Q1 2021 VICI Properties Inc Earnings Call
This is your conference operator.
This will begin momentarily until then please continue to hold the line.
Yeah.
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the Chi properties first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Please note. The conference is being recorded today April 30 of 2012.
The one I will now turn the call over to submit the Gallagher General counsel with the Chi properties.
Okay.
Thank you operator, and good morning, everyone should have access to the company's first quarter 2021 earnings release and supplemental information the.
The release and supplemental information can be found in the investors section of the beach. He properties website at Www Dot and Vg properties Dot com.
Some of our comments today will be forward looking statements within the meaning of the federal Securities laws.
Forward looking statements, which are generally 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, you should exercise caution in interpreting and relying on them.
I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.
During the call we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance the.
These measures 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 on our website for.
First quarter 2021 earnings release, and our supplemental information.
Hosting the call today, we have Ed for Tony at Chief Executive Officer, John Payne, President and Chief Operating Officer, David Key ski Chief Financial Officer Gabe.
Gabe Wasserman, Chief Accounting Officer, Danny Boy, Vice President of Finance.
The team will will provide some opening remarks, and then we will open the call to questions.
With that I'll turn the call over to Ed.
Thanks, Tim and good morning to everyone on the line and thanks very much for joining us today.
Some of you may recall that I started our last earnings call on February 19 by pointing out the pre call commentary on our earnings release concerning Q for 2020, and full year 2020 pretty much the still down to the G beat consensus.
And me being me I couldn't help more or less yelling out hey consensus kind of missing the point.
This is what I actually said exactly.
Did the G achieve consensus is of course, the key question, but we think it's also worth asking the consensus call for anthem of all per share growing staying steady for declining.
If it called for growth within a lot of growth for a little of girl.
These case, we reported what we believed at the time back again on February 19th.
The proved to be a lot of growth 10, 8% <unk> growth for full year, 2020, and 24, 3% per Boe.
Growth for Q4 2020.
Now that the Q4 2020 reporting period is well behind us we know with certainty.
D. G did indeed post the highest <unk> per share growth of any American triple net REIT in 2020 for the year and in Q4 2020.
12 out of 19 American Triple net Reits reported <unk> per share declines in 2020.
Among those triple net reached the grew the closest of Beachy achieved 7.0%.
Per share growth for 2020 for the year and 11, 8% growth for Q4 2020, the average <unk> per share.
Oh for a year change and I'm, emphasizing the word change and I don't want to use the word growth because negative growth is an oxymoron the.
The year over year change for Triple net REIT in 2020 was on average negative six 9%.
Back on February 19, and is one of the few reached the restore guidance, we announced 2021 guidance, calling for between $1 82, and $1.87 of ebay Inc.
<unk> per share in a moment, David will of reaffirm that guidance.
It is in 2020, one we achieved the midpoint of our guidance our year over year amphibole per share growth will be approximately 12%.
If you measure of episodes per share growth from 2019 to the midpoint of our 'twenty 'twenty. One guidance you end up with the growth rate for that period that two year three year period of approximately 25 per cent.
To put the cheese earnings growth into perspective, we encourage those who own our stock and those who follow us.
Desktop that old school metrics known as the price earnings growth ratio or peg ratio in the case of BG or any other read the reports of half of Paul.
Calculate peg ratio by comparing the current earnings.
Our earnings multiple.
For the projected at the whole per share growth rate.
These two numbers the alcohol multiple and the a F of hope for share growth rate percentage or the unexpressed in ratio to each other.
I read the trains that of 16 time multiple of basketball and has projected amphibole per share earnings relative to 16% would be said to have the peg ratio of one of the one.
The trains that are 16 time, Inc.
The whole multiple and has projected amphora for per share earnings growth of 8% would have the peg ratio of two to one.
Obviously, the lower the peg ratio the less you are paying for growth.
The higher the peg ratio the more you are paying for growth if any is there.
We encourage you to look at the current take ratios for Americas Triple net REIT.
<unk> 2020 was the decline year for so many triple net again 12 out of 19 Triple net saw ethical per share declines in 2020.
Suggest you look at their peg ratios over the period of 2019 through 2021.
Take each triple net Reits actual 2019 of half of all per share of the base measure that against 2021 consensus of all per share and then compare the resulting percentage of change against the current.
Multiple of the REIT.
The measurement meaningful you'll need to eliminate those triple net Reits the show lower <unk> per share in 2021 than they did in 2019.
And that in fact means you have to eliminate eight of the 18 Triple net REIT excluding D. G. In our sample group, yes. According to Factset.
Eight of these 18 Triple net REIT show consensus of <unk> per share earnings for 2021 that are lower than 2019.
Based on data either publicly available or true factset, the resulting average peg ratio for triple net Reits. The show 2019 to 2021 are for vote per share growth again, excluding beachy is the peg ratio of two five to one meaning of course of the average current alcohol multiple for the.
These reads of 17.5 is two five times the average expected amicable per share growth rate percentage of seven per cent for the period of 2019 through 2021.
We heard you to calculate the beaches peg ratio based on our current for multiple and are protected amphibole growth percentage based on the midpoint of our guidance, whether you measure of our growth percentage for 2021 versus 2020.
The period for which the midpoint of our 2021 guidance yields of 12% growth in may of small per share or 2019, the period for which the midpoint of our 2021 guidance yields 25% growth in air from over share.
We are confident you will end up with the beat you peg ratio of that stands up very well for the triple net REIT group and likely any other American REIT out there.
