Q3 2021 VICI Properties Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the V. T properties third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
Please note that this conference call is being recorded today October 'twenty eight 2021.
I'll now turn the call over to Samantha Gallagher General counsel with Vinci properties.
Thank you operator, and good morning, everyone should have access to the company's third quarter 2021 earnings release and supplemental information.
The release and supplemental information can be found in the investors section of the BG properties website at Www Dot Vg properties Dot com.
Some of our comments today will be forward looking statements within the meaning of the federal Securities laws forward looking statements, which are usually identified by the use of words, such as will believe expect should guidance intend outlook project or other similar phrases are subject to numerous risks and uncertainties that could cause <unk>.
<unk> 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.
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 and our third 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 <unk>, Chief Financial Officer, Gabe Wasserman, Chief Accounting Officer, and Danny Malloy, Vice President of Finance.
The 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.
Thank you Samantha and good morning, everyone.
Third quarter of 2021 was the most active and transformational quarter and our four year history at BG. The highlight of our quarter of our year to date of our history to date was our announcement on August four of our acquisition of N. G P market, leading assets and our new long term partnership with.
MGM resorts one of the foremost leisure hospitality entertainment companies in the world.
Together with our March 3rd announcement of our Venetian acquisition 2021 has been a step change year for D. G. So far in 2021, we've signed over 21 billion of transaction activity, giving us, giving us nearly $30 billion of acquisition activity in our first four years.
And to fund that growth we have over the last four years rates more primary common equity proceeds than any other REIT in America we.
We have a strong conviction that our energetic and execution driven strategy over our first four years well over the long term create significant value for our equity and credit owners.
We believe that there are three key factors that drive and validate our strategy.
Factor, one invest before others do.
As an asset class institutionalizes investing earlier, rather than later generally will yield opportunities to buy institutional quality assets at pre institutional pricing.
While other investors have begun initiating their mapping of the gaming real estate investment landscape Vg and I should know Blackstone had been busy buying great assets at Unlevered going in cash flow yields that are superior.
Absolute and risk adjusted terms than can be found in already institutionalized asset classes.
I want to say that there arent compelling investment opportunities still to be had in American gaming real estate. There definitely are the sectors real estate is still not yet even 40% owned by Reits.
While others are getting started with their homework Vg has built market leading.
Proprietary ownership positions.
One of the most economically productive streets in America, the Las Vegas strip and.
<unk> will also have built the largest by far the highest quality regional portfolio in American gaming real estate once we close our M. G P acquisition.
Factor to invest when others are fearful or uncertain.
We began our 2021 acquisition work in late 2020, when most real estate investors were still understandably I'm sure about leaving harbor and going out onto the blue water to fish.
Because of the COVID-19 pandemic. It was stormy in late 2020 and stayed stormy well into 2021, but if you were willing debenture out onto the blue water because of our conviction that COVID-19 has proven the durability of our asset class and the market leading resilience of our operating partners, we've announced over 21 billion.
Acquisition activity in 2021, because of that conviction and in doing so preempted any risk of the incomparable incomparable Venetian and the best in class MVP portfolio being bid to the skies. When everybody was finally ready to come out onto the blue water with us factor.
Sector, three invest alongside great partners when given the chance.
<unk> investors Understandably question Beachy strategy went in late June 2019, we announced our intention to support Eldorado's acquisition of seizures with what ultimately became $3.6 billion BG capital.
We're constantly asked throughout 2019 and well into 2020.
And the El Dorado, guys really achieve that $500 million of synergies can they manage so much bigger in organization can they produce sufficient free cash flow and rent coverage will they have access to capital.
Well when we put our money behind Tom Reeg, Bret Yunker Anthony Carano in the rest of the Caesars team. We are very confident that they would deliver and you all know by now without question. The dampier to have delivered far beyond everyone's expectations.
Similarly, when earlier this year, we began competing for the M. G. P portfolio, our determination to win was greatly energized by our conviction that bill Hornbuckle, Jonathan healthier Corey Sanders and the MGM team.
Rowing MGM in to one of the most dynamic and innovative brand and operating platforms and the global consumer discretionary sector.
Nearly $30 billion $30 billion of announced investments over our first four years have enabled us to partner with great operators across the U S. Not only MGM and Caesars, but also with Apollo on the Venetian with hard rock Tenn, Jack century, the eastern band of Cherokee Indians Chelsea piers.
Great well in club Corp.
All our current operators every one of them is delivering top flight performance in global leisure and hospitality right now and the secular outlooks for our gaming partners, if youre, a brighter and one can find in almost any other category because of the audience expansion tailwind that sports betting represents to repeat these three key factors that have driven our strategy.
She interactions.
One grow fast in the early stages of institutionalization.
To grow when others are on certain under willing or underfunded factor three grow with great partners.
Activity in our first four years driven by these three key growth factors distilled down to this.
Before other institutional real estate investors, who are ready to do so we built a portfolio of class a real estate of incomparable scale and quality at significant discounts to replacement cost and significant discounts to other institutional real estate categories of similar assets and income quality and in doing so we've created a network with pardon.
Our relationships there will be a key source of growth for us for many years to come now to talk about our growth outlook I'll turn the call over to John Payne John.
Thanks, Ed and good morning to everyone. During the third quarter of 2021, we continue to execute the market leading growth. Many of you have come to expect from BTG.
