Q4 2020 VICI Properties Inc Earnings Call
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Good day, ladies and gentlemen, and thank you for standing by.
Welcome to the Vg properties fourth quarter and full year 2020 earnings conference call.
At this time all participants are in a listen only mode.
Note that this conference call is being recorded today February 19 2020.
I will now turn the call over to Samantha Gallagher General Counsel from BT properties. Please go ahead.
Thank you operator, and good morning, everyone should.
Thus for the company's fourth quarter 2020 earnings release and supplemental information.
The release and supplemental information can be found on the investors section of the BG properties website at Www Dot Vg properties Dot com.
Some of our comments today will be forward looking statements within the meaning on the federal.
Should have added all forward looking statements, which are usually identified by the use of words, such as will believe expect should guidance 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.
Sure you should exercise caution in interpreting and relying on them I.
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 certain non-GAAP measures, which we believe can be useful on evaluating the company's operating performance.
These.
Securities there should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2020 earnings release, and our supplemental information available on the BG properties web site.
Hosting the call today.
We have added Bertone, Chief Executive Officer, John Payne, President and Chief Operating Officer, David <unk>, Chief Financial Officer, Gabe Wasserman, Chief Accounting Officer, and Danny Malloy, 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.
Today, our kit.
Thank you Samantha and good morning, everyone and thanks for joining us.
Is there any reason you hang up on line goes dead in the next 30 seconds, Here's the one message.
Want you to takeaway from this call.
In 2020 according.
Call of that fact.
That consensus two thirds.
<unk> 21.
Triple net Reits are projected to post year over year decline in <unk> per share.
In 2020, as David key ski will elaborate on in a moment.
The fact of <unk> per share grew 10, 8% per year as a whole and grew 24, 3% in the fourth quarter.
In a year 2020, when again two out of three peers are likely to see declines in the episode.
Thank bg's growth.
Martin on that is very interesting to see commentary, so far on which can be pretty much reduced too.
<unk> achieved consensus NAV per share.
This vinci achieve consensus isn't core to keep question do you think it's also worth asking.
It says call per amphibole per share growing.
As Wayne steady or declining.
It calls for growth within a lot of growth or a little of growth.
Once all Triple net American Triple net Reits report their 2020 results will low informality were <unk> <unk> per share growth stands on a relative basis.
We already know where its.
And on an absolute basis and its growth, we're very proud of especially coming out of the year. So Trump and so thoroughly dominated by the COVID-19 crisis.
As I said on our Q3 2020 earnings call. Once the COVID-19 crisis has taught us across the U S REIT managements.
<unk> spectrum.
Is it the strength of our REIT business model is the aggregate strength of the tenant's business model.
And for gaming Reits generally and <unk>, specifically the COVID-19 crisis has demonstrated that arent getting tenants have built business models.
A great strength and durability and the strength and durability of their business models is derived from the strength and durability of their relationship with their customers.
And users of our real estate.
Strength of the gaming operator gaming customer relationship as a key lesson.
I take from 2020, this strength of relationships and the mission criticality of our real estate to that relationship with the key reason.
<unk> collected 100% of our wins in 2020 on time and 100% in cash.
Can you read and we were able to announce what we believe is one of the larger 2020 dividend increases among large GAAP American REIT.
The reason we were able to go back on offense as early as June with our teachers farm financing and later in the summer our first non gaming financing with Chelsea piers finally, it's the driving force.
Behind our <unk> growth in 2020, and our <unk> growth trajectory coming into 2021.
But there is a second lesson I'd take from 2020, and it's a lesson the clarity and power of which truly burst through in the second half of 2020 and that is the emerging power of sports betting.
We then use American gaming ecosystem.
Our gaming real estate owners, we aren't as focused on the Tam of sports betting revenue. So of course, we over tenants realize as much revenue and profit as they can from this new channel of business, whether online or in property.
As real estate owners of assets.
Betting on and our tenants will occupy for decades to come we believe sports betting will have the greatest long term impact and create creates the greatest long term value by greatly expanding the audience for American gaming.
American gaming as an American consumer discretionary.
We will factor.
Every American consumer discretionary sector compete for the attention time and spending of the American consumer.
If a given sector can achieve competitive advantage and gaining and sustaining the attention of a potential new customer or consumer that sector.
Will likely generate outsized growth and value in the years to come.
For American gaming as an American consumer discretionary sector, we strongly believe sports betting represents a new competitive advantage. What we believed sports betting does most powerfully is insert.
American gaming more broadly and deeply into the American conversation.
Think about it.
Are the two great mainstays of getting an American conversation growth.
Number one whether nub.
To sports.
We'll see if the day ever comes.
Comes when casinos offer betting on whether from the day is now here when sports betting is getting powerfully woven into the all consuming American conversation about sports.
Just to cite two examples involving two of our tenants every time the senior sports book, Yes sighted exclusively on ESP.
Again, and every time Pan is able to deliver on sports betting message there with partner Barstool. Each of these great American gaming companies is reaching an audience of potential new customers, especially potential new and younger customers.
American gaming sports betting represents a new and technology.
Dfc paradigm for reaching engaging and activating a new bigger and younger audience.
This technology enabled paradigm is a new tailwind behind American gaming and if you look at REIT asset class performance over the last few years, the winning asset classes in terms of superior total return.
Enabled intends to be asset classes with technology enabled tailwind cell towers data centers and E. Commerce logistics are just free such examples converse really the asset classes that have struggled tend to be those suffering from technology related headwinds.
We believe.
Don I conviction that the gaming real estate asset class should in the next few years benefit from the technology enabled tailwind.
So all in all 2020 was a year in which American gaming in American gaming real estate proved its defensive strength by enduring through one of the great crisis of our lifetime in 2020.