The one question of course is well be Gee, what about next year 2022, and the years after that.
Bear with me just for a second.
I'm now going to turn the call over to John Payne. He will tell you about our drivers of football.
In 2022 and for the period beyond 2022, we believe BG stockholders can feel confident and a robust embedded pipeline of property acquisition opportunities and as well our strong record of sourcing executing and funding for open market deal.
Flow John over to you.
Thanks, Ed Good morning, everyone. The first quarter of this year was a very exciting quarter for our company on March 3rd we announced the acquisition of the real estate of the iconic Venetian resort in Sands Exposition Center in Las Vegas.
Upon closing of this $4 billion acquisition will add $250 million of annualized rent growing <unk> revenue base by nearly 20% and is expected to be immediately accretive to <unk> per share.
Importantly, we are acquiring over 8 million square feet of World class Real estate, along the center of gravity on the Las Vegas strip. The Venetian complex is one of the top revenue generating real estate assets in the world and we are thrilled to acquire of this property at a discount to replacement cost and of accretive.
Spread to our cost of capital.
The Venetian checks many of the boxes that are crucial to successful real estate investing one quality real estate and of prime location to robust robust rent protection through an effective guarantee from an investment grade entity through 2023, followed by significant property level covenant.
Protection and three an incredible organization running the operations, which will be supported by apollo's vast resources and incentivized by their own business model to grow profitably, which ultimately enhances our rent coverage.
Many of you who closely follow the gaming operators have undoubtedly heard that the recovery in Las Vegas is accelerating leisure customers have already returned in great numbers and convention and meeting bookings continue to grow we are very bullish on the future of Las Vegas, and look forward to growing our portfolio in this geography.
And the gaming regional markets our properties continue to showcase the strength driven by new stronger operating model that we believe is here to stay many assets continue setting records as revamped operating models meet robust and consistent consumer demand.
We are proud to be partners with the best in class of operators on our tenant roster and wish them continued success. They deserve the upside there currently enjoying.
Over the past 42 months, we've acquired 14 assets deploying over $12 billion of capital doubling the size of our portfolio of making us the most active REIT in the gaming sector by very wide margin as many of you understand the nature of our Triple net business model means we do not operate or operate or asset manage our properties.
On a day to day basis. This affords our team the ability to study and execute opportunities on behalf of our shareholders are diverse team of gaming hospitality and real estate executives remains busier than ever are working tirelessly to create one of America's leading Reits, we're very excited about the potential deal volume we see before.
For us while the nature of gaming transactions are lumpy, we have delivered consistent acquisition activity enhancing our portfolio of Accretively on fair terms and what the appropriate risk protection.
From the day, we started this company we have strived to create sustainable value for our shareholders. We believe this is the basic principles should be of fundamental goal any successful independent REIT and we will work tirelessly on your behalf to continue growing BG, creating sustainable fundamental value by enhancing our.
Real estate portfolio now I will turn the call over to David who will discuss our financial results and guidance.
Thanks, John I'll touch briefly on our balance sheet and liquidity give a summary of our financial results and guidance, which are fully detailed in the press release, we posted last night.
As we've discussed during the first quarter, we announced our biggest transaction to date, the $4 billion acquisition of the real estate of the Venetian.
Sort of the Sands Expo center in Las Vegas, which will significantly grow the left side of our balance sheet simultaneously, we maintained a relentless focus on our capital structure to immediately access the equity capital markets.
The approach we've taken since day, one of the suite to secure accretive long term funding and ensure we build the right side of our balance sheet to endure any heavy weather that may come our way.
On March 8th we completed a follow on offering of 69 million shares of common stock in an offering price of $29 per share for gross proceeds of $2 billion through a series of forward sale agreements to fund the equity portion of the Venetian acquisition.
<unk> remains subject to settlement pursuant to the terms of the forward sale agreements. This equity along with it of unsecured debt raise that we intend to execute prior to the transaction closing provides vichy with all of the capital needed to acquire this world class assets on the leverage neutral basis.
Total outstanding debt at quarter end was $6 9 billion with a weighted average interest rate of 4.0 of 1%. The weighted average maturity of our debt is approximately five nine years and we have no debt maturing until 2024.
As of March 30, <unk> of our net debt to LTM EBITDA was approximately five four times. This is in line with our stated range and focus of maintaining net leverage between five and five five times, but please note. This ratio is not reflective of our true run rate leverage level is it does not include the full impact of income from the Eldorado.
The transaction, meaning if you've taken the consideration of a full 12 months of rent from that transaction, our pro forma leverage would be at the low end of our stated range.
We currently have approximately $3 8 billion in liquidity comprised of $323 million in cash and of $1 billion of avere.
Availability under our Undrawn revolving credit facility.
In addition, we have access to approximately 537 $4 million of proceeds from the future settlement of the $26 9 million shares under the June 2020 forward and approximately $1 9 billion from the future settlement of the 69 million shares under the March 2021 forward.
Turning to financial results <unk> was $255 million or <unk> 47 per diluted share for the quarter.
Total <unk> increased 41, 7% over Q1 2020, while our weighted average diluted share count increased approximately 17, 1% as a result of the settlement of the June 2019 forward sale agreements, which added 65 million shares to our balance sheet. In June of 2020 ahead of the closing of the other.
Rado Caesars transaction.
Our G&A was $8 1 million for the quarter and as a percentage of total revenues was two 2% for the quarter, which represents one of the lowest ratios in the triple net sector.
As Ed mentioned, we are reaffirming.