<unk> of our $17 $2 billion acquisition of MGM growth properties brings our total investment as Ed said to nearly $30 billion 48 months as I'm sure. Many of you can appreciate this degree of activity does not come without hard work dedication and relentless desire to succeed.
As a management team we are incredibly thankful for the hard work of our exceptional colleagues at what we call team Beachy without whom many of our accomplishments to date would not be possible as I've said before Vichy does not go on vacation or wait for the phone to ring after announcing or closing a transaction.
Our primary day to day operations consist of sourcing underwriting and funding accretive acquisitions to that end, we are as busy as we've ever been building our pipeline and meeting with talented business owners and management teams to discuss how ricci can be an efficient source of capital and play a role in.
Funding their growth plan.
As we look forward, we will strive to extra across the many growth pillars. We believe will make <unk> stronger company, while driving accretive <unk> per share growth for shareholders.
Those growth pillars include executing transactions within our embedded growth pipeline OPE.
Open market gaming transactions in the United States and internationally, our property growth fun through which we will fund high return growth projects at our properties for existing tenant partners.
And leisure and experiential investments as well as continued large scale M&A, there's never been a more exciting time to be investing across the gaming universe and Las Vegas in particular operationally fundamentals fundamentals are strong and the casino operators continue to have a robust outlook for their property.
Margin expansion remains sticky and the industry continues to post very impressive financial results. For example, some of you on this call may have noticed that just last week Las Vegas Sands reported a record third quarter at the Venetian resort in Las Vegas, with adjusted property EBITDA of $130.
$2 million, 97% hotel occupancy in the quarter and robust for group bookings from 2022 through 2027.
All of these results occurred in the third quarter that had very limited convention and meeting business and almost no international travel.
We've announced the acquisition of the niche in real estate or 625% cap rate, we have witnessed cap rate compression firsthand on the Las Vegas strip first with the real estate of Oreo and Madora at Citycenter trading for a five 5% cap rate and most recently just about a month ago with the cosmopolitan as real estate.
Trading just under a 5% cap rate or a 21 times rent multiples, we have been among the biggest and the most vocal believers in Las Vegas since we started <unk> and it's very gratifying to witness institutional capital enter this sector will continue to be at the forefront of gaming real estate investing.
And assets into markets, where we believe institutionalization is poised to occur in closing we believe the outlook for growth is very promising and the transformation of our balance sheet, which David will touch on positions us for continued success as we approach and an investment grade credit rating and upon closing of our pending acquisition.
Actions will emerge with a pro forma enterprise value that is approximately $45 billion, which is significantly larger than most of our direct competitors now I will turn the call over to David who will discuss our balance sheet and additional investments outside of gaming David.
Thanks, John.
I want to start with our balance sheet and highlight what was our most significant quarter in terms of advancing our long term strategic and financial goals.
<unk> heard me say since emergence we've maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection, our equity and credit partners deserve the initiatives, we undertook in connection with the M. G. P acquisition further strengthen our capital structure and position <unk> for continued year in your outgrowth.
And in connection with the announcement of the MGE transaction on August 4th.
We received extremely positive feedback from the rating agencies and just to read a snippet from the report that S&P released.
I quote the acquisition will improve <unk> scale and tenant diversity, such that it could support a greater level of leverage at a higher rating if the company finances, the acquisition with a mix of equity and debt that leads to pro forma leverage of about six times or below and we could raise our rating to trip.
It would be minus.
Great News and I will touch on leverage in a moment.
On September 14th we completed the largest REIT common only equity offering ever issuing 115 million shares of common stock at an offering price of $29 50 for aggregate proceeds of $3 4 billion.
65 million shares were sold via a regular way offering raising $1 9.050 billion shares are subject to forward sale agreements. This offering derisked the equity funding for the <unk> transaction and position the balance sheet to be below the leverage ratio is dictated by the rating agencies to migrate the balance sheet to an investment grade issuer.
On September 15th we were thrilled to eliminate all outstanding secured debt and our current capital stack with the repayment of the secured $2 $1 billion term loan we used $526 $9 million of proceeds from the settlement of the June 2020 forward sale agreement on September 9th as well as a portion of the proceeds from the.
September equity offering to repay the term loan in connection with this payoff. We also settled the outstanding interest rate swaps incurring breakage costs of $64 2 million. This onetime amount is reflected in interest expense for the quarter, reducing net income and <unk>, but is added back to arrive at <unk> on Sept.
Timber 27th we announced the successful early participation in the exchange offer and consent solicitation for the $4 $2 billion of outstanding M. G. P notes.
As a result upon closing of the MGE transaction the covenants under the existing M. G. P. Indentures will be aligned with the covenants restrictions and events of default under the Vichy indentures.
Our outstanding total debt at quarter end was $4 8 billion with a weighted average interest rate of four 1%. The weighted average maturity of our debt is approximately six three years and we have no debt maturing until 2024.
At September 30, our net debt to LTM adjusted EBITDA was three one times.
Currently have approximately $4 9 billion in liquidity comprised of $669 $5 million in cash on hand, and $1 billion of availability under our revolving credit facility, which is Undrawn. In addition, we have approximately $1 $9 billion in net proceeds available from the March 2021 forward sale.
<unk> and approximately $1 4 billion and net proceeds from the September 2021 forward sale agreements, which we intend to use to fund a portion of the Venetian acquisition.
