Q3 2020 MGM Growth Properties LLC Earnings Call
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Good morning, and welcome to the MGM growth properties third quarter 2020 earnings conference call joining the call from the company today are James Stewart, Chief Executive Officer, and Andy Chen Chief Financial Officer participants are in a listen only mode. After the company's remarks, there will be a question and answer session. Please note that this call is being recorded.
Now I would like to turn the call over to Mr. Andy Chen. Please go ahead.
Thank you good morning, and welcome to MGM growth properties third quarter 2020 earnings call.
This call is being broadcast live on the Internet at MGM growth properties Dot Com, where first our press release on form 8-K to the FCC. This morning.
On this call we will make forward looking statements under the safe Harbor provisions of Federal Securities laws.
Actual results may differ materially from these goes projected in the forward looking statements.
Additional information concerning factors that could cause actual results to materially differ from these forward looking statements. That's contained in today's press release and in our periodic filings with the FCC.
During the call. We will also discuss non-GAAP financial measures in talking about our performance.
Can find a reconciliation to GAAP financial measures in the press release and Investor presentation, which are also available on our website.
Finally, please note that this presentation is being recorded I would now turn it over to James.
Thank you Andy I'd like to welcome everyone to M.G.P. <unk> third quarter 2020 earnings call were.
We're excited to report that every one of our properties across the country are currently open to the public with social distancing and safety protocols in place.
We're pleased by our tenants commitment to the health and safety of both their employees and guests.
During the quarter and through October we continued to receive 100% of our rent on time.
Despite the economic challenges brought on by the pandemic are perfect rent collection record demonstrates the durability of our master lease and liquidity position of our tenant.
We are encouraged by the improvement in ramp up operations across our portfolio. We're also pleased to see occupancy is on the weekends and Las Vegas recovery we.
We look forward to the return of conventions and believe that the recently announced entertainment offerings coming back well enhance the customer experience and bolster weekday occupancy went.
Real long term believers in Las Vegas, I was one of the premier destinations for business and leisure travel in the world.
Our regional portfolio in particular, our drive to properties are seeing significant benefits from margin expansion, which is driving equivalent or higher EBITDAR compared to last year's performance, even at lower revenue levels Gold strike Tunica, MGM Northfield Park, and MGM National Harbor, all achieved all time.
Record quarterly adjusted property EBITDA ours did.
The gaming industry is faced many challenges in the past and it's become more resilient with each obstacle our prudent capital allocation portfolio construction and strong leases have helped protect MGP for many of the challenges facing the broader read industry today.
This unique combination of downside protection rent stability and for MGP rental growth in this environment has demonstrated that our business model should translate to a premium multiple EM.
MGM Springfield on which we have a right of first offer also achieved a record third quarter adjusted property EBITDA, Despite only being opened a partial quarter.
Our tenant MGM resorts as approximately $5.2 billion and liquidity at its domestic operations adjusted for Mgms October issuance of $750 million of notes pro.
Dividing ample access to cash to protect and grow their business for the foreseeable future.
They're successful capital raises this year further bolstered their liquidity and position them for future growth in the increasingly dynamic and growing gaming industry.
In addition, MGM can elect for us to redeem $700 million of their operating partnership units in cash through February of 2022, which if completed it in full at current prices would be a AFFO accretive to us further strengthen mgms liquidity position and reduce their ownership position us to around 50%.
We remain focused on continuing to execute our business strategy of sustainably growing our AFFO and dividend, we continue to communicate frequently with various gaming operators and explore real estate transactions that would help them generate immediate liquidity and provide them with an opportunity to replace financial debt with predictable long term leases.
All these unique time, sometimes require an alternative and creative underwriting approach MGP is especially well positioned given our strong financial profile and flexibility to creatively structure leases define mutually beneficial solutions for both MGP and our potential tenants in the gaming and broader hospitality and leisure industries I will now turn it over to.
Andy to discuss our financial results.
Thanks James.
I'll start with providing some highlights for a few items in our third quarter financial results.
We recognized $180.3 million of rental revenue on a GAAP basis cash.
Cash rental payments received by MPP, and our pro rata share of the JV.
It was 243.5 million consisted of 206.9 from the NGL Master lease.
36.6 million large share of the joint venture mass release.
Our share cash flow generated by the JV was 22.9 million.
So the net income was 97.4 million and Thats always a $173.5 million or 57 cents per diluted operating partnership units.
Adjusted EBITDA was 240.6 million.
<unk> expenses for the quarter 3.5 million.
Which represents one of the lowest DNA as a percent of rents in our space.
Evident was 48.75 cents per share, which represents $1.95 on an annualized basis.
MDP as physicians well positioned for future growth one of the strongest balance sheets in the industry no.
No debt maturities until 2023 and maintain adequate liquidity to meet our financial commitments liquidity currently stands at approximately $2 billion consisting of 600 get back on the cash.
Cash equivalents and a billion 25 on our revolver at quarter end.
Our pro rata net leverage is 4.6 times and its below our long term target of five to five and at times right.