Also shows thanks to the growing strength of sports betting that American gaming arguably represents one of the most compelling offensive opportunities in the consumer discretionary sector in the coming years.
The next sound you hear will be the sound of the American consumer Roaring back and.
And as many of you have been writing about after many months of consuming mainly things American consumers will return to what has been their growing preference for the last two decades, the preference for consuming experiences over things.
As some of you may have heard on that Sunstone Hotel Investors' earnings call last week are good.
Good friend in Sunstone, CEO, John Arabia transient bookings from the second half of a year from Maui properties that are currently double digits, 13% above 2019 levels.
The outlook continues to improve on a weekly basis.
We believe this is one of the many anecdotes around pent up leisure demand.
It will benefit the consumer discretionary sector at large and the economy continues to reopen.
I'll now turn the call over to our President and COO, John Payne will talk about what we have done and Moreover, what we are doing to capitalize on the roaring come back of the American consumer.
Thanks, Ed and good morning to everyone.
'twenty was another busy year for BG is our hard work continues to pay off in 2020, our team completed nearly $4 $6 billion of transaction activity growing our annualized revenue by approximately $360 million or 37%.
Throughout.
Here, we work closely with our tenants as the pandemic unfolded to provide short term solutions on an as needed basis.
Ed stated our cash rent collection track record of 100% to date is a testament to the quality and strength of our business model and our collaborative approach with our tenants.
As you are undoubtedly aware the recovery of the gaming industry has demonstrated that despite the many challenges over the past year. The consumer has not found a replacement for the bricks and mortar casino experience our portfolio of industry, leading assets in regional markets continues to demonstrate margin expansion and in some cases.
Profitability above 2019 levels, while our Las Vegas properties led by Tom Reeg, Bret Yunker, Anthony Carano, and the entire team at Caesars Entertainment continued to outperform peers on the strip.
As we start 2021, we have the experience and credibility to explore.
<unk> opportunities, both within and beyond gaming and we're very encouraged by the volume and quality of potential transactions. We see ahead.
It is important to remember that per beachy underwriting and investing in different sectors is not an either or we continue to develop relations.
Floor gaming operators, we look for ways to support existing tenants growth.
And we continue to spend time studying and meeting with operators in sectors beyond gaming in order to be prepared to transact when the right opportunities come together on.
Our gaming investments will likely continue to dwarf.
<unk> wood on gaming investments due to the sheer financial magnitude generated by gaming assets. However, we believe that growing our portfolio accretively through sector and geographic diversification, while maintaining prudent risk levels will yield the superior returns our shareholders deserve.
Therefore, we believe <unk> is in great position to continue our industry, leading growth and mobile by by the same principles that have driven our success to date we.
We work hard with integrity to be the real estate partner of choice, we do fair deals and we collaborate with our partners to create value for all parties.
Now I'll turn the call over to David who will discuss our financial results and our guidance.
Thanks, John Good morning, everybody, thanks for joining us today.
I want to start with our balance sheet.
Since emergence we've maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection.
Section, our equity and credit partners deserve.
24th <unk> was able to navigate some very heavy weather as we continued to transform our balance sheet, all while maintaining ample liquidity and never drawing on our revolver.
Just to summarize in June 2020, we raised $662 million of equity.
Through a $29 9 million share forward sale agreement.
Still have $26 9 million shares outstanding representing approximately $547 9 million and our remaining net proceeds as of year end.
February 2020, we raised $200 million of net proceeds through our ATM program and as we've discussed with many of you were on a.
Achieving an investment grade rating and during 2020, we continue down this path.
Last February.
We closed on $2 $5 billion of an unsecured notes offering comprised of a mix of five seven and 10 year notes at a blended interest rate of three 8% continuing to stagger our maturity profile.
$2 billion of these proceeds were used to fund the Eldorado transaction and the remaining $500 million of.
These proceeds were used to retire the 8% secured second lien notes during 2020, we significantly improved our composition and weighted cost of debt.
At emergence, we had 100% secured debt with a.
Our weighted average interest rate of 549% and a weighted average maturity of two nine years as we sit here today, 69% of our debt is unsecured with a weighted average interest rate of 4.18 per cent and a weighted average maturity of six.
One years with no maturities until 2024.
As of December.
First our net debt to LTM EBITDA was approximately five eight times. This ratio is not reflective of our true run rate leverage as it does not include a full 12 months of income from the Eldorado transaction, meaning if you take into consideration a full 12 months of rent from that transaction, our leverage would be well within our stated range of maintaining.
<unk> net leverage ratio between five and five five times.
And as of year end, we currently have approximately $1 9 billion in available liquidity, providing ample flexibility for future accretive growth.
Just to reiterate 2020 highlighted our guiding principles on how we approach our balance sheet, which are to maintain a disciplined composition.
Position and lettering of debt whereby in any one year, we strive to have less than 20 per cent of our total debt coming due safeguarding the company's balance sheet against future market volatility.
We're going to Opportunistically access the capital markets to lock in funding certainty for all transactions and develop continued access and partnership from the equity.
And credit markets to finance accretive acquisitions.
As I mentioned, our goal is to maintain a long term target leverage ratio of between five and five five times on a net debt to EBITDA basis.
Ultimately migrate to the balance to migrate the balance sheet to that of <unk>.
Unsecured issuer and ultimately achieve an investment grade rating.
Turning to the income statement total GAAP revenues in Q4 increased 57% over Q4 $19 million to $373 million for the full year 2020 total GAAP revenues were $1 2 billion, an increase of 37% over 2019.
These increases as John mentioned were the result of adding approximately $360 million on.
Revenues during the year from the closing of the Eldorado transaction. The Caesars Forum Convention center on mortgage the Chelsea piers mortgage and the Jack Cleveland Thistledown acquisition and related loans.