And since our formation just a little over four years ago, we have been relentless in our drive towards that of investment grade rating and we believe the actions we took during the quarter should position <unk> to be able to access the investment grade market. When we seek to raise the $4 4 billion of permanent debt required to redeem the MGM O P units at the <unk>.
The closing of the <unk> transaction.
Now turning to the quarter.
We.
Once again continued to expand our partnerships outside of gaming by announcing a strategic arrangement with club Corp, and Apollo portfolio company related to big shots golf on September 15th we agreed to provide up to $80 million of mortgage financing to fund the development of five big shots golf facilities across the U S. As part of the arrangement would be true.
We'll have a call right to acquire the real estate assets associated with any big shots golf facility financed by BG in a sale leaseback.
In addition, we have a ROFO on future debt financing big shots golf.
And future financing beef chubs golf seek for any multi state development of their extensive pipeline and facilities.
Over the past two quarters, we've announced strategic arrangements with leading leisure and hospitality operators and we believe our relationships with Apollo and Blackstone demonstrate our ability to forge mutually beneficial partnerships that enhance our diversification and growth prospects. We are thrilled to partner with big shots and expand our relationship with Apollo and continue to look forward to a great part.
<unk> shipped with Blackstone and a team of great Wolf resorts.
In terms of financial results net income in <unk> was 161 $9 million for the quarter or 28 cents per share.
Paired to $398 3 million or 74 per share for the quarter ended September 32020.
The year over year decline was primarily related to three.
$333 $4 million of one time noncash gain upon lease modification.
In the third quarter of 27.
$79 $9 million loss on extinguishment of debt and interest rates swap terminations in the current quarter.
And the $168 million noncash decrease in the Q3 'twenty versus the Q3 21 change in the seasonal allowance.
<unk> was $257 4 million or <unk> 45 per diluted share for the quarter total <unk> increased 12, 9% over Q3 of 2020.
And just 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 third quarter the impact of Treasury accounting on our diluted share count was approximately $15 7 million shares. We refer you to our press release, where we have added two tables detailing our outstanding common shares.
And a reconciliation of the weighted average shares of common stock using the calculation of earnings per share. These tables are on page six of our release that was posted to our website last night.
In terms of our dividend on August 4th we declared a regular quarterly cash dividend of 36 cents per share, which is a nine 1% increase compared to the Q2 dividend Q3 dividend was paid on October 7th to stockholders of record as of September 24th.
And finally, we are updating our <unk> guidance for the full year 2021 in both absolute dollars as well as on a per share basis. As we have discussed beginning of January of 2020, we are required to implement the Cecil accounting standard, which due to its inherent unpredictability leaves us unable to forecast net income and <unk> with accuracy.
Accordingly, our guidance as <unk> focused as we believe <unk> represents the best way of measuring the productivity of our equity investments in evaluating our financial performance and ability to pay dividends.
We expect <unk> for the year ending December 31, 2021 to be between a billion 41 billion 45, representing an increase of 20 million in total <unk> from the prior guidance midpoint.
Our revised 2021 full year <unk> per share guidance is $1 79 to $1 80 per diluted share, which is approximately <unk> <unk> below the midpoint of prior guidance on a per share basis and is below the current consensus of $1 83 per share, which reflects certain analysts assumptions around the timing.
Around the timing of the closing and funding of the Venetian transaction, which are not included in our guidance estimates.
The reduction in guidance reflects the dilutive effect of the addition of $26 9 million shares from the settlement of the June 2020 forward sale agreement and the 65 million shares issued in the September 2021 equity offering and the dilutive impact as calculated under the Treasury stock method, the pending 69 million shares related to.
The March 2021 forward sale agreements and the pending 50 million shares related to the September 2021 forward sale agreements.
And just as a reminder, our guidance does not include the impact on operating results from any pending or possible future acquisitions or dispositions capital markets activity or other nonrecurring transactions.
With that operator, please open the line for questions.
Thank you as a reminder, so that's a question you will need to press star one on your telephone.
Again that is star one to ask a question. So we had.
One other question just press the pound key.
Your first question comes from the line of Wes Golladay from Baird. Your line is now open.
Hey, Good morning, guys can you talk about what caused the push out of the Venetian from I guess closing later this year later this year until <unk> 22.
Samantha you want to take that.
Yes, hi.
There is regulatory approvals that are required for the operator in connection with that transaction. So the operator Apollo here I was just going through the regulatory process.
Okay. I guess is there any read through to the timing of the MGE transaction.
Did you Im sorry did you ask if there's any update to the timing we can well I guess is there any read through would there be any issues that are causing the venetian to be pushed out with those things apply to <unk> as well.
Oh no.
They are unrelated and we do not expect that to impact our previously disclosed timing for the MGE transaction.
Okay, and then one last one.
I guess can you update us on the Las Vegas Master lease I think is going to reset in a few days.
David or Danny.
Doing good.
In terms of escalation.
That escalating.
With CPI, which was about 5% so.
The 2% floor, that's embedded in that lease so starting November one for the next lease here.
Las Vegas Master lease will escalate about 5%.
Got it thanks, a lot guys.
Your next question comes from the line of RJ Milligan from Raymond James Your line is now open.
Hey, good morning, guys.
Can you talk about the Jack lease Amendment.
Was just announced and do you see any other opportunities for additional amendments dropping the variable rent component for some of the other leases.
David Samantha you want to take that.
Yeah, I can start and Samantha chime in on anything I mean.
What what we're experiencing and witnessing.
<unk>.