Writing funding flexibility for future accretive opportunities.
This includes.
The ability and flexibility for the redemption of 700 million operating partnership units from MGM or cash.
Maintaining a strong balance sheet significant access to capital is proven to be necessary. This uncertain environment.
Continued position MGP to be able to execute our long term business strategy, a sustainably growing our dividend with that ill turn it back over to James.
Thank you Andy Chuck I would now like to open it up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please.
Pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
And our first question will come from rich Hightower with Evercore. Please go ahead.
Hey, good morning out there guys.
Hi, rich warning.
Happening to you as well.
Yeah. Thank you.
So I wanted to take.
Take your pulse on.
You know elsewhere elsewhere around the space, we've seen a competitor or to.
Do mortgage loans as a potential toehold into.
Another another investment.
Hi.
Study gaming and I'm wondering if you guys have looked at similar deals.
What's your view of the the opportunity set as far as that goes or the.
Just the wisdom of that sort of investment versus the traditional sale leaseback.
Yeah. It's it's interesting we have looked at structuring transactions in that manner, and I guess I would say overall work, we'll we'll consider all transactions irrespective of their complexity your structure, but our preference is to have long term leases that are more or less permanent like we have with our.
Master lease and the joint venture leases, we have with Blackstone, we think that that gives us the capability of.
Steeply increasing our dividend off of that you know way AFFO.
FFO accretion that comes from that type of transaction that said I think we're pretty creative in terms of our structuring capability here to the extent that the situation was attractive to call for that kind of structure, we would not dismiss it out of hand, however on the margin we would rather one on the real estate as opposed to just having a mortgage up against it and to have.
Long term cash flow stream that we can then.
Okay.
Allocate long term capital against and earn the differential.
Sitting on almost 2 billion of liquidity. So I think were in a pretty good situation.
Flexibility wise to be able to.
Generate some accretive deals here.
Okay got it and maybe just with respect to the the next tranche of DLP buyback from MGM and you referenced it in the earnings release and in the prepared comments, just we can assume that it's accretive.
To whatever extent when it happens.
But is there a is there a level of accretion that we're all sort of targeting are solving for or how should we think about the potential for that for that next to that next slug of the buyback. Thanks.
Yes.
So it's really it's 100% up to MGM to put to us.
The equity they have until Valentines day 2022 to do so.
Given.
The combination of.
Reduction in our own interest cost across our entire debt.
Stack wear footwear more almost all our debt is trading either in the threes.
Our our longest bondo occasionally touches up to 4%, but frequently as in the threes, So and our equity is yielding about seven so on a yield basis you're saving.
Say rough zone, three and a half or 4% on that $700 million, so it's pretty nicely accretive to us.
When they do it as I say, it's totally up to them and I.
I think they were pretty clear on their earnings call. So I'm not telling any tails out of school that they plan on doing it but.
When exactly thats going to happen, we'll have to wait and see the good news is our balance sheet as Ben.
Carefully prepared and set up to be able to handle this so for US. We can we can fund it just by writing a check off of our cash on hand and revolver draw.
And just a reminder, rich to that.
When that request as Paul or Thats, a 3% discount off the 10 day average subjects.
A preset price that Nazi moves every day.
Yes, yes got it thanks guys.
Thanks Rich.
Our next question will come from Sean Kelly with Bank of America. Please go ahead.
Good morning, James and Andy.
I just wanted to ask about the possible interaction with I see on obviously at the MGM level. There that was a very large transaction that occurred in the third quarter curious if you've had any direct interaction with the IC team and how they might envision any interaction with MGP.
Are the future of MDP.
We have not had any direct interaction with.
I see but couldn't be happier to see them come into the MGM stock in size billion dollars and have two members joined the board, including Barry Diller.
So I don't think.
We don't have we have not had any interaction with them and I think that their focus not surprisingly is really on the.
Online opportunity.
Bet MGM is already a top three operator in every market, where its life and I think they're doing absolutely fantastically in that area and I think I see is only going to help but we don't have.
Any any or have not had to date any interaction with them unless Andy you have.
No same.
This is James.
Great. Thanks, and then.
The other question I have is just I wanted to ask around Springfield right. So obviously you know it is what we what we've seen in some pretty interesting and compelling changes in the regional market structure pretty good around margins.
Springfield, Massachusetts have some pretty strict operating restrictions I believe but.
Could you just talk a little bit about how you might underwrite an opportunity there in Springfield, just given again, what we're seeing out of some of these regional markets and how you guys are thinking about the role for their that'd be great.
Sure. So Springfield is doing unbelievably well record.
Quarter EBITDAR as I mentioned in the prepared remarks, which is great to see.
I think with with Springfield, and with any property it really comes down to it.
Well a combination of things for a property like Springfield, It will almost certainly.
We would when we ultimately exercised the right of first offer both MGM and us and bring that into the fold it'll be a component of a master lease our master lease as opposed to a property type lease so what that generates the advantage of it is it is cross collateralized and cross defaulted.
