Q3 2020 VICI Properties Inc Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by.
She properties third quarter Twentytwenty earnings conference call at this time, all participants are in a listen only mode.
This conference is being recorded today October 29th Twentytwenty, well now turn the call over spent the Gallagher General counsel BG properties.
Thank you operator, and good morning, everyone should have access to the company's third quarter 2020 earnings release and supplemental information there.
The release and supplemental information can be found in the investors section of the B properties website at Www Dot B properties dotcom.
Some of our comments today will be forward looking statements within the meaning of the federal Securities law.
Forward looking statements, which are usually identified by the use of words, such as will believe expect should intend project or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Therefore, you should exercise caution in interpreting and relying on them.
I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.
During the call we will discuss we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2020 earnings release, and our supplemental information.
Hosting the call today, we have Ed, but Tony <unk>, Chief Executive Officer, John Payne, President and Chief Operating Officer, David Kiki, Chief Financial Officer, Gabriel Watson, Chief Accounting Officer, and Daniel Lloyd Vice President of Finance.
Ed and team will provide some opening remarks, and then we will open the call to questions.
With that I'll turn the call over to Ed.
Thanks, Amanda good morning, everyone and thank you for joining our third quarter earnings call.
As we sit here today. He is a few weeks faster third birthday.
We've done a lot of work in three years in quarter three of this year our work over the past three years truly crystallized.
In Q3, 20, Twond, we executed the following strategic growth and activity.
We closed on the acquisition of three new properties Harrah's Atlantic City, Harrah's, New Orleans Harris Loughlin.
We accreted, we added incremental rent at her to Las Vegas properties, Caesars Palace, and Harrah's Las Vegas.
Provided a $400 million mortgage on the teachers form Convention center.
And we made our first investment outside of gaming was EUR $80 million financing of Chelsea piers in New York, which I'll say more in a moment.
These strategic accomplishments in Q3 left to the following financial accomplishments.
We grew adjusted EBITDA year over year by 41.9%.
We do a oh year over year by 38.4%.
We increased our dividend by 10.9% and not to be taken for granted since the cold 19 crisis began we have collected 100 per cent the bar red.
Locked over in cash.
All told looking forward EG growth activities in Q3 added annualized rent and income from loans of $288 million at a blended unlevered yield of 7.80%.
Granted the all American reef haven't reported yet, but what we've seen so far few other American region posted these kinds of financial numbers in Q3 2020.
And this growth Vg takes place against the COVID-19 backdrop that is significantly degraded the financial results with me.
Okay, great and if I could just take a moment I would I would note that much of the commentary we've seen so far.
We've seen Beachy described as having met with.
Expected results for Q3 and on the one hand, we're glad that we were expecting to grow and the way we have the we hope it is not locked than anybody with the growth we did produce.
Really remarkable.
And this surge of grows consummated in the third quarter 2020 comes in our third year of real estate investment management only this three year period on an annualized run rate basis, we have grown our red since emergence by 100% or $633 million while significantly lowering.
Our leverage from 8.5 times, the low end of our targeted range of between 5.0 and 5.5 times.
Did she stands here today was substantially bigger and more over higher quality portfolio, much lower leverage and a better laddered debt structure.
And as I spoke of a moment ago. In Q3, we also made our first allocation of capital outside of gaming.
Hoping peers no doubt well known to those of you who live and work in New York.
For anyone who doesn't know Chelsea peer as well. This morning, we uploaded to our website www dot BG properties dot com in tech that summarizes the transaction and the asset there.
It was the most valuable elements of the deck or an opponent was only protos not words can begin to do justice to the magnitude and experience will diversity of this asset.
Here are a few words.
Don't be peers is the 780000 square foot facility on the Hudson River in Manhattan, Chelsea neighborhood. It is your largest and best equipped sports and recreation facilities. It offers one of new York's biggest and most dramatically situated banquet location.
Finally, and very valuable in a time of unprecedented production activity. It offers the largest film production space in Manhattan.
Roland Best Tom Bernstein, and David Tewksbury found in Chelsea piers and 1995, they remain in charge today and to their 25 years of ownership and management.
Expertly and energetically steered Chelsea piers, who such past crises as 911.
The great financial crisis and Hurricane Sandy.