Somewhat of a confirmation of our conforming aspect of the leases right. This sector is only.
Well you know eight years old with the formation of <unk> in 2013, but as each deal we and the operators continue to get smarter and understand the best way to document and structure a lease and so when some of these opportunities arise to remove some of the legacy <unk>.
Bonus so to speak of leases that really don't make sense for you, the operator or the or or us as landlord we work collaboratively.
Lead together to streamline the leases and continue to move forward to somewhat of a quote unquote industry standard. So it's a net.
Net net win for both sides here with between B G and Jack.
Yes.
Okay, and then looking into 'twenty two can you give us an update on your thoughts on executing some of the <unk> of the put call options that you guys have.
John.
Hey, good morning, RJ how are you.
So we continue to monitor I think youre, referring to first we have some roper's in Las Vegas.
Tom Reeg, the CEO of Caesars.
Has indicated that they would be looking.
To potentially sell one of the assets and we will be involved in that process and will follow his lead on what they are deciding to do and then the second one I think you're referring to is our put call that we have that becomes live in January of 2002.
The two large assets in Indianapolis, and we will continue to monitor those as well those assets continue to grow our adjacent so we did this.
This put call table games have been legalized at the routine OS in the state of Indiana, and Caesars has been working on expanding those facilities and those so those facilities are continuing to add amenities add some space add table games and so we'll watch how they continue to grow and we know that that put.
Call is good for three years starting in January.
Okay and then my last question is a bigger picture question, but.
It seems like there's still a disconnect for regional gaming assets in terms of pricing and we're starting to see the cap rate compression in Las Vegas for sure. When do you expect or what do you think needs to happen to start seeing some cap rate compression with original markets.
Yeah RJ.
It's it is I believe I think it will prove to be a dynamic that we've seen in other asset classes that have gone through institutionalization as an example, a category that I spent time in.
Final mile logistics win win win there began to be an institutionalization of that industrial sub asset class the greatest amount of.
Investment focused initially it was in markets like the inland Empire outside of L. A and northern New Jersey, and as the category really began to prove itself as the secular trends behind the category continued to grow.
What you began to see was it radiating out of investment activity from those epicenters.
As an example, the.
Across the street, Tim or Jack Thistledown asset outside of Cleveland.
Site once how it I.
I guess a class B mall is now an Amazon distribution center of amazing scale.
And again, that's Cleveland, So you can see that kind of radiating taking place in other asset classes I believe you're going to see it as well in regional gaming there are of course certain friction points in some jurisdictions that the gaming real estate owner does require a licensing.
But we think that at the end of the day that'll be a friction point that.
Becomes less of a factor in how people make their decisions when they realize that some of these regional assets are so strong and if such incomparable scale and quality and just to belabor the point a moment RJ.
It was on this very call. The Q3 earnings call I believe it was two years ago in 2019 that I made at the time that rather outlandish claims. This was right. After the velocity of announcement I made the rather outlandish claim that I would argue that national Harbor, which MGM, obviously occupies an M. G. P O.
And at that point deserve to trade at a cap rate at least has tightened <unk> given its utter scarcity as an asset of that magnitude in quality and a 24 hour city like Washington D. C. So I do think it'll come RJ it will.
As is required in every other asset class it will take time, but it will happen.
Excellent guys. Thank you.
Your next question comes from Atlanta, Barry Jonas from tourists Securities. Your line is now open.
Hey, good morning, guys.
Look you've had a lot of success diversifying the company over the years, but im wondering if theres any longer term optimal mix you would target whether thats.
Tenant geography, or maybe gaming versus non gaming.
John you want to start.
Well good morning, Barry.
As we talked in the past four years the key to it all is continuing to diversify our tenant base and like you said we.
We've gone from one tenant to eight tenants in gaming.
As David mentioned in his remarks, we obviously have started diversifying into non gaming I don't think we have an exact percentage of how much we're going to own in gaming and how much went on in non game and how many tenants were ultimately going to have but I think you've seen us continue to add.
<unk> high quality.
Quality as Ed said in his remarks tenant to our portfolio as well and gaming as well as in non gaming and so.
Don't have a percentage today I think we've clearly said 45% of our rent after the MGE deal will come from Las Vegas, and 55% of our rent will come from regional assets. So we still have a wide opportunity to diversify over the years and will continue to look for unique opportunities with most.
Importantly high high high quality tenants with great real estate, so no specific numbers today Barry.
Got it and then just as a follow up.
There's a lot of debate out there longer term gaming.
Will it will cannibalize land based gaming to any degree I'm curious how you think about this and if it influences your longer term strategy at all.
Yeah, I'll start Gary and obviously.
We need to take care to distinguishes I know you are between gaming and sports betting and I think it remains to be seen and the degree to which I gave me becomes its own ecosystem.
That does not create a new customer who also then acquired through I gaming and desire to visit the brick and mortar casino.
As talked before about how bullish we are about sports betting as being a very powerful secular audience expansion tailwind for gaming.
I gaming remains more of a question that I do think there's some very interesting points to be made as to the implications Dubai gaming.
Manifest a number of different perspectives and I believe there was a panel Oh no you wrote about it. The panel you wrote about Barry yesterday, I think some people like David Cordish, we're making some very interesting points about about new jurisdictions taken care that I gaming not end up sacrificing the jobs and the economics.
Vitality to go with brick and mortar gaming.
So again, we will see over time, I would say, though that I am much less worried about gaming and I am excited.
