Q3 2021 Gaming and Leisure Properties Inc Earnings Call
[music].
Greetings and welcome to the gaming and Leisure properties, Inc. Third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the final presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.
This conference is being recorded I will now turn the conference over to your host Joe just Sawhney.
Best of relations. Thank you you may begin.
Thank you Valerie and good morning, everyone and thank you for joining gaming and leisure properties third quarter 2021 earnings call and webcast.
Press release distributed yesterday afternoon is available on the Investor Relations section on our website at Www Dot G. L. P.
Crop Inc. Dot com on today's call management's prepared remarks and answers to your questions may contain forward looking statements.
The private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
Forward looking statements may include those related to revenue operating income and financial guidance as well as non-GAAP financial measures such as F. F O N E S F O I.
As a reminder, forward looking statements represent managements current estimates and the company assumes no obligation to update any forward looking statements in the future.
We encourage listeners to review the more detailed discussions related to risk factors and forward looking statements contained in the Companys filings with the SEC, including our 10 Qs and the earnings release as well as definitions and reconciliations of non-GAAP financial measure is contained in the company's earnings release.
This morning's call. We are joined by Peter Carlino, Chairman and Chief Executive Officer of gaming and leisure properties and also joining today's call are Deseret Burke Senior Vice President and Chief Accounting Officer, and Treasurer, Brandon Moore Executive Vice President General Counsel and Secretary Steve.
Steve Bradley Senior Vice President Chief Development Officer, and Matthew them check Senior Vice President and Chief Investment Officer.
With that it's my pleasure to turn the call over to Peter Carlino. Peter. Please go ahead.
Thank you. Thank you Joe well good morning, everyone and welcome to our.
Third quarter earnings call.
My introductory comments will be brief as usual.
As usual.
Our press release is extremely thorough.
And secondly, I woke up this morning, with a ratchet gold it makes it difficult for me to talk however.
I did want to highlight that.
This was an excellent quarter for us.
And with more to come and announce transactions as we get into the first quarter of <unk>.
As we close out the fourth quarter this year and get into the.
First quarter of next year.
You can see we remain focused on strengthening our balance sheet at favorable levels as we get down to what we like around here called fighting weight and preparation for whatever it may be our next opportunity.
There are several announced transactions on the near horizon subject to regulatory approval and the usual tie.
Timing complications but.
Well as you know timing for these events is not completely knowable, but you can expect that we will have closed pretty much everything that we've talked about.
No later than the first quarter of next year.
And we.
And we expect to wrap up a pretty exciting 2021.
Very strong and positive way, so, but let me I'm going to sell out and let Deseret Berg highlight some financial.
Issues that.
I know she stayed up late and burning the midnight oil too to do go ahead. Thanks, Peter Good morning, our third quarter results outperformed in the third quarter of 2020 as income from operations increased by 24 million over the same period last year.
That was primarily due to we had a gain on the sale of pairing those operations of $15 6 million that would be 11.3 million net of tax and never see the $1 9 million in Perry they'll rent, resulting from the new lease with Penn.
Clothing, the Bally's transaction on June 30 of this year, which increased our income by $10 million for the quarter. The reduction in G&A expenses of around 7 million due to the 2020 severance and stock compensation charges related to our previous CFO, which obviously were not repeated escalators on our pinnacle Boyd and the apparently supposed that BK.
Effective on May 1st, which added 1.5 million an increase in rent related to casino Queen of $2 million and that's primarily related to the timing of the cash collections. On this lease you may recall that call that they deferred some of their rent in 2020 related to Covid Morgantown ran them from our new lease with Penn that began.
In the fourth quarter of last year.
These positive variances were offset by the loss of parity, though operations noncash straight line rent adjustments of approximately $4 million lower percentage rent of about $2 million on our Penn Master lease Caesars lease and meadows lease due to the prior year competition closures in the Toledo market, which benefited Penn property.
Last year as well as the impact of the prior year's resets that were negatively impacted by the casino closures from COVID-19.
With respect to Perry, though I wanted to mention that this has been recorded in our Trs segment. The rent on Perry, though that is as we've disclosed we are in the process of closing our anticipated transaction with casino Queen which is pending regulatory approval to sell the operations of Hollywood Casino Baton Rouge, and leased the real estate back to clean.
Once this is completed we'll be able to finalize the tax consequences of unwinding, our Trs operations and rental income will then become part of the REIT as we report so for now it's in our Trs and we have footnoted that throughout the document them, but in the future we expect it to come into.
To our REIT finally, as we continue to expect the full escalator from Penn are honoring on their master lease and it becomes effective November one 2021, and it will increase annual rent by $5 6 million of which 900000 will be reflected in 2021 with that brief summary, I'm going to turn it back.
Peter.
There's.
That's already highlighted the pending sale of Baton Rouge are two casino Queen.
That is just hanging out there with some regulatory issues that have to get solved.
Kills me to part with that property.
Over the long term successes from the years, we bought it from from Carnival.
With the approval of the folks at the Queen.
Queen we are of course going landside dramatically expanding that property, which is in our judgment.