<unk> guidance for the full year 2021 in both absolute dollars as well as on a per share basis.
As many of you are aware beginning in January 2020.
The required to implement the seasonal accounting standard, which due to its inherent unpredictability leaves us unable to forecast of net income and F F O with accuracy.
Accordingly, our guidance of <unk> focused as we believe <unk> represents the best way to measure of the productivity of our equity investments in evaluating our financial performance and ability to pay dividends.
Continue to expect <unk> for the year, ending December 31, 2021 to be between $1 $10 million and of 1 billion of $35 million or between $1 82 and of $1 87 per diluted share.
These per share estimates reflect the dilutive impact of the pending $26 9 million shares related to the June 2020 forward sale agreement, assuming settlement and the issuance of such shares on December 17th 2021, the amended the maturity date of the June 2020 forward as well as the dilutive effect of the pending 69 million shares.
Related to the March 2021 for sale agreements.
And as a reminder of our guidance does not include the impact on operating results from any pending for possible future acquisitions or dispositions capital markets activity or other non recurring transaction.
With that operator, please open the line for questions.
Alright.
As a reminder to ask a question you will need the press star one on the telephone to a draw of your question press the pound key.
And your first question comes from the line of Barry Jonas Jonas from two of Securities.
Okay.
Hey, guys. Thanks.
Thanks for taking my question.
Wanted to start with the Venetian deal congrats on that I'm.
Just curious.
What are your expectations for Apollo to potentially do more deals down the road that could get moved into the master lease and offer some cross collateralization.
John.
Yeah, Hey, Barry Good morning, good to talk to you look I won't speak for our Apollo and their plans of of growth. Obviously, they're excited about this asset we're excited to be partners with them I'm sure they'll continue to look at this space, there's others because of how great the operators have been and recover.
<unk> from the pandemic.
But we didn't go into it that there'd be other assets are rolled into the Venetian leased but we'll just have to wait and see Barry.
Got it okay, great and then.
The City Center, just sold two acres on the strip for $40 million each.
Pretty nice comp for you I guess, but where do you think the market is overall now and.
Given that number would you be of buyer or seller of Vegas land here.
Yeah Barry.
Very good talking to you about this I said a couple of thank you notes when I saw $40.
$40 million an acre, but in all seriousness, we've got our land.
Tremendous amount of land behind.
Our our asset debt debt Harrah's, Las Vegas, and Caesars as land as well behind their assets at Flamingo and the link and we continue to look to see if there's opportunities to expand.
The strip or deepen the strip there.
Whether we're buyers or sellers will just going to continue to look ways to grow our company Accretively and continue to talk to folks to see if there's opportunities to to make our assets in the create value with our real estate.
And Barry Barry if I could just add.
This is yet another example of investors in other real estate of asset classes.
Realizing the value.
Of the Las Vegas strip, right and I know Barry you've heard of site in prior conversations the fact that retail.
Real estate along the strip has traded in the last 10 to 15 years of cap rates debt.
Start with either three or four right.
And this trade of those two anchors.
Another indication that.
That retail.
Real estate investment along the strength of its further advanced.
In terms of valuation of the gaming real estate, but that's part and parcel of the institutionalization story, we've been talking about with you for the last three and a half years.
Overtime.
The world is going to recognize the gaming real estate, along the strength should be considered.
Just as valuable as retail real estate, along the strip for both fundamental reasons and frankly secular reasons.
Yes.
Awesome all right. Thanks, so much guys.
Yeah.
The next question comes from the line of Smedes Rose from Citi.
Hi, Good morning, this is tough on for Simeon.
Thanks for taking my question.
I just wanted to ask do you have any updates regarding the new tenant at the Horseshoe Hammond.
And then do you think regulators would be willing to be flexible around timing given the already granted the one year extension.
John.
Yes, Stefan good to talk to you this morning.
We don't have any updates from the Indiana gaming regulators, we'll just have to wait and see their plans.
<unk> always operated in the state of Indiana, very fairly and we'll just have to see how this ultimately plays out over the coming coming months.
Great and then you guys were creative and moving outside of the brick and mortar casino business of the Chelsea piers transaction.
And then outside of the credit enhancing benefits of gaming are there any other ways of thinking about participating in the growth of <unk> gaming.
Yeah, I think the.
When we when we look at the emerging trends in gaming I gaming is obviously, an interesting aspect of it and in this case I'm not sure. If you mean I gaming to also cut the sports betting.
And it is sports betting that we as a REIT are most excited about as the secular technology enabled trend.
Find the gaming business.
Some of you have heard US talk about gaming is the consumer discretionary sector.
Aiming operators compete for consumer discretionary time and consumer discretionary spending the.
Hey, you increase your share of consumer discretionary time and spending is by increasing your share of mind and the way you increase your share of mind is by increasing your share of voice. So that you are ultimately top of mind when the consumer makes their spending decisions spending of both time and money and what sports betting is doing.
<unk> is giving gaming a much bigger share of voice and that was certainly demonstrated in the announcements Caesars made a week or two ago in terms of their new partnership with the NFL and I believe the seven of NFL teams. They also partner with and it's obviously strong the exemplified by the media reach the media and marketing reach the bars.
It gives the pen.
Other very important tenant for us so that's where the greatest focus is in terms of the emerging Digitization of American gaming, we think it's being expressed most powerfully in terms of creating long term value by greatly expanding the audience for gaming.
Thanks.
Your next question comes from the line of Carlos <unk> with Deutsche Bank.
