Q3 2020 Gaming and Leisure Properties Inc Earnings Call
Show me a couple of minutes forward. How about Pink Floyd?
Greetings and welcome to the gaming and Leisure properties incorporator third quarter 2020 earnings conference call at this time. All participants are in a listen-only mode a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad, as a reminder. This conference is being recorded, It's now my pleasure to introduce your host Giovanni investor relations. Thank you. You may be getting thank you Maria. Good morning everyone and thank you for joining gaming and Leisure properties on a 2020 earnings call and webcast the freshly distribute yesterday afternoon available on the investor relations seconds. And on our website at www.dom.com on today's call management prepared remarks and answers to your questions may contain forward-looking statements as defined in the private Securities litigation Reform Act of 1995.
forward-looking statements address matters or
Check the risks and uncertainties that may cause actual results to differ materially from those discussed today forward-looking statements and it may include those related to revenue operating income and financial guidance as well as non-gaap measures such as ffo and a f f o 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 them to review the more detailed discussions related to risk factors and forward-looking statements contained in the company's filings with the SEC including its third-quarter 10-q and the earnings release as well as definitions and reconciliations of knowledge of financial measures contained in the company's earnings release on this morning's call. We are joined by Peter Crowley, no chairman and chief executive officer Desiree perks senior Vice President Chief accounting officer Brandon Moore Senior vice presidents general counsel and secretary Steve Vlad nice senior vice president finance and Matthew demchak senior VP of Investments with that. It's my pleasure to turn the call over to Peter Crawley know Peter. Please. Go ahead.
So thank you Joe and good morning to all of you who have dialed in today day. Obviously, we're quite pleased to report a very very strong quarter month and to highlight just a lot of positive activity that has occurred occurred across several fronts that we will outline. I will call your attention to em or press release which I I'd like to think is one of the most thorough and complete in the marketplace. Our team works very hard to give you as much information as possible to make judgments about the health of your company.
And this this quarter is no exception. There's a lot a lot of detail frankly. If everybody read it thoroughly we could probably skip this call but for Q&A nonetheless, we will highlight some of the strong things that have happened this quarter looking back just a little bit the Year got off to a pretty good start January February February March and then of course COVID-19 a pleasant event, you will recall that we moved pretty quickly to work with pack channel to improve its liquidity which has been if I must say so stunning success for them and by extension for us as well you might recall we do down our revolver at the beginning of the pandemic in an abundance of caution and used it to God.
To to pay down some debt. The Penn National transaction is a highlighted was in in exchange for a property. We made the Judgment that having them OS was not a very forward-thinking idea put a burden on the company that we thought they didn't need on the other hand forgiveness was dead not acceptable to us. So kind of a a a rent exchange for property made a lot of sense to us, and we're well along with them a lot of discussion about disposing of that property looking looking ahead along at the same time. We agreed to a purchase option for our Hollywood Casino and very long and the real estate of course would remain with you all P. I been executed also a five-year lease renewal option under its to master leases.
we also
We open the TRS TRS properties Baton Rouge and Prairieville, by the way, I'll make a comment that it has been shocking may be surprising to see the strength with which these properties not just ours but others have opened around the country. It's really quite stunning statistic that stands out in my mind is looking at Ohio performance at Penn's properties and Ohio itself hitting an all-time record record in the month of September, which is really pretty stunning that is his name has certainly done well for the properties that that we own in that state.
GOP. I also received the approval in Louisiana from the gaming commission to move its Riverboat land side and we are well along with plans to to move land side, you know, very attractive but modestly priced facility that I think is going to dramatically improve the performance of that property.
Also after much struggle and effort, we finally acquired Lumiere place in Saint Louis. And now rather than alone. We actually off the property at least it and the same applies to Belterra Park and in Ohio to boil with boardgaming month. We also as you well know completed a couple of financing transactions. I'm not going to go through them now but others will will walk through those with and for you last night. You saw the agreement we entered into with the exchange agreement with seizures. Um, and uh, as you know, they had to the best some property in Missouri and and one of those properties open Indiana, forgive me. I'm still back at Lumiere place in Indiana and one of those properties was Evansville a name.
In exchange, we picked up two properties that in Iowa, but Hayden Department Evansville was first-rate place just an outstanding property. They opened it up to a building and we were successful in in buying that property back which is another independent transaction, which is first-rate which gave us an opportunity to bring another operation into our portfolio which would river which is also exciting. So and with that we picked up the opportunity to buy Dover Downs in Delaware off. So a lot Happening Here with GOP, I that I think put us on track for a really tremendous year and a lot of this has come together just recently but it took a lot of hard work through this year and I commend their team for making these things possible. So with that I am going to turn the microphone over to Desiree Burke who will walk through some numbers with you.
And then we're going to go around the table and continue.