Speaking with an operator's out if you will even though that's not what we will do going forward.
Is gonna be a just a terrific property, we think is going to be highly competitive in that market.
We should also point out that our coverage is across the board from our various tenants have never been better.
You know well the success that these regional properties were having pretty much across the board and that is certainly in order to our benefit adding an extra margin of safety that we feel really good about with that let me ask Matt to make a few comments that I know he would like to add sure. Thanks.
Thanks, Peter and good morning, everyone.
With this release we feel.
As well positioned as ever.
And excited about our business plan.
On an absolute and a relative basis during the quarter.
Bolstered our offensive capacity issuing $182 million of equity through our ATM program for net proceeds of 49 75 a share.
And to Peter's point, our balance sheet is now at better than fighting weight. It has robust liquidity reviewing the additional capital as dry powder to be allocated for future opportunities and to that end. Our pipeline is active and we're very pleased with the opportunity set.
Looking at our existing portfolio the robust fundamentals that they've been brought up and we've been talking about for the past few quarters.
The properties are now better reflected in the updated trailing 12 coverage numbers each of our master leases being above two times coverage and eclipsing pre pandemic levels.
These results also result in a cash flow being more protected and valuable.
Of note during the quarter. We also saw a large scale M&A transaction that M. G. P that represents another milestone in the institutionalization of our asset class.
Overall portfolio includes a subset of regional properties that traded at what most estimate to be about a six cap rate the transaction validates our long held thesis that regional assets when thoughtfully structured with strong credit support in rent coverage or a institutional quality and deserving of true Institute.
Multiples.
With cap rates continuing to compress across much of the real estate World Regional gaming assets are both as expensive as ever and still one of the if not the most attractive risk return proposition and all real estate.
In short with the preeminent portfolio of regional assets in existence, we had G O P I own most of the houses and a very appealing neighborhood.
Going forward, our efforts remain focused on Earth thing and creating opportunities to grow our cash flows and increasing long term intrinsic value per share.
With that I'll hand, it back to Peter Matt. Thanks, very much that's very bad. Thank you for the for your comments with that operator, let's open the floor to questions.
Thank you at this time, we will be conducting a question and answer session I think I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
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Our first question is from Todd Thomas of Keybanc capital markets.
Please state your question.
Hi, Good morning, this is Doug.
Andy on the line Todd Thomas If you guys are doing well.
Sockets today, the company's cost of capital.
Does it make you think differently.
If you turn your target.
Would you be more aggressive underwriting assets, giving the lower cost of capital.
I'll take a whack at that although that was really kind of a comment than perhaps others around the table I don't think it's a matter of being more aggressive. It's just getting inadequate returns so bigger number in our stock price gives us a more valuable currency. It's it's it's as simple as that our goal.
The mandate is to find the spread to our cost of capital that's the whole issue. So.
Bigger is better.
But if you would add anything to that I think you put it well Peter I mean, the more equipped we are with a better cost of capital the more.
On an absolute basis, our bid can be competitive, but it all comes down to a spread that that's our business model and one area I'll point out that we're not willing to be aggressive on is getting some sort of margin of safety in the deals. We do you know that that's one of the things that we hang our hat on.
And whether pricing moves up or down and they're gonna be other aspects, whether it's a guarantee or four wall coverage or some other support to make the value of our cash flows even more youre going to continue to see us be creative in the way, we structure things to try and maximize value for shareholders and find things, where we can clear the market.
Look we would that'd be more aggressive we are extremely aggressive people, but we're very disciplined.
And making sure that the transactions, we do provide a return to our shareholders is as simple as that so yes, you're absolutely right a better price.
Opens up the door to more opportunity.
Thank you.
Just one more here.
Theres been institutional there's an increase in institutional private equity you can talk a little bit.
For one offs.
Targeting mostly.
Are you seeing institutional capital look at regional.
Single asset basis, do you expect to see new entrants in this space and increasing competition.
Yeah that way you do that I mean, it's certainly been on our radar for a while and you know there's some structural things that give us a bit of a competitive moat, whether its license thing or or just the portfolio benefits of folding something into what we have versus someone starting from scratch, but we have seen on the margin some folks poking around.
Are there were there was one small deal that we turned down a couple of times that traded to someone else a month back but beyond that I haven't seen any large scale movements into the space, but over time. It does seem to be inevitable that more capital will be interested so we're kind of in a nirvana period, we get.
Most of the opportunity set for us but over time, there's this backlog of capital that should ultimately further re radar assets.
Yeah.
Gotcha.
Sorry, just one more in here.
You would.
Would you consider deploying these proceeds with ATM or maybe just your overall investment pipeline into non gaming at this point.
Have you considered it.
The quick answer is an easy answer is sure, but we've been saying that for the last eight years since our spin.
It falls into the same category of what I had outlined before show us the right spread to capital to our cost of capital a show us the kind of certainty that we would want over a long long term.
Our lease.
And the kind of coverage and credit support and you know that kind of highlighted at all all the things you you would immediately think of show us all of that and yeah. We're up for anything and we continue to look at various things just so happens we're in one of the absolute best classes of.
