yeah, I'll actually turn it over to John here momentarily R J, but I mean, there's.
There's no question that El Dorado was.
What we know costs should know cause seizures. The new seizures was was greatly helped by the financing activities. They undertook mid June simultaneous with the announcement of our convention center mortgage and land purchase.
So they obviously put themselves in a better position in the market and large had anticipated post merger.
When it comes to the timing of anything we might do with them I'll turn it over to John.
Yeah unlucky.
It's hard to as I said before it exactly predict.
Timing, but is is are embedded growth fine has in it or the <unk> on the Las Vegas strip <unk>.
We obviously thought quite a bit about our call opportunity on the two assets in Indianapolis them in a row.
Horseshoe Baltimore, so as as Tom rig and Brett Younker takeover Caesars. They will continue to see where there's opportunities. We we like all those opportunities I think you've heard them talk about.
Having.
Not supply in Las Vegas, and potentially selling one or two assets there as I said in my opening remarks were big believers in the long term of Las Vegas Las Vegas.
Obviously add some short term issues, they're going to ask to deal with with the decrease in flight loss of international business in the decrease the convention business.
But we really are big believers in that saved for the long term.
On consumer behavior.
Absolutely the number of segments of people can be attracted so we'll just have to see what plays out with <unk>.
With the embedded pipeline, but that doesn't mean, we're sitting back and waiting just for the embedded pipeline to determine our growth of our company is as I've said I've been quite active.
Making sure people know.
Understanding what's going on with operators and spending time and talking to them. So we'll see how it ultimately plays out in the coming months.
Thanks, and do you anticipate doing.
More unique transaction similar to the one that we saw with the Convention center.
If you're not happy with where your cost a capitalist.
I don't think guard Jade so much it will be a function.
Whether or not we're happy with our class capital.
I think it'll be more function as the organic situation.
What we're looking at how much clarity uncertainty there is around income production at the moment and how much clarity and confidence areas around forecasting the income production in the near to mid term.
So again I think those will be the key elements simple drive structuring decision that we make.
David I don't know if you want to add to that.
No I was going to stay the same boy and it's not necessarily related across the capital.
Married of factors that go into it and obviously with a mortgage it was.
As we talked about going on.
<unk> bridge to long-term real estate ownership.
Understood. Thanks, guys.
Thank you Angie.
Your next question comes from the line or Barry Jonas with Suntrust Robertson.
Hey, guys good morning.
Wanted to start off asking.
Yeah, how should we think about any regulatory risks around your ability to exercise the put call agreements for the two Caesars racetracks in Indiana and if for some reason regulators had any issues would you get access to a comparable asshat or assets within Caesar's portfolio instead. Thanks.
John you want to start on that.
Yeah, I'll I'll start I mean, I think that.
Like any transaction.
There's always.
You always have to get regulatory approval.
So the comment that.
The racing condition of Indiana.
Would need to approved.
A sale Lee stack of with to Indianapolis.
Not surprising to me at all having been an industry for.
Too many years 20 plus years.
Every acquisition we've ever done is.
Had those stipulations that we need to go through a process, we need to spend time with the racing Commission to let them understand who we are so.
Not a concern about the language that's.
That's out there right now.
Maybe Sam or Danny you want to answer the second part on the substance.
Potential substitution should there be an issue.
Sure sure Jonases Samantha.
The arrangement and John Sad does not have substitute asset under John mentioned I think those comments surrounding.
The phone call was not surprising and it actually no different than prior comments when we had.
Ah Rover prior over on those assets. So we intend to work with the regulators over the period of time before the call is exercise we want to make sure they can get comfortable with our restructure.
Oh, great that's really helpful.
And then I guess.
Caesars.
<unk> has talked about selling I believe.
Operations it through your assets now just curious <unk> can you remind us if they would need your consent to sell those operations.
John Samantha.
Yes.