Go ahead this good morning. Thank you for taking the time to join our call today or performance of the quarter was very good. We're ahead of the third quarter 2019 on many metrics that we normally record merrily do the variable items in our business revenues have increased just shy of twenty million dollars for the quarter over the prior-year primarily related to income from Real Estate as Peter mentioned the same percentage rents in our pain Master leads to Port Columbus and Toledo outperform the prior-year quarter. So we have benefited from the Detroit Michigan Marketplace being closed until August 5th June in addition the income from Real Estate also benefited from non-cash straight-line rent adjustments as compared to the prior-year. This was favorable. They was all set by lower percentage rent from the Pinnacle a master leases which were reset on May 1st, and we discussed in the prior quarter additionally our to TRS properties continue a strong operating results net revenue and adjusted even though we're dead.
2.8 million and 3. Million compared to the prior-year. We are appreciative of the efforts of our general managers who let the properties during these challenging times. We continue to see strong spend per visit our properties, which is more than offsetting that reduced attendance levels. Net income f f o a f f o and adjusted ebitda were well ahead of the prior-year which is detailed throughout are relieved looking ahead. We acquired Morgantown for 30 million dollars in rank credits on October 1st. This lease will generate three million dollars in annual rent speaking of the rent credits. We provided to package in October. They fully utilize the remaining credit that will now return to paying up cash. Also on October 1st ten exercise the next five year renewal, which Peter discussed earlier on wage depend lease will be extended till November 2033 and the Pinnacle lease until May of 2031. I wanted to know that Meadows least percentage rent research also wage.
Heard on October 1st and will lower annual run by two point 1 million. This is our last variable rent reset until May of 2022 other than our monthly percentage rent received a credit card our properties in Toledo. And Columbus was that I'm going to turn it over to Steve so he could talk about our balance sheet and our transaction. Thank you Desiree. I'd like to highlight or Capital markets activities during the quarter and provide additional information related to the recently-announced transactions on August 18th GOP. I tapped its existing 4% senior secured notes due January 2031 by issuing an additional $200 million of principal amount of notes at a premium to yield just 3.55% off that proceeds from the notes offering we're used to fully repay the term loan borrowings. And as a result, the company has no debt maturing until May 2023 and from a liquidity perspective.
Has a fully underground revolt.
As mentioned earlier yesterday GOP. I entered into an exchange agreement with seizures this agreement enables GOP. I to receive the real estate assets of the Isle Casino in Bettendorf, Iowa in Waterloo, Iowa in exchange for Real Estate from Tropicana Evansville in five point seven million dollars in cash as your recall GOP and Eldorado completed an amendment in June to prove Eldorado with this flexibility if necessary to complete its merger with seizures.
You exchange provides us with two new Regional gaming Assets in both stable and mature markets and an annual increase in total Master Lease rent the $520,000 in addition. It continues to demonstrate our willingness to work with our tenants to find win-win Solutions.
Also yesterday GOP, I executed definitive agreements to acquire the real estate assets of Tropicana Evansville and Dover Downs Hotel and Casino. The aggregate purchase price is 434 million dollars based on an initial annual rent amount of forty million dollars and a blended cap rate of 8.3% This acquisition is expected to be immediately accretive at closing which is anticipated to be mid 2021.
Both properties will be operated in a single triple net Master Lease with our newest tenant Twin River GOP. I is pleased to be expanding its tenant roster with such an experienced wage Regional gaming operator has Twin River.
From property perspective we have always thought the Tropicana Evansville property was a wonderful asset the land side move that they completed in 2017 has been a huge success and the demographics around Ed continue to be attracted.
Dover Downs Hotel and Casino is a substantial Regional. Excuse me, substantial real estate asset with approximately 70 acres of land one hundred sixty five thousand square feet of Casino space 500 hotel rooms and numerous additional amenities. However, we believe that Twin Rivers demonstrated ability to reposition the property enhance the performance and I-10 continually identify operational efficiencies will drive long-term asset value there with that. I'd like to turn it over to Matt gem check back through the Master Lease terms and strategic rationale as the first gaming real estate transaction amount since COVID-19 structuring. This transaction was a thoughtful Balancing Act off while appropriate economics for a gating factor and the Strategic value of adding a new and dynamic tenant relationship is very exciting for us structuring an appropriate margin of safety was a Paramount wage.
Gordon's to that end from a credit enhancement perspective. We successfully Incorporated the corporate guarantee that Steve mentioned from a public company with a balance sheet that strong and access to Capital markets, which is something we've appreciated in this code environment is of Paramount importance a strong for wall coverage just north of two on a normalized basis and wage at least infrastructure that complements the stable and steady operating profile Tropicana Evansville, which were very familiar with the geographically disparate and mature jurisdiction of Delaware off with the addition of Dover Downs as a new state in our footprint. We also structured a rent payment structure that thoughtfully balances are tenants goals with our goal of Greater predictability and stability and to that end or at least doesn't have a percentage rent and features of our other leases and the escalation is based on CPI between one and 2% and is not subject.
the operational coverage to
Like some of our other leases pricing this deal that an 8-3 cap rate reflected each of these attributes in our effort to maximize the risk-adjusted spread to our cost of capital in a current market environment. I also like to talk a little bit on the topic of COVID-19.