<unk> for the fourth quarter was $251 7 million or <unk> 46 cents per diluted share.
On a full year 'twenty.
Annual <unk>, $835 8 million or $1 64 per diluted share <unk> increased 28, 7% year over year, while <unk> per diluted share increased approximately 10, 8% over the prior year, which is due to the increased share count and resulting temporary dilution in the first.
2020, 'twenty from the June 2019 equity offering.
Our results once again highlight our highly efficient triple net model given the significant increase in EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong and then tie 90 per cent range when eliminating noncash items.
Have a DNA was $8 1 million for the quarter, which we believe represents a good quarterly run rate going forward and as a percentage of total revenues was only two 2% per the quarter in line with our full year expectations and one of the lowest ratios in the triple net sector.
As always for additional transparency, we point you to our quarterly financial supplement.
A detailed breakdown of our revenue and lease streams, which is located in the investors section of our website under the menu heading financials, we welcome any feedback on the materials.
Turning to guidance, we are initiating <unk> guidance for 'twenty 'twenty, one in both absolute dollars as well as a per share basis.
As many of you on.
Beginning on January 2020, we were required to implement the Cecil accounting standard, which due to its inherent unpredictability leaves us unable to forecast net income and <unk> with accuracy.
Accordingly going forward, our guidance will be focused on <unk> as we believe <unk> represents the best way of measuring.
Aware of productivity from our equity investments in evaluating our financial performance and ability to pay dividends.
<unk> guidance for the year ending December 31, 2021 is estimated to be between.
$1.010 billion, and $1 billion $35 million or between $1 82, and $1 87.
<unk> per diluted share, which at the midpoint represents a 12, 5% year over year growth in our <unk> per diluted share.
These per share estimates reflect the dilutive impact of the pending $26 9 million board sales shares assuming settlement of the forward agreement on June 17th two.
21, the maturity date of the agreement.
In addition, these estimates do not include the impact from any pending or possible future acquisitions dispositions dispositions capital market activities or any impact from the incremental equity drawdown.
From these forward chairs.
During the fourth quarter, we paid a dividend.
Dividend of <unk> 33 per share, which represents an annualized dividend of $1 32 per share our <unk> payout ratio for the fourth quarter was approximately 72% in line with our long range target of 75 per cent.
With that operator, please open the line for questions.
That's primarily from Janssen.
But that's a good question.
And then on day, one on your telephone keypad.
Again star one.
Ken.
Your first question today comes from the line of Tyler.
On the call.
Please proceed with your question.
Hey, good morning, guys.
Yeah.
Yeah. Thanks figure are enthusiastic comments to start the call its a.
Valuable reminder, that we on our side, sometimes exists within our sort of narrow analysts speak double so I. Appreciate the reminder, there.
Alright.
Blake.
Yeah.
In all seriousness mm.
Maybe I'm going to ask one sort of narrow question and then maybe a bigger picture question, but.
Just in terms of really quickly on the Danville Rover maybe.
Maybe just help us understand.
To the extent you can explain it at this point some of the terms around that and then.
Im misinterpreting something here, but.
I look at the road for us sort of weak intense for giving up the security of the master lease at Southern Indiana, How do we sort of per the value proposition on either side of that if thats inappropriate way to think about it.
John I'll take that.
Rich on a I'm not sure that that's the.
The exact way I'd think about it I think that our ROE for just as an opportunity obviously out there.
The the operators need to decide at some point if they ever want to monetize their real estate, we sure would like to.
Have on real estate in a new market.
Which we think is going to do quite well, we're very excited about the new tenant that we're going to have in southern Indiana.
The Eastern banner Cherokee Indians for almost 20 years now from my old job when I worked at Caesars and we're excited to help them.
Expanding our portfolio for the first time.
Slide a tribal land so.
Again, we as you've seen with other deals rich when we negotiate and we do try to to add to our embedded growth pipeline and thats.
How this came about in Danville, and we'll just have to see if the operator ultimately wants to sell the real estate.
Okay.
Since the color John and then.
A little bit from a bigger picture question, but also related to southern Indiana I know that the original press release stated two two times.
Coverage in the first year post closing so that puts us somewhere in the sort of the mid to late.
2022 by the end of that.
I appreciate a measurement period, but jacobsen.
Tickets into sort of the underwriting and how you gain comfort with what stabilized cash flows on this or really any other investments are going to be over the next year or two.
And how does the tenant and the land.
On Lord.
Gain comfort in those.
And that sort of ran.
Maybe as compared to 2019 or how do we should think about it. Thanks.
Yeah, Rich I'll I'll go out this first on my colleagues can can can jump in first it starts with the relationship with understanding who your partner is.
And as I, just mentioned I've been fortunate to have a relationship with.
With the tribe and watch them grow their incredible business in North Carolina.
To record levels.
As well as the regional business Rich as you know has rebounded tremendously.
When there werent.
Many restrictions on the business so.
Pandemic started in March and April the casino shut down.
<unk> as they reopened in places like southern Indiana, we've seen them open with the consumer returning to the business as well as on.
Margin.
Great credit to our operators to do that and so as we went.
It is.
Deal, we put all of those together, we talked to the tenant we understand how they're going to operate the business and we developed a plan from there but critical part is understanding how this business is going to rebound.
As the consumer comes back to it again.
I'll repeat we're very excited to have them as our.
Went into sixth tenant and running the southern Indiana property.
Okay, great. Thanks.
Please proceed with your question.
Thanks, and good morning.
Hi.
And Johnny as Bill talked about the importance of partnering with your tenants to drive growth as you're thinking about non gaming assets.
Is that equally important as you try to go down that path or do you think you may just have to bid on assets and other product types, you can try to get it going that way.
Yes.
One easy way.
The way we are approaching non gaming is that.