If you're if you're talking about two assets in Indiana, and then I think what's the third you're referring to just so I answered the question, but the answer is yes.
Yeah Yeah.
Yeah.
Yeah, both both those assets in Indiana.
Been referred to the southern Indiana, and Ham and would need our concern or if they currently.
Inside the master lease and we really like the real estate of those two assets.
Understood in just a quick one agreed to various capex waivers for your operators given the strength, we're seeing in regional markets now topline, but but more so margin do you think those waivers are still needed.
I think when we negotiated these these waivers with a few of our tenants it was absolutely appropriate.
That property the properties are doing well right now and we're excited about that but I think we're we're pretty cautious as soon as Ed centers opens mark for pretty realistic about that.
<unk> is not over.
We hope the business continued to perform well we expect them at this time to do that but.
Again, I think those relief packages at the time, we negotiated were absolutely appropriate for us in Florida Turner.
Great I appreciate all the caller. Thank you.
Your next question comes from the line or semi rose with city.
Alright, so I just wanted to go back to.
The Convention center for a moment.
You talked about.
Having some clarity on income production and I was just wondering could you talk about or use on income production that that center, what's kind of the book of business look like and I I assume it's all sort of been pushed out a little bit and how do you anticipate.
Nancy.
Will there will be with cash on hand will you use equity.
Maybe you could talk about that a little bit.
Yeah. So on the book a business me.
Prior to the outbreak in a crisis.
<unk>.
For the Convention center.
And obviously to your point.
Conventions. It was scheduled for the asset in 2020 have largely been postponed or canceled with.
And you would have to we would have dog.
Here's which will be doing obviously shortly.
As to how things you're looking for 2021 and beyond in terms of our financing of the mortgage I'll turn it over to David.
That was obviously.
The main focus of our equity raise back in June David.
Yeah.
If you go to speak to you.
You know when we announced the deal on June 15th we honestly.
Simultaneously announced the equity operating which resulted in upsize equity offering an gross proceeds about 660 odd million dollars because we talked about.
In connection with that.
There is an efficiency to raising capital over exercising as I mentioned earlier, we will match fun that ultimately.
Run our balance sheet on the leverage neutral basis, as we think about funding.
Mortgage we've got cash on hand about $400 million access to that forward, which really doesn't have a.
And data on it so.
Like we find out with a mix of cash and some of that forward here is that closes.
Probably third quarter and then ultimately go to the that Margaret at some point in the future to match from that on a leverage neutral basis.
Would you expect this acquisition them to be accretive two earnings.
Yes, we would leverage neutral basis it is accretive earnings.
Great. Thanks, and then I just wanted to ask you do have any color on wind greektown.
Okay.
John.
We got word yesterday that the state of Michigan is going to allow the Detroit casinos to open.
August I think it was august 5th or sixth so.
Pen will come out.
Sure.
And given exact date, but the news came out smead yesterday that that will happen in the state of Michigan.
Great. Okay. Thank you guys.
Thank you.
Your next question comes from the line of John G decrease reunion gaming.
Hey, guys How's everyone Joan.
John adhere anytime.
Good.
Wanted to ask a question about the land that you purchased in your land bank in Las Vegas.
Spent quite enough time on that so.
I believe parcels or your initial parcel as part of the Leafs with your existing tenants maybe.
Maybe not the part you've just bought but thank you existing part and I was wondering if you could talk about any restrictions that you might have on that or how the relationship would work. If you wanted to develop it with your partner I wanted to develop a bit.
Some of your options on those parcels.
Yeah, So I'll, Sir John and then <unk>.
<unk> and correct me, if I get anything wrong.
You're absolutely right.
The land that we already on the 27 acres you've already.
Oh, we're subject to the seniors Lee L T, who had the right to use that land within.
Liza arrangement with seizures.
With our purchases of the 23 acres, we could not already <unk>.
<unk> also.
Milton.
Agreement.
Will become part of the formal vanilla once we execute on the transaction and fall.