Looking back as we understood the potential impact of COVID-19.
We elected as you all know to change the mix and composition of our dividend to 80% stock 20% cash based on the structure of the Tropicana transaction and Thursday same time out of an abundance of caution opted to proactively adjust our payout ratio to a more conservative level subject to board approval our business plan calls for a resumption of all cash dividends beginning with the first quarter of 2021. In addition. We also plan to revisit the payout ratio as we find it prudent with the intention of returning to the the growth over time the third areas with our balance sheet. We've been very focused throughout this period on solvency and leverage in our efforts to prudently manage the balance sheet off and given our efforts to Steve's earlier comments. Our balance sheet is now in a position with note maturities to May of 2023.
As we move forward our Focus remains on protecting and perfecting or existing cash flows prudently managing our balance sheet and being offensive Lee posture to the expected opportunities, like the one we announced today arise while the story still being written. We are very confident that the case study provided by this backdrop will illustrate the relative wage the original gaming assets and helped solidify the case for broader appreciation and the institutionalization of this asset class that we've long been discussing with that. I'll turn the call back to the operator for questions.
At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad a confirmation tone. Please get your line as in the question queue. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. One moment, please while we pull for questions.
Our first question is from Joe greff with JPMorgan. Please proceed with your question. Hey, good morning. Everyone. This is actually a dance hall Tour on for Joe. So thanks for taking my questions. So the first first one given the relative size of the transaction you guys announced last night and a low interest rates you're able to get in this market. Is it real life resume that you would be looking to finance the deal solely through debt.
Yes, I mean point back to the earlier comments about Putin balance sheet management and I'll point out that we've got a menu of options for funding the transaction overall and it's a whole list of things that you're probably thinking about but it's are retained cash flow. Remember this is expected to close in mid 2021 potential disposition proceeds from either the Tropicana or our Perryville option with pain and we've also got the potential use of our ATM program in other Capital markets transactions and to your point. We also have significant revolver capacity that we recently highlighted that we've also got the actual cap the public debt markets with the issuance that that we discussed earlier at at 3.55% yield.
All right, I appreciate that. So I guess on Tropicana earlier this week. There was a news report on two sides. Will Las Vegas strip convention hotels that that are off or likely to enter a sales process. Uh, I mean, is there a realistic scenario where where you could have an interest here? And and I guess similarly how would you characterize the interests for Las Vegas strip assets right now, in your case. Have you seen much interest much third-party interest in the case of the trout?
Yeah, let me take that guy's we've had a surprising amount of Interest last time I checked and I'm looking across at Brandon Moura general counsel wage. Uh, we had more than 18 NBA's out. I mean, there's a lot of Tire kickers not necessarily a lot of checkwriters wage, but we've been surprised by the activity and our focus is to to reach a transaction is early as we possibly can but and I said we feel very comfortable at the basis where we are in that asset. So there's been a lot of activity but time will tell we'll see is they say there are a lot of wing and a prayer kind of offers that we have gotten. Those aren't going to fly. We're under no pressure. I would remind everybody that you know pain is committed to covering every expense. He power light bulb.
is employment every every
And to keep the property open so that for us it's just opportunity cost on the money invested, but we can afford to be patient. So lots of lots of activity will just have to wait and see anything but no, I think we're all I'm looking around the table no further comment on that, but that's where we are.
And anything on if there's a realistic scenario where there to be interested in the other Las Vegas strip assets that have have entered that sales process. Yeah. I mean, I'll comment, you know our underwriting standards. You know, what we're looking for as far as stability goes in our assets and a fair basis and if anything is shown the reason why we've got effectively the requirements that we need and we look at the strip. Would you look at the fixed costs associated with the properties and the exposure to travel and and conditions right. Now if we underwrite assets there it's even harder at the same economics to make them pass muster and when we've got a transaction like we announced today in a very solid down 3% cap rate that to us is a lot more attractive than bidding very aggressively to get exposure to the strip, especially at this point in the cycle. So that said we look at everything and we'll certainly look bad.
It it's hard for the numbers to work for us. Given our our approach and our our model. Yeah, and I think most of you know that we've made the case for years at the real safety and stability is out in the office, you know in the Hinterlands not on the Strip love those assets terrific, but they're much too volatile for our case then to underwrite it as we would want to would be difficult to be competitive. So I think we're quite happy with where we are. I think following these announced transactions. We're up to some 50 properties around the United States, which is terrific. So no, we like I think our our thesis has finally been proved and I'll just say parenthetically that as we made the the conference seen over the last five years. We told the story about the strength of regional assets and some of our investors would say, but what do you guys need is a good recession to prove your point wage?
I think unfortunately, we we have got that and I think we proved that point. So I think we're going to stick close to our knitting. We never say never but you kind of know the wage I think.