Here's my question.
I don't know who wants to tackle this one but.
As you guys look out there today at kind of of you alluded to in the prepared remarks I believe it was John talking a little bit about the cost of that have been taken out of the.
Channel businesses and whatnot.
When you think about in years past synergies often drove kind of M&A activity, whether it was the larger portfolios plucking for us.
Or vice versa, but synergies, where all of us a big part of the acquisition of stores when.
When you think about kind of the uncertainty of the future do you think about where kind of trading multiples are today for a lot of these names.
And you think about kind of what really is less of a synergy story with kind of cost us as they've been.
Do you do you how do you kind of envision the the next call. It six 912 months of the M&A.
Obviously, the someone who's just going to have to get a significant deal done.
John you want to start.
Yeah, I'll start carload of first I want to give a shout out and just the amazing comp line.
All of the operators.
In the gaming space.
The results that are coming out of the have been released or are really amazing and operating the new model in a very difficult time and showing margin improvements from 500 600, all the way up to over over 1000 basis points carloads pretty pretty amazing and sometimes it gets forgotten how hard that is the amount of work that the teams.
We've had to do and our team is just tremendous respect not only for our tenants.
Operator, the operators, who are of tenants, but the others in the space.
With that said Carla you mentioned it right at the end is since we started the company in 2017.
We've been very active we've been very fortunate to be able to do a large amount of accretive transactions for our company and I just don't see those conversation stopping it.
At least with my played on back on the road back meeting with asset holders and operators.
Can't tell you obviously when the next deal will be for our company.
But there's a great understanding now of.
Because of the time that we've spent in the other Reits in our space of how a REIT of our nature can fit in two of their capital stack. So I think there'll continue theres run right in front of us debt.
We obviously have in our embedded pipeline, but even outside of our embedded pipeline I don't know if ed wants to add to that or David as well.
Yeah, I think for what I would add Carlo is debt.
Another factor driving M&A right now is high.
Increasing conviction on that part of operators that network effect is important and it's valuable maybe you can achieve it right.
My old category of.
The ski resort operations, obviously Vale has demonstrated very powerfully the rewards of network effect and Caesars Harrah's Slash Caesars historically has obviously demonstrated the power of network effect and I think lids.
The emergence of sports betting and what should be a very strong tailwind for gaming coming out of COVID-19.
I do think that network effect is as much of a factor in driving M&A right now for both bigger.
And smaller operators.
At least that's my sense of the discussions we have.
Thanks, John Thanks, Ed.
Your next question comes from the line of Dan Adam with loop capital markets.
Hey, guys. Good morning, Thanks for taking my questions.
Hi, Dan.
So in light of the major re deal that was announced yesterday between Realty income and in theory I guess, what is your latest thinking on M&A not so much from a single property or asset standpoint, but more along the lines of a portfolio of assets or even a merger with another retail piece of.
The triple net.
Does it makes sense from your standpoint and are there any accretive opportunities out there for you guys.
Yeah Dan.
An intriguing question and first of all hats off to submit and the team at Realty income.
They are demonstrating what you can achieve when you have the superior cost of capital.
<unk>.
Basically the better and better cost of capital gets the wider your funnel gets when it comes to generating growth.
I would tell you for the time being we are still most fundamental fundamentally focused on.
Defining what it will mean in the decade and decades ahead to be an experiential REIT.
And at this point, we cannot identify.
Another REIT out there that has a critical mass of experiential real estate of the kind we wanted to invest in.
But having said that where we're obviously very mindful of.
At the end of every day at the beginning of every day, we work for our shareholders.
And if we determine especially in consultation with our shareholders that the.
Time has come when we should be considering such M&A, we will absolutely do so.
We're not dogmatic about anything except for the fact that we think we own great real estate of half of our shareholders.
So again, we really do believe the experiential is going to be the best place to invest.
Given the secular trends behind the experiential those secular trends were already in evidence before COVID-19 the.
The the consumer preference for experience over things was very strong before COVID-19 and went on hiatus for a bit during COVID-19, we're already starting to see it come back not only with our operators, but other experiential sectors.
And if you combine that secular trend with the demographic trends that are in place whether it be a baby boomers moving into their prime leisure years or millennials entering family formation.
Experiential is really where we wanted the fee and if we're going to continue to grow.
The experiential portfolio, we're going to need to do it and want to do it frankly.
Frankly.
Discovering and mining the white space the Triple net Reits have not conventionally played in.
Okay great.
Thanks for the color.
And then David.
You've really done a tremendous job.
Over the past three years strengthening the balance sheet.
Earlier this month S&P revised its outlook on the cheap the positive from stable I guess to the extent you guys get upgraded to investment grade over the next 12 months.
That mean from an incremental cost of debt perspective, and with lower debt costs potentially expand the universe of M&A targets from an accretion standpoint. Thanks.
Yes, Thanks, Dan.
In terms of the incremental improvement in our cost of capital from investment grade and obviously it depends on the on the <unk>.
Debt markets overall, but if you look at historical spreads.
<unk> 50 to 100 basis points of 150 basis points, sometimes 200 basis points of improvement.
In rates for investment grade versus rates and the unsecured high yield market, which we are currently in.
I think our path to investment grade is probably not quite 12 months, maybe it's 12 to 24 months from now as most folks know we need to get rid of the $2 $1 billion of term loan that's outstanding and unencumber the balance sheet, but the overall goal from day, one is to get to that investment grade.
Credit rating for ultimately lower our cost of capital and the exactly your point of view and then it makes our transactions our ability to pay.