We really want a pioneer into categories, where where rates may not necessarily have been heavily trafficking in bidding and buying.
We really have no competitive.
Yeah to vantage in heavily marketed heavily bid categories and do what we're working hard to do as we did indicate that Chelsea piers is identify either categories or subcategories, where we believe there are operators, who have uniquely powerful enduring relationships with their customers.
<unk> has entered producing economics.
That can support more than simple originally support an opco propco structure.
It obviously takes a bit more time, but we're very excited about what we are learning and who we are meeting and who are getting to know any opportunities in day.
I understand and I think you know Tony.
As we've talked about with you around the whole technology tailwind theme. There also on cultural tailwind out there and we think there are certain experiential sector, especially at the higher end, where you're going to have tremendous cultural and demographic tailwind behind them for the next 10 to 20 years.
Day rate.
And that's where we see our opportunity that's really not in the commodity category Triple net.
Okay, Great and then.
For David on the on the balance sheet I mean, given what unfolded in 2020 on the performance of the portfolio any sense as to just.
How much.
More attainable RG might be in the near term.
Yes, Tony it's something that we have.
And we've got the depth of the rating agencies, we met with the agency several times during 2020, both on a regular checkup, but also as the pandemic was unfolding.
And for US it's really around the.
The term loan is secured by all but one of our assets and so we do not have a typical unencumbered.
Asset pool like most traditional rates do so we need to.
Refinance out of that secured term loan into the unsecured debt markets.
Moving into 2021 and into 2022.
Sequence.
Debt refinancing of the term loan essentially into 2023 part and parcel with.
What may come in the acquisition and the.
Pipeline, what sort of funding we may need for additional acquisitions. So it's there's a clear path day OPI is.
Because paypal and has proven that.
<unk>.
Term loan concentration and of it itself is not a gating factor, but just simply from <unk> chip stacking that turmoil on again securing over assets from <unk>.
By all of our assets.
<unk> gating item.
Okay, and then just one last follow up on the other side of things just again, given the performance of the space through the pandemic.
Tenant do you think that changes the discussion around yields on investments as we look ahead.
It should.
This is this category behaves the way.
Certainly so many other categories have Tony debt they have undergone an institutionalization.
Dominic Yes, yes, yes.
Prices should go higher or our mission.
And we went more card at every single day on Phe is to make sure our cost of capital improves at a rate equal to or Inc. SaaS as the velocity of cap rate compression.
But it just stands to reason that these at these assets.
Perhaps should attract higher price at this time goes on as everyone recognizes that they came through really.
A totally unforeseen magnitude of price right and and they came through better than just about any of the leisure consumer discretionary sector.
It's just there as a real estate asset class so yeah.
Yeah, you have to think especially as as people truly start crawling out from under their optical bad debt, we should see what well frankly.
Frankly, I joined <unk> for four years ago.
Part of the next great cap rate compression story on American commercial all day.
Great. Thank you.
Your next question comes from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.
Alright Stephens Inc.
I guess, a couple of follow ups on <unk>.
Last two questions first when you think about the potential acquisition opportunities within gaming.
<unk> are there any markets that you feel are more or less attractive or easier to underwrite given your current exposure and can you weigh in on how that resilience of cash flow from operators may be impacting seller expectations around price relative to perhaps where the broader cost of capital has moved.
Yeah.
John I'll take the first part and David can take yes.
Absolutely good morning, Stephen.
Look there aren't any markets that we look at debt. We wouldn't study right now we like the fact that we have a balanced portfolio.
We've said that since we started the company and I think we'll continue to have a balance portfolio.
Fall or we like to own.
Assets.
And these regional markets and we've talked about how resilient they've been and we've talked about how do we change the operating model.
But we're also big believers in Las Vegas ever since we started this company.
Not only assets on on the strip, but also on downtown and local so.
And we'll continue to to turn over every rock and look at opportunities in all of the gaming market that doesn't mean that we'll invest in every market, but we share it will take the time.
To meet with operators and talked about how they're thinking about how we can help them grow and I'll turn it over to David to take the second part.
Yeah, Steve on any of it.
Correct me, if I'm wrong on a mix of pricing and kind of how we think about capitalization.
On pricing pricing is maintained right.
On markets that can come back.
The level set obviously not a lot of transactions, but.
And the regional markets as debt or near where it was pre COVID-19.
TBD on them.
Hey, guys.
Given that a little bit slower ramp there, but as we think about <unk>.
Our capital and our leverage we're very focused on maintaining our leverage between that five and five five times that we've talked about.
Back to Tony's question, something that's important from the agencies and then on a deal has to be accretive from where we've talked with you on a lot about what.
Lots of day day, one is what we live with for 35 years. So we have to ensure that we have the capital and underwriting is done on an accretive basis to continue to grow area for Phil.
That's helpful and then a follow up on the comments around non gaming.
On heavily debt market.
What we buy loans should we interpret that any cap rates that you'd be pursuing those markets could be equal or higher to those that you were pursuing in gaming.
Or is there even a tolerance debt if you look at some of them because they are in this asset class that you could actually.
You know moved down the cap rate spectrum.
It could be it could be all of the above Steven.
And the fact that they are not heavily bid could mean, there they're better better bargains to be had but it could also be exactly year to your last point debt that we can afford to pay and justify paying maybe it's a somewhat tighter cap rate because.
On the teacher of the assets or risk profile of the asset barriers to entry and what he's been very prudent and durability.
Debt over the long term so moving.
I hope this doesn't sound like it's sort of day answer, but it will be so situation specific.
Sure.
Fair enough.
Helpful I'll jump back on here. Thank you. Thank.
Thanks, David.
Our next question comes from the line of Barry Jonas.
On Securities. Please proceed with your question.
Great Hey, guys.
I wanted to start on your embedded growth profile and growth.