All right, understood. Thanks. Thanks for all the color. I appreciate it.
Our next question is from Barry Jonas Securities. Please proceed with your question.
Hey guys, good morning. Just I'll start with a two-part question. You know, we've all run different analyses trying to quantify. The remaining cam for gaming reads to acquire assets. I'm curious to get your perspective on how much you think is left in your wheelhouse. And then also what point you start looking outside of Gaming.
Who wants to volunteer for that? Yeah, Barry if if you look broad brush-stroke, we're we're something like thirty-five to forty percent penetrated considering the Eva table of commercial gaming overall thoughts and people often bring up at some of those assets may or may not ever see the light of day. But the last question there's certainly Rumors in the market that assets people thought might never trade mine in the not-too-distant future wage. So for us that that's the math but 2 level set the discussion from our perspective for us to realize value for our stock. It really goes back to those comments on protecting and perfecting existing cash flow to the extent we can continue to do that and the only route at least is a good example of that the gross were getting now with the Acquisitions a good example of that. The future is very bright for the upside. Met alone, and you can look at greenstreets ranking of all real estate asset classes.
Gaming is the number one asset class for potential returns Head and Shoulders Above the Rest in our portfolio to Peters points with regional assets. And the stability we have is best position in that asset class. So if we just execute our existing business plan, there's significant upside for shareholders from that and then we get the question often. What about outside of gaming that's where the bar is set. We we've got a chip. So I think on the best number on the board and going forward it's going to continue to be the same gating factors outside of real estate in gaming and it's going to be competitive advantages that we have and how it fits during quality similar to what we have and attracted risk adjourn risk-adjusted return profiles and it extends something happens to trust our threshold that makes sense there will do it. But otherwise we're very happy with where we are often find ourselves. Well positioned especially with pivot. Yeah. I've met that says I think perfectly well we looked always always have but finding something that has the longevity
And the stability of our industry is very very difficult. Look if you were to ask me though. Do I think some day that you'll find us elsewhere? I believe that you will but at the moment we're quite content this looks like we're going to wind up a very strong year in our gaming space. I expect next year will be the same. So we haven't run out of Runway quite yet.
That's great. And then just a quick one. You know, I'm just giving the stability or visibility. You're seeing a what point do you feel comfortable reissuing guidance?
We ever going to feel comfortable. I don't think we're not in a hurry to do that. But I'll look around the table to see if there's any so you'll get it live any dissenting opinions here. I think we're going to we're going to take a look at things. Once we get to the end of this year look at the uncertainty and make a determination then.
Yeah with where we find ourselves right now and where the world is. I I think that that may happen, but it's often the future.
Understood. Thanks so much guys. Thank you.
Our next question is from Carlo santarelli with Deutsche Bank. Please proceed with your question. Thank you everyone for taking my name in your prepared remarks and talked about kind of a need for a recession and obviously, you know with the closures in in this business that was a lot more than we were run-of-the-mill recession. So my question is really know your perspective and the management perspective. Have you guys seen kind of the uptick in interest from the incremental dedicated community and as has gone through this and and businesses obviously proven to be extremely resilient and far more so than maybe some of the other verticals with within that Community but the quick answer is I think yes. Our story has a lot more residents today than they had a year ago. And so the answer is yeah. Look we haven't seen it reflected as aggressively in our stock prices. I think it should be but you know my
Sent over the years has always been put up the numbers people eventually figure it out and they will figure it out. So look and this is still a time of great uncertainty as we know for every reason to get financial these are strange times. But I expect as we get into next spring things will settle out and and what you'll find is that the gaming industry life is pretty darn stable. Maybe not the strip but in the regional world and we expect good things as we get as we move forward Carlisle add to that. I mean, it's been a boring to have folks calling in who we haven't talked to for a long time who said just the point that you're making and what's really been telling is they're pointing out. If you look at other triple net companies many of them have the tenant-based it looked good on paper. But when the when this backdrop hit did not have the financial capacity to pay rent and no ability to get Capital to pay rent outside of PVP loans and fog
Having tenants that get cash flow would also have cash on the balance sheet, but also can tap the public markets to look at what pain and the rest of our tenants have done over the last number of months in the darkest of days really wage is a point that we've been making for a long time and people look at our concentration of the negative for us to actually been a positive. We've got our we've got our eggs in the right basket and as we go forward that and you saw it which way it was going to be a key thing that we we look for and should be appreciated for and are starting to be but there's certainly a lot of Road amount of us on that front.
Absolutely. Thank you Matt for for those answers. It just one quick follow-up obviously in the release with respect to the acquisition. You guys talked about several kind of financing Driver's Choice options for you, which kind of your leverage inside of the middle of the range you guys have often talked about obviously noting that this transaction won't close until Thursday. It's not steer. What are some of the drivers in terms of your thought process as to how you finance that how it relates to kind of bringing the dividend back. In other uses of our free cash flow hedge. Yeah. I mean it's a balancing act and we're looking through through this at the lens through the lens of prudent balance sheet management. Let's ride to make that pretty clear in the introductory remarks and I'm always being thoughtful about her leverage level. So remember the date of this anticipated the close is not so good next year and I think we've shared the menu of options to us and that's wrong.