All the other properties within the master lease so it's not so much an individually individual underwriting of that property as it is a re underwriting of the whole master lease if anyone property within that.
Pool of properties isn't pulling its fair share of rent the others just have to make up for it or else.
MGM would not be no longer be able to operate all of the properties in the pool. So we don't really view it so much as an individual property underwriting as a overall master lease underwriting.
That said, it's doing absolutely great. We think that the shutdown and then reopening of every property is the most.
Well defined case study of zero based budgeting that certainly I've ever seen.
And you know MGM already has.
Eric.
Savings plan in place to say for $450 million of EBITDAR going on and that this really gave them the ability to highlight some additional.
Potential savings.
In these property property.
Properties that have such as Springfield, So I think our confidence level in the EBITDAR generation being higher than it was on a more or less permanent basis is pretty high but it isn't so much an individual property and ratings I mentioned as a whole master lease underwriting.
Thank you very much.
Thanks, Sean.
Our next question will come from Joe Greff with JP Morgan. Please go ahead.
Morning, Jeans morning, Andy Hi, Joe.
My questions have been answered just one topic I'd like for you to maybe give us an update on is just on corporate structure and magnets where are you guys and importantly, the board in terms of evaluating changing from an LLC to a C Corp and.
I know we've had conversations may basically since the end of last year.
That it was a focus of the board is is it sort of a much secondary or tertiary priority and a lot of stuff going on.
Yes, it's interesting that it's.
We've had a.
A turnover of various board members, including our chairman.
And three other board members. So we've had.
Number of New Board members joined the board this year and like anything that's a.
The conversion is an education process for all the board members and they need to make sure that they understand it and I think that given the overlay of.
COVID-19 inability to get together and person doing things on conference calls and a very significant focus on.
The nuts and bolts of the business really the basics of the business ensuring that the properties were initially shutdown appropriately and it had to happen very quickly and then as they opened up that they did that carefully as well. It just it just hasn't been a priority that's gotten to the level of any kind of real action step now.
Just given all the other stuff that's going on.
Thank you.
Thanks, Joe.
Our next question will come from John Decree with Union Gaming. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
What I wanted to ask about your your propensity or willingness to maybe transact in a Las Vegas strip asset and not not specifically the headlines about the nation in plots, so, but you know market that might take a bit longer to recover with the group mix.
What are your views could could have transaction on the strip get done.
Now in this environment and would it be something that MGP would be willing to look at up and down the strip at this point.
We think that it could get done, particularly from our perspective, a sale leaseback transaction.
The.
You know we are as I said I think of all of the I mean any read period I think we are the most.
Alerted to unaware of sort of the trends on the strip given that we live in Las Vegas.
Have the 50% of our portfolio just the Las Vegas strip and I think.
That the city, particularly those properties are going to be set up for some very very significant growth once we get to the other side of Covance.
I think on the convention front on the group business front, which is obviously basically zero right now.
As you look at the competitive offerings not property to property on the strip what the Las Vegas strip offers versus Florida versus New York versus Chicago versus other convention locations.
I think the attractiveness of Vegas, and our venues here is going to only increase compared to those other cities given space.
Ability to creatively sort of structure that space and.
Weather and so one versus sort of more urban environment.
Form of many of those other cities. So the answer is yes, we think a deal could get done on the strip, we would definitely be interested.
That said it would we'd want to have something that obviously has.
The fit and finish that is comparable to the rest of our high quality portfolio and the other component of this is the tenant has to be one who has some real skin in the game so to speak and a great incentive to keep on paying the rent because there could be some bumpy times here in the next little while that but if we are if we can go to bed at night without having.
Anything keep us up over worrying about is the rent going to get paid it's absolutely a deal that we should do.
That's good context, James I appreciate that and just to follow up slightly different topic outside of Las Vegas. Most of your assets. If you've just mentioned are higher quality and.
Bit larger in scale, they generally sit in.
A little bit more destination markets.
Given that the trends we've seen.
In the new World, where the drive to be.
Mrs are doing quite.
Quite well and really resilient do you have still kind of an outline of criteria that you look at for assets, perhaps outside of Las Vegas strip are you still looking for that kind of best in asset a best in class asset or would you be willing to to look at more drive to markets that maybe don't have the same amenities.
As your rest of your portfolio, but really good cash flow generation, that's been kind of proven out here the last couple of months.
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Well anything where we are very confident that a property can.
Generate enough cash flow to keep the operator successful reinvesting in the building and happy and pay the rent without any concern is something that we would want to take a very hard look at.
We are really players over in the in the long term business right. We have 30 year leases. That's a long time and we want to make sure that anything that we buy can pay the rent and be something that if we ended up taking it back or at the end of the lease that operator existing one or a new one re upped on the lease.
With that it's a property that will continue to have those characteristics. So on the margin I think the buildings with more amenities and the ones where people really want to be and will be the long term winners still.
That said if something can.
Grow our FFO without the need for leverage versus going through our traditional targets.
On pay the rent to consistently for its 30 years and have.