We have confidence in under their continuing leadership Chelsea piers will recover strongly as it's called the 19 crisis eventually subside and as new Yorkers once again return to new York's most spacious place to play and perform well.
While we are excited about our new financing partnership with Chelsea piers a partnership that could become longer term in nature. We remained very glad im very proud to be principally invested in American gaming real estate et cetera.
After that has arguably performed better than any other place based experience will sector. During this call the 19 crisis.
Tell you more about how our tenants are doing and how we remain focused on gaming growth I'll now turn the call over to our President and Chief Operating Officer, John Payne John.
But.
Good morning, it wont.
Third quarter.
50 to go work to build the best company in our sector by focusing on.
From accretive transactions and expanded our portfolio.
Class operators to that end.
Hello.
Okay.
I support the Eldorado Caesars merger originally announced in June 2019.
Said.
All that Harris Orlando and.
These caesars total consider.
Okay.
And dollar.
Hey, John John.
John My apologies your signal is breaking up quite badly if youd like we could have David rate your remarks.
Please do I apologize and must be there.
I'm in New Orleans and.
Hurricane last night, So why don't you do that Ed.
Okay, David you want to take it from there.
Yeah.
Sorry about that everybody.
John was saying and I think you broke up to that end as many of you know on July Twentyth, we completed our transformative transaction as part of the Eldorado Caesars merger originally announced in June of 19, we acquired Harrah's Atlantic City pairs Laughlin, Harrah's, New Orleans modified or existing leases with Caesars for total consideration of 3.2 billion.
This transaction added $253 million of incremental annual rent for Vg strengthen the terms of our leases with Caesars and restocked are embedded growth pipeline roper's on to Las Vegas strip assets put call agreement on Harris Hoosier Park in India, and a grand and in Indianapolis.
In a roper and horseshoe Baltimore there.
Additionally in July we agreed to fund that $80 million expansion objective for down in exchange for incremental rent at a 10% cap rate. We also quickly and efficiently partner with Jack entertainment by providing them access to incremental liquidity. This demonstrates some of the benefits of having BG as a capital partner as we support our tenants in ways that preserve bank.
Create long term value for all parties finally.
Finally, as Ed highlighted during the quarter, we executed on an $80 million loan transaction with Chelsea piers in New York City.
We are very excited to announce a transaction involving the parable experience will asset and on a comparable city importantly, we believe this investment represents a meaningful partnership and potentially provide vg a path for the longer term relationship with Chelsea piers potentially adding sector and geographic diversification to our real estate portfolio.
Over time.
As we said before we believe the transaction market within gaming is robust and we will and will likely door dwarf excuse me transactions that we may pursue outside of gaming.
Just given the sheer magnitude and financial productivity of gaming assets.
Despite over $8.2 billion of transaction activity. Since we started the two three years ago or growth story remains in the very early innings.
Right at about what is to come.
You will see a shift from defense to offense by announcing multiple transactions over the past few quarters, we always strive to do fair deals. We believe this was part what has driven our success. We're often asked if we are going to slow down for a while or take a break as others do given all the transactions we have done in a short period.
Time.
The answer is a resounding no you should expect us to consider participating in any fair process for an asset sale within gaming within gaming.
Given our broad investment spectrum, we continue to believe that did that includes refinancing is likely to yield the greatest amount of proceeds for the seller of an asset and their stakeholders, giving our business the greatest prospects for growth.
With respect to the operating environment.
We are very proud of the way our tenants have reopened and manage your properties in the current operating environment. Despite many of the restrictions and challenges imposed on properties across the nation or assets continued to showcase superiority relative to many other real estate sectors.
Brick and mortar casino experience continues to prove prove its durability.
2019, and a F F O per share increased 22.9% over Q3 19.
Or fully diluted share count increased approximately 15%, 15% primarily as a result of the settlement of of June 2019, Ford sale agreements and June 2020.
Which added 65 million chairs to our balance sheet in advance of closing on our portion of the El Dorado Caesar transaction.
Ah results. Once again highlight are highly efficient triple net model is flow through was 100.3% for the quarter and margins expanded further into the high 90% range.
TNA was 8 million for the quarter and as a percentage of total revenues with just 2.4% which is in line with our full year projections and represents one of the lowest ratios in the triple in that sector.
I'd like to just highlight two items on the income statement. The first is our ongoing Cecil allowance in the third quarter, then non-cash seats allowance.
