Q2 2021 VICI Properties Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the Vg properties second quarter 2021 earnings Conference call. At this time, all participants are in listen only mode.
Please note that this conference call is being recorded today July 29th 'twenty 'twenty.
I will now turn the call over to Samantha Gallagher General counsel with Vg properties.
Thank you operator and good morning.
Everyone should have access to the company's second quarter 2021 earnings release and supplemental information.
The release and supplemental information can be found on the investors section of the BG.
G properties website at Www Dot Beachy properties dotcom.
Some of our comments today will be forward looking statements within the meaning of the federal Securities laws.
Forward looking statements, which are usually identified by the use of words, such as will believe expect should guidance and 10.
The 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.
Outlook on 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. 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.
The result measure is available on our website and our second quarter of 2021 earnings release and our supplemental information.
Hosting the call today, we have Ed Potomac, Chief Executive Officer, John Payne, President and Chief operating Officer.
David Key ski 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 over to Ed.
Thanks, Samantha and good morning, everybody and thanks for joining us on today's call. We're excited to talk about our quarter John will provide an update on the environment.
GAAP net operating partners and David who will summarize the outstanding gross debt our second quarter of results represent and briefly address our exciting new financing partnership with Great Wolf resorts.
I wanted to address the topic, we've talked a lot about at Beachy since reaching the emergence of the fall of 2017.
And that's the topic of real estate asset class institutionalization.
The Beecher, we've been saying since day 1 in October of 2017, the gaming real estate deserves to be and we believe is proving to be the next great Institutionalization story in American commercial.
For all day.
When we talk about real estate asset class institutionalization, we're talking about the process of institutional capital.
Terminate that an asset class is or isn't worthy of their investment.
Worthy based on the quality and demand characteristics of the real estate.
The reality based on the quality of the occupants business and its credit.
This determination process requires learning and learning takes time and hard work most active asset management jobs do not have a lot of excess of analytical capacity or excess time to dig deep on new.
Where are the sectors.
And Theres no question that it's the active managers, who pioneer investment in the listed equities of new real estate asset classes, where active managers go index managers volume.
Active institutional real estate investment capital has had to do a lot of new.
New learning over the last 10 years from real estate investment sectors as varied as cell towers data centers final mile logistics single family rental homes manufactured housing medical office and labs and of course gaming.
And some of these asset classes of institutional investors have the advantage of on.
Already knowing the underlying tenants either because of the tenants already occupied other well established real estate asset classes or because of the tenants included America's biggest and best known companies.
In the case of gaming real estate, many investors, especially dedicated REIT investors, we're starting from square 1.
Outstanding gaming operators as tenants and ultimately as real estate leasing credits.
For that reason of our first few years of Beachy were largely focused on helping investors both dedicated REIT and generalist investors understand our tenants' businesses their marketplaces their economics.
And on their balance sheets, they are outlooks their resilience and their overall creditworthiness.
Very positive news the gaming operators as real estate tenants have proven themselves to be highly resilient place based leisure operators through the COVID-19 pandemic.
And beneficiaries of the secular tailwind the sports betting represents.
With our operators fully validated as an institutional quality tenants.
As we believe they are I want to turn the focus to the other key dimension of gaming real estate institutionalization dynamic.
And that's the quality of our real estate assets.
As real estate as physical constructions.
Let's start with scale.
Assets are being really big pro forma for our Venetian transaction Beachy on 63 million square feet of build real estate.
The state and with 28 properties, our average property measures 2.3 million square feet.
Compare that to the largest conventional triple net REIT, where the average owned store measures 17000 square feet. So again, that's $2.3 million square feet.
Compared to 17.
17000 square feet of.
Why does scale matter.
Because large scale tends to correlate the spatial complexity multi functionality.
Abundant re programming capacity and higher replacement costs, all of which adds to mission criticality.
Gaming.
Can't simply wrote relocate to the nearest slab on grade tilt up box or real estate isn't we're in and out transactions happen. Our real estate is where experience that's happened within built environments.
Aren't built simply the least but built to last.
The operating is big buildings on the ample land parcels around them also create an opportunity for incremental capital investment for our tenants and potentially for us and that kind of incremental same store capital investment opportunity is it likely to be available on the typical smaller box owned by a triple net REIT the.
The only other asset.
The combined this kind of scale with high quality finished and Indispensability, our class a office and class a malls, but in the case of the gaming real estate investors can on large scale and high quality indispensable assets in a triple net lease structure, where the.
Benefits of trends.
The class guarantee and cash flow per predictability the triple net structure inherently offers.
Our big assets also produce big rent, our average annual rent per property pro forma for the Venetian clothing will be $55 million.
In comparison rent.
Rent per store at the largest conventional triple net REIT is $260000 based on public filings again $55 million versus 260000 by a long margin. We believe gaming real estate assets produced the highest rent per property among triple net.
Net rates.
This concentration of value in large assets may mean concentration of risk. The we believe this risk is offset by the high quality of these assets.
We'd rather have value concentrated in high quality non commodity assets then dispersed across.
Additional commodity triple net boxes.
Another essential institutional characteristic of game of real estate is lease duration beaches.
<unk> weighted average lease duration right now is approximately 34 years and the Venetian lease upon closing will effectively be 50 years in duration include.
Can the renewal options.
And in the case of BG. These long leases include rent escalation and pro forma from the Venetian closing, 95% of our rent roll will have CPI kickers.