Increases our ability to pay and increases the accretion that you know.
Widened the funnel then.
Loves us to do more accretive deals going forward. So it's something we're highly focused on and we talked for the agencies frequently and we were pleased to see from PS.
The report that came out of that you referenced.
Okay awesome. Thanks, guys.
Thanks, Dan.
Your next question comes from the line of Rich Hightower with Evercore.
Hey, good morning, guys.
Hey, Rich head, Hey, Ed and I was going to say thank you for your professorial treatment of the humble peg ratio I'm sure that was helpful for everybody.
[laughter].
You couldn't see it rich, but I was actually smoking of pipe, while I did that.
[laughter].
That's awesome.
I wish I could see that.
Listen I wanted to go back to the.
To the Venetian deal for a second.
If we think about other other.
<unk> equity involvement in the gaming REIT structure, so far it's been in a I guess, what I would call of permanent capital structure, which I believe might be distinct from Apollo the structure.
Having invested from from one of the sort of traditional private equity funds. So just as you think about maybe the risk.
On the road.
Of the potential exit by Apollo, how do you sort of underwrite that risk and replacing the operator.
If I'm thinking about that correctly, how do you how do you sort of peg that guys.
Yeah, I'll start and then I can turn it over to John and David Rich.
The obvious question.
<unk>.
Yes.
For the.
Okay.
What we're very confident of.
Is that Apollo is coming into this with a very clear vision of athletic.
As you know range I've worked in a lot of sectors and I have never seen the debt.
Due diligence, calling for an underwriting like I saw in this case.
You know.
They did very much of their credit they did primary research primary proprietary research determining the other among other things what exactly is the outlook of meeting planners across America.
Right.
And I expect that as one example of of the depth of debt.
Intelligence they brought to this and the credibility they are bringing to their their strategic in their business plan.
And then when it comes down to it private equity firms, obviously tend to exit when they've created a lot of value and can crystallize that value. So are our prevailing assumption is they will exit when the asset is performing very well and when the assets it will be very attractive.
Within whatever structure of the exit takes place right and at this point I don't think that's predefined.
Whether by then it needs within a platform that gets taken public.
Whether it's still a single standalone assets it will nonetheless be a single standalone assets.
Founder for his remarks is we believe the highest revenue.
Using single assets in America for sure.
Okay.
So we're really sanguine about this rich and.
I am excited to see what theyre going to do especially.
The.
Hey, how are you still there sorry, I think you're breaking up on me.
Rich this is John I think we lost Ed in the.
The answer I think he was just going to end the excited.
With as you've been following the rebound in Las Vegas, and how quickly that those business obviously, the regional businesses, we've been talking about but how quickly the the businesses are rebounding there and the re booking windows that the.
People are seeing are filling up so I think that's how he's going to handle that question.
Perfect. It sounds about right alright, thanks, Sean I'll hop out of the queue.
Yeah.
Your next question comes from the line of RJ Milligan with Raymond James.
Yes.
Hey, Good morning, guys I had a question for Ed because again as the analysts had on at the start of the call, but John I guess youre going to Youre going to get it for me.
The.
RJ that won't debt.
It won't be as fun with the with Ed. So go ahead.
Yeah.
I'm sure I'm sure it'll be a great answer Jim.
Yeah, we're still seeing cap rates north of 6% for gaming assets in general and at the same time, we're seeing some retail assets net lease assets trading in the five some even in the force and I guess, one do you think cap rates for gaming assets accurately reflect risk.
Today, what potentially pushes them lower and then do you think that would be of positive or negative for BG.
Yeah, I'm actually going to David is going to take this answer because we've been talking about this quite a quite a bit but David do you want to step in and try to get some color, while we wait for it to come back yeah.
Talk to you.
I mean to your first part does do the actually accurately reflect of the risk.
And that's why we wanted to acquire as much as we can as vessels of again, because we think the risk is mispriced.
I think ultimately people will continue as they have done over the last three plus four of five years understands the strength and really demonstrated by the last 12 months. If we go back to our call of a year ago. What we were talking about closings of every day.
In the world.
The business model of the resiliency of our operators.
To maintain rents.
One of the worst pandemics and the history.
Highlights the strength of our cashless and honestly the resiliency of our real estate.
The.
It's come.
John mentioned in his remarks around the levels of conversation and we've talked to all of you about this before that there.
Our new entrants that are looking at gaming because they realize well that's the <unk>.
Sectors, where the consumer hasn't found a replacement for the experience and it's the sector.
Net is making money versus other entertainment leisure hospitality sectors that are still talking about cash burn or on the turns of finally, turning the corner from cash burn of slightly cash flow positive. So I think that's the ultimate driver of the continues to push cap rates lower.
More entrants and more fluidity in the transaction market like you see in broader real estate sectors.
And so if it does happen overtime.
Does that then increase the desire for reach you to go out and look at non gaming assets.
But I don't think it's an either or.
Gaming by the magnitude of the the assets and the cash flows will still be the majority of our investment spectrum, but because of your seamless due of Chelsea piers and we've talked to all of you in the past we still the other sectors.
And meet with other operators to understand where we might be able to expand into non gaming and non gaming in states that may not have gaming to give us the diversified portfolio of real estate or with operators like the Chelsea piers team that have a phenomenal business model that are essentially casinos without gaming bit of multiple levers multiple business drivers multiple of revenue.
Streams of the customer base that.
It's very very resilient and from.
Loyal to that experience.