Sports betting in the way sports betting is changing the marketing paradigm of American gaming in such a way that American gaming can participate in the great American sports conversation and if you had told me when I first started getting involved with BG.
Four years ago, which was my introduction to American gaming at Kenny Mayne and trade window with ESPN withdrawing folks like John Payne, and David and Samantha and me in the business of American gaming.
We would not have foreseen that.
Perfect. Thanks, so much guys.
Yes.
Your next question comes from the line of Neil Malkin from capital One your line is now open.
Hey, everyone.
Good morning happy to be on the call with you all.
First off I'm not sure what you meant by that comment about the logistics facility in Cleveland Cleveland is probably the best city in United States.
It is.
Yeah.
Okay. So first one for me.
Hi.
You talked about 45% of your.
Rent comes from.
Comes from Vegas.
Obviously, it's going gangbusters, its fantastic, but given the Venetian and your.
Pending merger of MTP alongside the two Rovers you have there and your land parcels are you comfortable.
With your exposure there might we see a <unk>.
Move a potential property sale.
Just just to kind of mitigate the exposure going a lot higher.
Yeah, I'll start and then I'll turn it over to John but I think as a starting point Neal.
What what certainly I've come to learn I think along with David and Samantha.
Each year annuity gaming is it like Vegas is almost unlike any any other place on Earth. The nearest the nearest place I can think of it like Las Vegas is Orlando.
Right.
And so.
<unk> thinks about geez, how much exposure is the right exposure.
Sorry in Las Vegas, it's like Disney thinking about what's the right exposure and I'll handle well.
Orlando as an ecosystem.
Unto itself.
And it is an infrastructure that has taken decades to build and is unrivaled in the world and the way Las Vegas infrastructure tourism infrastructure is unrivaled its tourism, it's convention comprehensive trade show or infrastructure.
When you have an ecosystem.
Utterly distinct and one of a kind as Las Vegas I do think you have to think about asset concentration of our portfolio concentration in a very different way than you would in so many other asset classes in which not to be.
Flip about it but 124 hour city is sort of like another 24 hour city.
John I wanted to add to that.
No Ed I think you touched on it Neil I mean, if.
If you've been following us since we started the company.
Are there other Reits that weren't as bullish as we are on Las Vegas, but we're we're very excited from the day. We started the company. We're even more excited today about what's taking place in Las Vegas at the operators are here in Las Vegas, or the most dynamic creative operators. There are they will continue to reinvest.
The business when something doesn't work and what's also been made perfectly clear after the.
The closing of the facilities due to the pandemic as they reopen.
The consumer clearly is not sound a substitute for Las Vegas, they're returning in record numbers and that's without.
The amount of air lift that's without international travel and that's what al didn't necessarily mice business, that's going to come back as well. So we're excited today about it and we're going to be even more excited over coming years as those segments of our customers return to Las Vegas to our to our tenants.
And we love Cleveland to Neil.
Yeah I appreciate that the other one for me maybe bigger picture, obviously, the move to I gaming or Digitization wherever you want to call that.
Is going to be a.
Fulsome into wholesome endeavor by a lot of the big the big.
Gaming guys operators I just wondering if you can comment on how you think about how the investment.
And dollars needed to make those moves into add that to part of there.
Ecosystem or platform.
How how would that have an impact on potential.
Assets coming to market.
As they look to raise raise money either.
On the strip or regionally and.
Potential impacts for you guys or new operators coming in thanks.
John.
Yes, it's a good question Neal.
Citing time in this space I mean, I'll just talk about what's taking place today with.
With our top tenant Caesars and I don't think its either or if you look at their investment in the bricks and mortar facilities right now and theres more than than I know I know about the $300 million going into New Orleans, the 400 million, that's going into Atlantic City. The numerous hotel nobu hotels that are.
<unk> built around their facilities.
The re formation of the entrance to Caesars Palace I could go on and on about the massive investment that our top tenant is putting in their bricks and mortar at the same time you can obviously you just turn on your TV or radio and see the large investment that theyre, making into Caesars sports books.
So the beauty of this is their strategy as well as our other tenant strategy of connecting the dots are building a world class Omnichannel marketing capabilities, where they can talk to consumers not only digitally but they can talk to consumers at their bricks and mortar facilities and continue to attract people across there.
That form and that's what's so exciting about the gaming space.
And again, if someone who's who's old these days and has been around for over 25 years. There has not been a more dynamic and exciting time.
In the casino gambling space.
Yeah.
Thank you. Your next question comes from the line of Stephen Grambling from Goldman Sachs. Your line is now open.
Hi, Thanks, you all mentioned opportunities.
Stephen you cut out.
Okay.
Steven Your line is still open.
Operator.
Come back to Steven.
Thank you Stephen <unk> Star One again. Your next question comes from the line of Greg Mcginniss from Scotiabank. Your line is now open.
Hey, good morning.
So John I appreciate you highlighting beaches pillars of growth in your opening comments, but I think one of the key questions from investors just how to think about how deep those pools are given the diminishing benefit to earnings growth from each.
<unk> deal that you guys are doing.
Would you be able to try it would you be able to provide some context on the potential size of each of those buckets.
I can do some of it and Danny can do some of it as well so Greg.
We've laid this out a couple of different ways, but the short answer is there are a lot of opportunities still out there. When you just think of all take gaming and then Dan here.