These key characteristics of the cheese gaming real estate scale quality indiscipline.
<unk> ability long life leased line.
Inflation mitigation make gaming real estate, what we believe the superior investment were all investors seeking total return.
But these characteristics, we believe are especially valuable for investors who must manage.
Long dated liabilities.
When you combine the long lived nature of our assets with our long dated leases we offer a truly long dated income producing assets the offset those long dated liabilities.
All of these investment characteristics of gaming real estate.
Give us great confidence when it comes to expressing our fundamental belief the gaming real estate is the highest quality largest scale real estate. The concurrently be 1 was in the triple net structure I'll repeat our belief gaming real estate is the highest quality largest scale real estate.
It can currently be all within a triple net structure.
Consider the choice between Caesars Palace, Las Vegas of 9 million square foot assets on 82 acres on the Las Vegas strip. The most dynamic experiential Street in America.
Or a discount store that.
Just on a fraction of an acre on of secondary roads in the secondary market.
You can decide which you prefer and with that I'll turn it over to John Payne John.
Thanks, Ed and good morning, everyone. As many of you may recall in March of this year, we announced the pending acquisition of the real estate of the Venetian.
Horton Sands Expo center in Las Vegas. Upon closing this $4 billion acquisition will add $250 million of annualized rent growing <unk> revenue by base by nearly 20% and is expected to be immediately accretive to <unk> per share we agreed.
Agreed to acquire this iconic world class asset in the heart of the Las Vegas strip at of 625% cap rate and just a few weeks ago. Another real estate acquisition was announced in Las Vegas with Blackstone agreeing to acquire city centers real estate from MGM at a 5.5% cap.
The result of Citycenter transaction illustrates what we have been foreshadowing since our company was created that is when institutional capital realizes the discount between the incredible quality of gaming real estate and the undemanding valuation relative to other real estate asset classes.
The days of the 10% cap rate transactions are over our acquisition of the Venetian real estate was announced at a very old idiosyncratic time during which the recovery trajectory in Las Vegas was unclear we were highly optimistic as it as reflected in the 625% cap rate and prudent.
Prudently structured the transaction that works for all parties, while creating significant value for our shareholders as those of you who follow the industry closely are undoubtedly aware visitation occupancy and consumer spend has continued accelerating in Las Vegas and.
Operating margin expansion has become apparent.
Midweek demand has been supported by the early return of meetings and conventions and the outlook for the back half of 2021 and 'twenty 'twenty 2 is very promising.
Similar to regional markets Las Vegas is benefiting from very robust.
And in of new more efficient operating model as.
As I've said before the gaming consumer did not find the replacement for the bricks and mortar experience through COVID-19 not in the regional markets and not in Las Vegas as you can imagine underwriting transactions during.
Tumor demand can be challenging each market and asset has unique attributes of the EBITDAR you consider underwriting 1 day could be significantly behind real time performance. Just a few weeks later no doubt this makes underwriting and negotiating the potential deal a fun and creative challenge we're fortunate our.
The team has the ability and experience to manage this complexity, we thrive on the challenge and we continue working relentlessly to execute compelling opportunities that deliver the utmost value for our shareholders I now will turn the call over to David who will discuss our recent investment outside of gaming and our financial results David.
This time.
Thanks, John.
I'll discuss our exciting new partnership with Great Wolf and touch briefly on our balance sheet liquidity and give a summary of our financial results and guidance all of which is fully detailed in the press release, we posted last night.
During the quarter, we continued to expand our investments outside of gaming by entering into a medicine.
Mezzanine loan agreement with Great Wolf resorts, the Blackstone portfolio of company.
On June 16th we agreed to provide $79.5 million to partially fund the development of the Great Wolf Lodge, Maryland, and expansive 48 acre indoor Waterpark resort located in periods of the Maryland, the loan bears an interest rate of 8%.
And has an initial term of 3 years with 212 month extension options.
We will fully fund our commitment using cash on our balance sheet and expect to fund our entire $79.5 million commitment by mid 2022 in accordance with the construction draw schedule.
In addition, we will have the opportunity for a period of up to 5 years.
Ears to provide up to a total of $300 million of mezzanine financing for the development and construction of great Wolf extensive domestic and international indoor Waterpark resort pipeline.
We are thrilled the partner with great Wolf, the leading indoor Waterpark resort platform, an institutional operator.
During the quarter we.
We entered into a new $1 billion ATM agreement with the added flexibility to sell shares through forward sale agreements under the ATM, we've not sold any shares under the ATM in 2020.1 of our outstanding debt at quarter end was $6.9 billion with a weighted average interest rate of 4.01% the weighted average maturity of our debt as.
Only 5.6 years and we have no debt maturing until 2024 as of June 30th or net debt to LTM. Adjusted EBITDA was approximately 5 point of old times. We currently of approximately $3.8 billion on liquidity comprised of $407.5 million in cash on hand of 1.
Billions dollars of avail.
As of property under our revolving credit facility, which is Undrawn and in addition, we have access to approximately $527.6 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.
As of March 'twenty, 'twenty, 1 forward, which we intend to use to fund a portion of the Venetian acquisitions, which John mentioned.
Turning to financial results and just 1 minor point to note in the earnings release and the total revenue summary, under second quarter results. The 8-K refers to a non cash leasing and financing adjustment.
<unk> of of negative $29.3 million. This should instead be of positive $29.3 million reported total revenues in this summary, or otherwise correct.