Embedded growth.
Shape on any thoughts on timing there Caesars has been talking about selling a strip asset and I believe the centaur call option could tickets starting next year. Thanks.
John.
Yeah. So your name.
You talked about something we're very proud.
We worked on three years in building this embedded pipeline with the deals that we've announced and though.
We will continue to talk to our partner and Caesars.
About what Theyre seeing ahead and what they are feeling about the Las Vegas market and you guys still feel as they did when the Eldorado team took over theaters that they may have.
There are two incremental assets that they don't feel like they need in their portfolio and day to end up going through a sales process as I had mentioned a few minutes ago, we're big believers in Las Vegas.
We think thats the market that is going to rebound in all segments and so its day.
We want to move forward.
With the sale, we are obviously very interested in owning more real estate.
Those are assets that we have roper's you also mentioned the put call of the two.
Great, Indiana on assets in Indianapolis that do come to you you are right on point next.
Next year and again, we'll continue to have talks.
With our.
Our partner about that so two <unk>.
Two tremendous opportunities for us debt, we really worked on to develop over the years.
With our embedded creating our embedded pipeline.
The timing, we'll just have to continue to have discussions with our partners on that.
Hey, Gary.
Gary if I could.
Just to add on something that kind of goes back to my opening remarks around <unk> growth in 2020.
Someone could rightfully say, yeah, okay, well you know the market's already price net growth in <unk>.
And yet when I don't think is being fully appreciated in value didn't inc. Is not only the growth we produced in 2020 and the growth.
On the trajectory that we bring in to 2021 that the growth that is represented by that embedded growth pipeline and just to get a little old school on you here, which I'm allowed to do.
Hello Guy.
I really encourage everybody to look at BT on that old fashioned old school price earnings growth.
You know basis using our.
Multiple in place of a.
A PE multiple.
And what you will find especially looking over a multiyear period that we will likely have on your calculations were low lowest peg ratios you will find across the American REIT spectrum and certainly.
So way below the pace of the S&P 500 at this current point in time and again I encourage a multiyear view because a lot of Reits are going to grow in 2021, because they shrank in 2020, and what you're getting with Gucci is a multi year growth profile that goes into the future and just the way you describe Barry.
Thanks to the fact that in 2022, even if we couldn't get anything else on who got centaur and the opportunity to call.
Yeah.
And then just one follow up recognizing it's been done so far in concert with your tenants, but do you foresee any more dispositions or pruning in the portfolio.
So on.
Okay.
Hmm.
Barry I don't I will have to continue to study that but not not specifically at this time, but we'll have to continue to understand would there would there be an opportunity.
Great. Thanks, so much guidance.
Yeah.
Your next question comes from the line well.
With Citi. Please proceed with your question.
Hi, Thank you.
I wanted to ask you added.
Second.
Native Americans tenants and I'm just wondering do you think this will be a trend to see more native Americans moving away from price.
Okay.
Commercial gaming and as this.
I mean do you think you have maybe an advantage with two tenants in that wheel house already or.
So I'll touch on that a little bit.
Yeah, that's a great yeah.
It's a great. It's a great question and it's exciting to see.
The <unk>.
Moving.
Commercial gaming because they've done so well in their original casinos and so youre asking will there be other tribes that we'll look at commercial gaming opportunity I think there will be and I think.
We do have relationships with numerous trials just based on my experience past 20 years experience working.
Working at Caesars and working on.
On the native American tribal development. So we'll continue to to meet with them understand what they like to diversify outside their nation and if they do look for opportunities, where we can can work together and I hope that trend continues because I think it's quite exciting for the nation.
In doing that obviously, we've got our relations with the Seminoles and the eastern manner Cherokees.
Okay. That's interesting and then did you see.
Maybe are you seeing any sort of other entrants that are highly incremental.
Incremental interest at their game industry, now given where cap rates are and how.
We're really going to expand on a relative basis.
So that sort of regulatory hurdles that you would you expect to see more players coming into the space.
Yes, it's a great. It's a great question Theres no doubt that the ROI on the resiliency of the gaming operators. During the pandemic has caught people's eyes, when a lot of industries.
<unk>.
Some are still talking about cash burns and regional gaming companies are talking about record EBITDA.
Going on catch the attention of many people that invest in the hospitality or experiential space. So.
So your question is will others come into the space that there is no doubt.
But others are looking at it because of how well these assets have performed and the magnitude of cash flows.
But as you know this business is the operating business is quite complex and it had some licensing requirements, but I do think over time, you'll see.
More groups getting into the business because.
Total weight of the bricks and mortar, but two to ed's comments at the beginning how exciting.
The growth path is when you tie in sports betting and potentially on gaming.
Great. Thank you appreciate it.
Your next question comes from the line of Carlos.
There's not one person Inc.
Please proceed with your question.
Hey, guys. Thanks.
John I was wondering if maybe you could just address from a from a high level, we're almost a year.
<unk> into the pandemic era.
And maybe go back to kind of prior to that.
The net.
Two of your discussions around deals and I'm, referring more towards terms, whether its coverage things like that.
Perhaps anything else that's changed in the aftermath, our people are our potential sellers.
Looking at different things and I mean that both from from the Opco perspective Seller's perspective, your perspective is there anything.
Revenue stands out as having.
It hasn't been tweaked a little bit different given the circumstances of pandemic as well as the higher margins that we're seeing now as well as the ancillary business lines and whatnot is there anything that you've noticed that's been dramatically different.
Well I'll start Carlo I can't remember.
Anything they were before the pandemic [laughter] what went on I seem to have forgotten all of that but no.
I tried to I tried to have a constant dialogue not only with our current tenants, but with all the operators in the gaming space.
I think as we think about underwriting maybe we've talked.
Talk more about rent coverage, just due to what happened in the pandemic, but.