Enduring value to the fit and finish of the building that when we if we ended up taking it back for whatever reason, it's something it's either people are lining up to come and run it as something we want to want to take a hard look at.
And John I would argue that that is not necessarily that it.
Type of assets, we are looking at our only destination right. There are regional type assets that fit that criteria and historically, we've talked about a certain level of EBITDAR.
Roughly around 40 million, there's lot of properties that fit that profile that.
Aren't other destination, writing some of our existing properties, even down to the tunica Northfield they.
Generates significant EBITDA, but on an amenities compared to Las Vegas, now doesn't have on allergens et cetera.
For example.
Because still hold the tone in those markets.
Thanks, that's helpful that $40 million of EBITDA was one of the metrics I was thinking up. So appreciate the context guys. Thanks for taking my questions sure. Thanks John.
Our next question will come from Jared Shojaian with Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
Maybe first just one housekeeping item Andy interest expense was a little higher than we expected was there anything unique or onetime in the quarter and maybe how are you thinking about the quarterly run rate going forward.
Nothing unique other than coming from Q2 to Q3 as we had the bond deal for a full quarter.
But everything else is has been stable is stable from.
From prior quarters, all the existing bonds revolver, obviously was paid down but we still have to pay a contingency on balance drawn agreeing to buy that's on your own.
And then the existing small portfolios and all that should factor into.
Q2, and Q3, the only difference being the full quarter of the bond deal.
Okay. Thank you and then I realize this is a ways away, but in 2022, the rent begins to reset on the percentage rent side and then there is also some qualifications that must be met for the fixed escalators do you have a sense for what run rate rent could look like in 2022, if the environment doesn't improve much from current level.
Yes.
And do you want to take it.
Sure.
So yes the.
Percentage rent component that resets April 2022 at the five year look back on the revenue.
The properties in the portfolio. So 2017 18 19 those are set in stone so those three numbers.
His MGM provided previously property level revenue and EBITDA.
Pretty close there has that purpose, but its very close on or not.
2020, and this year and 21 also factor into the average so you can.
You know.
Les that next to your own models.
Where.
On that percentage rent component would would fall out it's 78 million out of our total 960 pro rata rents and its a smaller component.
And I think could go up it could go down and that's going to depend on what's going to happen over the next.
Yes, 15 months here.
Finalized that calculations, we don't have a 100 year, yet we don't have.
A good calculation for that as far as the fixed component on the 2% escalator.
For the April 2022, number whether or not we get 2% or stays flat that's going to depend on next year's numbers right side needs to exceed six in the quarter guidance rent.
Ticket, the 2% escalator and 2021 is.
It's an unknown for all of US and I know people are kind of project that but a lot of it depend on the convention calendar, what's coming back the meeting standpoints are they gets resolved, but obviously the regions are doing quite well so it's a.
Matter of how the portfolio balances itself out and given what 50 50, I think what a nice position there but.
Still to be seen but obviously the next escalator April 2021, that's.
That does not have a hurdle on that system.
Okay. Thank you if I could just follow up on on that for a second will any of the online sports betting or I gaming revenue. Since you have obviously the skins are tethered to the properties that you own.
Plenty of that online sports betting and gaming revenue be factored into the revenue when the when the rent resets.
Right through the property from the accounting standpoint at MGM resorts, and then into our metrics that would if it runs through.
Different entities.
And it's likely not captured but it would come through as you know to the extent its cash flow to the entity.
And yen to improve their balance sheets.
Taxes from a credit enhancement standpoint, so either way I think we benefit obviously attendant benefits with.
With a stronger more robust and diverse business.
Okay. Thank you very much.
Thanks, John.
Our next question will come from Barry Jonas with true Securities. Please go ahead.
Hey, guys.
Maybe just to start.
Give some.
Color on what the current.
Pipeline looks like and as a follow up wondering if you looked at the Tropicana Evansville.
Transaction I believe EBITDAR would have met your size requirement. Thanks.
The pipeline is strong I think that.
As we are making our way through this.
Precedented business climate.
There has been a lot of attention that has come.
Operator owner operator level on the attractiveness of this model versus a leverage model.
The long term nature of the lease very very predictable quarterly payment.
Fewer covenants in the lease.
And effectively never ever having a refinance risk where the market could be shocked or significantly the debt market uptime of backed up for you.
Has caused a lot of people to take notice at this model is pretty attractive.
So the pipeline looks strong actually the.
As it relates to trop Evansville, it's a rather unique situation where.
Gee LPI.
Had the lease against the property and you know where they.
Did I property property switch Caesars did and put in the two old idle boats in exchange for that property then twin River, but then they released it so in that situation. We did not look not that it wasn't attractive asset that we wouldn't have wanted to take a look at potentially but just given the incumbency nature of.
Net.
It was something that I never came our way.
Understood and then just real quickly I just following up on Rich's question at the start any more color on what non gaming looks like within that pipeline I mean, I guess, we're sort of curious if we should expect a non gaming deal before maybe it.
A new tenant on the gaming side.