<unk> for the quarter was $256.1 million or <unk> 46 per diluted share for the quarter total <unk> increased 45.
3% over Q2.2020 as a reminder, our diluted share count includes the impact of Treasury accounting during the period of time the forward sale agreements are in place.
During the second quarter the impact.
Of Treasury accounting on our diluted share count was approximately $17.4 million shares.
Our G&A was.
$7.6 million for the quarter and as a percentage of total revenues was 2%, which represents 1 of the lowest ratios in the triple net sector.
Turning to the guidance, we are reaffirming <unk> guidance of the full year 2021 in both absolute dollars as well as on a per share basis. As many of you are aware beginning of January 2020, we were required.
<unk> to implement the Cecil accounting standard, which due to its inherent unpredictability leaves us unable to forecast net income and SFO with accuracy. Accordingly, our guidance is <unk> focused because we believe <unk> represents the best way of measuring the productivity of our equity investments in evaluating our financial.
<unk> performance and ability to pay dividends.
We continue to expect <unk> for the year ending December 31, 2021 to be between $1 billion, 10 billion and $1.35 million or between $1.82, and $1.87 per diluted share.
These per share estimates reflect the dilutive impact of the 20.
Excuse me.
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 17, 2021, the amended maturity date of the June 2020 forward as well as the dilutive effect of the pending 60.
The 9 million shares related to the March 2021 and forward sale agreement.
As a reminder, I got our guidance does not include the impact on operating results from any pending or possible future acquisitions or dispositions or capital markets activity or other nonrecurring transaction.
With that operator, please open the line for questions.
Thank you at this time, if you're asking on.
A question press Star followed by the number 1.
On your telephone keypad again, the the Starwood for questions.
Your first question comes from the line of Greg Mcginniss with Scotiabank.
Hey, good morning.
Yeah. It was great to see a new industry into the fold.
Could you provide some context to the size of the addressable market for indoor water Park resorts and resiliency of those cash flows.
David.
Okay, great great to talk to you.
You know kind of take that in reverse order I mean, we've spent.
Over 2 years studying the indoor Waterpark resort.
Sector and I've, just come to be enamored with it and we're thrilled to partner with Great Wolf, who is the leader in the sector and has a phenomenal institutional platform led by marine team in Chicago.
The the the cash flows there essentially casinos without gaming there are multiple revenue drivers in terms of the indoor waterpark component.
Ponant the family Entertainment Center of the food and beverage so as we've talked about gaming multiple levers within the box and it's not just the box. Its a very complex box. These are very expensive assets to build that have a very very durable customer base.
And the durable customer experience, which which would come to love.
So high margin business and he and some of the gaming they were shut down during COVID-19.
They've re-vote reopened the customer has returned and the customer has returned to the droves and they've opened under our new operating model with higher profitability and higher margins.
In terms of addressable market.
Great Wolf is the leader Theres 19.
It was out there this will be number 20, we hope to continue to grow the the platform with great Wolf.
And this is a sector that we will continue to kind of study look at and hopefully over time.
Berke into the real estate ownership, if and when the opportunity arises.
Great. Thanks and was this of marketed.
The opportunity or how are you able to source of the deal.
We've we've the team with Ed John Myself, we've got great relationships, our Chief Accounting officer came from Blackstone. So we have good relationships with.
A lot of operators in the east as John has talked about we've been out meeting with the operators since day, 1 both in and outside of gaming.
And we've developed a relationship with the great Wolf team on the Blackstone team and we're able to put together a very collaborative transaction the work for both parties.
Great. Thanks, and then I guess the final question most simply.
What's your appetite for additional deals in 2021.
John.
[laughter].
I mean look we haven't changed our plans I continue to do as David just said with the grateful team and the Blackstone team and other operators in gaming and outside of gaming continue to build relationships understand what those companies are trying to do to grow is there a spot for us to help them grow as of as a partner.
Yeah on the long term so I don't know what exactly is ahead of us, but we're continuing to.
To be out there and build those relationships.
Well thank you so much.
Thank you Greg.
Your next question comes from the line of Daniel items with loop capital.
Forget.
Hi, good morning, everyone. Thanks for taking the questions.
Whether it's blackstone's real estate investment on the strip or your deal with the Pollo at the Venetian or even your recently announced financing deal with Blackstone portfolio company the great wealth it seems increasingly.
The private equity is looking to partner with or compete directly with with the gaming Reits. So I guess looking ahead do you continue to see private equity's involvement in gaming opco and or real estate assets accelerating flatlining or of declining versus say, what we've seen over the past 2 years.
Yeah, Daniel good to talk to you all start out.
We are I think the actual starting point in answering your question isn't it isn't narrowly the issue of how much private equity capital will come in the gaming, whether the Opco and propco I think it actually starts with how much capital areas.
Areas globally hunting for yield in a world, where whatever is today, 60% or more of the sovereign yield is negative.
Capital, whether it's private equity capital or of direct a pension fund the investment capital needs to find yield.
And in the case of in the case of the brilliant deal Blackstone did on Citycenter buying of phenomenal piece of real estate of 5.5 GAAP, we must recognize that's not it's not private equity per se that is actually within their non traded REIT we believe.
But the the the larger point is that.
To Echo what John said in his prepared remarks.
Gaming real estate represents we believe the cheapest great real estate on the planet on a comparative basis in a day and age when when industrial.
And even office to this day trading of cap rates with 3 and 4 handles.
