Q4 2021 Gaming and Leisure Properties Inc Earnings Call
Greetings welcome to gaming and leisure properties fourth quarter 2021 earnings conference call.
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At this time I'll turn the conference over to Jos you Phony, Joe you May now begin.
Thank you, Rob and good morning, everyone and thank you for joining gaming and leisure properties fourth quarter 2021 earnings call and webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at Www Dot G. L. P.
P. R O P I N C dot com.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in 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. O N F L X.
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 company's filings with the SEC, including its 10-Q s in the and and definitions in the earnings release and reconciliations of non-GAAP financial measures contained in the company's earnings release.
On this morning's call. We are joined by Peter Carlino, Chairman and Chief Executive Officer of gaming and leisure properties also participating in 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 <unk>, Senior Vice President and Chief Development Officer, and Matthew them check senior Vice.
And Chief investment Officer.
With that it's my pleasure to turn the call over to your host Peter Carlino. Peter. Please go ahead.
Well, thank you Joe and good morning, everyone. Thanks for <unk>.
Joining our fourth quarter earnings discussion.
Discussion.
This quarter and in fact, the entire year for G. L. P. I think was pretty eventful.
Notably we affected a variety of transactions, both large and small.
While at the same time significantly improving our balance sheet, which was a major focus for us this year get down to what we internally called fighting weight.
And as always we have prepared a very detailed press release with everything important pretty well outlined.
So I'm not going to highlight every detail.
Desert right, Yeah, Matt will have some comment that we'll get to in just a moment.
But we're most pleased to welcome the Cordish companies to our roster.
The best regional gaming tenants in America.
So in addition to Maryland lives, we just achieved approval for the acquisition.
Really lies in live Pittsburgh, which is out in Westmoreland County, Pennsylvania.
Cordish Springs, both of grouping up some of the best regional gaming properties in the country.
Brett maybe you have seen them and along with the skills and one of the best and most successful developers in America.
We are looking forward to significantly more work with them over time.
Also pleased to point out that that part of the purchase price was funded with more than $300 million of op units.
Which we view as a great vote of confidence in our company.
So why are you examined the new assets that we just acquired with Cordis I would invite you to look at the entire G. L. P website and what we believe is the best and certainly the largest assemblies of regional gaming assets. In America, you know I'm surprised from time to time talking to investors that they've never seen it.
Properties, which is a surprise and have no idea what kind of quality and these properties represent I do think that trip through our website looking at what we what we have in our portfolio.
Is instructive for many.
With both <unk> and all I'll say.
With both.
Cordish and bally's at the same time, we believe that there is an additional path to growth with these companies.
And by the way that could also include some of our existing tenants as we talked about a variety of investments they may want to make going forward. So.
We see 2022 is already off to a great start.
I would point out too that in the second half of this year, we expect to complete the acquisition of Valley's Rock Island.
In Illinois and Blackhawk.
Plus of course, the balance of the quarters purchases, which will get us to I think 55 properties today.
Once again that I think what you see in these recent transactions at gaming and leisure properties really never compete on the basis of its cost of capital. We don't we're not in the auction business.
Rather we compete by capability.
Our ability to assemble and conclude very complex transactions.
So I also highlight that all of the facility that facility basis, which I call, especially to your attention. We've got the best cash flow coverage four wall coverage property to property in the industry and you can expect which I highlight here that we will retain our same caution and care.
Sure and making new investments I've said publicly many times that we're not in the monument building business no transaction, we have to do we're very careful with our shareholders' money because we like you our shareholders.
One other comment I'll make is about dividends.
We're pleased to announce.
Tucson increased eight sent over the course of the year annualized Ah Ah Ah.
In dividends.
Hum.
And I think I can say safely that we expect over the course of this year when transactions close in the year evolves that that number will will rise dividend growth is particularly important to me as a shareholder as I suspect. It is to many of you and we will responsible play continue.
To grow our dividend.
As we are able so with that let me turn the prepared remarks over to desert Ray Burke, our Chief Accounting Officer.
Yeah.
Thanks, Peter and good morning, I, just wanted to run through some highlights on the income statement and then compare the quarter of 2021 over in the quarter of 2020.
Total income from real estate outperformed in the fourth quarter of 'twenty 'twenty by over $17 million, primarily due to the closing of the Bally transaction on January 'twenty, 'twenty, one, which increased income by $10 million escalators on our pinnacle avoid the alterra and Penn leases, which added $2 5 million sorry, the rent received in one nine.