Investments in the planet and it's tough when you're already number one asset class say we are too.
Dropped down the number two or three or four so look someday I suspect that may happen, but it will continue to look but you know, though with the clarity what are what our requirements are.
Okay I appreciate the time.
Thank you.
Our next question is from Barry Jonas of true Securities. Please state your question.
Hey, good morning, guys.
Just a general question, how we'd love to get your thoughts how the M&A pipeline is looking just in the current environment have you seen any noticeable change in interest levels for sellers.
Steve Let me would you take that.
Sure Hi, Barry.
Look I think the prospects in U S. Regional gaming remain bountiful you know I think there's a number of different.
Potential pipeline opportunities for us and we continue to be very active I think as the national operators.
Continue to strategically expand their footprints to enhance their omni channel strategies, I think theres opportunities there both in existing.
<unk> projects as well as new development transactions.
The smaller high quality operators have performed exceptionally well over the last 12 months, so as you'd imagine they have very low leverage they're flushed with excess cash flow. So I think they'll continue to start to look to expand.
I think the tax law changes could impact the way some closely held operators view the future whether that's through sale lease back or divestiture. So I think that's another opportunity and you know as we look you know internationally I think we've we've looked at transactions on four continents.
This year. So we think there's a there's a huge opportunity international it.
It hasn't it hasn't lined up for us yet, but it's an area. We continue to look in as well. So I think there's a lot of opportunities. There's a lot of folks that are starting to kind of turn the corner as far as operations or are now what they are run rates are strong and our cash flow and liquidity is enhanced so I expect to be.
Seeing a number of transactions on the on the forefront.
That's great really appreciate that color and then just as a follow up.
Peter or anyone would love to get your thoughts on this debate around gaming longer term cannibalizing land based gaming and sort of as you know one of the largest landlords out there. How you think about that in terms of your longer term strategy.
That's a fair question.
The totally honest answer is.
We really don't know, we really don't know because.
Because we're in the early stages. However, early results are very positive that this has had little impact on the bricks and sticks.
Chad. This is complementary I know if you were to talk to Penn National about their thoughts our I gaming is enhance their ability to drag people into the properties with incentives and so had that drag incent, our customers to come to their bricks and mortar facility and in fact as you know they're rolling out a significant.
A number of these are with.
Significant investments are around their barstool theme.
Sports books, and so forth and of course, it all ties into I gaming, we see it more as an adjunct I think from a public policy point of view.
What youre going to find is that.
This is gonna be a lot more gambling all lot more for better or for worse, but really a lot more.
But in the end you know do you Wanna be placing every bet that you're going to place a particularly I gaming.
Blackjack or do you want to be at the table with some people.
And drink in your hand, and a lot of activity and energy you know its interesting that I look at the Cordish facilities. The live facilities non gaming facilities that they have their sports oriented no gambling going on yet the energy at those places a pact, which tells me that there is a desire for people to.
Two to be part of the energy part of the scene watching sports and getting involved. So I think it's just more of an adjunct frankly to create more business for the bricks and mortar facility. That's my prediction, but time will tell.
Yeah, Barry and it's been really interesting to see I mean, we've seen it in a lot of other sectors, where people were actually online only and realized that it's so important to connect with your customer in a physical way and and that's for things like glasses, and you think about war be Parker opening up physical facilities and here you've got something.
So inherently experiential connecting with your customer and a physical setting gives you stickiness gives your profitability I mean part of it is intuitive, but part of it's factual I mean, what we're seeing early on is the reality that if you if the operators can get people to go through multiple channels the customer lifetime value goes up by multiples.
So the interesting thing is they're actually incentive to take people that come in through the online channels and steer them to the bricks and mortar so long term the relevance of bricks and mortar and the overall delivery to Peter's point she'd only go up and it'll be interesting to see if some of the online only folks appreciate that over time. It actually go the other direction and start getting <unk>.
And mortar and at the end of the day all of that means for us is higher values more relevance and better cash flow for our shareholders.
Oh, great. Thanks, so much guys.
Thank you.
Very good.
Our next question is from.
Neat rows.
Please state your question.
Hi, Smedes.
I'm actually on with Michael.
Oh go ahead.
I'm sorry.
Did you hear that.
Okay, Sorry, Hi can you hear me now.
Yeah, we can hear you just mean, yeah, yeah, it might be on with Michael.
Yeah, I think maybe he's done on them.
Wanted to ask you turn it you started outgrowing it talking about the.
Having a balance sheet, that's prepared to be more on offense and I'm. Just wondering could you maybe talk about what you see as your capacity here sort of on the on the dry powder side. If you work to move forward with the transaction and then if you could just talk a little bit more you mentioned some of the opportunities whether it's a new development or smaller operators.
Coming to market for tactical reasons or potential tax changes could.
Could you talk about kind of what's more interesting to you or kind of where you feel like you'd be able to sort of strike sooner.
Yes, I mean, I'll I'll hit the balance sheet first.
Historically talked about having a leverage range of five to five and a half as our target.
And that's that's one metric I'd also point out think about a percent of value of assets and our assets are certainly getting more valuable over time.