Of those gaming real estate, even at a 5 handle on a comparative basis is of great value, especially for those again, who are managing long dated liabilities.
On the leases are long they have escalation in our case the AFC P I kickers.
The capital is concentrated.
Consider absolutely indispensable to the occupancy and the occupants are of great credits as real estate tenants and again youre seeing more and more of this where you might've seen as an example that the Cadillac Fairview of the direct investment arm of of.
Ontario teachers, 1 of the leading direct index.
Best of pension fund complexes in the world.
Is going to allocate more and more capital to real estate because they have determined the real assets are where they're going to have to get yield to make up from the lack of it in <unk>.
Sovereign yield instruments.
And ask that makes a ton of sunset, but thanks for the and then I guess just with respect to the great Wolf a financing deal per second such financing transaction, where the non gaming operator.
I guess looking ahead do you also see accretive asset acquisition opportunities outside of gaming.
In other words do you see beachy diversifying not just the non gaming investment portfolio, but also specifically of diversifying its non gaming tenant and asset base over the next call. It 1 to 2 years. Thanks.
David.
Yeah. Thanks, Dan.
Just in terms of the.
On the loan I mean, we use the alone the.
Alone tool kit is a pathway to potential real estate ownership. So we do expect to expand continue to expand outside.
Outside of gaming, but as we've been very vocal about its not an either or the majority of our investments will be gaming just as I talked about the magnitude of the assets the magnitude of the cash flows.
We will look to continue to partner with great operators in owned real estate with great operators to help them grow their portfolios whether through direct ownership of the continued use of of the mortgage financing tool that we've been successful with to date.
And Dan if I can just add to that as well.
The few years ago. When we started P. J you heard me on these calls talk about continuing to work with gaming operators to educate them on how a REIT like ours could help them in their capital stack and how we could help them grow we're doing a lot of that in the in some of these non gaming sectors as.
Just.
And Theyre getting introduced to our company and our form of financing and we're spending a lot of time doing that and hopefully that will lead to some of them are accretive and exciting opportunities for us in the 1 or 2 years as you mentioned.
That's helpful. Thanks, David Thanks, John.
Your next question comes from the line of Barry Jonas What's true risk Securities.
Hey, guys good morning.
With PPE paying record cap rates for gaming assets and the potential for new entrants I'm curious to get your perspective on to what extent your gaming expertise.
Well he is an advantage in discussions with operators.
John.
Well, it's definitely it's definitely there's no doubt having some expertise in the space is quite important these are as David talked about the non gaming assets being income complex.
Our gaming our tenants have very complex assets and really over the past 18 months the business has changed dramatically and so understanding how the business has changed and what is the long term outlook of the business is critically important and then understanding how these companies are going to grow.
The meeting with the C suites.
It is important and there is no doubt that you've heard us talk about the importance of relationships. These are long term deals when we do these things and so it is important to have those relationships and the understanding of the core business and how it is going to perform on the of the years to come.
Tom.
So I'd say, that's a long way of saying Barry that it is it is important we think it's an important part of the beaches.
Our pork or our plans.
That's great Jon and then just the follow up question, we've obviously seen very strong cap rate compression in Las Vegas.
But I'm curious to get your thoughts on what we could see in the regionals.
At what level do you think is reasonable.
Yeah I'll start Barry.
Well, what we will likely see in real estate is the.
Dynamic that you tend to see another asset classes of the institutional line.
As an example.
When final mile logistics really started becoming a higher category.
You tend to see the greatest amount of bidding activity and what we're then the epicenters of the final mile which was chiefly the inland Empire of L, a and northern New Jersey.
And as the assets got been up there and as they got bought up in those 2 markets. You began to see capital then seeking return in the ownership of assets in other markets. So capital started going to places like Atlanta, and Dallas, and Chicago, and Cleveland I mean, there's a there's on Amazon.
Distribution center across from our it's the last set outside of Cleveland.
Our whole lot of capital went into that.
And.
What you will see likely in gaming is the same if you will radiating effect from the current epicentre of game.
<unk> real estate investment, which is Las Vegas right as the asset class continues to prove itself out.
And as is the opportunity, perhaps don't become as numerous in Las Vegas capital, we will seek opportunities in other markets and in regional gaming they will find assets that are out.
Outstanding in their income producing and income resilience characteristics. So it's a matter of time, but.
With that I believe is all of it is a matter of time. If this is going to be like other institutionalized asset classes.
Great. Thank you.
So much thanks guys.
Your next question comes from the line of the West Golladay with Baird.
Hey, good morning, everyone..1 of them maybe follow up on that last question are you starting to see capital flow to be the regional assets, whether it's on the debt side of the equity side of the store primarily concentrated in Vegas.
Well I mean, we certainly know what we hear David right.
Yeah, we know exactly what it's good to talk to you.
And the we've mentioned this before that.
Are you know of from phones didn't stop ringing during COVID-19 and some of the calls that we got were.
New entrants looking at gaming and I.
I think those new entrants are continuing to look of gaming both within Vegas and outside of Vegas, because in these are primarily private capital sources, who have historically invested in leisure hospitality entertainment companies in.
They're almost through cash burn cycles are talking about cash burn, but theyre looking at gaming realizing wow, how do I get into that sector of how do I potential.
Potentially.
Partnering with somebody in that sector, how do I develop of platform in that sector. So I think you'll see more in the regional markets as time goes on here just given again, given the resiliency and quality of these cash flows.