Whereby senior will be able to continue to occupy.
Land.
Until we have ebay use for it and they will in turn for occupying will add cover the cost of that land.
Things like real estate tax in terms of our overall vision land.
<unk>.
Yes, and that way of capitalizing on what we strongly believed to be a long.
Well term growth of Las Vegas tourist destination, Rankling off with a long time ago.
Las Vegas as a global city.
<unk> and we see that land as giving us a chance to participate again not only in the growth of Las Vegas tourism, but in the growth of Las Vegas, I'll look place where people choose to work and to live as well as to play and this land.
<unk> did you what we most love doing which is growing or.
Bye growing our relationships, we are not a developer we will not T.
<unk>.
<unk> generally do.
And.
What we will do is partner great developers, great should get rewarded for development rest in order to realize the highest <unk>.
Over time.
Gland ultimately does provide part of the answers to the question where does vt's growth.
Five to 10 years from now because you get over that kind of timeframe, we are still raging Pauls Las Vegas.
A quick quick follow up on that if you were too.
Find a partner away from Caesars today would there be any restrictions on let the land can be used for.
I'm not sure if it is entitled for gaming.
Maybe it's better question for John but.
What we expect it to be maybe it's too soon at this point complimentary to the building that are your tenant owns nearby or.
Could you.
Potentially do hotel casino, there as well that may be competitive.
Yes, yes way to related tell John.
Way too early I mean, what I would say whatever.
Whenever you develop you wanted to be complimentary to what's around you is that tends to be either way you realize the greatest amount of traffic.
And the greatest amount of alcohol attraction to the destination.
Got it. Thanks, that's all for me I appreciate it.
Your next question comes from the line of Todd Standard with Wells Fargo Security.
Alright.
Sure regarding the land parcels, but.
I would suspect you'll see some earnings drag I guess.
If you are combining the mortgage.
With the land parcel.
Yes, I get the impression that teachers will cover some of the operating expenses, but maybe just not cash flow producing real estate.
Think about funding that with this equity.
But having maybe some earnings drag going forward.
David.
Yeah.
Under $100 million.
103 million.
Incremental.
Capital that we have to invest.
Acquire the.
You know the approximately 23 acres.
Yeah.
At the right point in time.
When we ultimately decide what we'd do with the land that's talked about alright partnership in the right Longterm vision. The other 2007 acres would come out of the.
Hi, My little Leafs in them.
That time, they're there might be some drag, but obviously, that's very very early days and I don't have that ultimately plays a T V determined, but if you're thinking of $100 million on our total balance sheet very very de Minimis minor minor drag given that asset.
And can producing nature of that F.
Especially when looked at.
Todd as.
Leverage neutral.
Not $103 million exactly.
Got it okay and timing I think I got the impression this as of late to three and if that's the case.
Is that.
Equity, maybe that's the timing around maybe seeing some of that be settled.
Yeah, we're working on as <unk> as you know or are we talked about with everybody. We even outfit on a letter of intent I'm.
Oregon through documentation and diligence now as we speak so sometime.
Good to lay third quarters, when we would expect that the clothes and you write down that's probably wouldn't what ultimately use some of that forward.
That'll a portion of that forward agreement.
Alright, that's helpful. Thank you.
Your next question comes from the line of Jarant shows you can with Wolf research.
Hi, Good morning, everyone. Thanks for taking my question.
Now just a seizure steal his clothes your payout ratio on go forward <unk> as well below your historical target can you just talk about how you were thinking about the dividend right here and should we assume that September is kind of your typical time period for when you reevaluate.
David.
Yeah.
Thanks for joining thanks for your work this quarter.
Yeah, we.
We got here to an annual increase in our dividend we bumped. It in Q3 of 18, we bumped. It in Q3 19, we don't want bumper dividends midyear or at the closing of transactions. So.
Yeah, We've got time before we make any decision around.