And then think about fixed charge coverage, given where rates are you put all those things together you can back into it but pro forma for all these moving pieces, there's certainly a decent amount of leverage capacity on the balance sheet I'm, especially.
Driven by these ATM proceeds and thoughtfully, we'll be able to integrate that into the next transaction I think the two key takeaways are a last quarter. We made it clear we got the fighting weight when that delevering for the sake of making our balance sheet, even stronger for its own and I mean, this is about playing offense and b as we move.
Forward, we're going to be able to not over equity rise depending on the size of the transaction and we'd like to adopt and we are adopting the model most triple nets us to pre fund and be prepared for what might be in the opportunity pipeline to your second question. We certainly are at least underlying the few things that Steve did a great job of pointing out some of the trends in the <unk>.
Drop that gave us some level of appreciation that in the not too distant future, which you'd be able to deploy some of those proceeds.
And I mean, the opportunities are the same can we create a situation that bespoke solution for our counter party.
Daily off market that gives us access to assets that diversify the portfolio, but give us a new operator with strategic upside in different possibilities over the future and it comes back to where I started I mean, increasing long term intrinsic value per share and you can be sure given the opportunity set we've been busy in dialogue to see which of those things we can perfect.
And as far as which ones we might do.
Stay tuned.
Yeah, we use that to look obviously, we raised that those funds with the thought that they were saying things on the horizon that we might underscored might.
Be able to accomplish time will tell.
Okay. Thank you guys.
Yeah.
Yeah.
Yeah.
Our next question is from Handel St Juste of Mizuho. Please state your question.
Hey, good morning.
So Peter.
I guess, it's no secret at least amongst investors that you were a company a on the MTT proxy.
So I was hoping you could talk us through your thought process. When it comes to approaching major acquisitions mergers like a like an MTP and what it means for how you navigate the company going forward and then also I'm wondering if it keeps you up at night, knowing that you might've missed out on some be so transformational generational.
Thanks.
You know that that's a fair that's a very interesting question and I I like when people talk about a strategic transaction, which is usually an excuse for doing a lousy deal.
Strategic well great the problem in our business as if we don't have any operating leverage either the deal makes sense. The day, we signed it and execute it or it doesn't and then you live with it forever.
Whereas hungry as we always were those assets made more sense candidly to us than they did two V. G be really honest about it would've balanced out our portfolio. We already have the biggest domestic portfolio would've been perfect. But problem is simply we couldn't make the numbers work in a matter that we felt confident for our shareholders.
Period, and you've all heard me say time and time again, there is no deal we have to do no transaction that is a must for us if there isn't an appropriate spread if the risk can be managed in a matter that we feel comfortable with our shareholders' money.
Then we're not going to do it and so frankly in the end.
It wasn't too hard for us to conclude we're gonna, we're gonna be battling out or at least move it to a price that makes sense for our shareholders now that means we don't get the transaction so be it and we'll move on to something else I have absolute confidence that we've made the right choice.
The thing did not pencil and as I like to say if the deal doesn't make sense on paper you can bet it ain't going to make sense of putting it in the plain and simple when you actually go and do it. So this did not pencil for us and it was in the end in the end, but look we we all say this to for our shareholders.
We burned a lot of midnight oil and a lot of cash frankly, as well to run that thing to ground 19 ways from Sunday and we did.
So god bless them, it's a better deal for them that it would've been for us and and and I think they've kind of help point the direction towards.
Toward the kind of values that we think do exist and the properties. We currently own.
So god bless them have a grand time and it wasn't through lack of effort that we didn't go there.
Got it got it yeah I'll just add hand, all you look at this team and what they've been able to accomplish over the years, mostly before I have it here looking at Pinnacle of G. L. P. I looking at rolling up things back at Penn I mean, theres been an incredible amount of thoughtful forward leaning M&A over the years and when you say could you sleep at night.
I I'd argue we've got a structure that really ensures that we look at everything from all angles, and we function as a partnership everyone's got diverse background experience viewpoint. It all goes into the funnel and at the end of the day I mean I've been doing this long enough that I mean, it's all Peter's point, you're spot on a spot on for Triple net company I mean, it's it's.
Accretion its numbers I mean, that's your key starting point thinking about the future gross impact think about the benefits of portfolio diversification put it all in and see what's possible, but but with discipline I mean that that's that's how companies over time have really hurt themselves missing about the discipline and that's one thing Peter brought it up two or three times already on this.
That's one thing we hang our hat on we are a disciplined company.
You got to say in my years with Penn and I get the question, you're looking at X and you're looking at why and I would say always always if it's alive and breathing you can assume it's looking at it now we've been a little more forthright in this case you know we were looking at it.
And beyond that so consistent with what we said just didn't pencil. So we're moving on to what's next.
And and benefited mine IL and al I mean back to the point I made in the intro benefited by this light that's been shown now on the regional aspect through M. G. P and our stock is has done well and enabled us to put the balance sheet in shape to be opportunistic. So in an indirect way, we're actually benefiting from whats happened and it leads in part to us.
Being now well positioned to do whatever the next thing it might be.
Yeah, Great point actually leads me to my next question.