A million and increased panel higher percentage rent of $2 6 million higher noncash straight line rent and noncash revenue gross up of $2 9 million, partially offset by a decrease in our rent related to the casino Queen and 3 million due to timing of cash collections on at least in the fourth quarter, mainly in the fourth quarter of 2020.
Our gaming revenue declined 19 million and as a result of our sale of a parallel in Baton Rouge operation on July 1st in December 17th of this year.
Our operating expenses increased by $35 2 million and that's primarily due to a noncash gain during 2020, which was not replicated in 2021, which was related to the Caesars exchange, where we acquired Waterloo in Bettendorf and exchange for Evansville and that resulted in a 40.
$1.4 million noncash gain last year, we did have a noncash charge in 2021 of $12 $2 million related to the provision of credit losses associated with our new Cornish lease.
You will have this is the C. So reserve is what accounts, let's call it.
Which is related to that lease being a financing for G. L. P. I.
Our noncash landless gross up and land rights amortization is approximately $5 9 million, which was partially offset by a 4 million recovery on the casino Queen loan at $12 2 million reduction in gaming expenses again due to the sale of Perry, though in Baton Rouge as operations.
And a gain on the sale of Baton Rouge has operations of $6 8 million on a pretax basis and an insurance gain of $3 5 million.
Yes.
With respect to the Perry, though Ryan I wanted to again call to your attention that this has been recorded in our Trs segment during 2021.
We will be reporting that in our REIT segment, beginning in 2022 as a result of the winding up of our taxable REIT subsidiary.
With respect to Maryland live leaves this lease will be accounted for as a financing receivable well therefore recognized cash rent as interest income on revenues from real estate and a change in that receivable going forward. However, we will reconcile that cash received in our E. F F O disclosures.
With that brief summary, I'll turn it back to Peter.
Oh, Thanks des.
You wanted to make a couple of comments as well.
Much has evolved and.
Our balance sheet.
Our work this year and all of our transactions.
Why don't you go ahead.
Sure. Thanks, Peter and good morning, everyone as Peter talked through at this time last year, we shared our game plan and it was playing offense and doing so within the context of being disciplined.
And.
Emphasizing our commitment to balance sheet strength with respect for the role it plays in our success and related to these goals. We've delivered not only did we expand our relationship with valleys one of our most dynamic tenants, but we also directly sourced a new relationship to our tenant roster with the Cordish properties that Peter talked about.
And the transaction, where our counterparty made very clear G. O P. I was not the best price. It was the best decision in fact coming from 110 year old family company that assign their own names to financing projects and other bills that need to be paid over those many years. It was taken as a great complement.
When after hours of discussions some negotiation finalizing terms John Cordish turned it said you know it's pretty clear to me that you treat it like it's your own money and the other Reits I've spent time with treat it like it's other people's money.
The core dishes decision to take a significant equity stake in Che OPI underscores our philosophical and business alignment.
We're looking forward to seeing what might come from our Cordish relationship overall and from the novel partnership structure that enables G. L. P. I to invest at least 20% of the equity into any new gaming license opportunities achieved and newest choice jurisdictions over the next seven years.
Realty Income's recently announced agreement to purchase wind Boston asset at a five 9% cap rate marks another milestone on the path towards institutionalization and.
It not only provides real time price discovery, but also underscores the value created with our purchase of the Cordish portfolio.
The fundamental thesis upon which our company was founded that thoughtfully structured gaming real estate cash flows are a institutional quality has been further validated.
As I've often stated in the past we own the most homes in one of the best neighborhoods turning to the balance sheet balance sheet strength and liquidity remain the foundation of our success throughout 2021, we stayed true to the philosophy of match funding our transaction activity. We also prefer.
The use of multiple tools in our tool chest with not only our overnight equity issuance and 10 year bond issuances that were both well oversubscribed, but also with over $250 million of ATM issuance at over $49 a share and the gaming REIT sector is first O P unit issuance.
Peter talked about.
We are well positioned to be well within the target debt range of five to five and a half times that we've articulated we've got almost $1 $2 billion of unused revolver capacity and we see our staggered almost entirely fixed rate debt profile as a strength amidst mark ticket.
Market volatility.
As we move forward our focus remains on unearthing opportunities for the prudent deployment of our shareholders' capital.
I'll turn it back to you Peter.
Matt. Thank you very much I hope that was helpful to you all out there and so Rob would you. Please open the floor to questions.
Yeah. Thank you at this time, we'll be conducting a question and answer session. If.
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Thank you. Our first question is coming from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Mhm.
Thanks, everyone. Good morning.
Meaning all first question.