Okay, and then looking on the the debt side of the equation what are your plans for the the financing of the Venetian and where.
Where can you borrow at today.
Yeah, well as we've been.
Very consistent.
As I mentioned in my remarks of about $2.4 billion of of equity sitting on a forward. So that's and then we will go on to the debt markets later in the fall unsecured high yield markets to get the remaining $1.6 billion 7 of proceeds to fund our 4 billion.
Our commitment for the Venetian.
On our 10 year paper or the 10 year quotes we've gotten recently is the sub for kind of 3.5% to 4 per cent range, obviously that bounces around a little bit with the markets, but we still feel very confident of our underwriting and the accretion we'll achieve from that transaction.
Okay, and then 1 on the investment.
When.
Kept on investing an incremental incrementally into your assets what type of annual spend can we see here over the next 2 or 3 years.
Do you of any active plans right now.
Yes sure.
Oh go ahead John.
Yeah, that's just to say Wes I think you're asking about our current.
Current tenants and our current assets.
None of that.
Yeah, it's the responsibility of our tenants to do that we obviously have some visibility to projects debt that theyre going to 2 big projects that they're going to put forth. We also have in our leases.
When you wouldn't obligations.
<unk> of investment that they make into our assets.
But it really is the obligation of the tenant or the operator to maintenance capital investment.
But I think what youre asking about what is the opportunity for us to invest incremental capital into our assets.
We did complete a.
The project or I should say Jack.
Our operating partner in Cleveland, just completed a project at all.
With the help of our capital on a new smoking patio that's true.
It would be an outstanding success.
On the floor, which means.
The getting incremental rent and.
Our work.
Some of their operating partners to help them understand the way in which we can provide capital for expansion of improvements reprogramming, especially as they continue to see demand levels that they're really just outstanding I mean, Barry a moment ago mentioned, how strong the operating.
The results are and [laughter] I, just can't help looking for an excuse dimension. The fact that you know when.
<unk> announced I guess it was last week you know they they reported 98% occupancy in the month of June No international travel not much convention business, yet 98% occupancy.
Occupancy and as you all know they've got over 7000 rooms and of 98 per cent that means almost 7000 room nights of night sold.
Each night in the month of June with again, no international travel and very little citywide convention visitors, yet and yet that business is coming.
Towards the back end of the year so.
Hum.
Our our operators are certainly looking at scenarios, where they're realizing there can be opportunities for expanding their capacity in 1 way or another or re programming in 1 way or another to take advantage of what is.
Al.
Outstanding levels of demand.
Got it and then 1 follow up to the you mentioned the smoking at the the Jack the facility. There can you talk about how influential the ability to smoke is a facility. We have looked at the the gaming data in Pennsylvania. The was it looked a little soft, but it looks like it's partially explainable.
John.
Yes, its been interesting west of the this has been rolled out nationwide theres been markets that started non smoking, Ohio. In particular is the market that started out and still is a non smoking, but what you heard Ed mentioned is the operators have created these out.
Outdoor facilities that allows smoking and I think it's just to meet the demand of particular customer segments that want to smoke while the gamble there are other states.
And cities, even that are passing non smoking. It will just have the monitor if that ultimately affects the business long term.
But.
What Ed was mentioning the Ohio is the state that actually is non smoking, but we help Jack developed the smoking area.
Outside.
Alright, thanks, everyone.
Your next question comes from the line of Smedes Rose with Citi.
Hey, it's Michael Bilerman here.
This morning.
And I was wondering if you can take us through sort of the the discussions you've had on the Chelsea piers and great wall side of both of those were the loans. Just started all of these say I think Chelsea piers was on our leasehold, which which may of <unk>.
Driven part of that but I guess sort of this risk.
1 thing in terms of going in on the loan side versus going in on the fee.
And doing the traditional sale leaseback, how should we think about sort of your incremental.
Expenditure.
Non gaming assets should we expect it to continue along the mortgage line.
Balance them with you know draw downs in the future versus doing something more material.
In terms of investment.
Yeah, Michael on things good question and good day to hear from you on a grown fond of the saying that.
You know execution of happens.
On the intersection of opportunity and strategy and what <unk> seen from it so far of Michael in terms of the Chelsea piers and great wall was seizing on an opportunity.
In each case, we did not have at the time, we did the deals the opportunity to buy the real estate either by a lease hold interest which would be.
Possible.
Essentially of Chelsea piers or buy buy into the assets.
Either in the stage of development of our fully developed so we're using the the financing vehicles on the way David described as a way to have a seat at the table such that if there is an opportunity to become the real estate owner in the future.
We have a ringside seat in order to do so and again, we will continue.
Tenure of it.
Till every field, we can really come into contact with and certainly our first choice will always be to buy real estate.
Whether it be simple or buying long term leasehold.
If it if it meets our investment criteria.
But again, we're not going to be doctrinaire, we're gonna be opportunistic if we think the right risk reward profile is there and.
In the case of these 2 opportunities I mean, we just could not be more excited Chelsea piers as you well know, it's just up the street Premier is an incomparable.
Asset and I'm not sure. It's fully appreciate it is not only new York's foremost recreation assets its Manhattan's best film production Studios.
Don't need me to tell you what the news this morning about Hudson Pacific and Blackstone partnering on the development of new studio space in L. A debt that is 1 really on category.
Right now and likely to stay so for the long term so.
Again, there's a bit of a long winded answer, but we're going to use every tool of the toolbox to get a ringside seat for opportunities to grow our portfolio accretively over the long term.