David can jump in on non game and I will take one of the six pillars, because we I don't want to take up the rest of the call going through all six pillars, but I will take one of them, which is the expansion of gaming and just domestically I wanted to touch on the international opportunities that we see in Canada, and Australia potentially in Singapore potentially in Japan, So just a.
Mr Gaming.
Think of our opportunities Greg we still are.
Do not own real estate and any downtown facility in Las Vegas, we still don't own real estate in Las Vegas in the regional markets, which are both very healthy and growing markets. We don't have Reno, Colorado, Rhode Island, Pittsburgh Lake Charles.
Parts of Massachusetts. So we have an analysis that shows the depth and the amount of rent in the amount of EBITDAR that it's still available with assets.
<unk>.
<unk>.
Not necessarily in the REIT pool right now so that's one of six pillars, we see tremendous opportunity to grow and gaming domestically as well as the other five pillars.
I don't know, if David or Dan you want to touch on quickly as well.
Yes, I'll just add this is danny on the gaming side.
Greg we still continue to work on transactions in any given week or month, where the total value exceeds well over $50 billion, so thats not necessarily a tam but.
Hopefully that just gives you some insight into the number and different size of opportunities that we continue to work on discuss evaluate and target.
Another piece going forward is going to be the DG partner property growth fund, you're thinking about the size of our assets a little over 2 million square feet on average of each property and there are high ROI projects, where we're partnering with our existing tenants and funding those pretty efficiently in exchange for incremental rent.
Hard to say exactly.
Hard to quantify that because it ultimately depends on the individual operators strategies, but thats something that could reach into the hundreds of millions of total investments.
And then international is really hard to size or quantify it's dependent on.
The jurisdiction the individual assets within those jurisdictions, but as we've talked about we've spent a lot of time understanding the tax implications currency risk regulatory hurdles.
That is an area, where you'll see us expand over time.
I would just add Greg this is Ed.
That you know.
We have a certain amount of confidence that we can figure out how to do what others have successfully done before us.
When you when you crystallize the issue as you just did very well.
Which as you know once you get to a certain size. The map obviously it does become more challenging but at the same time strategic resources can become more ample so we look at what companies like Realty income.
And pro largest have done in facing the mathematical challenge of growing when you get really big and we get full March just to meet in the royalty income team for what they have done as an example in the U K and now in Spain. When it comes to increasing your exposure to European grocery European.
Grocery is not a category.
That we'd be interested in but there is European experiential we'd be very interested in and in fact categories in Europe don't even really exist in the U S experience just like center Parcs as an example.
So we would look at what royalty income is that we would look at what pro largest has done internationally and domestically and especially through their strategic capital.
Activity so.
We're confident that if we learn from the best.
We stand a good chance of achieving at least some of what they have done and very excited about that opportunity in the years to come.
Alright, thanks for the context there.
Shifting gears slightly here just regarding the call right on the big shots facilities and you worked out how youll be valuing the real estate in the event that you're able to turn those that financing arrangement and the permanent property ownership.
Also if you could provide any context on what you view as the opportunity of growth potential within this kind of entertainment based driving range space, many big shots, specifically that'd be appreciated.
David.
Yes, Greg it's David good to talk to the.
Financing is will be done at a 10% interest rate and then the call.
All right, we'll be at a at an eight cap if we elect to enter into a sale leaseback on.
Any of those facilities.
Cited to partner with the club Corp team Big Chuck team, they've got a very.
Good development pipeline, they're going to.
Mimic.
Go into secondary markets, some markets, where we can't don't don't currently or can't own.
Gaming real estate, just because it's not legal in those jurisdictions.
Invigorated to grow that pipeline to grow that platform.
And we're thrilled to partner with them. So we'll see what the future holds would that opportunity.
P J a big ship.
Alright, Thank you very much.
Your next operator, do we have Stephen available again.
Yes, we have Stephen Grambling from Goldman Sachs or landfill open.
Great. Thanks can you hear me.
Yeah.
Thank you. So you mentioned opportunities to fund high return growth projects for existing tenant partners.
The economics of these types of investments compare and contrast versus the traditional sale leaseback.
They should they should mirrored them very closely Steven.
Obviously, they need to be a sufficient return.
Such that you could take the incremental return on the incremental capital and divide it in half.
Italy, and each party is getting what they need and deserve in other words, we would get a sufficient return through incremental rent on our investment and the operator would get a sufficient return on that.
Brand and intellectual capital and operating investments that they've made.
So.
It should very much mirror, our conventional economics.
And again.
If we can get cap growth capital out the door in whatever form we get it out the door as long as it's in the proper risk framework, we're gonna be very happy to do so.
I'll just reiterate what Danny.
Our assets are are at scale and have a quality and fit and finish level that you're really only find a office in a mall and as an example of that our average asset is over 2 million square feet.
Dozens of acres that some contrast conventional triple net commodity box, which is 17000 square feet and sits on an acre too right.
This presents incremental investment opportunities that really are hard to find in almost any other asset class.
Yes.
That makes sense and maybe one more for you just on Reconsolidation, obviously with MVP made a first mover advantage there as well how do you think about scale and index inclusion might influence the potential for future Reconsolidation, perhaps beyond just gaming.
Yeah, I think obviously one key.
Determined it would be the degree to which we would not only be getting access to property.
They're not getting access to talent to it to a management platform that could be of great value to us in helping us grow not only beyond the acquisition of the portfolio of properties that might come with the M&A.