You know the couple a couple of transactions pretty notable transactions over.
Over the last I don't know nine months or so you know really continuing to validate like you said the regional.
Gaming thesis wondering if you can maybe elaborate or talk a little bit more either anecdotally or anecdotally specifically.
Wherever you'd like on how.
How you see the continuing institutionalization of the regional gaming.
Market, and obviously Vegas is well known but.
Maybe if you could talk about.
Incremental buyers competitors potentially how C N BS or debt markets have improved.
Improved any any of those things would be great.
Hey, Matt why don't you take that.
Sure I mean, so you've seen the cap rates I mean, we did but for US was an aggressive deal the six nine and very quickly in a few months, we've never seen a five nine for another regional property.
And as Peter said, I'd, I'd really underscore for anyone who hasn't been to the Cordish properties. Please reach out you should see them pound for pound, they're as good as anything youre going to find.
If you look forward I mean, the realities are theirs.
A significant amount of institutional capital.
And the private equity world and their private Reits and in other public companies that is looking for returns.
And when apartments have three handle is industrial is three handles it's really hard to find safe and durable income and when you look at a dollar tree or some other facility like that in a very second tier market and compare it to some of the cash flows you get that to Peter's point, not only have a great operator, and a great property, but also strong.
Four wall coverage and credit support it's pretty obvious we've got a better mousetrap, a better business model when it comes to getting those cash flows. So to date, you've seen a bit of a competitive moat related to not only relationships, but also licensing.
As people focus more on the space I suspect some of them might find accommodations to do wonder or access both of those things and I would expect more cap rate compression.
Watch this play out as we've talked about in manufactured housing self storage data centers cell phone towers.
As long as our cash flows deliver on the premise that we've articulated you're going to see more cap rate compression now what does that mean for US is really the key question and I'd point out we get this question all the time.
How do you guys compete you don't have the best cost of capital.
Why should someone do a deal with you and in spite of that you can look at the years of transactions, we've done to Peter's point, none of those are auctions. Each of those is it somehow bespoke often directly negotiated deal with someone that does the transaction for more then maximize proceeds just economic terms and Cordish I think it's.
The best case study of that so as we go forward. We're also going to have to be thoughtful about how we're sourcing capital and the cost of it I tried to underscore the fact that we've used not only the ATM thoughtfully, but now this capability that's been validated by the core dishes to use O P units, which is unique.
And the math is going to be the same for us risk adjusted returns in excess of our cost of capital and to Peter's point doing all the things that make our long term intrinsic value greater.
Okay.
Yeah, that's great.
Yeah.
Oh. Okay. Go ahead. Please go ahead no no no go ahead Peter.
No.
I'd like Matt to answer it.
Pretty much on point, but why don't you carry all the questions.
Alright, great yeah, Okay.
Can you maybe talk about.
The well just in terms of maybe acquisitions.
I noticed that bally's got pushed back to the end of 'twenty two.
Both of those transactions is that a function of.
Just like Covid, and regulatory delays and constraints or is there something else there.
But branded why don't you take that.
I don't think there's anything more to it than I would caution you valleys, there's actually three separate transactions that we're looking at right now there's D transaction in Las Vegas around Las Vegas, Tropicana, but then there's the quad cities and Illinois, and I would expect the quad cities in Illinois transaction or the Quad city and Blackhawk transactions to close prior to the.
Trop transaction, which I think will be later in the year I think that the two former transactions would be a little bit earlier.
Okay.
Okay, Great and then I guess.
Well last one.
I think on the last call Peter you talked about or Matt I'm about elevated opportunity on the in on the forefront and just wondering specifically if you could talk about some of the alternative.
You know leisure lifestyle.
Tumor oriented sort of.
Endeavors or opportunities you're you're looking at if you could give any color in that.
You know I answer it's probably been the same for the last maybe seven years.
Not a week that goes by that we don't look at some other something.
And you know the struggle that we have is that we're already in one of the best spaces on the planet from the from the point of view a certainty of cash flow longevity of cashflow longwall long term leases I you know, it's tough when you're already in the best place to take something less than the best that haven't been.
<unk> said there are some things we're looking at and look I've said probably for years I expect one day, we will a light.
At least mildly and some others space, but we just are not there yet there'll be a discussion just for fun I'll tell you.
About some new ideas. It scheduled for I think I saw it brings me 30 on Monday afternoon. So I mean, that's a scheduled call about a different concept, but we do this all the time and we'll see.
But at the moment there is nothing.
Really special to report.
Okay. Thank you guys very much.