Do you think about obviously on the alone because of what you'd get repaid and you.
Long term ownership of those cash flows from would have to reinvest can you talk a little bit about the relationship of Chelsea piers I don't think they drew down the other $15 million.
And also on the Great wall side, obviously the company was for sale you probably spend some time looking at it.
Figure out some partnership but.
How close are you to actually.
Owning fee and doing the traditional deal in both of those cases, when should we expect potentially something to convert now that you've sort of been involved with both of those parties.
Yeah.
It appears he couldnt put a highly specific timetable on it but what I will tell you as the as we work with Chelsea.
The peers.
1 of the key things keep in mind as we like to partner with companies that are intent on growing.
And and growing.
Requires capital and that's where we believe we probably can get our best traction over time Michael.
It was just 1 operator with 1 asset.
And that's all of the ever wanted our chances of doing something or what they are but with the operators who want to grow and who will require capital to do so that's where we think opportunity is I couldnt put a precise timetable on Chelsea piers, but we are very excited about their growth ambitions and in the case of of Blackstone.
Oh, they've spelled out their growth ambitions are very expensive.
And as David spoke of in his comments, we have the opportunity to keep funding them for quite a period of time and hopefully be there.
With the very compelling offer if if there is an opportunity to become the owner of the real estate.
Great.
Or can they just.
In terms of that relationship you don't have any sort of the rights to.
The rights of first offer on assets or writer first refusal if you decide to sell assets.
And that loan the debt.
I dunno, how how the drawdown works, but could they sort of prepay you completely.
From walk to another type of lender I guess, what what type of clause do you have into that organization on I recognize you're with the strong relationship with Blackstone as the partner on the gaming side, but just I'm just trying to understand how tied that revenue stream is that could lead to future deals.
Okay, I'll turn that part.
The question over to David.
Thanks, Michael good to talk to you.
There's always a degree of well if we do it we do have the similar ROFO employees with great Wolf and the other in the event the elect to sell so similar to the talked about with jokes. It appears they may or may not always of single assets, but it's what.
What does the gives us the seat at the table and we will get.
The monthly reporting information 1 of it.
Very good dialogue with the marine team of runs.
Wolf and the.
Very good dialogue with the with the Blackstone team that ultimately look to monetize it so being in the mix and being in the flow keeps us close to the.
The opportunity to secure long term real estate.
And part of our ability part of what we bring to the table is the next slug of capital.
That's great we'll put out in their press release of JP Morgan, who is the senior loan on this very build the government.
And as you know or you can talk to colleagues on the rest.
Rest of the group organization.
Instruction financing is not of deep bucket of of financing so for us to be able to provide the mezzanine component for this asset in a handful of them anymore. That's a very attractive piece of capital, especially when great Wolf is out talking to you.
Securing future sites and being able to demonstrate that they have the capital.
Capital and ready to go for future development. So.
There is a 5 year term, obviously on the mezzanine piece, but we don't have we don't believe it'll be repaid quickly in the middle of it will take it you know 2 years the developed in the enough a little bit of time to stabilize so well it's not of 35 year lease we do we do like the investment.
We do like what it opens up for us.
Okay. Thanks for the color guys.
Yeah, well 1 thing I just wanted to add Michael is that.
1 thing that our embedded growth pipeline that gives us the ability to do is invest time and energy in the developing of relationships.
That debt.
It may not pay off for years.
But nonetheless, we want to do that in an example of that was when John Payne of started calling on Rob Goldstein, the CEO of Las Vegas Sands of couple of years ago, and with some of US going out. Okay. Go ahead, John we're not sure that's never going to pay off and obviously it has.
And similarly, whether it be in gaming and non gaming are.
Our business model allows us to invest time into relationships debt, if we grow those relationships successfully they represent our future growth.
In the years to come and if we are investing time and the relation.
Has the up here in 2021, the pays off in 2025, we feel we're actually doing our jobs right, but again, our business model allows us to do that in the way that some other REIT management teams may not enjoy.
And so how deep is that list of the 10 different types of experiential.
Uh huh.
<unk> investment in terms of asset categories or is it more limited to like 2 or 3 I guess, where are you where are you placing how.
How many different types of bets, you're placing across industry verticals rather than within the vertical.
Yeah.
I think we're into double digits, John and David.
I mean, we're.
We're in the categories day by day.
On that frankly, we weren't even on our radar of 2 years ago, but as we evaluate them. We see the 4 things, we most want which is low cyclicality no secular threat healthy supply demand balance.
And of durable end user experience.
Again proven its durability for decades going backwards and promises to be durable for decades going forward and there's a lot of white space out there Michael that the the Opco Propco model has not pioneered the we think has the potential to be fine.
Especially within the experiential sectors didn't have demographic tailwind behind them for the next 10.20 years debt.
Thomas real growth opportunity of the operator, let's go on required capital, which we are so.
To provide.
Alright, thanks, guys.
Thank you Michael.
And your next question comes from the line of Stephen Grambling with Goldman Sachs.
Thank you.
I know that you've provided the the rent contribution from some of the the outstanding transactions that you've discussed but could you actually maybe put a range around the <unk> per share.
Sure.
You know post all of these transactions that are kind of an announcement of a pending at this point.
David It's David.
2 of them.
We reiterated our guidance of about 82 of book 87, John touched on the verdict will get $250 million of incremental rent.
And you know, we think with an additional 1 billion 7 of debt in the around 4% you could probably get pretty close to the.