Was 177.1 million, which is primarily related to the new investments we made during the quarter.
As a reminder, when new investments clothes, we were we record it and then an initial cecil allowance through the piano.
Second is a 333.4 million dollar gain upon least modification when.
When we modified our leases as part of the Eldorado transaction, we were required to reassess our lease classification and accordingly, we re reclassified all of our seasons leases two sales type leases under AFC 842, and mark them to market, resulting in a one time game.
These items are both non-cash as such there's no impact F. F O R. A F F O for sure. We continue to point investors to F. O F. F O for sure cause we believe that should be the primary metric used to evaluate our financial performance and our ability to pay dividends.
Just touch you on the balance sheet and our capital markets activity.
On September 28th we settled 3 million shares in the June 2020, Ford sale agreement, realizing that proceeds with $63 million of cash onto our balance sheet.
On September 18th we closed on the 400 million dollar seizures for them.
Convention center mortgage with Caesars utilizing cash on our balance sheet.
And then S. As has been mentioned on October 31st we closed on the 80 million dollar mortgage with Chelsea piers of which we funded an initial 65 million dollar term loan with cash on our balance sheet and the remaining 50 million remains undrawn.
This loan came about through a combination of a refinancing process Chelsea piers undertook this summer as well as a longterm relationship with the principles.
Alone has an interest rate of seven per cent determined seven years and is the only loan and the cap stack of what is truly an amazing and irreplaceable asset in New York.
And as we spoken about on July 20th we closed on our portion of the El Dorado seizures transaction at a $253 million of annual rent to our portfolio through the acquisition of three hairs assets and the acquisition of incremental rent from our Caesar's Palace and hers Las Vegas has that.
For total consideration of approximately $3.2 billion in cash utilize the proceeds from the settlement of the June 2019 for sale agreements as well as the $2 billion of proceeds from the February bond offering that were previously held in escrow to fund the transaction.
Our total outstanding debt a quarter and was 6.9 billion with a weighted average interest rate of 4.18% weighted average maturity of our debt is approximately 6.4 years and we have no debt maturing until 2024.
As of September 30th or net debt to actual L. T. M. Adjusted EBITDA was approximately six five times. This ratio is not reflected devoted to leverage is it does not include a full 12 months of income from the El Dorado transaction, and therefore does not represent a true run rate leverage levels, which is well within our state of range.
Maintaining that leverage between five and five and a half times.
We currently have approximately $1.7 billion in available liquidity comprised of approximately $144.1 million in cash on hand, $20 million and short term investments $1 billion of availability under a revolving credit facility, which is undrawn.
And then in addition to company has access to approximately $557 million and proceeds from the future settlement of the 26.9 million chairs that are subject to the June 2020 Ford sale agreement.
During the third quarter, we paid a dividend of 33 cents based on the annualized dividend of $1.32 per share.
This represented an increase in the dividend is 10.9% one of the highest increases from any read during 2020.
F F O payout ratio for the third quarter was $76 seven per cent.
In line with our long range target of 75%.
With that operator, please open the line for questions.
At this time, we'd like to see any questions you may have to ask a question.
I find that the number one on your telephone.
Well the first question.
What type of car.
Then.
And John if you're listening all all the best with a storm cleanup down there.
So.
I'm on I don't know if you can hear me now I've moved locations and we'll try it again.
Yeah, Yeah, I know the the cell towers sound like their work and so on but I I know what that's like so as I said.
All the best but yeah I appreciate guys via the the bit of background on the Chelsea piers loan but.
You know, maybe just to talk about credit underwriting for a second here so help us understand the.
The the security behind D cheese alone. It does does the owner own the land beneath facility or is it just the just the improvement.
I know you said that is V T as long as the only wanted to catch that can help us understand maybe the implied equity it sits beneath T. T and then where the loan sits maybe as a as an expression of I've turned it EBITDA or something along those lines just help us understand you know some of the the the details here if you don't mind.
Even.
Yeah. Thanks rich.
There was a grand leaf there's grandly 15 minutes in the river some of the fears when the river with the Hudson Park Trust them, but they own they own the peers and the improvements Ah.
And is that Red rather you know 28 acres 780000 square feet.
Financial matrix aren't are public but it is a very very low L. T V. When you think about the location and the size of the axis and the magnitude of ER that says that that is a 25 year operating history.