The September Declaration ultimately October pay out we were close where they're bored and.
Where we are in terms of our liquidity, where we are in terms of the state of the.
Okay endemic and covered.
Let me see where attendants business are in the outlook going forward. So.
Or pay a ratio is a little bit high right now just because of the <unk>.
<unk> income, earning chairs that we've had on a balance sheets in June 2019, offering.
But we're going to.
Approach the third quarter with cautious and is it talked about where silver.
Where we are in the world So.
Evaluate it with the board to make the right decision to be in a position to ensure that we'd never.
V. G out there is a read that have food at their dividend or changed.
He was a dividend going forward.
Okay. Thank you David and then just a separate.
Love to get your.
That's an opinion on this.
Do you think we could see reevaluation of regional gaming assets is Disgraces has probably show in the world a regional assets are a lot more stable than many people might've realized and then on the flip side, obviously I know you sound pretty bullish on Las Vegas, but.
How are you thinking about the the revaluation or devaluation potential of Vegas here would love to get your perspective.
Yeah, I'll I'll speak initially formulas day perspective, Jaron and then Jonathan jump in.
Starting with Las Vegas.
I do not think over the long term it should change the way in which Las Vegas gaming jealousy is valued you obviously.
Two children burst or has the caliber of Blackstone come in and validate Las Vegas real estate.
They obviously you're investing in a long term they are long term believers in the value of Las Vegas, We all say S. R.
This is a temporary prices it will eventually come to in and we do not think this crisis generates secular negatives Las Vegas.
We do thank Las Vegas can and will come Roaring back.
For a whole hosted reasons.
To your to your first point regional Yes, you are absolutely right you should really validate regional gaming as a real estate asset class as well as hobbies and operating business given that it is far outperforming just about any other need your hospitality second possibly identify.
Yeah, I need is not it will not under circular coming into this and was posting very positive results. In this sector in January and February and is showing itself again, very well here and going forward, you're not looking at the kind of overhang of secular negatives you are seeing in other categories like movie Theater.
Universal and said, yes, okay. After 17 days, Sir extreme of a movie.
So again.
We think this is Bernie validating original gaming, but I'll turn it over to John.
Obviously operated so many of the assets that we own in the region.
Can verify just how integral they are.
The lives in regional customers John.
Yeah, not much to add here other than I have a smile on my face as someone who spent almost 20 years of his career operating these regional assets, it's nice to see that the world, it's starting to understand.
How durable they are the loyalty from their consumers.
You've probably heard me say I mean, these are people social clubs, our country clubs or this is where people go to have their entertainment, it's where their friends are and you can see even during this worst pandemic when you've ever seen in our our lifetime.
That is the business is open up they've been quite successful so it's nice to see and I agree with.
And his comments, especially when you look at these assets compared to restaurants in movie theaters and a variety of other.
Areas that are struggling where these assets that they've been open up the done quite well.
Great. Thank you very much of a time.
Your next question comes from the line of Great Mcgeeney with Scott to your bank.
Okay. Good morning.
Alright, great and I'm, just curious, giving me 19 through cue to access be open utility for your largest sentence accurate capital.
<unk> regional business.
Why do you do feel confident enough to reinstate guidance of the year and what would need to happen.
Comfortable to do so.
Yeah, I think we need we need we need the benefit of time Greg.
We are still.
As as a nation and as a national economy.
We are still in a period great uncertainty.
Uncertainty lack of clarity and when you have uncertainty and lack of clarity pretty much leads to.
Not being able to be bullishly confident in forecasting anything so.
Can return to guidance at this point, we believe would be fundamentally premature.
David I'll turn it over to you to see if you have any other thoughts.
No.
The other thing Greg cause I think we've talked with you about the third.
Our business is pretty transparent pretty predictable, especially now that.
El Dorado deals clothes and.
The noise out of that so to speak is.
Flowing through and Ah run right.
You know when we.