Great. Thanks, Thanks, David.
And your next question comes from the line of Jordan Macquarie.
Good morning.
Are you starting to see the number of companies looking or bidding on assets increasing from pre COVID-19 levels.
I guess, what I'm getting at here is what's the Venetian bidding process more competitive than what you might've seen pre 2020.
This is John I'll answer that.
Seen many competitive bid processes during our time over the past for years.
Obviously, if you are in the in the business of gaming or you're in the business of real estate debt buys gaming assets and you're not interested in elimination I'm not sure where youre spending your time right. I mean this is a.
The air Replaceable iconic World Class asset center of the strip located.
And so it was a competitive process. There are people who are interested in this asset as many would be and we're again, we're fortunate to partner with Apollo and come up with the structure of that ultimately got the transaction Don I Wouldnt I don't know if theres more or less.
The folks that will be involved in the the processes I will say I'll reiterate what David said.
Which is because gaming is performed so well coming out of the pandemic.
Still many hospitality or experiential companies talking about cash burn.
Compared to the gaming companies are tenants, who were talking about record EBITDA levels, all time record EBITDA levels in all time margin.
The hike debt.
I do think it's caught many investors is to say Wow. This is the business that the consumer did not find the substitute during this pandemic, we should look into it and so of that leads to more competition will just have to have to see.
Okay, and then we're coming up on the years seven eight here for the whole gaming REIT sector and for.
We're sitting at roughly three to $3 5 billion of rental revenue across the space. I was just wondering if you can go over kind of your Tam and what you might think is left out there in terms of something that you would look at.
I'll take that David.
Yeah.
I mean, I think what has continued to be.
As we talked about more and more folks looking at gaming, but the the overall Tam continues.
Continues to.
Grow as you see the expansion of the gaming in new jurisdictions.
And the last November where there were six new jurisdictions.
New.
Entrants of new proposals for casinos in Richmond, Virginia, obviously, where we of the Rover and Danville.
So as we think about the investable universe.
We've talked to you about $4 billion to $5 billion of viable rented.
50 to 60 $70 billion of viable real estate, but it's not a static number it's.
It is the number that.
Beyond that because you think about the <unk>.
For operators to add towers add rooms at the convention space.
And that gives the.
<unk> funding opportunities for BG and then the new supply that comes in the supply can cut both ways, we need to be cognizant of where the new supply is relative to our existing assets, but generally it's a positive because it creates funding opportunities increases the Tam. So we're very optimistic about the future and our ability to continue to grow.
Consistently year in and you're out as we've done from day, one with this region.
Austin, a nice quarter and thanks for the color.
Thanks Jordan.
Your next question comes from the line of Stephen Grambling with Goldman Sachs.
Hey, Stephen Grambling.
Gambling, but within our.
Follow up to <unk>.
Carlos question on the regional markets and strength in margin as you look at the pipeline kind of the strength in the regional markets impact how you think about underwriting corresponding EBITDA coverage on rent.
Yes, it's a great question I mean this is this is where having.
Expertise in house that have run these assets with myself and Danny and understanding how they are increasing their margin where they are increasing their margin.
Part of that margin is sustainable where do we see there the be risk and so as we think about any individual assets or combination of assets, where the margin has increased over the previous year.
We'll study, where we think it ultimately land will work with the operator, if it's a bid process to see where they think it will land and we'll underwrite accordingly.
And then have seller expectations.
Generally set.
I had been reset to that same level or how does that negotiate however, there is negotiations that of all day.
Well, it's not necessarily that day.
Set the level of their forecast and where their business is going to be the show with the previous three months of six months has been so theres actual numbers forecast numbers and again, if we're digging into the purchase of the real estate of an asset with an operator will dig into.
Of the historic.
EBITDA levels and margin levels, where the new levels are and really study what is going to be sustainable and thats. How it will ultimately come up with the appropriate starting EBITDAR debt, we underwrite the asset with the tenant if it's the sale I mean with the <unk>.
Current operator for the sale leaseback or with the new 10 of new operator, if it's a complete sale that we're going in with an opco.
Yes, I guess the question is is there is a widening spread in terms of expectations from the operators versus the <unk>.
Sellers versus what you were thinking through.
You'd have to take honestly you'd have to take that asset by asset.
It's hard to say, whether there is a widening or not again, we will follow our process that we've done to to acquire assets over the past three years.
Makes sense.
Thank you.
Your next question comes from the line of Thomas Allen with Morgan Stanley.
Perfect. Thanks, David one for you.
Sorry of escalators have CPI kickers in them can you just remind us what one could kick in the near term I think summer after a few years. Thank you.
Yeah. Thanks, Tom it's good to talk to you.
Overall, 92% of of rent is subject to the CPO Kickers.
And the the biggest one being the Caesars both the regional master lease in the Las Vegas lease, which takes effect every November.
November one so that kicked in.
For the escalated last November.
And in terms of.
If you look at.
It didn't hit at CPI for the last year, but just given where CPI was versus the 2% bump in the Las Vegas from the one 5% bump in the regional leases, but we like our we like our CPI protections, it's something that we focus on in our leases and something that the.
We think just given the with all the talk around the inflation out there differentiates us from the other the other two gaming REIT.
And then are there some that don't kick in for a couple of years or are they all good to go this year.
There is the there are certain leases that have kind of of one or two year three.
Three year holiday, depending on the leaf hard rock is.
The one and a half for the first for years.
<unk> two percentage of CPI after the century leases one per cent for years, two and three and then you know one.