But with the talent and the operating experience and reach that would come with it we don't see that as an immediate priority. We think we have enough in front of us.
In terms of our existing categories that frankly represent triple net white space that we believe we're uniquely qualified to pioneering.
But we are certainly mindful of the way in which.
You know adjacent M&A can be an effective way to continue to grow value.
Makes sense. Thanks, so much.
Your next question comes from the line of Todd Thomas from Keybanc Capital markets. Your line is now open.
Yes.
Hi, Thanks, good morning.
The first question in terms of expanding.
On the non gaming side, you completed loan.
Programs are established loan programs with with Great Wolf Chelsea Piers Club Corp. Now is that the path toward ownership that we should continue to expect as.
You look toward adding exposure to non gaming or could we see you move into non gaming in a more meaningful way.
Without sort of establishing a an initial loan program.
Program and then also how important is it to have an investment grade rating.
To invest more meaningfully and non gaming.
You know and expand the portfolio towards towards some of those other types of assets.
David.
Hey, Todd good to talk to you I hope you're well.
Well look I wouldn't say that's the path that you should expect the situations with Chelsea piers, great Wolf and big shots.
Called for financing.
Each of them were somewhat unique and specific and why they called for financing, but as you saw it with big shots, we do have a call right to enter into a sale leaseback. So we do have a path to ownership and you hit the nail on the head as you know these all lead.
Ideally lead to a path to ownership.
There may or may not be a sale of Chelsea piers that may or may not be a field of great Wolf, where we have the opportunity to buy the real estate, but if there is a transaction we will have a seat at the table and be able to compete for that opportunity.
Daily are or if we had if we could dial it up on a whiteboard, we'd have a we'd entered into a sale leaseback day, one, but just again the uniqueness of the circumstances why theirs.
Why they are mortgages today.
And then in terms of the path to investment grade at ultimate at the end of the day, our cost of capital is what matters and allows us to compete and so as our cost of capital goes lower we feel that the funnel widens and we will be able to compete for more things both within gaming it outside of gaming. So we're thrilled.
Thrilled to be on them on the doorstep of achieving an investment grade rating here in the near term.
Okay.
And then just circling back to the discussion around asset pricing and.
One of the pillars, you discussed was the importance of of being early.
Vesting of pre institutional pricing, we've seen pricing improve on recent deals and cap rates have come in quite a bit.
John you touched on city center, and the cosmopolitan pricing, but is.
Is there still room for cap rate compression in gaming and in Las Vegas on the strip in particular.
Which might have.
Implications on sort of a regional asset pricing as well or do you think that.
Assets are more fairly valued on a risk adjusted basis today.
How do you how do you just think about valuation in the current environment I guess more broadly.
Yeah, Todd so.
I think the quick answer is yes, I think theres more room to run and I think one of the key thing to keep in mind.
And this came up in a conversation I was having with our partner at Blackstone and Tyler having to see a few weeks ago. When she said I think we should stop talking about cap rates.
When it comes to gaming real estate and we should just talk about unlevered cash flow going in unlevered cash flow yield because that's what we're getting right when when when we beachy by at a six and a quarter cap rate.
On the Venetian were getting six in a quarter unlevered free cash flow yield out of the gate.
Right.
<unk>.
A number of you have written about the transparency and the predictability of the integrity of Triple net cash flows versus so many other REIT categories, where.
Suppose at cap rate really is only a notional number it hardly ever resembles actual reality once you account for all Capex and other parts of leakage from net free cash flow. So I think as investors look at gaming. They will look at the fact that youre getting true free cash flow.
In what you buy and I think that could have a compressing effect. When you look at what other class a category like orphan like.
Like every other category. So this guy is right now industrial and others, you're often looking at cap rates don't accurately reflect true free cash flow in gaming, that's what you get and I think it will have a continuing effect on the compressing cap rates.
And as long as our cost of capital continues to improve and our velocity equal to the velocity of cap rate compression. We can very much stay in the game and David and his team and what they're doing with their balance sheets are making sure we do keep pace.
Okay, Great alright, thank you.
Yeah.
Your next question comes from the line of Jay Corn Rich from S. M. D. C. Your line is open.
Hey, good morning.
Two of your non gaming investments had been with portfolio companies of funds that you also have relationships with on the casino side upon pending deals closing.
Here's how important you feel those relationships are for non gaming investments and the opportunities that they provide.
David.
Hey, Jay good to talk to you.
Part of it stems from the magnitude of capital. These institutions have the amount of companies that private equity.
As investing and then if we can play a role alongside some of the best.
Real estate leisure hospitality investors in the World. We are thrilled to do that so we look at a lot of opportunities we have a lot of opportunities and we continue to.
Work with and understand other sectors out there, but these just happened to be with two folks. They are also invested in real estate because they they have institutions that are.
Does it across.
All asset classes.
Again, if we can find ways to partner with.
Existing partners and future partners in private equity, we will absolutely do so.
Sure.
And then.
There's a lot of several credit and liquidity enhancing opportunities in front of you we felt like we had.
Scott here.
If you could provide any sort of timeline when you expect them to occur such as the credit rating improvement potentially getting a lift on the S&P 500 refinancing such as you're incurring from MTP, because any sort of timeline when all those things kind of fall.
Well it all it all stems around the timing of the Mg P closing as Samantha alluded to that's still on track for the first half of next year and we would expect to issue the $4 $4 billion of debt that we need to fund again, the MGM op unit redemption into the investment grade market, we've worked very closely.