Thank you.
Next question is from the line of screens Rose with Citi. Please proceed with your questions.
Hi doesn't take long for me its just going back to your cost of capital you talked about not competing on cost of capital.
And then you've talked about potentially moving on to non gaming assets.
So what type of non gaming assets would you be interested in I know in the past you've talked about potentially looking at.
Centric health of a pen and then how do you expand the universe.
Kind of as gaming becomes more institutionalized.
Well I do think there's opportunity with some existing tenants that are that we can explore at are exploring right now that's pretty near term near term being over the next year, let's say opportunity could happen, maybe you won't but but there are active discussions about.
Deploying capital with existing tenants. We're also excited by the way with the Cordis for example, again people who are very very aggressive hungry.
Coast to coast and people with whom we'd love to work and do more and that applies to some of our other strong tenants.
But again, it's highly unpredictable, we'll just have to see in other space again, I think I pretty well said that are we just havent seen what can match, what we already have.
Matt do you want to add any color to that.
Yeah, I'll, just say listen we spent a lot of time investing in R&D.
And everything outside of gaming to keep our finger on the pulse of anything that might be durable cash flows.
But really at the end of the day, a we don't want to say specifically, what those things might be because obviously, it's a very competitive marketplace, but be durable characteristics are really the hallmark of what they're looking for and we don't want to put our money into much more volatile income streams that cost a lot more than the gaming assets.
<unk> point I'll also point out.
We don't we don't feel that we need to do something outside of gaming to prove that we can do something outside of gaming. We always have access to those deals. The first deal. We do is gonna because it crosses the threshold of making sense on a risk adjusted basis. So we try to be creative well, obviously I mean, when you look at where we are we're middle innings of institutionalization.
And being able to find things in earlier innings of institutionalization with less efficient pricing is one avenue and one lens to look through but at the end of the day, it's got to make the long term value of the company greater.
Peter you've talked it's Michael Bilerman speaking, Peter you talked about not wanting to compete in large auctions and.
Generally won't wouldn't be competitive in those types of situations can you just talk a little bit about your relationship with Wynn and obviously the the encore was not a.
Broadly marketed transaction according to win and real income but.
But I'm sure you've had conversations you would've had relationships and knocking on a lot of doors.
What was it in a relationship that.
They didn't feel that you would be a good counterparty to buy that asset and progress down the road with just Realty income.
Well I can't speak for that we had no conversations with them about that property. So it never never came up.
But I assume you've had a conversation with them over the years I mean, I assume you have conversation with every operator as you've uncovered things right. Yeah, we're not duty right.
We have in and around I spent some numbers of meetings with Steve itself overtime, just never found something that made sense for us.
Look I mean.
Some of these transactions are.
Bespoke where.
Either they were approached by by somebody directly and decided that these are the guys look and it turns out in the end we would not have been competitive anyhow. So I don't think we missed anything and I haven't lost five.
Five seconds of sleep over that transaction.
Good for them I think a sweet deal and it does validate as Matt says the value of some of our properties, but look it's fair to say there is scarcely what I'd call. It regional property. It it's really a vegas scale property in a major major market, where you've got essentially a monopoly.
Thank you.
I don't think it says a whole lot about regional value it does that kind of validates the.
The space and delighted to see someone else sees the value, but we wouldn't have been competitive for that in any case.
Why do you think you wouldnt be competitive do you feel like it's your own equity cost of capital was the bumps in the leases and the lack of Capex, what's the size what I guess what is what are the elements that make it that you feel that given the same terms you wouldn't it wouldn't have been something and I guess I'm getting a little bit of mixed messages Peter.
Offensive is a validation, but its too much of a price we wouldn't play there, but maybe we would sell or answers at that price. So I'm just trying to reconcile all of these.
Every every transaction is different we've looked we've done transactions at very favorable pricing of the deal we did with car well I thought not exactly a solid known for giving away gifts, but.
It was a very complex transaction involving four public companies you know what.
We did that was quite extraordinary, but we added value and creativity and so forth.
That maybe others couldn't so that we just like everything else you find what you do best.
Straight up box.
Said, it very directly see the.
The winter loses generally that's the case and I that whether you're trying to buy an automobile it trying to buy a piece of art.
Laying down the highest priced at an auction.
Is that generally my eyes.
None.
We have it in.
For example in.
Hum.
With M G P.
We did.
Pete there because we will always be out there with getting buying for a couple of years. Prior unfortunately, when they want it and when he ran into some difficulty that kind of ended our our long standing production about something we might do.