Wanted to talk about the read through from from D. M. D. P deal, but also you know the the.
I guess, where you assess reasonable cap rate today to be we've seen cap rate compression all around this elsewhere and real estate 50 basis points or more over the last quarter, so in and in a lot of asset classes.
Where are the one off or you know reasonable casino trades.
And what's your sense of the cap rate.
I'll say broadly had though I'm not going to negotiate against myself on the call. So if there's no numbers, but I will say the trends continue in regional assets, just like everything else the capital markets are very supportive.
And rest assured there's been compression in cap rates. So it's the last deals. We saw you know we did an eight three we did an eight M. G. P did a seven and a half and then this large subset of properties. When it is six the first three were off market. The last one was unique so theres kind of your bookends.
They go back to the stay tuned comment on what might be the art of the possible and we'll see if we're where they want to deliver the next print and time will tell.
Yeah.
Got it alright, well. Thank you appreciate the time.
Q.
Our next question is on Jay Kornreich of S. M. D. C. Please state your question.
Hey, good morning.
Earlier in the year, you announced several acquisitions and brokers with valleys I'm. Just curious if you can give any high level comments for additional near term opportunities you may see with this partner.
Steve do you want to do that but I'm sure look I think our I think with valleys, there's there's constant dialogue across the across back and forth between the companies and the different different folks I think they continue to be acquisitive. They obviously closed games, just very recently and that was a major focus.
For them. So now on the other side of games as I think you know between them.
Incorporating their omnichannel strategy and looking to continue to be acquisitive, I think there's future opportunities for us with them I think they continue to look at new jurisdictions as well, which is partly what was.
What was driving the ROE for state selection.
So I think our I think you'll continue to see us working closely with them.
Yeah.
Okay. Thank you for that and then.
The sports betting market continues to grow and Penn National expanded the President. In addition to 80 rent coverage do you see any external growth opportunities. This may provide you.
Yeah.
Hard to know right now.
They don't need a lot of cash.
There are.
They're pretty flush and their opportunities are open I mean, right now, they're spending and relatively modest amounts as they build out pretty aggressively the barstool themed.
Facilities in there in their existing casinos.
Casinos.
So I I and there has been some discussion about hotels and a couple of locations, we'd certainly love to participate in that if we could get to the right place I think that is a possibility.
With him and perhaps with some others that we are discussing so I would hope somewhere down the road, we actually get to do that.
There are pretty busy with.
A very complex agenda as you know right now and our focus on getting their well I was going to say focusing on their I gaming and sports betting and so forth but.
If I think about it they were equally focused on their bricks and mortar facilities, because they've got a pretty expansive program around the country to rollout.
Places so time will tell I mean, we make it clear that we have capital available.
Regularly with them and others and so as usual I'll give you my amorphous answer or my amorphous not answer.
Because we just don't know, but we're always focused on that opportunity.
Okay I appreciate it thanks, thanks for the time.
Thank you.
Our next question is from Neil Malkin of capital One Securities. Please state your question.
Good morning, everyone I happen to be on the call.
First question.
Given the emphasis on a lot of these operators are.
Building out Omnichannel, Digitization et cetera, you know what I'm talking.
But I gaming sports betting et cetera. These are all.
Big initiatives to endeavor and are very costly as well and I'm just wondering if you think.
You know the the need to raise proceeds to do these things.
<unk> will shake loose or necessitate.
Some potential Las Vegas strip.
Or Las Vegas.
Sales in our in our whole quote holdco form at which point you you might you know.
Take a look at that with perhaps a new operator to gain a foothold on the strip.
And potentially willing to pay up to get there. So it would kind of preserve your basis.
Just given your you know obviously, you're very regional centric, which is great, but obviously Las Vegas market has been very strong even with no international. So you can just elucidate that that'd be great. Thank you.
That's a very specific question Neil.
Because it seems there's somebody you want us to talk with.
[laughter], which which I'm sure, we're happy to and probably or if that backdrop is the case.
I'll, just say broadly to the extent trends evolve and companies need money and they evaluate the alternatives, whether it's equity debt or preferred permanent capital like ours. We're certainly part of the conversation and if we can find ways to help facilitate interactive efforts by buying real estate, it's exactly what we did.
And our last day with valleys, when we backstopped their games this acquisition.
Got what they want strategically and we were able to get access to assets. It gives them permanent capital, we're certainly open to being creative around doing that but.
So we can really go.
And it's not clear what families who's going to do with the trop site and in Las Vegas, I know well actually know a fair amount about what they're thinking, but it's certainly not pin down and nothing that I can share, we would hope and see a potential opportunity to participate with one or other of the concepts that they have in mind.
For the site, we'd like to be helpful. Perhaps will need us maybe they will again, but you can rest assured that our genes.
We're talking with them all the time about where that might go so.
Yeah, there's been some pretty significant conversation time will tell.
Yeah, we're looking always for places to put money that we think we can invest safely.
They flee.
Okay.
Thanks for that and the.
Other one for me.
It's related to the structure of your leases.