There.
The interesting thing is.
Many of those businesses have not fared as well on the non gaming sort of land based leisure business is not fared as well through this is the gaming business has.
And.
The moves by the fed to ensure the liquidity in the market continued unabated or even was enhanced really had a great impact on those entities ability to finance our way through what would have this difficult business time for them.
So, whereas maybe at the onset of this I would have thought.
Thought we had the.
You'd see much more.
Real distress in some of those in some properties you havent seen it to the degree that I thought you had one might give enough liquidity pump. So.
I would say at the end of the day, where look Theres a lot weve been approached on many things some of it is somewhat interesting, but I think.
The more likely use of capital at this time is still within the gaming business because.
There appears to be a continued dislocation between I think what we assess as the potential risk in some of these games.
Gaming properties, where tenants have continued to pay 100% of the rents on time no problem versus these other industries, which.
We just I think theres, they're not out of the woods yet so on the margin I think we would prefer still the gaming side, that's where the best risk reward is for us that said if there is a non gaming opportunity wherever.
Confident the pays the rent over the long term and it's accretive.
It's something that we definitely want to look at but I think right now the better deals remain in the gaming business.
Great. Thanks, so much.
Thanks Barry.
Our next question will come from John Masako, what the Ladenburg Thalmann. Please go ahead.
Good afternoon. Good morning, you guys.
Hi, John.
Good.
I mean building on that last question, a little bit it's kind of parsing through your commentary is it fair to say in understanding that your acquisition Sandbox every transaction is pretty bespoke, but then you would need to see higher cap rate the OCA non gaming transactions in order for them to be attractive versus.
Maybe what you'd be willing to do on the gaming side.
I'll start and then Andy please chime in.
It's not so much it's not as.
[noise] clear cut is that it really is very very dependent given the bespoke nature of the type of property. We look at on the specifics of that property one the fit finish size you know development.
Expansion opportunity et cetera.
That one represents the location of it regulatory overlay on top of it.
So on and so forth it really becomes a very tail.
Tailored underwriting process to a specific property. So I wouldn't say, it's just so cut and dried as that although clearly.
Value that you receive is an important part.
Andy.
Yeah, I would just add to that just overall.
Overall credit quality.
And tenant on the other side or.
Because of their ability to pay western balance sheet look like.
Compared to the gaming business and as we've seen through.
This environment the gaming business have that significant access to capital on at rates that are not too dissimilar from where they were financing a year ago and a great market and so.
With that profile versus any other non gaming entity do they have a similar profile in access to capital.
I think there was a.
It becomes a more comparable investment.
From a cap rate standpoint is that the case.
Understood and then maybe back on gaming you think about the outlook for regional asset.
Thanks for trash transactions there outside of the MGM Springfield Robo, how do you look at rent coverage when considering potential deals, especially given the sustainability of some of the post reopening margins. Some of these regional assets might be.
Somewhat uncertain.
Yes, it's.
It does get back to the prior point of each property really has its own unique characteristics I mean, just using the ones in our own portfolio that we already own if you look at.
MGM Northfield Park in Ohio biggest property, Ohio from an EBITDA perspective record corridor.
You know and yet that has no hotel and would you know if I just looked at the amended the list. Although it has a number probably more than many of its competitors. It wouldn't have as many as some of the other properties you operate yet that one I think where we work and always have been.
I'm extremely confident in its ability to continue to perform at a very high level I won't pick on any other one but if you look at ones in very competitive markets, where they're generating significantly enhance margins because of the lack of marketing spend that they need to do along with their competitors im not as confident that that stays that the that the margin expansions where.
Ill.
And you are at these kind of levels into the into the future for the pharmacy I can see just because.
In a competitive environment, if you're going to want to generate increased traffic and customer spend into your facility. There is a reason why they were doing marketing spend and I think that that will ultimately make its way back into the business. So it's very property and market specific.
And you have to make.
A judgment call that usually is done.
Very much in conjunction with the operator and you'd be surprised I don't think very Millie I cannot think of any scenarios, where we've had many discussions with many offers where the two groups have a really significantly different view of the longer term cash flow generating power of that facility.
I think we pretty much had the same view in almost every case, maybe every case that I can think of so it's not so much that someone comes and wants to to either have some coverage. We think is too low or something like that it's a much more collaborative and it really gets to the specific nature of the property how competitive the market is.
Very helpful color. That's it for me thank you very much.
Thanks, Sean.
Our next question will come from Thomas Allen with Morgan Stanley. Please go ahead.
That you Sears sitting on a good amount of capital Yourselves. Then you obviously have the JV with Blackstone to as you look forward, which entity do you think is more likely to trend that back and kind of what are the key considerations for transacting through one antivirus together. Thank you.
I think it's it.
It's more likely that it would be in the.
Wholly owned master lease as opposed to the JV Master lease.
Only because.
Well it depends on the property, but to the extent that it's a property that.
We intend on not.
Partnering with someone and just on the real estate out right and if the other side of the.