It's all I'm sharing on the topic today understood. Thank you.
Our next question is with Nick from Scotiabank. Please proceed with your question.
Thanks, everyone still a couple of questions on the on the Acquisitions for Dover Downs. And you did mention it is a large land site. Do you think that there are some development opportunities, you know at that site and I guess how did you factor that into your under-eye? Yeah, this is Steve. There's there's plenty of land there. There's seventy acres of land but the the surrounding areas pretty well built up. There's there are a lot of storefronts. It's it's it's right off of the highway. So I would say there's probably at this point, I would not say that there was any thought about development as we looked at this project and maybe underwriting determination what the future may hold there's there's definitely laying there and there's definitely the ability for something to happen, but it's not it's not like an undeveloped area. It's pretty built up. You know, that's that's yep.
Thank you.
The question we have occasionally suggested that we have land in a lot of locations but have not aggressively sought to look for development opportunities that need something that I'd like to think in the next 12-18 months will move up on our list of focus to consider possibilities indulging old there's a couple of well without going through possibilities there. There are a number of sites that that offer opportunity perhaps in joint venture with others. Perhaps it directly we'll see so it's not at the top of our list but it's it's moving up and I think it's a hidden opportunity that we have.
Okay, thanks. Second question is just about the coverage that you you quoted on on the Acquisitions, you know expecting to be a little over two thousand times on the first year after closing. So, you know, I and you talked about normalized coverage. How should we think about how you under oath these assets and you know clearly it's not and you got comfortable with rent that is clearly not at that coverage today. Maybe you can give us a feel for you know, how you under Road getting back to normalized operations at these assets.
Yes, Steve. Well, as far as underwriting goes in the coverage, you know, I think I think in our in our presentation that we have put out. I think we note that sixty million dollars in its into in all the press releases sixty million is the actual ebitda that was produced at Evansville and the twenty-three million a number that was provided by Twin River in public statements previously around a run-rate. Nineteen. One thing I want to point out is in nineteen, they closed their transaction in nineteen. So they did not operate the property the entire year and the gaming tax rate changed throughout the year. So I think when we're when we're looking forward, we're we're looking backwards to make that decision and I think if we looked at the actual performance and we were to exclude the three COVID-19.
Okay. Thank you. It's very helpful at the moment.
Our next question is with Spencer L away with Green Street advisors. Please proceed with your question.
Thank you. And what is your resume the enter project? Can you guys just provide some more color on whether there is more opportunity within the existing portfolio for similar expansion particularly given the growth we're seeing sports betting could you start with the early part of that question Spencer? I didn't hear it.
Yeah, no, it does in regards to the the Louisiana project in Baton Rouge right provide some more color on you know, whether there's more opportunity to do similar projects.
Yeah, I mean, I think that's a unique situation there you might recall that was a boat that used to float and up and down the Mississippi River at some danger years ago. They finally let us go. Side and of course with a full Coast Guard crew and now we've been fortunate to and our staff locally has just done a terrific job in getting the gaming commission to approve the ability to come landside. I've looked very carefully cuz as you know at Penn I pretty much did all the construction of new new projects and architecture and interiors and and the like and there's a lovely designed to bring this land side that we've given a budget between 21 and 25 million dollars. It's terrific. It really really really will optimize the potential of that site. Look it's going to be easy access as if they get
Get to sports betting. In fact, it'll have the best access in town and the greatest ease of entry and so forth. So and keep in mind that one part of this is that Viking Cruise Line wants to make that a stop along the way as they cruise up and down the Mississippi River and I understand they've got very heavy bookings, which is amazing as as that route will develop. So the arrangement would be that they would take advantage of our pretty sophisticated docking system there for their boats people would disembark but have to come right through our facility to get the front door or you headed straight out. So I think on balance it's a terrific opportunity for the property for the site and couldn't be more bullish about its potential dead.
Again, the key with a lot of these things is controlling spend and we're pretty good at making sure we do not over invest. So I see what we're going to do there. It looks terrific. We're excited about getting it underway. I would just add that was an easy decision for us because that's one of the assets. We actually own and operate with respect to the rest of our portfolio many of the assets are land-based or are charges off so would not have the same impact to the customer experience. But if we have tenants that are looking to move their land their property land side off of the boat, we would be more than happy to work with them on that.
Okay.
And then just on the linear acquisition so you guys have effectively assume the real estate and exchange for the previous mortgage. So but after looking at the differences in term and then the interest payments versus wage is now ranked payments. It appears that for the actual real estate is worth less than the mortgage and I am I understanding that correctly or can you provide a little bit more color on the implied pricing here and and how you thought about that.