You guys talked a lot about you know kind of being conservative right word, but making sure you have a you know a good yield to start because that's kind of what you live with them and using your words, but I wonder if you maybe take a little bit of a different stance and try to structure.
You know maybe be a little bit more aggressive with your.
Your purchase price of your underwriting but put in more.
Favorable lease terms and in terms of no thresholds are minimum escalators, you know things along those lines to sort of help your overall growth trajectory. That's the other part of the equation and then you know if those opportunities exist for you know.
Amending the leases in your current portfolio. Thanks.
Yeah.
Yeah. There was there was a lot there so I'll I'll I'll start and if if we missed apart maybe somebody else can can hop in and I think the I think the simple answer is.
Our underwriting and the way in which we underwrite is is specific to each circumstance, but yes, I would say is overarching conservative our goal is not to end up in a renegotiation with attendance down the line, whether that's year five or year 'twenty five.
Terms of leases in the most recent transactions have been extended as you've probably noticed therefore.
In order to underwrite the transaction and feel comfortable that we're not going to be reducing our rent down the line or finding a new tenant we need to underwrite with a certain level of conservatism and that's the way we run our business and Thats the way we go about transactions.
Anybody else have anything.
Yeah.
Everybody heads are not anywhere on the table. So I think our team is at least satisfied with that answer.
Okay. Thanks.
Thank you.
Okay.
Our next question is from David Katz of Jefferies. Please state your question.
Hi, Good morning, everyone. Thanks for taking my question.
Good to hear that you know it sounds like there may be some you know fruit brought to bear from all of your efforts going forward, but I'm curious about the degree to which.
Your competition for those deals has evolved over over the recent past also.
You know domestically I'd say, we probably feel like we have a good sense of who's out there and who you are up against.
Internationally, which you mentioned, we may not if you could talk a little bit about that that'd be helpful. Thanks.
You know David.
I know really wasted a lot of time thinking about quote competition. We don't we don't participate very often in straight out auctions, if you will highest place.
Because as I've been fond of saying for many many years about this our business and frankly anything whether its an art auction or a car auction often they lose the winter it loses.
You know I hate to be in a situation, where we want to pay the highest price for anything and if you looked at our business over the years, we generally find other ways to get transactions done.
They tend not to be auction situations.
And I'm going to stand by that I mean, if if the world goes to straight up auctions in every transaction.
Ugly place to be and we try not to go there and I think the stuff. We're working on even now it doesn't require us to be in a state of auction.
I mean you saw.
Earlier, we talked about N V P straight up auction.
We want to win that.
Not could we have yeah, but I don't think any of our shareholders would've been very happy. So it's just not the place we want to be and today and in the past we've always found a way to find different ways to get transactions done and.
I'm not going to go through them all but.
You've seen plenty of evidence.
I'm going to stand by that yeah, I'll pick up David I mean, we we've got a different tool chest, even if new people show up remember as a REIT. We've got the capacity for L. P units, whether it's if someone wanted to do something creative on the tax front and separately. We've also illustrated to Peter's point tremendous creativity I mean, it really is a bespoke.
Solution not a pre packaged give us the highest dollar for some real estate and we've done it now a number of times with more people in the market can pricing shifts a little maybe but will the relevance of our approach stand of course.
Alright.
Pricing has changed for sure and one has to offer something competitive but people do business with more than just a flat out the highest price. There are many other elements that go into it.
And as you can see how we're able to leverage what we've done with valleys through a variety of transactions, we did something for them they did something for us.
And that's kind of the way it works yeah, we've we've added ideas and structures that sometimes our counter parties didn't appreciate where possible overtime and create a win win ways for our supposed to benefit.
Alright, I appreciate that so I just wanted to follow up and make sure you know my takeaway is correct, which is.
The things that you have out there on the board arent really not pre.
Predominantly competitive auction based.
Circumstances there.
Yeah.
It's a mix David but the ones that are more likely to fall for us are the ones that are differentiated.
Understood. Thank you very much very helpful.
Thank you.
[laughter].
Our next question is from sensor alloy of Green Street. Please state your question.
Hum.
You guys mentioned that CLO bonds or different continents with yourself when you're embedding international gaming opportunities can you just provide a little color on what was interesting about those and then also what were some of the biggest trends in liver.
They had some of those.
Sure This is Steve.
So look I think as far as what's interesting is it's an opportunity for us to expand our tenant roster. There are some very high quality gaming operators that are not located in the United States of America. So there's an opportunity to expand your tenant roster theres an opportunity to get additional growth.
Gross profile and potentially expand further in that in that geography, you're continent.
So those were all things that attracted us to some of these opportunities.
To be totally Frank and honest the biggest deterrent.
Is that not every.
Other country operates the same way as the United States tax code and therefore, there are a number of circumstances, where through extensive tax structuring and diligence.
Do you find yourself in a position where you're going to have tax leakage and you must consider that in the transaction. So that's kind of one of the major things that we have to work through each time, we look at one of these and you know to be Frank every country is a little different so it's a lot of time and effort put into these things in and there's a huge.
Opportunity, there and we're going to continue to pursue it.
You might look back a bit and remember that I bought at Penn.
Among other things.
The management contract.