Is that the weather at 911 Hurricanes Sandy the great financial crisis and the.
The revenue generators, the complexity this asset and their ability to generate consistently high EBITDA through through those real throughout the past 25 years. There's been a reason that were highly excited about this as an excited to support Chelsea piers.
And I was in New York was you know stuck with Covid and some of the businesses did shut during during the past few months.
The majority of the businesses are reopening.
As it is generating productive EBITDA and you know the film studio businesses is blown and go into the global need for content. So.
We.
We're excited about this and with what this may lead to in the future.
Okay that that's that's helpful. David isn't it just as far as that that's sort of longer term.
There I mean should we infer that you know.
A small leaseback transaction is at least somewhat plausible you know in the in the near to medium term or it's too early to make that assumption.
Yeah racist that I think I didn't eat too early to make that assumption.
Any kind of iron certainty, but yeah, if their relationship they bark very hard to develop a it is a company that is expanding it to my friend.
It turned out at least in New York Ah beige and so weird.
Very eager as we are with all of our partners.
Focus on growing our relationships over the longer term.
Oh, Okay got it and then maybe just a quick one in a bit of a different direction, but you know like there's been a lot of investment on the part of the operators around online sports betting mm that's been obviously, a pretty high profile phenomenon lately.
What did you see it a chance for deal slow to Beachy to increase specifically based on that you know in other words, where beachy would be a capital provider in the form of a sale leaseback on a land based facility, but where the proceeds which could typically be put towards sort of a non lambaste ah growth opportunity for the operator.
And how do you sort of feel about trends in.
Right now.
Yeah, I'll start and then.
Turn it over to John but.
I think it's one of the most exciting things going on in our industry right now rich I know, there's a lot of focus on that total addressable market a lot of focus on what kind of revenue and profit gaming companies will yield directly from I gave me in sports betting and those hobbies.
It would be very important Ah, new revenue and topics providers to our tenants, making our tenants in even better credits for us in the future I think though that certainly for me one of the most powerful things going on in the technology is proving to be a tailwind right now for gaming and thoughts for gaming realist.
And this comes during a period, where you can pretty much separate real estate asset classes into buildings that are benefiting from technology, obviously datacentres in cell towers. There's two key example, or they're suffering from technology Mall B C. D. An extreme example on that side.
I think this is a case, where technology is creating a tailwind for gaming and thus became weak and one of the most powerful elements is can't win is it is helping gaming company potentially develop their next generation of customers empty consumer discretionary sector has to ask the question where does our next generation of custom.
<unk> come from.
Because being a discretionary sector, it's inherently up to the discretion of any given generation as to whether or not they're going to become customers.
And you know if you want to put it as simple as turn this is a powerful way to engage the barstools generation and turn them into that next generation, which we think is enormously positive play the long term productivity insecurity or assets, but I'll I'll turn it over to John in terms of how else. We're looking at it in our willingness to get.
Our tenants with incremental capital John.
Yeah, I don't I don't have much to add other than to say rich I think you over three years, you'll see we've been quite creative and working on deals and wanting to help our tenant squirrel I do want to reiterate one thing David did a great job with my opening remarks, and I apologize for being cut off but I did want to reiterate how.
Proud our company is of our tenants performance I think sometimes it gets glossed over.
When many hospitality industries are talking about cash burn still and we have operators in this space talking about record EBITDA and margins up a thousand points and I just want to stress that that really is incredible and the environment that we are in right now and it's a compliment.
To to the operators and how creative they've been.
So rich that's that's our comments on that question.
That's great. Thank you guys.
Your next question.
The city your line is open.
Hi Tech.
I wanted to ask you, there's a number of regulatory issues on the on the ballot this year either putting into C N as in states like Virginia.
Colorado.
There anything that stands out to you it's leaking regions, you more or less interesting.
Depending on the outcome of those votes.
John I'll I'll, just yeah, I'll I'll jump in here I think it's always interesting to watch what is on the balance I think Virginia is one.
It's gonna have some opportunity I do we'll see what happens in a few days, but I do think that's going to allow commercial gaming in that state and some new developments in that could provide some opportunity for us or it could provide some opportunity for Janet and make them continuing to be stronger we'll have to watch Nebraska I don't know how that.