The F O impact there.
Got it and then I guess.
1 other follow up is just unrelated to that just as you've been looking at the strength of loss.
Yes from the regional markets here and I know you kind of talk to this in some of the remarks from the questions. But are you at this point starting to see either in the bid processes or even in your own underwriting of shifts away from underwriting the 2019 and now being willing to kind of think about a normalized.
The day run rate that is above that or even at the levels that we've been seeing.
Stephen It's Jon it's a great question I'll start by saying boy it's.
A lot of props to the operators and the gaming business right now I mean, our tenants are public tenants of not.
The lines the earnings, but you saw the earnings of Boyd and Red rock in monarch, and Churchill of and Sam's and others out there and you do have to say.
Kudos to them for reinventing their business. During this very tough time in showing incredible operating margins I'll answer the question by saying you really have to take it assets.
That buy assets Stephen you really have to go through and understand if there's an asset that has seen considerable growth through the 2019 numbers where are they getting on what segments or getting them out of what margin are they getting at how did they increase their margin and this goes to my opening remarks by saying.
<unk> expertise in our organization.
Nation.
To be able to dig in on it allows you. If you are going to do a deal and do underwriting during the this unique time to get a real real good number that youre comfortable with on the EBITDAR level and those are the types of things we will do if there is a.
The opportunity.
Yes.
That's helpful.
<unk> much.
Your next question comes from the line of John Decree with C. B R E.
Good morning, everyone. Thanks for taking my question.
Maybe maybe 1 for John or David on the put call with Who's Your Park and Indiana Grand Racing I think the window.
It's been about 6 months could you talk a little bit about your strategy and kind of managing the pipeline and.
What might convince you to exercise that sooner.
Then later or hold off.
Hey, before John and net before John and David The answer that question John Decree I just wanted.
Window of Dow for everyone's benefit the name of the firm debt.
You are now associated with.
Union gaming, having becomes part of the C. B R. E. I think is is evidence of the fact that real estate gaming real estate is in the institutionalization process.
The point of company of the stature in global commercial real estate of CBRE. Besides of the game start playing it so.
Anyway, congratulations John and over to you John Payne and David keeps moving.
Thanks, and I hope you all of that we're excited.
Yeah.
Congrats.
John and John to your question about the 2 Indiana.
The tracks and casinos and Indianapolis.
Our tenant has done a great job on taking those businesses overview of private and tracking the revenue levels. There. They are also committed to large capital projects to both of those assets.
1 of the table games.
It started at those 2 assets there wasn't the table games before that.
Those construction projects can continue the business will take a little bit of time to stabilize after they get the capital projects in place as you mentioned the put call becomes active its 6 months from now so we're.
We'll continue to.
To 2 <unk>.
Watch these assets see them grow obviously, where we're partners with Caesars. The operator will continue to talk to Tom Reeg, and Bret Yunker and understand what's.
What's going on there and then we'll see how it ultimately plays out with the with the put call on the timing.
Thanks, John and maybe 1 for Ed on on his favorite topic today, and 1 that's near and Dear to us on the institutionalization of casino real estate.
1 of the 1 of the questions we've dealt with over the past several years and as you have as well is some of the holdouts on.
The casino real estate some of the operators who've been a little bit more reluctant.
But you know sands, probably 1 of those camps as we would have looked at and as you suggested earlier, but as cap rates continue to compress I think the opportunity of just gets more and more compelling for operators to consider U S. As a financing source.
My question Ed is at this current trajectory do you think that over time, the majority or vast majority of casino real estate will will be owned away from operators.
Like some of the other real estate asset classes over time.
It's Ed.
It's a good on that.
Maybe hard to answer your question John I do think so much of the answer comes down to what was the recipient of the proceeds do with the proceeds right and I think what youre seeing so far of John is is that.
The the propco model the participation of the REIT.
It is really valuable when an operator wants to grow and or when an owner of an asset once the exit entirely you've not seen a whole lot of sale leasebacks undertaken for the sheer sake of financial engineering at this point right.
Which is probably.
Healthy and South I mean, this should be done when an operator has a compelling use for the proceeds whether to reinvest in their business to grow their business or otherwise achieve liquidity or for partners, who need that liquidity.
There is no question John that the fullest value of an asset will be.
Price with an Opco propco model, it's really going to be up to the owners of the assets as to how how they want to crystallize their value and when they want to.
And to be honest with you selfishly.
This is the process that takes years to unfold that's better [laughter].
Yeah.
Because if it is there from.
If it unfolds over many years to come which I think is actually probably the likely bet.
It produces a more sustained growth pipeline for all of us in gaming real estate.
Great points. Thanks, Thanks, John.
Your.
Your next question comes from the line of John Mess OCA with Lindenberg.
Good morning.
Hey, John.
So it was notable that the great Wolf asset you provided the construction lending for was next door casino property of albeit when you don't own.
Any of the discussions with great Wolf.
Was that proximity of an important factor in why they chose that location and I guess you know what the read through from Vichy is could you utilize the excess land in your reading of casino portfolio to maybe.
Do more deals with great wall from the especially now that you have this kind of financing agreement.
Or.
In place just just is that something that was kind of part of the conversation as you were.
Starting this financial relationship with grateful.
Okay.
Hey, John it's good to talk to them.
The the proximity of the period of the.
Hollywood Casino was it was not part.
Of the discussion you know, it's I think what it does is create a very good sets of creator.