I think I.
Ed touched on this as well its just been exciting to watch the operators change their business model or refine their business model. So that when they come out of this pandemic and I do believe we're going to come.
Out of that.
Debt there are operating these businesses just so much more efficiently than guys like I did 15 years ago, and that's exciting Carlo and that those are the type of conversations that we're having as it pertains to transactions I mean, we just continue to try to understand how they opt kos want to grow their business.
And is there an opportunity for our company to help them do that.
And then obviously, there's a few levers if we do get into negotiations that you talked about cap rate and coverage and escalation all of that none of those have necessarily changed.
So that's how I'd answer that question Carlo I don't know.
Wants to add anything or David but.
That's how I'd leave it.
That's helpful. John Thank you.
[laughter].
Your next question comes from the line on that Todd <unk> with Wells Fargo Securities.
Please proceed with your question.
Hi, Thanks.
Do I have it right the Caesars Southern Indiana is not on tribal land is that the case.
Correct.
Now does eastern band of Cherokee Indians do they benefit from lower regulation and lower taxes.
Do you actually.
Underwrite that one it seems pretty unique.
If you're asking about when when their commercial operator of southern Indiana. They will follow the same rules of commercial operator, whether at Caesars or pan or any of them. The same rules will apply to them because the facility is not on tribal land.
I understood. Okay. So is it tribal operator, you don't get all those benefits if youre off of tribal land.
Yeah, very similar to the terminals in the hard rock brand I think you've probably followed that they have numerous casinos around the United States that they operate.
Understood. Okay. Thank you John.
That.
Did you share any information on the land and plans around the Danville, Virginia Casino resort.
Yeah.
Can you repeat did we shared on the what the proposed plans there's the right of first refusal around the Danville property.
Are there any yes, that's yes, that's yeah, that's a development.
<unk> project debt is just getting started.
So there's there's information about caesars in and they want on the license and their development plans there, but it's just getting started.
Understood. Thank you.
Thank you Todd.
Your next question comes from the line of Daniel Adam Loop Capital markets. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions.
Our pleasure.
So you ended the quarter with $1 9 billion in total liquidity, including.
$326 million on cash and five.
$547 million that you have coming in from the forward share Sal you're in an envious position from a balance sheet perspective, obviously.
But youre also arguably overcapitalized right now I guess, given your balance sheets strength, how do you intend to.
Over by excess cash and are there any near term deals maybe in the next one to two quarters that are currently on the pipeline.
Yeah, I'll start there Dan.
I mean.
Yeah, and John can talk about.
On the M&A landscape and outlook.
We have always.
The deposit warranty I shouldn't day, we've kind of facilities, where it always when the company is only.
About three years from its IPO as we are but from the beginning we have always tended.
Over at Cotai.
The balance sheet in the interest of having firepower.
When the opportunity.
His strikes and there may be at times, there may have been at times.
Near term dilution taken on but that was near term dilution endured.
Think of having a firepower to create long term accretion.
Our ability to move very quickly when opportunity presents.
We certainly do not intend to shortchange, our shareholders like keeping ex debt capital on the balance sheet for a long period of time.
But we're and we're pretty confident we're going to be able to put that capital to work.
Okay great.
I don't know I guess John.
Moving to follow up on.
No I think I talked about.
I'm spending my time, it's nice to be able to talk to the operators were we're not focused on how to reopen and how to be safe and they've done all of that right now they can begin to talk.
How do we grow and where do we want to go and how sports betting helping attract new customers on those things and so it's nice to begin to have the growth conversations again.
Yes.
Okay, Great and then.
Sorry go ahead.
Yes, Dan I was just going to add I think one of the emerging dynamic.
This powerful on positive is the growing recognition of the value of a network effect in American gaming.
Harris and then Caesars, obviously, we're the pioneers of true network effects on American gaming and good still widely be considered to be the leaders through the power of seizures Awards.
But I think.
Increasingly operators are recognizing in part because of sports betting.
There is genuine value in creating network effects and being having stores in as many jurisdictions as you can in that that we think is going to be a powerful force, especially once COVID-19 clears way and continuing to drive.
M&A and with a lot of the M&A driven not so much by the sellers need to get out and the buyers intense desire to get it and there are markets in which buyer demand.
Can create incremental supply.
That makes sense I think.
Youre alluding to market access rates.
Yes.
Well on market access, but also in.
Through market access being more valuable on to yourself and more valuable to your partners.
Whether it be at Barstool at William Hill.
Pandora drafting whoever your partner.
Maybe.
Okay, Great and then.
Just turning to the non gaming side, so last quarter, you alluded to the potential for <unk>.
Follow on transactions with the Chelsea piers.
You have an update on the timing of any such.
So on deals.
How might a transaction.
Be structured.
Thanks.
David you want to take that.
Yeah, Dan good to talk to you.
Look as we've talked about with just appears it opened the doors opened their eyes open increase the dialogue around non.
Shrinking described we're on the beginning right non commodity high quality real estate and with any deal we can't talk about specific timing or whatnot, but we would continue to.
Meet with discussed with.
And have conversations with great operators that have great real estate that might fit into our portfolio.
So.
I can't say exactly when the next deal will come but we're optimistic that there'll be some more non gaming this year, but again just to reiterate what John said, it's not an either or right. We're very active on the on the.
Acquisition front and as we started the conversation we're going to deploy the capital that we have on our balance sheet.
On gaming.
Your next question comes from the line of John Decree.
Please proceed with your question.
Hi, everyone. Thank you for taking my questions.
Maybe one for Ed and then and then a follow up for John and in your prepared remarks, you talked.
Talk a bit about the sports betting expansion and how that is such an exciting opportunity for the industry I think a lot of folks can really see the.