Operator equation is MGM I think its the easiest to do just given three parties that table is little harder than two.
That said to the extent that something fits in to the extent that we that our friends at Blackstone want to.
Do something within that entity in everyone kind of agrees.
That's no problem either.
And I think just from a financing standpoint, obviously, we look at them all right and to the extent, it's the best return.
Inside a JV.
Well look at that arc is better and the wholly owned structure.
Well look at that as well and obviously from a financing standpoint seems talk about earlier my bank bond, it's pretty attractive out there and.
And then in the JV with CMBS.
No.
Lot to see what that market looks like it's such a deal comes along so that's.
Kind of the sort of determine determining factors were structure as well.
No more color and then just on meat is a superior you know last week.
I appreciate the color on the comments you made on like the structure of the deal.
And your views are gaming versus non gaming right now bridges that type of transaction. That's a that's right type of asset no. What do you think are kind of the pros and cons of that care about that for you potentially doing a deal in the future.
Well you know that we have no information beyond sort of the.
Brief amount that they put out so it's a little hard for me to comment, but I think it's a great deal for them.
I think in general on the margin. We would you know something would have something has to be accretive we have to be able to you know we have to be absolutely positive that the rent gets paid over the duration of the lease.
We like longer term as opposed to shorter term I think that was seven years and.
Yeah.
You know I think we also would prefer something on if we can have a larger size. It really moves the needle because getting a deal done whether it be a big deal or a small deal. It. It frequently takes the same amount of time and resources and if you have one that you like you'd rather have a bigger one because that generates increase.
Benefit from that transaction so.
On the margin we prefer those things, although I think that it is.
Very pleased to see that they did it I think it's a great deal for them I think that.
It was creative and thoughtful.
But thats kind of my own assessment on the on a very very surface level of it and you know.
I think it's going to be great for them.
And I think I think Thomas just add to that is I was in industry. The insect there that we know well we are comfortable with.
I've spent a lot of time then.
So from an asset class, it's an interesting one.
Certainly at each property has its own challenges in this environment. So it's a matter of getting through it and seeing the upside.
From there obviously not owning the real estate that upside isn't to be had other than the relationship that you created but we've seen you know mortgage loans done in other industries and in healthcare I know entertainment read out there is pretty significant mortgage loan portfolio.
And there's different structures right, where you could have some kind of option at the end and things like that that give you that real estate benefit as well so.
There's a lot of ways that that structure can be done that can be just as if not more exciting and interesting.
Thank you.
Makes sense.
Our next question will come from Jay corn right with SMBC. Please go ahead.
Hey, Thanks, guys.
Environment for commercial casinos remains quite competitive with limited demand in certain regions like Vegas do you foresee any opportunities for you to find MGM repositioning or renovation efforts similar to what you did for the park MGM.
I.
To the extent that they have something like that I think it would be an opportunity, although I can't think of anything where it's going to be anything in that.
The next very near term I think there's opportunities for expansion, particularly in New York.
Where.
Yes, there's a lot of room and they could do something else there as if.
Tables come into the casinos, which we expect.
About a year I think Ohio, you know all sort of the extent that there were tables allowed at our facility there that might be candidate for something like that but.
Those are just my speculative kind of outlook on what could happen. There is nothing that I see in the near term, although anything that would be sort of a pro.
Project Capex.
Concept that they undertook we would certainly be trying to see if there was an angle for us to play in that field.
Got it that's helpful. And then just one follow up despite the ongoing headwinds of some of the international Casino would you consider acquiring the real estate of any domestic assets.
I think we have our hands full with domestic right now there's a lot of opportunities and it's a market that we are.
And understand the best in the legal frameworks are we understand the best and so on.
To the extent there are international opportunities, where we are extremely confident that the legal framework and the tenant and you know that are that we are going to be protected.
In the event of downturns and so on you know, it's always something that we would consider.
To the extent MGM was the owner operator today makes it easier for us just because we.
We have obviously the existing relationship between the two companies.
All of that said.
I think you know our first.
Choice or the price would most like to put our capital at least right now is in the United States.
Okay. Thanks for the color Thats it for me.
Sure.
Our next question will come from Smedes Rose with Citi. Please go ahead.
Hi, Thanks.
I wanted to ask you just to I think pretty quick questions, but the.
The regional operators, you talked about having a pretty full pipeline and you talked a little bit about how you're thinking about underwriting I'm. Just wondering from the operator's perspective, do you think they come out of this being more or less interested in working with reap since.
Alternative source of capital versus sort of more traditional providers.
Do you think the relationship with say local banks, it's changed particularly coming out of EPS or just interested in your perspective on how they may come to the table at this point.
Andy you want to take it.
Sure.
I think what we alluded to this a bit too is that the conversations we're having as far as sale leasebacks or utilizing the restructure.
And certainly increased in number and more parties are interested in such structure given that the early days of a set down there were some pretty significant.
Financing.
We're done rather expenses and company starting to think about debt maturities and.
You know what would happen as long as covenants and what they needed to wait and so on.