We pulled guidance for the reason was also seafood needle noise in the non-cash implications a female we will have a.
They charge and the third quarter or related the clothing is el Dorado transaction and bringing those three new athletes on their balance sheets. So it's hard to exactly predicted pinpoint that.
So.
Will assist guidance probably returned to turn the calendar.
And the 20th.
Like like the next time.
Okay Fair enough. Thank you and then just a quick to partner on the seizure agreements with state regulators versus.
A little additional financial commitment is now required diseases. How do you think about that hurting versus you and secondly are there any other demand that we should be aware of.
Business.
The <unk>, Indiana.
<unk>.
I think we're sorry to is Greg everything net.
All all of the principal requirements and obligations have been obviously publicly announced add that is the way the regulators two business.
And in terms of the additional financial curtains that you're referring for example.
Capex requirements.
Jersey, obviously, those will benefit the assets and their performance.
East engine seizures enjoys as we believe they will incremental return.
Capital.
And hence obviously there.
Kenneth.
Alright, great. Thank you very much.
Thanks, Greg.
Your next question comes from the line of Richard <unk> Evercore.
Okay. Good morning, everybody.
Hey, rich.
Uhm I hope everybody's doing well so a couple of interior so just with respect to the.
The incremental term loan and revolver to Jack Entertainment.
I I noticed the initial term loan tranche at a five year.
Term are there any prepayment features that we should know about there and if.
Given that it's 9% secured paper.
And potentially Jack might have other options.
For that capital or or another source of capital, that's maybe a little bit cheaper how should we think about that dynamic between Vtsiom Jack and then what would you do to sort of replace the income.
Before the end of the five years, if it came to that.
Yeah. It's there is a prepayment feature.
After a few months I believe.
Correct me if I'm wrong.
But you know given us a small amount 51 that $70 million.
Look for opportunities to reinvest pets, but this is a kind of a win win and consistent with our approach we're hoping her liquid helping her tenant.
Some of their liquidity at a point in time when nothing was open.
You've seen in Ohio, the assets are doing extremely well.
Okay and then that's all.
Right.
And rich.
Worthy to repaint alone.
We certainly do not lack of confidence in our ability redeploy that returned capital.
Accretively.
Obviously led by John pain.
Hello extra meat you over the last two and half years with a over 8 billion transactions.
We're always confident that.
Opportunities out there.
<unk>.
Ken.
Yeah. It is a staggering amount amount of work that you guys have all done so I agree with that.
And my second question is maybe a twist undervaluation question from earlier, but just looking at.
[noise] stock performance and multiples across the net lease reached space and where where do you think.
V Chi and your closest peers are with respect to that.
That incremental cap right compression relative to some of the more traditional retail focused net lease names given that I mean collections are all across the board, but some are quite low and you guys are sitting at 100%.
Where do we think we are in that evolution.
Yeah, I think we're on a positive up slow rich.
Obviously, not there yet and I think pardon.
Out of the explanation, Vermont being our yet, but not having closed the gap quickly.
These things to take time and I'm not sure frankly, how much fundamental allow us valuation going on right now anyway.
But to you and posted point, Yeah, Jean thing the broad investment community dedicated rates.
Seeking generalist investors are going to recognize.
Again to Ya starting to recognize that the gaming weights all three of us.
[noise] posting very good brand collection.
Resolved, but Moreover, tenants are showing themselves will be performing very strongly and that I do believe to your point deserves ultimately deserves rewriting at least to priority.
<unk> to some measure premium given how we popcorn and again given that as well rich that this is crisis is really showing a stressful strain of any sector beginning to show side circular.
Whether it be a secular threat is represented by E. Commerce secular thread represented by think like streaming media.
Gaming is really well integrated place base destination experience in the lives of millions upon millions of Americans and we think that ultimately adds up.
Very high quality real estate.
Great. Thank you.
Your next question comes from the line of Thomas Alan with Morgan Stanley.