You want to take that does sure so the actual rent and the interest payments are the same that's twenty two point eight million that we've disclosed throughout our documents the value that the way we've accounted forward we'd feel the value is the same the 246 million dollars of the note also came into our land and building and our financial statements at the same value.
Okay. Thank you.
Thank you.
Our next question is with Jay corner from MSNBC. Please proceed with your question.
All right. Taking the question as originally from those are performing quite well despite having a purchase option on the Caryville operation by your end. You consider expanding your portfolio to Thursday.
As of now Jane know we had you know, those two assets for strategic reasons when we got spun out originally the IRS needs to be part of our portfolio that gives us technically the ability to keep our finger on the pulse of operations, but for other reasons, we thought that it'd be a little better to right size or exposure to that and I have clean exposure to to lease income. Is that our Core Business? Well, let me squeeze in here. Matt's always been a fan of stability and stability of earnings quite candidly and I say this with humor, I I don't mind the volatility of up and down because that's what I'm used to over the years and having have a couple of lovely properties that we would love to operate took forever would make me quite happy, but I I've been persuaded that getting theirselves right down to be a Puri is easier on investors easier story to tell and so forth. So, yep.
We've we're committed to going down that road that having been said I would say we're not shy about a hole KO purchase if and when that opportunity came came again, if if that's what it took to make a deal when a great opportunity and we didn't have an operator at hand. Although we've got literally the best operators on the planet right now in our portfolio, but if we didn't we would not hesitate to bring a property in again and run it and as we do now, so we're committed to a path, but it's not a closed door by any means
Got it. Thank you for the call her and then as sports betting necessitates being tied to a physical Casino has there been any dialogue with pain as they looked or getting access to new states? Where by GOP I can assist with real estate portion of acquisition.
Well, if I understand the question, I mean we're always talking to pan and to all of our other operators about the future and we are as I think Steve pointed out earlier ready willing and able to invest in any expansion that a tenant would want to do I can't speak for what pens Ambitions are today. You know, I'm sure for the right opportunity. They would be a buyer among others, but I think I have a strong suspicion that a lot of their Focus right now is on the Cyber page and at least until they get things up and rolling that seems to be where a lot of their focus is so but
Yeah, I would imagine in the right circumstances. Any one of our existing operators would be a a first-rate partner for an asset that fit their portfolio.
Okay. Thanks very much. That's it for me.
Thank you.
Our next question is with David Katz with Jeffries. Please proceed with your question. Good morning everyone in and and thanks for all the commentary. I want to suck good morning. I wanted to go back to the interesting topic of available land. You know, I you know quite sure that it's all disclosed Etc. But if you could talk about, you know, specific Parcels or specific chunks in there that you know, you consider to be among the most, you know, interesting or relevant facts that that would be helpful. And the second part of the question is do I think you may have said, you know, that development is something that you know is within the spectrum of possibilities, you know 4glt is capital and want to make sure I heard that correctly.
Well, yeah. No I listen within within reason. We're always open to any opportunity. For example, pick up pick a let's say a new license State. We were willing to be a a partner for example in Massachusetts with multiple bidders and I turned out we ended up with the pain site. I was still if I remember I forget the timing still had pain at the time because it was I who had the initial conversations with with the owners of that property that led to Penn getting that property, but we would we would develop under the right circumstances and if if you saw a new state emerge, I don't know Texas. So this any place. How about Georgia would we show up as a potential bidder on a site directly? Absolutely absolutely with a partner without a partner or with a partner.
and independently on another so you
Laura hands are not tied. I can't give you specific illustrations of properties we own because frankly haven't looked at them in a while. But but they're they're in the office there is significant ground that could be developed though. We have not been in a hurry to pursue that but as to bidding on new projects absolutely look we have a great track record of of development certainly on the inside. The key is knowing your Market not overestimating what the market can sustain and control what you spend. I mean every property we built in Ohio and there's four of them. They're you know does better than twenty percent cash-on-cash. So, you know as I'd like to say, we're not in the monument building business office. We're in the cash flow business and that's kind of what we look at. So if we're satisfied that we have that kind of potential sure. Why would why would we not that it before do it again?
Appreciate that and and concur just looking at the release, you know, there's obviously kind of a flurry of activity and I'm you know, I'm curious if that is, you know, circumstantial and things have just you know, worked out that made sense in order of interest to you or you know, if there has been a sort of any sort of change in, you know hurdles of Standards or activity level or you know outbound interest etcetera that you know, maybe a driver of that at the moment Steve you mind. My wife is that but I do think I mean, these are things that we work to cultivate with our tenants and New Perspective tenants all the time. Nothing happens overnight and it's it represents work that's been done over a fair amount of time Steve. Let me take a whack at that. Yeah. I mean, I think the exchange agreement was a necessary evil. We we had to we had dead.