Clear picture of how that benefits your tenants and indirectly you guys with with higher rent coverage and higher revenue, but I'm curious if you have thought of or identified any ways that it would be.
Good.
Benefit directly and not referring to sharing in revenue or anything like that but.
If theres an opportunity to fund team sports books or look at your leases a little differently given the earnings growth potential of your tenants and potential tenants and just see if there's if there's ways you can may be fine.
Direct ways to benefit from this big industry trends.
Yeah, no. It's a it's a very good question John and.
That would certainly be probably the most meaningful way, which would be a capital provider ads as great operators envision and execute what the this the whole sports betting sports culture.
<unk> sports viewing experience can be moving at casino John.
I don't know I don't know if you've had a chance yet to go to Derek Stevens new asset in downtown Las Vegas, but it is a great example, John has been there John or John Payne has been there and John maybe you can talk about it as an example of what we would certainly.
We are happy with our tenants.
The fund given the magnitude of vision that Derek has realized there John Payne.
Yes, John.
Might have been there on it.
It's a really well done on brand new facility in downtown Las Vegas debt is centered around.
Really a lot around sports betting and the uniqueness there on the type of customer.
Debt that likes that type of facility and so anyway. It's just a great example of the trends that are going going on right now on the first build from scratch casino during this what.
Sports betting.
<unk> North phase.
They really need price.
It is it's just a great place I was thinking that I was thinking barstool theme sports books and those types of things so it sounds like.
With a large tenant was going to refresh and rebrand.
It could.
Capital provider for that for that channel and in exchange for something on it.
Great John.
A question for you you've you've experienced through quite a few development cycles nationally and it seems like we are on the horizon of one here in the U S and you know a lot of investors new to the space.
Or are we trying to calculate.
Could be a kept the Pam and number of assets.
We've got some developments, Nebraska, Virginia debt Danville for you guys. New York is talking about expanding casinos downstate I mean, Texas is one that I, probably would've never thought I'd be having that conversation again, but it's being talked about so in your experience I'm kind of.
Calculate your thoughts on realizing no crystal ball here, but are.
Are you seeing a push towards development I know.
Red rock on their call has has a site in Las Vegas, that's very very interesting so true.
Just to get your thoughts on your outlook for gaming expansion in the U S.
Yes, John.
Curious and exciting time.
Again on.
From 25 years into this and I can't think of a time that has so many different levers of growth for this industry.
Most calls are talking about sports betting and gaming and you just brought up a whole another opportunity.
That is out there where.
And then their new development opportunities for operators to expand their network and it is quite exciting and rather Texas comes but theres already of the states that you you mentioned with its Virginia, Nebraska potentially in New York debt are pretty big opportunities. So.
Or are there is it is an exciting time, it's obviously something that we talk to our tenants our future tenants about to see is there a way to structure.
On that.
Is there a way to structure that makes sense for <unk> Triple net model and we'll discontinue the study but it is.
John it's.
So.
On the normalization of gaming throughout the United States is just amazing right now on it so it's great to be in the space that we're in and it's great to see the success of our operators.
Thanks, John at the day.
I appreciate the insights.
Thank you John Thanks, John.
Your next question comes from the line of John.
With Ladenburg Thalmann. Please proceed with your question.
Good morning.
Hey, Jonathan.
So just one from me.
Touching on the opportunity in Central Indiana again, how do you think about timing of potentially pulling down that.
Just a transaction I'm just thinking about this given rent to EBITDA.
EBITDA level is already predetermined and that transaction in your record EBITDA results out there.
Questions about how sustainable those are on sustainable those margins are low does it makes sense to maybe wait a little and see if kind.
That normalizes and get out at a rent level, it's really appropriate for the property or is it kind of.
Time to time, you have at the time, you're collecting rent.
And Theres no reason to wait if you like the properties per se.
John or David.
Well the process is right now just so we're clear I mean, we we own southern Indiana right now I think you've made on that.
From a central Central Indiana.
Sure Matt.
So my question then when we got a lot when.
When we merge Dragons people recall it we had the three three call properties that we could call. It 10, GAAP would ultimately folded into the Eldorado transaction that we announced in June of 19.
So John John touched on we've worked hard to build this embedded growth pipeline.
It's a combination of ensuring that we have consistent annual growth it's working.
Working with Tom and breath and Anthony.
And their team on what makes sense for their capital needs and their ultimate sales those assets.
And then you're right the performance of the assets will be kind of a third factor and a third lever, but those culpeper that put call runs from January one 2020 to December 30.
One 2024, so at some point between those.
The period of time, we're gonna be thrilled.
I mean is there any question about it.
On individual asset level.
Rents are may be sustainable for the property or is there even hayes Caesars the tenant we trust obviously, we have a lot of other exposure to Caesars I don't believe these are kind of corporate guarantee but.
The end of the day.
Right.
Yeah, No John I think that's a good question and one of the things we did debt with.
The El Dorado transaction is that those would fold into the master lease rate. If you recall, we had a roper on those originally and we converted that to a per call.
And those will fold into the master lease so they will benefit from the corporate guarantee them in it.
The asset level coverage is something that.
We will take into consideration.
But knowing that they fold into the benefit of the master leases gives V cheap debt enhanced protection and ultimately part of the reason.
Tom and team are willing to.
Do you set up the put call.
As Tom's vision of bringing back and goal of achieving an investment grade rating on their side right. This provides significantly.
Good day to pay down debt or continue their growth profile and improve the credit of our tenant which will accrue through the B G.
Enhanced renter protections.
Thanks, a lot of sense and understood.
Okay.
Thank you Dan.
Your next question.
Your line is cash.
That's helpful.
Please proceed with your question Hi.
Everyone. Thanks for working me in.
Keep it keep it short I know theres, an awful lot of focus on Las Vegas, and I'd Love Your perspective on how you're just generally speaking underwriting Las Vegas, meaning.