Hey, you're morning.
Alright, Thank you and I'm prepared remarks, you talked about how.
The tenants businesses that held in well through the end of June maybe for John what are you hearing.
The latest kind of operation.
[noise] covered cases pig, though.
Yeah, good to talk to you Thomas I've not heard much of a change in the business I I've heard some occupancy level is going up and some jurisdictions.
But regionally the business continues to be strong.
Just on the conversations that I've been having again I think.
They continue to add some more amenities back to the facilities.
As.
When when.
Restrictions or lifted.
You're going to see the business continue to perform.
Okay.
Boyd said this week.
Just and then just as my follow up how are you thinking about multiple paid or the returned you're looking for when you are funding capital improvements versus the entire real estate of a property. Thank you.
David you want to take that.
Yeah, that's a good question Thomas.
And then with the Jack.
Although we just put it up it's weird.
At 10, 10% return, but that's partly because we're not the incomes that coming in until April of 2022, so they'll even though it's $18 million very small amount for V. G.
There is an instructive return, but yeah.
Put in the future.
[noise] It goes part and parcel of exactly what it is is it expensive and have a ballroom is it.
Truly income enhancing income producing where the overall after this is actually gonna be significantly improved which would lower the risk of the ass and maybe warrant slightly higher price or is it.
Oh this specific examples but.
You know, it's in and around probably slightly higher than where we've been acquiring assets, just giving us an incremental add onto an asset, but each situation I need calculators, obviously dependent upon.
Back some circumstances as the situation.
Okay. Thank you.
Your next question comes from the line of John Masako, When Ladenburg Thalmann.
Good morning.
Hey, John Zone, I've got so I know you almost cocked AD nauseum about the pipeline, but but maybe as we think about underwriting inappropriate valuation for Las Vegas strip assets. Do you think you would need to see a couple of quarters of post pandemic performance in the market, where you can get comfortable underwriting any transaction or you didn't give them the long term nature of your Lisa.
You can just underwrite to almost kind of pre pandemic performance level.
I'm going to turn it over to John thing here in a moment, John Masako, but I would just say that when it comes to growth, we never tache or any kind of words that have anything to do apologize we love growth.
Over to you John pain.
[laughter], Yeah, it's hard to follow that look like.
The Las Vegas I mean.
Yeah, I think we've been consistent and I had been very loud about that.
We really are long term investors.
Yes, and short term Vegas has some hurdles that they need to get over but this is the city that even during this time and even what the restrictions that are on it consumers are going to enjoy what they have to offer and we believe over time 2022 2023.
Moving on the business is going to rebalance.
As it pertains to underwriting an asset now that's that's exactly what we're spending time on is what is the appropriate level to do that what is the appropriate cap right but.
We will have to continue to study the business is to your point, we'll have to consider see what the next.
A couple of months or like in the quarters and then determine.
The EBITDAR that we used to underwrite as well as the cap right, but again I can't stress enough.
You hear a lot about the short term of Las Vegas.
But we talk a lot more about the long term and this how resilient the city has been and how resilient. The operators are to continue to reinvent themselves and be successful with the properties that they have.
Okay.
And then maybe switching gears a little bit.
Even the strengthened I've kind of regional operations can we expect or potentially could we see any more of a lease modifications going forward I mean, correct me if I'm wrong, but he only leases that are kind of as is versus pre pandemic are hard rock and and the.
Dependent leases.
Tom.
Yeah, I mean, I can't I can't predict what's going to happen I think we've been as <unk> said a couple of times, we've been sober about that we are still in the middle of a pandemic. The operations that have open in almost all of our operations girlfriend other than Michigan, which will open here shortly have been quite successful.
In fact exceeding some of their 2019 number. So we're just going to have to wait and see if we continue on this path.
The business, so you're going to be strong and there won't need to be any concessions, but we'll just have to monitor.