The adjusted Board made a judgment that it.
The auction would be the best way to go can't say they were wrong.
And we were already there so we thought we sort of move.
Look look hard and see what we can do but we confirm that.
It was not a right deal and.
And we chose not to play so well.
Okay. That's it speaks for itself.
There are plenty of transactions can be done as we've demonstrated just recently will continue.
But every deal is and for US that's all.
Okay. So.
Thanks.
We just proved it.
Yeah, well, thanks, well, sorry to Miss the company and you down in Florida, but.
Well look forward to catching up at a later date.
Speeds.
And let me just add for the audience just to follow up on Michael's question. You know it is interesting to look at the wins build and the fact that it's certainly well overcapitalized for the market. It's ended it looks terrific as Peter points out and take a look at our portfolio a lot of the pictures do but when you really drill down beyond what it looks like.
The quality of the cash flows when you think about master leases. The four wall coverage Peter brought up limited license similar to this the quality of cash flows in our portfolio, it's very comparable to the ultimate quality of cash flows that come out of the wind asset.
Our next question comes from the line of Jay Kornreich with S. M. P. C. Please proceed with your question.
Hi, good morning.
Yes, there is a set up by a kind of a nice pipeline of potential future growth by establishing real for us with now Balis Casino Queen Cordish companies and so I'm wondering if you can just kind of talk about how you see those opportunities potentially playing out.
Well you know the real answer is it's hard to know where we will.
We will stay close to these folks who we like a great deal of trust that they like working with us, but we'll have to see how it unfolds I can't make any prediction about where that might go.
Got some hungry partners out there.
That one will expand and we'll expand in this industry, we just wanna be kind of helpful.
When the time comes and the opportunity appears so look I mean, that's part of our job to stay close and and wish them well and hope we can be of help when the time comes.
Okay, I guess with specifically with the Cordish companies you know there are a wide range of both gaming and non gaming assets.
To expand a little bit more on just the partnership and opportunity set for you there going forward.
Oh, we look.
Real clear, we would be willing to step into some other.
Real estate space with them should that opportunity present itself I mean, we've had those conversations we'll see again, if we can provide something that they at the time would need or or desire that we want to be the go to people.
That they they they go that they deal with.
I mean, that's really our jobs are hanging around the hoop be good friends and partners and to be available.
Right, Okay, and then I guess, just one follow up.
Going back to the when has now joined many other casino owners and selling off its real estate can you give any color on how many other sizeable holdco holdco operators that may be out there in the regional gaming opportunity set that you know of waits here was if they're willing to start selling off the real estate.
I don't have a number I don't know as Steve.
Uh huh.
Would you have thought about that.
Some thoughts I mean, I don't have exact I don't have exact numbers, but if you. If you look at some of the large more urban.
Areas that have legalized gambling youll see that many of the sizable properties are probably already owned by a REIT.
So there are some there are some owners that still have some of those assets in holdco form most of those are a sole proprietor family owned type businesses are ones that would be potential transaction.
Transaction partners in the sense that they might in fact value the upbeat structure and the tax benefits. It provides so I think in large urban areas youre going to see those types of assets that still exist and that does provide us a good runway for at least an open discussion around tax savings.
Separately there are some there are some large publicly traded companies in the gaming space.
That still own.
All or almost all of their real estate. So there's a there's a huge runway.
For those opportunities and.
The benefit for them.
And the unfortunate truth for everyone trying to acquire those assets as they have held out today and they've been proven correct because the valuations just keep climbing.
There could be a point in time, depending on their borrowing cost and things of that nature that could cause them to look for alternative sources of capital or they might just decided to join the party and sell the real estate. So we're having ongoing conversations with those folks in and those aren't necessarily these monster assets in urban areas, but but collectively as.
Company their portfolios are very very large very valuable.
Great. Thanks, so much for the color alright, thanks, guys.
Thank you.
The next question is from the line of Handel St Juste with Mizuho. Please proceed with your question.
Yes. Good morning, one more follow up on quarters, I guess I'm curious how large equity commitment you would be comfortable with their given our the co investment opportunity you highlighted I'm just curious about how you think about your balance sheet priorities in light of.
That potential equity Stakes.
Well my quick answer would be it depends on the opportunity.
<unk>.
Where the capital is going.
If it's a new gaming property for example.
Strong market, we might be willing to do a whole lot.
And undoubtedly wood.
Listen I have long said that.
Uh huh.
The gaming license in limited license jurisdictions is.
Just an opportunity to print money, it's just a.
It's terrific if you can find it.