<unk> operators are obviously projecting optimism, but from an investment perspective, our U S.
Dissipating revenue is getting back to.
19 levels in the next couple of years are you underwriting something less than that.
How are you.
Qualitative could be thinking about that.
Yeah, John can answer that in a moment, David but I'll just start by pointing out that this week, we all of our net port Koch industries, which has a strong record of capital allocation. It seems to put capital in Las Vegas.
I think I took as a net positive but.
Anyway, John you want answered <unk> question.
Yes, David look I touched on it earlier on the call and I, probably sound like a broken record on my three years in this job I mean.
We're big believers in Las Vegas.
Pre pandemic and post spend on that.
This is city that has multiple layers.
<unk> levers of revenue.
We think that that customer is going to recover and we think the mice business theyre going to be way ahead of many other U S destination cities, we think debt.
Plain supply will be added back to this market quicker than most destination markets, maybe faster than any market.
<unk>.
And so we're we're believers in this market and the performance in Las Vegas.
Has been.
People like to compare it versus 2019 and 2020 on I think that's a little unfair I like to compare the performance of Las Vegas versus other U S destination city and when you look.
Performance of Las Vegas in 2020, which is probably going to be one of their worst year ever will compare to New York Chicago Miami.
San Francisco Orlando I mean, this the city Thats very resilient and the team there are working very hard the other thing David I will say is that we've seen this margin expansion.
At the perfect on the regional markets because revenues have come back close to 19 bubbles when Las Vegas fees revenue has come back to that type of level I think you're going to see similar margin expansion at many of these operators because they've worked very hard to change the operating model and so we will have to.
We'll have to see.
And because revenue is going to come back so anyway, that's just a long way of saying we're believers.
The market the strip and we talked about circa in downtown and how downtown's change it and then the results out of the local market of.
What I've seen from Red Rock's results in Boyd's resorts that you have.
Those.
That same strong so anyway.
We like the market and we'll continue to see if there's opportunities for us.
Great. Thanks very much.
Thank you David.
Your next question comes from the line of Peter Hutton Book Baird.
Proceed with your question.
Hey.
Hey, guys. Thanks for taking the question can you walk us through the base case scenario for the upcoming Greektown variable rent adjustment and this will give some color on our Margarita bill rent adjustment too. Thanks.
Either Danny Yes, I can take that he gave.
So margaritaville.
And just to put.
Based on the leases in perspective, right, there's a variable variable rent component, which is a small percentage of the overall rent that we get on an annual basis from margaritaville its $3 million of the $23 $5 million of annual rent.
And from a redeveloped debt.
We did not earn the escalator at that property since the rents did not exceed the prior revenue metrics.
Tended not exceeded prior revenue metrics.
So that was the variable rent decrease and that was less than $100000 decrease that's a very very de minimis on our total our total.
Total base rent.
Then for Greektown, that's coming up in June.
On the variable component into $6 $4 million out of the 55 and a half 50.
$6 million of total rent, we collect and at $6 $4 million of variable rent is only 50 basis points of our total revenue. So a small component of our total rent base again, and we'll have to see how that plays out given that's coming up in June.
Got it thank you.
Okay.
Five point.
Your next question sorry question comes from the line on it so alright corn right.
Please proceed with your question.
Hey, Thanks, guys.
One of your peers. This morning said they are recently seeing increased non gaming opportunities come up and I'm wondering if this is true for you as well and if so what's.
The reason for the recent pick up.
Yes. It is.
Interesting way to phrase it I mean, what we've been doing is going in looking for and as I described earlier Jay.
Off market.
Cash.
Categories, where three typically.
Not on.
So we are much more oriented to going and finding what we most want to invest in as opposed to letting the market present opportunities to us because the market tends to present opportunity to two it would be better debt.
Are by definition more mainstream.
<unk> train and commoditize.
Okay.
Just wanted to throw one in there so thanks for that.
Thank you.
But again to ask a question that is stars on one.
Your next question comes from the line of Spencer.
Alloway, Inc. Please proceed with your question.
Thank you.
Can I just share your thoughts on the potential upside from New York expanding legislation around online sports betting and then are there any other states that should be top of mind in terms of evolving regulation or legislation criminal.
Yeah, well center getting here.
We actually don't have any assets within New York State right now, but what I would say about New York State is what I would say generally in terms of how we're viewing sports betting which is.
Really as a key means that market or audience expansion.
It will be a lot once new York figures out what they want what it wants to do in sports betting.
Sports betting and the culture around it will enable us to truly widened its audience in a way. So many other states and operators are doing so.
Again, we don't have any highly informed thoughts around New York.
Yes.
Very excited about what this means for gaming nationwide.
Okay, and just one more on I believe you discussed with sometime last year, but any more thoughts get into structuring variables on a more on EBITDA or income versus revenue currently.
Yeah.
Bye.
Law legislation Spencer.
Rent variation has to be based on revenue reached or not allowed profit participation.
So for that reason.
We expect to see all kinds of rent variable rent mechanisms.
Continue to be revenue based.
I think that day rate, we can put a day.
Yes, that's right.
Exactly.
Okay. Thank you guys.
Thanks, Patrick.
From there are no further questions on queue at this time I'll turn the call back to the presenters for closing remarks.
Thank you Amy in closing we thank you Barry.
Your engagement with US. This morning as you can tell we are very excited about our present situation, our near term opportunities and our long term prospects, we've been saying since we started in 2017 like gaming real estate represents the next great Institutionalization story in American commercial real estate, our conviction behind that thesis has only grown.
Barry.
We believe can be fully realized as we collectively witness the loans.
Back of the American consumer.
Thanks again, everyone bye for now.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
Examples from even on the.
A line.
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