What happens in the United States, but we feel obviously much better here in July then we did back in early Mag.
Okay.
For me. Thank you all very much.
Hey, Shawn.
Your next question comes from the line of Jeff.
Excuse me. Your next question comes from the line of David Cats with Jeffrey.
David.
Hello can you hear me okay.
Yes, hi, there daily or.
Sure.
I know you've covered quite a bit of detail I appreciate that.
I just wanted to talk about the Capex waivers that are in place and how are you thinking about those.
Versus.
<unk> monology that would be more like deferral.
And whether there could be catch ups down the road and the interest of.
Preserving real estate's value by making sure it's properly invested.
Yeah, I think David wanted a one of the key principles that we believe in is that ultimately.
Our operators.
Are the beneficiary.
Capital well spent.
And they bear.
They bear the first pain.
<unk> capital lots then.
I think the.
Self reinforcing positive qualities of this business model as opposed to say the hotel business model worry.
Third party manager dictates capital that day on there may or may not get a return on.
We much prefer this model because at the end of the day.
The operator is responsible for the capital, but it's also again the beneficiary capital well spent.
And is the one first harmed when it is not spend in terms of loss competitiveness revenue and profit.
So we believe in this model and the ability of this model.
Assets deteriorating in a way as you rightly pointed out they can.
Capital is not spend over the long term.
Needs to be spent.
Okay. Thank you very much to.
Thank you David.
Your final question comes from the line of Sean Kelly with Bank of America.
Hi, everyone.
Under the Liar I suppose too.
Just one question for me, John and you're prepared remarks that you said are mentioned a sort of 70 30 mix between the regional portfolio in Vegas portfolio.
Undertone has been here throughout the call, but just kind of curious to say it out loud.
Is this inappropriate mixture VT going forward or how do you think about that 70 30 split kind of strategically obviously.
Underwrite acquisitions as they come but is that a.
Is that a target ratio that investors should should take about.
[noise] level from management, especially after everything we've seen from a performance perspective through covered or just how do you think about that.
Yeah, I don't think we've ever talked about necessarily.
Target I Ain't what we've talked a lot about is we'd like the diversification that we are really the only read in this space that is positioned itself to invest in destination resorts in Las Vegas.
Also as well as the local business in Las Vegas should that come about as well as every market in the region with all different types of operators. So I think our philosophy has been we want to remain diverse we want to continue to grow our tenant base. We started this company.
Two and a half years ago with one tenant now have five and I think ultimately see that that grow but we today. We're at 70 30, we like where that is but I don't think Sean you juror say that's where.
Absolutely has to be exactly around those numbers, we just like the diversification and being in many different types of markets and you can see.
That diversification is it's helped us during this pandemic.
Thank you everyone. Appreciate your time.
And Sean I would just add to that and what John has rightly said that.
As a re.
We obviously you want to give our investors they can't that not only income steady predictable income, but we also want to.
Give our investors a chance to capital appreciation at the market recognizing.
Superior value of the assets and over the long term.
I think again with validated.
Blackstone made in Las Vegas last year early this year, we do believe that Las Vegas.
Get the greatest opportunity for capital appreciation.
Which when combined with a steady income production of regional so we think it adds up to a very compelling longterm Bob.
Income and capital appreciation strategy.
Thank you.
And there are no further questions at this time.
Thank you operator.
Those out please let me reiterate are thanks for all of you for being on today's call you're proud of the results will be provided to our stockholders this quarter.
Those results again or validation, Nicole Richie business and the business days of our tenants with 100% rent collection Cashman collection in Q2 with our ability to go back on offense well before most other reads.
Hosing of our three $2 billion transaxle seizures, and the $253 million annual rent growth. It brings we believe we're on track to deliver one of the strongest growth rates and any reason America over the next year or two again, thank you and good health to all.
Operator.
Hello.
This concludes today's conference call you May know disconnect presenters. Please remain on the line.
[noise].