Any risk to you is are we spending simply over investing which some in the gaming World has managed to do the basis, but it's not what we do and I don't think its what the Cordish companies you mentioned that but we have others that we would gladly partner with as well but.
Look I you expect some discipline in there so it would be deal to deal and.
I don't think there's any limit on what we'd be willing to do depending upon the opportunity.
And all this is Matthew I, just want to add a couple of thoughts that commitment is something that was a I'll say almost a hard fought negotiation I mean this is.
People around the table are laughing. This is like someone handling away money coming from the REIT World and now we get excited at a 7% 8% development yield.
I can't give specifics, but if you look back at it.
History that the courses have been able to achieve very similar to pen.
Every one of these things is over 20% cash on cash Unlevered. So the key point is what we want to do is move up the value chain and get access to cash flows earlier to I mean, this is a competitive advantage earlier in the process and not necessarily just be to take out on the back end. After a lot of value is created when a participate in.
<unk> creation and hopefully on it on the backend, but yeah. When you think about timing I mean, we're going to see it coming I mean. These are these are all dependent on new licenses being granted somewhere around the country, where they don't exist. Currently that's why we have a seven year window it'll take some time for these to play out and we hope for one does and to the extent of how we.
Think about the balance sheet in conjunction with it just like everything else I mean, we're going to keep our leverage in a five to five and a half range, we'll assess at the time, depending on between now and whenever that might be how much retained cash flow et cetera, we have.
<unk> point.
We'll thoughtfully use a mix of debt and equity consistent with with that goal.
But just to be clear that would be a great outcome for us if it were to come to pass it's not guaranteed again, it's dependent on how things play out but it's it's a novel thing that we structured in that we hope to be able to realize and create value for our shareholders with.
And Greg can assume that we're staying very close to what's going on around the United States and spending time in those places.
How we made carve up or find some opportunity. So we're very much on top of any gaming expansion anywhere.
I'll just let me just leave it at that.
Okay. That's all the follow up to that I guess, maybe more specifically around in Las Vegas curious on thoughts on potential development opportunities there around the trop and the potential stadium.
Well, we don't know exactly what valley's has in mind to the site.
We are actively involved in conversations with them, we have an announced transaction with them, but if we can enhance that transaction with deploying some capital.
In a broader way to a project that we feel comfortable.
We'd be open to that possibility, but right now I think we're just assuming that it's going to be a ground lease.
It's a favorable deal we're very pleased to have it.
We would work with them should the opportunity arise, but again it has to cross all together hurdles that we would do.
Normally consider so nothing nothing locked in there beyond the deal we have.
I think valleys mentioned on their earnings call yesterday that they expect it to be back mid year with further information and thoughts around the redevelopment of that of that project. So you know, we're we're working with them, but we're not going to be the ones unveiling anything of their plans.
Yeah. That's fair that's fair enough, we we have been very involved with that.
To be clear, we really had been.
Nonetheless, it's their plan, so we'll see where it goes.
Okay Fair enough one more Peter I guess the guidance.
It's a touchy subject when we raised in the past.
Yes, it's a policy that we will not be having formal oh.
Forward your guidance this year and going forward and then any any updates or comments on the CFO role also a subject that we bought in the past. It appears that the current structure is one that you've indicated you're comfortable with but just gets better every day.
Yeah, I think if you look at what we've accomplished over the last year and.
It's been terrific.
It's so on the CFO issue, we're still content with where we are our board is very concerned with where we are and we have enormous capability with the folks you've got on the call with you today, we really really do.
I can't say that.
Someday address that but at the moment, we're blissfully happy with the way everything is working.
Guidance sticky item I think we're going to wait till we get the last of our transactions closed we're not sure about timing and a whole bunch of these things and with that in mind. We're just.
Gonna wait I have said that we're open to that.
No shouldn't of getting back to guidance.
Look I think we're very transparent, though as you know in this business you have a pretty clear sense of of what our revenues and earnings.
Earnings are likely to be a but for the moment. We're gonna go past this quarter, but I honestly, we'll look at it again on a quarter to quarter basis.
I was just going to leave it at that it is a matter of much discussion about around here.
Okay Fair enough I don't know if anybody else wants to offer from the from the T O.
<unk>.
Any other thought about guidance.
No none.
There's a the answer.
Okay fair enough.
I'd appreciate it and I think some investors with two but thank you for the time.
Thank you.
Our next question is from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning.
Peter you briefly touched on the dividend during your opening remarks, but you know you've spoken a lot over the last couple of years about getting the dividend back to 70 cents a share which based on our numbers would have represented an 80% payout ratio excluding the future transactions.