Those are the things that are inherent obviously in the debt markets, but when it comes to the sale leaseback set to come up with the Andrew the rent payments right. So.
Lot of the companies have turned to that and have you know called upon to reach to think about structure, whereas.
In this company and they were not thinking about that at all before.
I think it's really raise our profile as a trend.
During the lab line that you're seeing.
New way and some of those companies that have not looked at it previously.
And Thats regional or Vegas, and I think all of it.
Okay.
Thanks, and then I just wanted to ask you to in your Q you added a new risk disclosure around the MGP.
Be read venture that certain covenants might be broken and affect the distributions could you just provide a little more color on that I know you mentioned that all that's been received through October.
I was just.
It stood outside I wanted to ask you about it.
Sure well just a.
Updating all the risk factors for the current environment, obviously, all the structures that we have in place obviously, there's the CMBS level.
[noise] requirements as well as JV loan requirements that we have instituted.
We'll take quite some time to run through each of them but.
We just want to highlight that given the current environment.
All right. Thank you.
Expenses.
Our next question will come from Spencer Alway with Green Street. Please go ahead.
Thank you Oh, we talk a lot about non gaming is that sort of complimentary or additional growth avenues to gaming and given the fact that there is a finite opportunity set within gaming I'm just curious if down the road do you think.
Do you guys think you are going to feel obligated to invest outside of gaming.
To keep pace appears where who are investing in the gaming revenue.
Yeah I think.
There are.
50 to 60 properties depending on the.
The point in time, where we look at that are on our list of gaming properties, we would at least on the surface based on our you know.
Surface analysis would like to bring into the fold.
Do you think we do you know our smallest transaction that we've ever done is $637.5 million, which is the annual acquisition budget for most of the retail triple nets entirely over the year across a number of little deals. So we don't need to do a lot of deals to be able to.
<unk> moved the needle at the same level as our peers are even greater.
And there are a lot of opportunities out there and gaming so I'm not at all concerned over running out of opportunities in the next year medium term over the very long term I think.
I think one I think ultimately the gaming industry will entirely move towards.
A.
Owner operator.
Lease structure I think that other industries that have been faced very similar.
[noise] pressures have ultimately found that's the most efficient structure for them and I think that this one will too because there's just too much money left on the table by not utilizing both pools of capital, but over the very long term to the extent that.
The gaming there were no new gaming properties built and all of the move to that level, but I think naturally that one anyone in our position who wants to exist for the long haul we continue to grow their AFFO and dividend would need to look into adjacent fields, but there's a lot of runway in the gaming industry and it's.
Also.
Not a static business there are expansion opportunities new states opening up new jurisdictions opening up new licenses being given.
New buildings going up.
Even here in Las Vegas in downtown Las Vegas, you have 1 billion dollar development in the form of the circa casinos that gold was that went up you have the Virgin casino going up where the hard rock was so you know I would say there is a long runway and gaming.
Also there is a big.
No one as to where where what how exactly the industry will expand but I know that it will and so.
So we.
We always want to look at non gaming properties that will accrete, a AFFO on a non leveraging basis allow us to raise our dividend and make sure that they pay the rent for the entire duration of the lease term and when you take over the building you are proud to own it and people are lining up to release, it but I think.
There may be a tendency for people to underestimate how much runway. We also have just in the existing giving business. There's a lot of properties out there.
Yeah.
Okay.
How do you balance by keeping you know that the focus on your core competency that gaming, but also keeping an eye on that longer term reality that you just alluded to the fact that you might eventually have to underwrite credit outside of gaming and you obviously don't want to fall too far behind in terms of your peers going out and taking the lead on that how do you.
How do you balance that in the meantime.
It's it's a question of where you get the most bang for your Buck where do you get the most accretion for the least cash out the door on but still ensuring that your quality threshold gets balanced.
I think if anything that this case study of COVID-19 has provided us is the absolute strength and resiliency of the gaming business opposed to some of these others.
That's not lost I think on our own investors and on the management team here.
And in terms of trying to quota keep up with someone else extended deal is smart to do we want to do it but that is the absolute last thing that we would want to try to instill in the corporate culture here, because I think what that would generate is a mentality of kind of just a me too mentality. When you go out and try to do something else for the sake of doing it as opposed to a.
So prudent underwriting of any single asset.
You know to hit the metrics that I just mentioned here so.
The balancing really comes to you have.
We have right now great access to capital, it's reasonably priced many things look attractive.
Given that you have finite time and resources and ultimately capital at these levels, where do you get the most.
AFFO accretion.
Provided that you're you don't have that you are maintaining your quality and durability threshold.
Okay. Thank you and then maybe just one last one if I may and just.
Back in the headlines around and why should we not evolve as a negative return to Las Vegas prominent player it potentially looking at.
Okay.
Well, one $6 billion in the bank for someone if they can actually achieve that price would be.
Is pretty attractive and really it would be an incredible check.
Check Mark for the place too if you look at their business model. There really have been de company that is willing to spend very significant amounts of money for example, in Macao and Singapore. Initially here in Vegas are their biggest property, although not compared to those two other opportunities and they are they are very.