At Casino Rama.
In Ontario, Great opportunity company.
Did extraordinarily well with that however, I think we spent that doesn't look at it you how many a decade plus fighting between the government. The U S wouldn't agree with Canada U.
U S. I can't tell you how much how many brain cells were burdened.
Navigate that fight between the two countries. So there are complications of getting these things done.
So you have to approach a eyes wide open.
Yeah and to be clear to the extent, we did it it would be in a country with rule of law and long black robes and established property rates.
All of those economics to Steves point are looked at on a net effective basis to us.
Years ago I had the transaction.
Could it penciled in Cambodia, just pass that everybody knows that but just this is a story.
And it turned out that the bulk of this facility's business came from Thailand.
Across the border I mean, this facility is right across the border well it turns out that Thailand had a requirement that the border got shut down at I don't know call. It six or seven o'clock at me, but it was a limited time well a line item that they had in their business was paying off the guards of wherever the heck they paid off to let Pete.
No that's perfectly okay over there.
Needless to say, there's no way as a public company or an American company, we would even consider such a thing even though it was perfectly normal at reasonable for them. So they are all of these things that one has to be aware of.
And of course, we packed packed in that opportunity and moved on so.
Yes, we look but it's often difficult.
Okay that all makes a ton of sense I guess when you consider kind of all the opportunities that you see that you mentioned access to more tenants you know.
More growth opportunities and then you also layer in and you know the hurdle. If you were speaking about the corresponding tax and regulatory hurdles.
Which region or regions, you think offer the most feasible in attracting kind of opportunity for you guys at this time.
Well to just broadly say I mean, I think regions that.
Feeling look most similar to the United States ultimately feel and look most reasonable to us I mean, we've we have not we have not looked in in some some areas, but its not been because we are prejudicial.
We've just you know opportunities have presented themselves and that has kind of dictated where we've gone. So we're not searching out specific continents or specific countries. We just happened to see an opportunity presented itself in and then we go in and start to roll up our sleeves.
Okay.
Thank you.
Thank you.
Our next question is from Daniel atoms of loop capital markets. Please state your question.
Yeah.
Hi, everyone. Thanks for taking the question.
Good morning.
Given the sheer magnitude of casino M&A and sale leaseback activity that we've seen over the past eight years since the spin I'm wondering Peter if you could update us by quantifying how big realistically the domestic opportunity for gaming real estate assets is today versus what it was eight years ago.
Well, that's a fair that's an interesting question and probably a good question I mean.
Is there more or is there less.
Some of the low hanging fruit has disappeared.
Little doubt about that.
And so I have sometimes describe our efforts as you know less spending under the opportunity three with a blanket just having things fall down in the blanket, which we capture to actually being in the mining business. We're digging deep to find these opportunities, but they evolve overtime there are people private individuals.
You have some properties that we like we've been talking to over a period of time and but.
It's a question of when and under what circumstances, and what might motivate them to sell or to make it or to do a transaction like this.
And that changes over time, so what you do is stay close so is there more or less.
I wouldn't say, it's it's just different are.
About the same but these things are sporadic.
<unk> seen some big transactions occur and.
You're not likely to see too many of those are again.
But.
There are a lot of facilities around the United States that are open for opportunity I don't know, but Steve would you comment on that the only difference no. The only thing I would add Peter is I do think as more jurisdictions legalized gambling it presents a whole new opportunity.
And I would say.
We're not we're not stating, where we believe Texas will or won't go but the fact is if Texas goes those are going to be legitimate properties that are going to cost billions of dollars. So as much as some some of the inventory has been taken off the shelf along the strip I think there are a number of opportunities which may present themselves in the coming.
Yeah, that's a very very good point, because I know what some of our tenants are doing in some of these various states and they are investing significant time significant money to try to get these things over the over the top and look the day will come where every place Texas included will have we will have gaming it's.
Pick the obvious ones, Georgia.
Just keep going.
Hard to find a place that doesn't have it ultimately so that that is a whole category that are that I didn't think I'd right away.
Okay, great. Thanks for the color that all makes sense and then just just one more for you Peter I wanted to circle back on industry consolidation and curious if theres, a price or a valuation where you'd be willing to sell the company.
Particularly given the size of some of these real estate private equity funds and their clear willingness to transact at sub 5% cap rates and in certain instances is there a price that would make sense to you.
Thanks.
Look at that that's a.
Difficult question look we're a public company, there's always a price there's always a price I have to give you that answer.
But you have to measure it against what we think is the runway that we've got what's best for our shareholders.
Period, including me as a shareholder now.
I think we're still the third or third largest shareholder in this company with a major stake. So is there a price yeah of course, there's always a price.
And that's the only answer I can give you even if I wanted to give you a different one.
So.
Yes.
But I don't I don't see it and we believe strongly that there's so much more value to be created in this machine that we've <unk>.
Crafted over the last eight years that.
We've got a long way to go.
Fair enough.
So much.
Yes.
Our next question is from John and the soccer of Ladenburg Thalmann. Please state your question.
Good morning.
Good morning.