One of the quarter or CPI thereafter, so there's a there is the holiday for depending on the lease and when it when we close the transaction for a period of time, so it's somewhat staggered throughout our portfolio.
Thank you.
Next question comes from the line of Rich Anderson with just with the MPC.
F N B C.
Morning, everybody.
So on the Venetian I'm wondering if you would be able to comment on.
What the cap rate might of been had sand stayed on as the operator, I know you're getting their backing for a few years, but.
Perhaps the market would of for everything that Pollo is and I don't I don't mean to throw them under the bus at all but.
I wonder if it would've been a different price if the sand stayed on do you sense that or do you think it would have not had an impact on pricing of the assets.
Yeah.
Rich good to talk to you. This is Ed and I apologize to everyone for dropping off sharing my answer to rich Hightower.
You know, it's a very interesting question didn't no one's actually asked before.
It probably would have been a factor given you know they're in their investment grade.
Obviously very well established there the.
The market cap gaming company in the World.
So hypothetically.
Hypothetically, yes, potentially I do think though rich and it's also worth reiterating that this deal took place at a very idiosyncratic time in the market.
The time in the market when a whole lot of.
Would the bidders were sidelined because of uncertainty right.
This whole process began at the point.
In late mid to late Q4, when the world was well when the U S was that of point of COVID-19 resurgence debt, what's causing a lot of uncertainty.
And thus we were able to take action with Apollo at a time, when many others couldn't or wouldn't and that is that too.
Was a fundamental factor in the price we ended up paying.
Unless they say never waste a good crisis right.
So.
The excellent transaction for all parties. The other question I have is in the sort of alluded to earlier in the call, but I didn't really get quite the answer in terms of future M&A and other operators.
Engaging with the rights.
What do you think the the main hold back is for anybody who's not sort of done business with the gaming Reits.
What's the.
What's the negotiating hit.
Pickup has kept them on the sidelines for at this point and do you expect that Youll see.
That sort of answered the question got answered so that there's even more players involved.
And just to be clear in terms of what Youre asking rich this would be what has kept would be sellers from selling.
Our operators from you know.
When for example.
For those that have not engaged the rights in any in any way to finance their their assets.
Yes, I think the most fundamental issue rich.
Or the most fundamental question for any operator is well what would I do with the money.
Right.
And selling simply for the sake of selling selling for the simple sake of financial engineering. Nonetheless begs the question what would I do with the proceeds and then frankly, when when when John and the rest of our team me with the operators.
We always say you need a good reason to sell and that really then the next question is what would you do with the proceeds right.
And what we really preach frankly is.
You should have a compelling use for the proceeds and we fundamentally believe that.
Debt funding growth.
Mendes use of proceeds because.
If you receive proceeds through a sale lease back youre, receiving proceeds that are defect dough.
Equity because we never ask for the money back right and you can then deploy that the facto preferred equity.
At a price debt.
Even with the the training up of the game the operators, it's still cheaper equity didn't make a raise of Neil but the market and I do think one of the dynamics of that work right now.
Is the dynamic of network in fact of growing store count.
And that I think is is already creating and will continue to create transaction of liquidity.
Yep.
Good stuff, thanks very much.
Your next question comes from the line of David Katz with Jefferies.
Hi, everyone.
Thanks for taking my question and you've covered a ton of ground I just wanted to ask quickly.
Whether there are mature.
Our national market, so that would be inside or outside the boundary of consideration.
Not that you don't have it quite a bit to do domestically, but it's just sort of cross the consciousness.
John.
David Good to talk to you wish I could see you all.
Yes, David I mean is there areas that we we continue to look at.
If theres opportunities north of us and Canada or other countries that could fit into.
Our REIT format and be good REIT income will continue to to understand if there is an opportunity for us. So we've got capacity to do it we've got expertise to look there you are right we do have.
A strong embedded pipeline to continue to grow our company in the coming years without any new deals.
But that does not stop us from.
Understanding where there could be opportunities and where we could help as Ed said.
The company grow by monetizing the real estate.
Right and that that could encompass.
Pretty much the entirety of the planet so to speak of as long as it meets the criteria.
Yeah as long as it meets the.
You got to understand the tax situation the rule of law of owning real estate variety of other things that they can work, we'll kind of look at it.
Got it perfect. Thank you very much.
Thank you.
I'll just add in.
To David's question net.
Our business model is one as well that it enables us puts us in a position I should say to grow internationally very cost effectively.
And just of dramatize the efficiency of our business model.
2018, as the base year. Since then on an annualized basis, we've grown our rent and because of our triple net thus our NOI by approximately $1 billion.
And growing our NOI by $1 billion is cost is only.
About the about one and a half to about $1 8 million of incremental cash G&A.
The I feel like of died and went to the.
This is model Heaven.
With the cheap because we can grow and grow very cost effectively and Theres. No reason that we will not apply as well too.
Creating global reach David.
Your next question comes from the line of John Decree with Union gaming.
Hi, everyone. Thanks for taking my questions Hey, Ed.
Covered a lot of ground. So far is as David had indicated so just two questions maybe.
One first on construction costs, we're seeing those creep up and I think some of your.
Operators are looking at development projects, you've mentioned the comment in your prepared remarks about the purchase price of the Venetian being below replacement costs. So when we think about.
M&A activity and cap rate compression.
I think we're seeing some of the highest.
Increasing construction cost of we have since since you guys became public are you hearing that from your partners is that pushing more people to M&A would you expect that.