Very savvy group, who takes the risks on things like that and then reaps, the rewards and their Macao and Singapore investments are prime examples of that the.
Is there a facility here, that's already up and running and generating very high cash flows.
Doesn't have those types of characteristics I'm, just I'm speculating into looking at that because it's not like I have any kind of knowledge on it but beyond sort of knowing the industry, but it's just that's the nature of the company.
Thank you.
Thanks Spencer.
And our next question will come from Robin Farley with you'd be EPS. Please go ahead.
Great. Thanks, just kind of circling back to the question the Lvs Vegas assets that they have confirmed.
For sale.
I can tell.
Our tries for us kind of what the level of interest is out there with operators that might be looking at those assets that would want to re partner and obviously some other read to set out right that they're not really interested in getting more vegas exposure. So I would think that that.
You would be involved in any conversation with an operator that was thinking about buying those assets because that would enable.
A more competitive than somebody not partnering with the right. So can you give us a sense of.
Kind of what the level of interest is out there from operators that are trying to speak to you about this and just trying to get a sense of that thanks.
We can't comment on any kind of speculative deal or news. So I'll just leave it at that.
I mean, it's not it's not.
I mean is it reasonable to think that you would be having very active conversations at this point.
I have to throw back to my prior you can't comment on the routes. Okay. All right <unk>, maybe one other.
Kind of related question.
Which is just thinking about.
Obviously, any any kind of transaction you'd have to be thinking or a buyer would have to be thinking about when could the property get back to kind of what 2019 levels look like.
I'm just curious in your view not that you're the buyer here, but just your view you own Vegas assets and have a great viewing that market what kind of timeframe.
Do you think.
Vegas assets would take to get back to EBITDA levels. They saw in 2019.
Andy you want to take it.
Sure.
Robert I think its.
Pretty dependent on really that groups beatings business coming back in town.
As we've seen some of the Q1 conventions gone virtual or delayed later in the year I think it's it's a question of when.
That people have the confidence to.
Start coming to those larger meetings and let the industry is being very creative.
Governor lifted the meeting then 250, but if you can separate enlarger convention into groups of 250. Then then you can certainly have those on site here.
I think that that will start to bring back some of the meetings and.
I don't think we quite a bit that stride in so hopefully crossing our fingers later in 2021.
At least some of the expense reductions that we've seen throughout the industry regions Corporation the corporates.
I think that over the near to the benefit of Vegas as well they get this nation once all of the businesses are back online so.
If it's the latter half 21.
And then into 22 I think that certainly.
Potentially in the cards and.
You know if some of those expense reductions.
So constant corporations, and then flow through to the biggest destination I think we could potentially see a 2019 return.
Sooner than that given given the margin improvements we've seen throughout the state.
Sooner than I am sorry, you because you had mentioned earlier in your comment about group business coming back later have 21 into 22 is is that what when you say sooner than you mean.
Expectation is that EBITDA.
Get back in 22 to 19 levels.
Potentially right and it all depends on the timing walls, what kind of margin improvements there are and whats sustainable.
And as is.
Operators have shown through time, they've been very creative on.
Finding new uses for space.
As well as introducing new processes, and New York, new concepts to be.
Be able to drive incremental profitability and people into the building.
Well certainly with the sports opportunity online.
Something that did not exist in any 2019 numbers really.
So that's another.
Another level that could add to that and get us back to 19.
Okay, Great. That's helpful. Maybe if I could ask.
One more.
The reason I was asking that question about you know just given your earlier comments in the call. It James It might have been your comment when you were talking about you are willing to have a three way conversation, but the comp that.
The transaction with two parties is easier than than the three parties just thinking about the size of a potential.
Transaction just based on the numbers that have been reported widely for for potential Lvs Vegas assets. It seems like that would be.
Be something that would likely be down with a joint venture partner just given the size of that.
So I'm trying to square that with your comment that sounded like you were kind of not no.
Necessarily doing anything not looking to do anything.
With that in a joint venture structure.
We look at every type of financing tool.
Tool that one can have when looking at a deal for smaller deals almost certainly you know unless there's some other advantage that come to the joint venture partner.
Easier for us just to.
Financing.
Bank bond or equity markets for bigger ones, such as the Grand I think it made a lot of sense to joint venture on that and when I was commenting earlier I was commenting on where I thought a deal would a deal happened within the existing JV versus the master lease and they said well it's easier in the mass release, because you have one party.
And that was really yet so it wasn't meant to be any kind of comment on any specific deal or anything like that the bigger the size the more likely a JV partner just given.
The need for a larger amount of capital but.
If it's inefficient capital then you would not.
Not use it.
Okay all.
All right great. Thank you very much thanks Robin.
This concludes our question and answer session I would like to turn the conference back over to James Stewart for any closing remarks. Please go ahead Sir.
Thanks, Chuck I would like to thank everyone for joining the call and look forward to speaking to you again through this next quarter in our next call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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