By Aaron priority on our team with the rating agencies.
Two.
Highlight the timing of highlight the transactions highlight our funding.
And make sure that they are lockstep with us and so as you know is S&P alluded to if we keep leverage below six times will get a triple b minus rating well with the equity raise that we did in September and where our pro forma balance sheets.
Being projected to target we're below that number so we feel very confident that we will.
She that investment grade rating sometime in the first half.
2022, again connection with M. G. P transaction and then the other part of your question was the refinancing of the M. G. P that that will occur.
At or near the time of those maturities M. G. P bonds are all bullet bonds.
But we feel very good about.
Incremental accretion that will pick up from the interest expense savings as we start to refinance that debt.
I think the first when it comes due in 'twenty 'twenty four if I'm not mistaken 2025, so over the years, we'll have incremental <unk> pick up from that from those refinancing opportunities of the M. G. P bonds as well as the V. G bonds that are in place today.
Alright, Thanks, and if I could just sneak one more in just when we think about potential external growth internationally do you see an opportunity to partner with your new MGM relationship to consider opportunities in Macau or the potential MGM, Japan Casino development.
Yes, Dan I would say that.
Macao, not likely but Japan would be very intriguing.
Okay. Thanks very much.
Your next question comes from the lamp Thomas Allen from Morgan Stanley. Your line is now open.
Thanks.
For John putting your operator I had on John you mentioned earlier, how wild the Venetian did in the third quarter $132 million of EBITDA any updated thinking about long term performance of that tenant.
Yes, so Tom it's I apologize John had a race to the airport to get to Cincinnati for the Grand opening of our hard rock Cincinnati asset in partnership with hard rock. So between me and Danny will do our best but we're obviously very excited to see those quarter three results without international travel without.
Convention Conference Tradeshow, having fully come back and I'll now turn it over to Danny who I think can give you a quick quick summary of our confidence that this is the kind of performance at Apollo.
Ken inherent and continue to grow upon Danny.
Yes Thomas.
As we've talked about there is a lot of opportunity there and the existing asset one of the things. We found interesting was just the margin differential between the Venetian and then other assets on the Las Vegas strip, we can't speak for Apollo and their strategy, but we would expect the existing team to run forward and execute on a lot of the pre.
<unk> and initiatives that they've created and have been evaluating for a long period of time. So look I still think it's really early in the Venetian.
When their trajectory I think there's a lot of opportunity there some of it's low hanging fruit some will take a little bit longer to execute on but we're really excited and we're looking forward to closing on that asset.
Perfect and then just on well first of all respecting that you've done a ton of deals.
Still going to ask the question about future deals, even though it's a little unfair given how much you've done but.
Most of you are more experiential focus deals have been on the smaller side.
Are you prepared to do like a much larger deal or the interest to kind of continue to kind of ease into that to that substrate.
Yeah, I would say Tom is there's nothing that would prevent us strategically or financially from doing bigger deals outside of gaming.
You are right. So far what we've done has been on a generally smaller scale, although I will say that assets like Chelsea peers do.
Do qualify as you know as we like to say as casinos without gaming.
The P&L of Chelsea piers actually very significant.
So that's not entirely borne out obviously, when we only do a mortgage law, but these assets do have some heft to them great Wolf resorts also have helped to them. So well our participation. So far is only on the financing side. When the day comes when we're successful as we believe it will be becoming real estate owners have asked.
It's like this.
We will be buying assets that have a lot of economic throw weight.
Alright, thank you.
Your last question comes from the line of Daniel Adam from Loop capital markets. Your line is now open.
Good morning.
Good morning, everyone. Thanks for squeezing me in.
Just one for me on the anticipated funding requirements for the $4 $4 billion cash consideration to MGM in the 10-Q that was filed last night I noticed that you expect to fund that portion of the deal with long term debt not equity.
I correct in thinking that you initially intended to use a combination of debt and equity when the transaction was first announced.
And if so does that change your accretion expectations at all for for MTBE.
Hey, Dan it's David good to talk to you all.
Our intention from day, one was always to fund.
Our attention and our and our requirement frankly, it was to fund that $4 $4 billion in debt.
There's tax reasons why that has to be funded in that and whether it has to be funded really at the time of all conditions to the merger being satisfied. So the punchline is no the accretion doesn't change.
We had always anticipated issuing equity paying down the term loan and then essentially re levering.
Point in the future once we go to the market to raise that $4 $4 billion of debt.
Okay, great and the timing around the funding of that.
And that will be close to when you expect the deal to close.
We're often asked if we would put that into escrow, we'd take advantage of the markets ahead of closing again the way that the agreements are laid out the way that the tax requirements.
What we need to satisfy protects tax reasons again, we will not issue that debt until all conditions to the merger are satisfied and we have a 30 day window under the under the agreements to issue that debt. So sometime in the first half of next year, we would expect.
Okay, great. Thanks, guys. Thanks, Dan Thank you Daniel.
There are no further questions at this time I will now turn the conference back to <unk>, but don't yet.
Yes, Thank you operator, and so let me reiterate our thanks to all of you being on today's call. We believe our shareholders are going to be very well served by BG growing quickly and energetically and newly institutionalizing asset class with great partners. During what has been an uncertain period.
As well that we are well positioned to continue growing our portfolio accretively.
<unk> superior shareholder value, Thank you and good health to all.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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