Of that to be a gating factor going forward as.
Some of your partners look to grow.
Yes.
John I don't know that we've seen a lot of evidence yet the commercial construction.
Cost per accelerating anywhere near the <unk>.
Way that residential construction costs are accelerating.
She'd apply with gone from 17% to 42 Bucks.
In recent months.
There's not a lot of commercial construction that uses a whole lot of plywood.
So it remains to be seen what will be the impact in commercial construction I would just say though.
The.
Being in the meetings the convention business that our operators are especially in Las Vegas.
When theres, a roaring construction sector in the U S that tends to be of very good thing for Las Vegas and for the regional market and not just blend Conagra Con expo or the world of concrete chose that.
That's all part and parcel of of Roaring economy really good for operators and that's it for us.
<unk>.
Very true thanks, Ed and just the <unk>.
Separate note the Venetian acquisition increases your exposure of rental income to Las Vegas quite a bit.
We get this question every quarter and some in some capacity also lot of your ROE for us and contracted opportunities are around the Las Vegas strip.
Have talked at length of how attractive the market is but in the near to medium term.
And your M&A or of your acquisition approach do you look to maybe be a little bit more active away from the Las Vegas strip or.
Is that less of the consideration just given the the favorable dynamics that the the strip has right now.
John John.
John Good talking to.
When we announced the Venetian we were very clear that we you know after the Venetian is closed we'll still be getting for 58%.
All of our rent from regionals, and <unk> 42 from Las Vegas, and as you mentioned, we do have brokers, but don't forget the very.
The exciting put call that we have on two large indianapolis assets, which would be in region. So I think our plan continues to be to have a diverse portfolio of of mix of Las Vegas, and again, you've heard me say, Jon I like the downtown area of the Las Vegas I like the the regional part of loss.
Vegas, and I liked the strip, where we have assets today, and then I think you'll see us continue to add to our portfolio of it and in other regions. So the key is that we're going to remain we're going to remain balanced and diverse as we have since we started the company.
Very good thanks, John Thanks, Ed.
Next question comes from the line of Peter Herman with Baird.
We recently opened an a mall and the western Pennsylvania of of all places and I was wondering if you of a sense for the kind of appetite you think operators would have and expanding the real estate footprint into malls. If this particular asset.
For him well down the road thanks.
Sure.
Okay.
Yes, it's a good question and you are correct.
The quarter shows opened of live assets in Westmoreland, Pennsylvania.
It would be interesting to watch this was the <unk>.
<unk> license in Pennsylvania, where they added some of what they called the smaller licenses and obviously as you mentioned they are opening and they opened in the <unk>.
More whether other states decide that the licensing process the.
The either add to the licenses that are already in restricted states or as new states open.
Specifically say, we're going to use it as of redevelopment tool and your site is this this mall, that's not doing too well.
We'll just have to wait and see the assets that they built is.
From my understanding is very nice and has a unique way of using.
Real estate in the different way and we will just continue to monitor and I'm sure. Other states are looking at how that ultimately plays out but I think we're in the early innings there.
Got it I appreciate the response, thank you guys.
And your last question comes from James Villard with Ladenburg Thalmann.
Okay.
James are you there, yes, yes, I'm here can you hear me.
We can now yes.
Yes.
Following the Venetian transaction, what do you think that implies of about the valley value of Caesars Palace.
I'm.
I'm not trying to beat your directly with you.
Yeah. That's of Great question that close out this call with James.
One would think it suggests that the value of Caesars Palace.
It's quite high.
As it should be as was obviously the value of the velocity of when Blackstone made what we think is a tremendously attractive and valuable purchase of black of Bellagio and then again with MGM Grand again. These are the comparable commercial real estate assets the revenue productivity of the profit productivity.
These assets is really unrivaled by just about anything out there when we announced the Venetian we invoked iconic examples or analogs like the GM building like Ala Moana like the biggest Amazon distribution center, the prolonged yourselves outside of Seattle.
These are assets that.
Are just tremendously valuable and you know and we own them and they are occupied by tenants that are on leases that are effectively 35 to 50 years in length.
And just to put a fine point items.
Buying contracting to buy the Venetian and $4 billion of $250 million of rent.
We bought an amount of rent that the average triple net REIT would have to do.
And.
The store acquisitions to equal what we bought it in the Venetian right. The top Triple net REIT in America. The average rent per store is 250000.
And dollars.
We bought $250 million and one asset and we bought it with the lease term of effectively 50 years right weighted average lease term of lot of the $250000 boxes is in the single digits right.
And I think James as more and more investors into real estate through public equities.
Understand art model of tremendously resilient rent of 100% rent cash rent collection for of EG in 2020, as they realize our weighted average lease terms as we as they realized that escalator rent with CPI Kickers.
I don't know if you can find a better liability matching real estate investment, especially in apparel.
Long liability.
Investor like pension funds, then gaming real estate.
Thanks for the color I'll leave it on that.
Thank you.
And there are no more questions at this time.
Thank you operator, so let me just close out by reiterating our thanks to all of you for being on today's call. We're proud of the growth of we provided to our stockholders. This quarter and believe we are very well positioned to continue delivering industry industry, leading growth and driving shareholder value and as John pointed out we're very excited.
About the continuing growth prospects of our tenant partners there at the forefront of the reopening of the Americas leisure economy again, Thank you and good health Dol.
And.
And this concludes today's conference call you May now disconnect speakers. Please standby.
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And the dividend.
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Moving on.
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Net income.
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The revenue.
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