The experiential Entertainment center, which will be great. Both for the the great Wolf asset as well as the pen and G. O P I, who owns that real estate, but.
Yeah, Great Wolf was able to secure the site, it's right off of 95, it's in.
And as.
As you've seen with these.
Indoor water park resorts over time, they become starting to migrate closer to the core is as this sector has become more institutionalized you go back several years they were.
Ah you know farther away from urban areas and cheaper land and in areas that were a little bit cheaper to build so this.
The continuing the institutionalization of the end.
The waterpark sector as it relates to our land.
If there's an opportunity with 1 of our tenants to to put the indoor waterpark on on land that is next to 1 of the casinos absolutely. That's something we would explore and something that we would be happy to provide capital for.
Okay and it sounds like.
Developable land right up on 95 is kind of of premium and so the reason why it was a good place to put on casino. There is also why the good place to put the indoor Waterpark exactly yeah, and John Inc.
If I were going on.
On to the game, which add maybe of weakness for I would say that the power center of the future.
This is just won't be retail it'll be experiential and John Payne could get attached to its actually American tribal gaming operators, who are who are really the first and gaining to realize that they have the opportunity to create experiential power centers around.
So many of the amazing assets that they've developed and are operating.
Okay.
And then.
The other kind of bigger picture question, you've talked before about the potential for the front end space in front of Caesars Palace right there on the strip.
On the announcement from Caesars earlier this month that they were kind of going to renovate and are the main entrance of Caesars Palace does that impact your outlook for that space at all.
Potential for development, there I mean can it accelerate it can it maybe.
<unk> given you know the season, just trying to do with its main entrance.
Given the kind of outlook there.
We're very excited about what the Tom Reeg, and Brent and Anthony Carano announced about.
Our marquee asset.
Addressing the entrance and making it more welcoming I think that's going to be a fantastic project I think here.
Talking about the acreage that we own that's part of the Las Vegas lease in front of Caesars Palace, and I think that that is just.
Just a great piece of real estate debt I know my my partners at Caesars continue to look at what is the most appropriate development that goes there for the long term of Las Vegas.
Danny and brings that casino out to the strip.
And I know they are continuing to look at it so not sure there is a connection between the 2.
The making the front entrance right now more accessible and the new development, but I do know that the overtime Thats a great piece of real estate that could be developed into just.
Oh class opportunity to attract more customers to that building.
Okay.
Understood and that's it for me. Thank you very much for taking my questions.
Your next question comes from the line of Jay Corn, Rich with F N B C.
Hey, Thanks, good morning.
As the gaming cap rate compression.
Typically in Vegas may make it harder to find accretive deals is this environment motivating you to look further into non gaming investments.
Go ahead John.
I don't I don't think it's I was going to stress earlier, when we were talking a lot about the non gaming opportunities as well.
The Morley.
Spending time doing that it's not an either or David talked about this earlier and I and we've been talking about this for a couple of years as we've got capacity to do both we see a nice runway in gaming, we're going to continue to build relationships from gaming, which should lead as it has our first 3 on a half years to.
We're clear of the accretive gaming deals.
But we have the capacity now to look in other sectors and other opportunities that fit within our portfolio and net would work for our shareholders. So it's important to know it's not it's not an either or we have the ability to do both of them were going to continue to do both.
Yeah.
Okay. Thanks for that and then just regarding the permitting of up to $300 million of capital for the Great Wolf resorts do you of any guidance on potential timing of how they would call that down.
Hey, Jay it's David.
We don't have any guidance either at the great Wolf, but we do know that they've got a very.
To the pipeline.
As I mentioned their customer.
Continue to want to visit the water parks, even in and get back out and it's very.
Very big resurgence in the in their bookings and their activity of their assets, so they're seeing a great opportunity.
To expand the platform.
And we're excited to partner with them on that.
Okay, great. That's it from me thanks, so much.
Your next question comes from the line of Todd Thomas with Keybanc.
Hi, Good morning. This is Ravi the the other line for Todd Thomas.
Whether the pandemic well with perfect collections can you.
The robust on the impacts of the Delta variant of the Nevada announcement earlier this week of masks being required in public places what impact does have the casino traffic and activity.
Yeah.
Yeah. It's a good question and we will continue to monitor I think you know when the casino was opened in Las Vegas and.
Comment on had tremendous demand at the at the beginning when they open they did require of masks for employees and for our customers and then it's been over the past couple of months wear a.
Masks have been removed and as you said of.
Clarke County is.
Yeah.
Same with the <unk> need to come back for the.
For the employees from the guests. So we'll continue to monitor it as the entire United States.
It is but as we saw when the casinos open up there's still a tremendous amount of demand.
For Las Vegas, and for the assets that we own the real estate and 4 operator, so just more more to come on but.
Or as you've gone through this before the.
The end of 2020 in the beginning of 'twenty, 1 and the they are prepared and I'm sure there'll be another.
Another opportunity where mask will be removed the apple will monitor that accordingly.
Thanks, that's it from me.
Thank you that does.
But they have the Q&A portion I will turn the call back over to add bottone for closing remarks.
Yeah. Thank you operator, and thanks everybody.
About the continuing institutionalization of gaming is the real estate asset class and believe we are well positioned to continue driving spirit.
Superior shareholders.
Yeah, Thanks, and good helped all of my for now.
Thank you. This does conclude today's conference call you may now disconnect.
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Good day.
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A holder of <unk>.
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