Supply them with Evansville back and and that obviously facilitated our ability to repurchase it. So so that was that was just you know, something that we we worked out in June to facilitate wage Bill Dorado and seizures merger with respect to the Acquisitions. I mean yet rest assured what Peter said is accurate, you know everyone I think it was widely known that seizures of the best teachers. They were going to have to take care of in Indiana, but the fact that we were able to buy Dover Downs as part of this transaction shows that you know, we've had ongoing dialogue is wasn't this didn't just pop up overnight and somehow a three-party deal happen. So we have ongoing dialogue with tenants and potential tenants and we're constantly trying to cultivate those relationships in Foster new ones and David. I'll I'll add when you talk about our standards so our key standards are to get a risk-adjusted spread on our cost of capital which we did in this transaction dead.
And also have a margin of safety built into the trend.
Action, so the cat breed of eight 3 is inside of the last deals we did but frankly the world's evolved the market shifted and we checked our two most important boxes and what I don't think you're going to see faith and you should not expect us to sacrifice that margin of safety. Peace. Would you think about the credit enhancements that are important to us in building the store will income stream? Yeah. Look I have said many times many of you heard. Look, we're not in the mining of building business. As I said earlier reliable cash flow. There's no deal we have to do I don't feel any pressure. I look around the table with anybody here feels pressure to do as I have said sort of uncharitably any moron can do a bad deals remarkably easy. So remaining disciplined and careful and phone number that this is a long-term game. Look, I'm a shareholder first and foremost and and sustaining the kind of cash flows that that we've enjoyed over the last few years is Paramount dead.
My mind so uh, so remaining focused on on the prime objective to be careful Prudence. So forth stewards of your Capital as well as mine is what drives our every day here at this company.
Appreciate that. Thanks very much.
Our next question is with Thomas Allen from Morgan Stanley. Please proceed with your question. Perfect. Thank you. Just asking that last question maybe in a more direct way, um has the transaction discussions picked up considerably and would you expect another deal by your address? Thank you. Yeah, this this this was a unique set of circumstances Thomas when you think about the substitution the regulatory oversight that kind of played into that. So outside of this a lot of the themes that we talked about on last month is calls are still in the market place. The large operators are are focused on operations. They've been helped by the recapitalisation and the FED ultimately on the debt side and because of that there's a lot of pieces that have to move and it's really not a question of for strategic reasons who wants pieces to move and we just saw the rumor elsewhere. I mean, we didn't expect to see it, but you saw the rumor on Las Vegas Sands.
And we'll see if they're more headlines like that. That's people have time to step back and reconsider their business models over coming years.
That's very clear. Thanks Matt. And then just a follow-up obviously really good Trends and Ohio properties of the TRS properties and the third quarter has has continued into October and you know Peter from your experience operating properties. You know, what you're kind of feeling now on kind of long-term margin gains that we're seeing now, it has a dead animal they are
Well, look at the gas, but I don't I'm not believing that they can remain at these lofty lofty levels forever. I I we don't know where the new Norm going to be. I just saw on the news today that penned this picking on them for a moment announce some more Cuts in Las Vegas that will affect the trop property and will affect the money. So obviously they have not seen the bottom yet or at least at that point of stability. Do I think that's where they're going to be forever? No, I don't think so. I think Las Vegas will come back. But look it's going to be long and painful. You see what's going on with this wretched COVID-19 with um, and you know who wants to get on an airplane and fly to Las Vegas today. I can't imagine it a whole lot of folks who are anxious to do that or who's going to set up a corporate event in Las Vegas today.
And bring all the people together Under One Roof. I mean it just I think we all see the obvious and it's it's pretty untenable on a local level though. The corner store is we like to describe people get in their car and drive thirty minutes and and and get some entertainment and happily for us even with the restricted access off. These places are doing remarkably well, so I think you're going to see a new Norm these properties are going to operate at Marge's.
Never imagined. Yeah, I always wanted to do but I don't think it's going.
Look, the two biggest costs that casinos have our people right and marketing and you see a lot of discipline around marketing and you certainly seen unfortunately disappoint around around people and I think that's the real tragedy the people who won't come back now. So look I think this business when it settles out is going to be a a different place than it was before we entered this.
Thank you. And then just Boyd's comments earlier this week that things were consistent in October versus the second quarter. Is that similar to what you're seeing? Well, where does he wanted to add? I'm getting sign language across the table. We have our properties that we can talk to but you know seem continued strong results. Yeah, you're going to get pens announcement soon. I mean we have no inside information there today. And so I I really can't tell you but I'm expecting it's going to be still very much.
Thank you.
Our next question is with John decree from Union gaming. Please proceed with your question.
Hi everyone. Thanks for taking my question between the press releases you've mentioned Peter being quite exhaustive and the conversation so far. There's covered a lot of ground. So so maybe a small one but we haven't worn you out yet. We got one left for you on Casino Queen. I think in the press release you've mentioned still working on a deferred rent agreement by collecting full payments now just wanted to confirm that the collecting currently and then if you could give us, you know, any any insight or update on how that negotiation is going off.