Thinking about the total addressable market I mean, if we kind of slice it up into different sections. One of the areas that hasn't had a lot of real estate transaction activity is the Las Vegas locals market is there. Some reason for that other than just simply owners and operators not really meeting that the capital at this point in time.
In your mind.
In my mind, a pretty simple just look who has those properties and they sell is not easily and not at a price that any rational person would day, but.
But go ahead, no I was actually going to say I think you answered your own question, I mean, red rock and Boyd or the main owners of the locals market in Vegas, and they've been that way for years and you know every us and I'm sure all of our competitors talk to them and so it's not for lack of Troy.
But to date, they've they've been they've been comfortable owning and operating.
So that's that's kind of a story there.
And it's not something I am underwriting difference between what you think the stability of the cash flows are versus the operators not at all not at all not at all.
And then I know, we've kind of been asking this question in a different number of different ways, but just on pricing I mean was there a change as you talk to kind of tenant and potential tenants and how they use pricing for their they largely regional assets after some of the.
Public prints on some of these larger Las Vegas transactions became public I mean did that impact in the <unk>.
Other side of the table view on pricing at all or has it been pretty stable since those were announced over the last couple of months.
Okay.
At a high level I'd say not necessarily I mean, if you look at the private market. There's been I'd argue a compression of cap rates over the last I don't know.
Year or two years that we haven't seen in print because they've been off market.
And to the extent, we're gonna see new transactions I assume theyre going to follow that line. So in other words, where our bally's deals public deals that had no uniqueness and were fully marketed down to line those strategic benefits. They would've been a very different cap rates, but remember how we got those deals that first one we got.
Troll of an asset we put together an operator, we added other things into it to make no cash out of pocket. So if you look at a market clearing pack cap rate back then it would have been much lower.
I think Matt Matt I agree with you Directionally I think the only nuance would be if I think there are certain regional assets that people view the owners view as comparable to Las Vegas strip type assets and in those instances I think those those owners definitely pay to attend.
To what's been printed publicly and I think they definitely have a different perception around value yeah, I have to say the same but thinking about it I mean those large.
Our properties are owned exclusively by pretty sophisticated folks companies or or individuals. They know exactly what's going on and you know theyre going to get the highest price. They can reasonably get so it's gone in that direction is no doubt about it which benefits us in many ways, but yeah.
You're not walking off with the kind of stuff. We did in the early days, there's no doubt about that so.
But that's okay.
As long as we get recognition.
For the value in our company, we can be competitive.
Okay.
The answers all my questions. Thank you very much.
Our next question is from Robin Farley of UBS. Please state your question.
Great just wanted to circle back on your comments in the release about kind of diversifying is that is that just the geographic diversity and you talked about looking at other conscience or is there. Some thought that you know outside of the gaming sector.
Yes.
You know Robin I think.
It's something I addressed earlier I mean, we're always looking.
And that does not overstated I, probably once used to be once a week at least once a month.
One of our banks will come in and talk about extra y or Z opportunity and some non gaming sector and we looked at them pretty carefully.
As I said earlier the problem is with such a great spot now spoiled by very very very high quality cash flow.
And certainty and long term and on and on there aren't many things it kind of fits that bill.
And we just have as long as there's opportunity in front of us in the gaming sector. I think we're going to stay close to our knitting. We will continue to look at other things.
I asked me do I think someday will be someplace else I think probably.
But we've got a ways to go yet in the space, where we are comfortable and I think as we look at other things. We also are going to stay keep close to our knitting.
Okay.
That's helpful. And then also just had a question I did miss that there's conflicting calls.
Comment on that.
Hum is there do you think that.
Further consolidation and gaming links could make sense I'm not suggesting that's going to happen. This moment, but I mean would that make sense to you.
Who are you going to consolidate with there's only one other.
Well exactly.
Yeah.
Yeah, I mean look if I felt we ran out of it because.
They want to make us a gigantic offer I suppose as a public company I have to answer as I answered earlier, you know, there's always a possibility, but it would have to be pretty something pretty pretty fulsome.
Both of them to say the least but.
Look I don't think that's a huge advantage to them we have a runway we don't view ourselves as competing with them for the most part.
Certainly not for single assets.
Any comment.
Oh, Okay, Yeah, I'm looking around the table to see if anyone wants to augment.
Because I'm just wondering if that would actually make it maybe less expensive bidding up feature.
Property acquisition thing.
There you know, we're only one triple net.
<unk> been out there for it.
It kind of a sad world is there only one entity.
In that space I don't think that's good for anybody probably also not good for for sellers.
Like to see that.
Yeah, that's not good for selling it but that's why I wonder if it made sense.
Okay. Thank you.
Thanks.
We have reached the end of the question and answer session I will now turn the call back over to Mr. Peter Carlino for closing remarks.
Well, thanks to everybody who's dialed into that I hope our comments were as always Frank and maybe even useful.
To give you a sense of kind of where we are what we're doing feel very good about where we are this year are going to wind up a very good year, we believe and I think we are.
Good footing as we get into next year. So.
As I think I said last time stay tuned and look forward to seeing you next quarter. Thanks, so much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Okay.
Yeah.
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Yeah.
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