But then you stop just short of that bogey at 69 cents. So just a few questions there.
Why do you hold back from that threshold, what is the payout target and what's the expectation for additional raises this year.
The expectation is.
I think.
Probably safe to say very high I don't know I've looked at our.
Our.
Household.
Our brand and tell me, if I can get away with saying that but yeah, I think it's pretty high.
That's our desire so I'd paint it that way so I think that is the case.
We could have done we could have gone higher this quarter, but frankly, we kind of like the idea of stepping it up throughout the year.
Al and the ratio is.
We have not been at 80% does for couple of years ago, but by choice, we've decided to hold some firepower back you know two and particularly now since you know raising equity would not be a desirable thing to do so putting more cash and keeping and retaining more cash in their pocket it seems to be a voice.
Sensible thing to do at the moment. So I think there's do you want to talk about kind of where we are I know, but where do you want to go with that.
Yeah, no. So I would say that you know the dividend we have to wait for deals to close right I do not think it would be prudent for the company to go out with a dividend prior to the closing of the transactions that.
You know are necessary in order to increase the dividend. So our decision to stay at 69 cents and and we do think 60 on incentive comp.
70, because we did raise eight 9 million shares in the fourth quarter and haven't received the benefit of that until January 1st suddenly start getting rent from cornerstone.
You know it was a very thoughtful process, we get close to the 80% that we don't pay out exactly 80%.
And we haven't in the past as well.
But we are extremely close to 80% payout ratio.
Okay.
Okay. So I guess comfortable staying here in the 80% I mean, I guess I'm just confused and just a little confused because you've talked about the 70% bogey. We're nearly there and then kind of just sell shortfall. It sounds like just kind of want the ability to raise.
I mean its dividend.
Later in the year, let me, let me say this it doesn't display any lack of confidence.
I really want to emphasize that in all likelihood of closing these transactions.
We feel very confident that these transactions will each and all close.
That having been said, we decided to just sort of take the step up approach I think deseret highlighted that we're really kind of the equivalent of the old 70.
So internally the question was does the 70% number look.
Psychologically better what you're saying is it seems like it might have but we kind of like the idea of setting this thing up and having some fun quarter to quarter as we get through this year and into next where we're very optimistic about where this is going to go and we feel good about it.
Okay, and I guess, along those lines and then kind of going back to handle the question on the guidance, where you don't have the operating assets anymore, which clean cleans up results. It looks like youre going to be getting escalators on most of our belief in kind of have an idea or expectation that transactions are going to close.
Yes.
So I guess I don't really understand why are you not comfortable providing guidance because we talk about.
Hum.
Curious about you're not sure when the transactions close, but with your business and I think the.
Whole prior part of this call kind of reflects that there's always gonna be transactions.
Right.
Yeah look I think there's we'll break this up with a with their board.
Yes, our next meeting approaches relatively soon.
This was an issue well discuss with our board.
And.
I think we have had.
It had decided with the board's support to take a cautious approach to this this issue is a scheduled item that will kiss considered at.
At our next board meeting and then we'll see I didn't say down the road that we.
Quite possibly would get back to the guidance.
Just haven't felt as if it was a life or death issue for us.
Sided with an abundance of caution kind of who we are that we would just wait a bit step it up.
And so.
So I'd say stay tuned.
We I I hear your request.
Okay Yeah.
Say just from an investor perspective, and at least the sell side analyst perspective that there is a level of confidence in the future that I think you guys do have aren't necessarily sharing.
With the markets by establishing that guidance. So you can always go a bit wider if you're worried about the timing or just let us know what.
<unk> implies for expected timing of transactions, but I think that's fair enough I suspect by the way.
Virtually all of our board members are tuned into this call and I suspect they have heard your desire.
Thanks Peter.
Thank you very much.
Fair question.
As a reminder to ask a question today. Please press star one from your telephone keypad.
The next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hello.
Mr. Katz Your line is open for questions.
Apologies.
Post COVID-19 , leaving it on mute.
Morning, everyone. Thanks for taking my question.
I know that a portion of the strategy is to evolve beyond gaming and I Wonder if you could just elaborate a bit more or help us colleran on what that might look like might have looked like.
Gaming property as part of a mixed use development, where your involvement might be broader.
As you know perhaps through the vehicle of.
No.
Loan to own or.
Or other kinds of financing to launch relationship what what what what might the evolution.
Looked like and what path could it tick okay.
Well look I think he laid out to sensible.
Our ways to get our toe in the water.