Steve why don't you take that do you collect and currently is accurate since they reopen they've been paying the the rent on a monthly basis. So so those payments are current with respect to defer. I'm not going ongoing matter that we hope to have resolved, you know in the coming coming months.
Got it. That's it for me. I think you covered everything else. Thanks everybody. Thank you.
Question our next question is with John with ladenburg thalmann, please proceed with your question. Good morning. Can you all hear me? Yep, we hear you fine. I know it's a bit of a difficult question because every transaction the space is kind of bespoke. How would you view the Twin River Acquisitions first, I guess the market cap and how have you seen maybe market cap rates or broader cap rates friends now that we have a couple of months of original gaming rebound under our belt off. Yeah. It's there really hasn't been a lot of price Discovery yet. So hey a few reasons. I'm not sure this is you call this a full market cap rate. I mean, we saw you before activating the high sevens and you see the capital of our peers the world maybe in that seven handle place. We'll see as it involves, but for us this was a very strong deal with an 8 plus and a three cap rate.
I think it's going to be interesting. I mean the real the real question here is what ebits are you underwriting? And what coverage are you putting on that? And that's what we were very focused here cuz I mean you could play with phone number.
At the coverage and put a lot of hire a lot higher cap rate on the deal. I will point out. I think this coverage was a bit off Market when you consider in the context of the few deals, we saw preco but and I just said cap rates in the market are probably going to be a function of where the public companies are priced, but with some spread to that we watch that play out and Healthcare years ago, and it seems like now with three players in a space looking all the transactions will see those Trends going forward, but I think we have to wait and see if there's going to be more data points frankly cuz there's not a lot else in the market that's fully marketed that we can point to and say Here's here's a sample size that we have confidence to calculate just impressed by text basis points.
Okay, that makes sense. And then I know the apart is in the pen mascalese and obviously that limits your your exposure to whether they're open or closed. But do you have any rights? They're potentially if that asset remains closed to to force some kind of substitution, um, you know, particularly let's say pain, you know does expand its own wholly-owned portfolio will let Brandon handle that I think the good news with respect to the park is relates to us is that's a that's a lease. And so whether that facility is opened or closed will continue to pay rent under that lease now, obviously, it'll have an impact down the road on the percentage rent. That's a five-year reset so that that impact will be diluted a little bit over those five years depending on how long that property is actually closed but to answer your question. We don't have any right to force pin to come up with another dog.
Bad to replace the Via asset. I think that this is quite an anomaly and the fact that it's still closed. It's the only one still closed in our portfolio. I think it hopefully we'll be open soon, but there's no evidence currently that going to be open but but it's not something that pen has an obligation to put in a open facility to replace a close one.
Okay, and then what kind of quick accounting question on the Redevelopment in Baton Rouge? I should we think about that impact on I mean wage costs are flow through a f f o as you guys calculated or that may be a separate item given the go-ahead. So the capex coughing or be considered will be called project capital and not maintenance Capital. So it will not affect your a f f o the cost will be capitalized and put into the land and building there and then depreciate off the future once it opens.
Perfect, very helpful, and that's it for me.
Thank you.
Our next question is with Robin Farley with UBS. Please proceed with your question great. Thanks for feeding it at the end here. Also, you know, some of Peter's introductory comments cut out on the phone know if you're covered this already we can just circle back after but I don't have to talk to you about how you thought about risk from potential gaming and Kentucky as part of Evansville. How you kind of thought about acting that risk in and then just any other Caesars assets that you think could end up becoming available or or kind of shake lives here. Thanks. You want to take that? Sure. Well, I'll start with the seizures assets, uh at this point, you know, we're we're in discussions we touch base with them frequently, but I'm not aware at this time of any other assets shaking loose with respect to Evansville. You're you're right. I mean Oak Grove just opened Churchill open that property. It's roughly ninety.
90 minute drive time hundred miles from Evansville. There's probably there.
Some area, you know that includes Clarksville and Madisonville. That's probably going to be a little bit of a battle ground. But but we were comfortable based on our diligence that that ultimately this property will perform in enough of its business comes from from closer closer into the property. The only other competitive point. I'm from a Kentucky stamp put Point. Excuse me to tell us park that's ironically a five-mile distance and it takes about ten minutes to get there but but based on based on our diligence and and you know, I think our expectation is that that property is just today has existed in the past and there has been limited impact on the property wage. It happens bill and we don't expect there to be an accelerated impact from that in future.
Okay, great. Thanks very much.
We'll take one more question if there is one and then we'll
Operator ladies and gentlemen, we have reached the end of the question and answer session, and I would like to call back. Mr. Carlino for closing remarks. Well in closing I say thank you for all who took a long time to dial in this morning. Obviously. This is kind of fun for us. It's always nice to report a a good quarter. That's a whole lot more fun than than the opposite. So I thank you for dialing. In fact, let's hope for good stuff. We meet at the end of the year. Thanks a lot.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.