And that's certainly stuff that we have looked at and would consider.
Without a doubt looked farther off you get into some of this space.
Or some other business frankly are.
The less likely we are to get there barring something very compelling.
David I hate that you know look I hate dodging answers, but the truth is we'll know it when we see it I did emphasize earlier in the call that.
Scares me a week goes by that we're not looking at something that one of our banks and one of our friends or somebody internally has brought to us.
As a possibility and we look at this stuff quite seriously because again this is this.
The company's objectives are long term, while we are not pressed to do.
Do heroic or crazy stuff, but we are.
Try to build the company for the long long future and I think we've done that pretty effectively to date. So it's an ongoing process I think we'll know it when we see it as I mentioned just for fun.
It happens to be a call in the calendar with some folks Monday afternoon.
I think at 330 to be precise but my memory.
To discuss something different but this is a normal part of what we do and we will continue unless and until we find something that kind of grants us.
What criteria.
Getting its safety and its getting an appropriate spread to our cost of capital since we're really not in the business of quote strategic transactions, we're only interested in castle and fast return.
So we are that's who we've always been.
Okay, I appreciate that and if I can.
Just go back to one issue that you discussed a little bit.
We chose the most recent entry into this category.
They were historically.
Pays much higher prices and while they pay at a higher price than I think most of you know you and your peers have show far it sure looked like a great price to them.
And I, you know I only take that in the context that you know.
Okay.
There could be more of a likes it and there should be more the likes of them is that we will look at opportunities at a better price than you were willing to pay.
It is highly attractive.
But I heard much comment earlier that sometimes people make a better choice necessarily.
Isn't entirely numbers driven I'm just posing the question about whether the market just got tighter and more competitive for new opportunities.
Yeah, that's a fair question and entangled tell them look I think that's a unique property as I said, it's really a las Vegas property.
Very expensive one could argue overbuilt for that market, but.
Property in a major city in monopolistic position, so I think that's unique.
Wouldn't imagine those folks would be going to I'm, just being smart tunica, Mississippi to buy any asset in the market at a similar multiple so look I think it's partly property to property market to market and I think that was a unique situation.
We'll tell where else they go or people like them go is that I think is that fair.
I do think that's fair. Thank you.
Okay, David Let me, let me add a thought to that it's interesting I mean I'm going to go back to the point of look at our transaction table and everything we've done historically, so you rightfully point out that there are there is some reliance of our business model on people needing to do things for strategic reasons, but that's happened now I don't know at least a dozen times.
I mean, the Cordish made very clear in this transaction.
They were not trying to maximize proceeds what they were trying to do was find a business partner to enable their business plan for the next many generations and they expect their kids and their kids kids all to be owning the opco in running these assets for the future foreseeable future and beyond and in that transaction, we've structured a number of things.
To be able to help them execute on that I I suspect that others would have paid a much more aggressive coverage in fact in their case, they wanted less rent and they're speaking our language, we have again, a philosophical alignment of views.
And they're not the only people in the world to think that way you look back before that public company Bally's and the fact that they were looking to do a strategic M&A deal in the U K and needed someone to do exactly what Peter pointed out be creative do something bespoke move quickly there's something very complex. Those are all things that we've got the muscle memory from doing it many times before that we can.
Execute on and you can keep looking back on our transaction history. Historically its been the case that people look at more than just cost of capital and to your question and I'll say if this was just a similar to a mortgage broker and we're just looking for the lowest rate everything else held constant we may not be the best buyer in those terms may not be the ideal.
One is for our shareholders remember every time, we do a deal we take very seriously the reality that we're selling a piece of our portfolio at the valuation that are stocks at an order to buy whatever is next and it needs to be at least additive to that in whole and if theres, a very aggressive coverage or a very aggressive cap rate without a lot of credit support gets worse.
Challenging for us to pencil, but in spite of all that we have time and time again found ways to do creative things that have added value for our shareholders.
Yeah, Let me say look we can't prove I think Matt says well we were not the choice in every situation, but we wanted to be to read of choice in this industry. The people that are most desire to work with the.
The best partner, the most available friend to develop a future together with our existing tenants, that's what we strive to be.
Maybe not the biggest but absolutely the best.
Thank you.
Our next question's from the line of Robin Farley with UBS. Please proceed with your questions.
Robin you may be on mute.
Okay.
Hi, Robin Your line is open you may be muted.
Okay, gentlemen, I'll move on to our next question from John I'm associated with Ladenburg Thalmann.
Good morning.
Good morning.
So I know, it's very much an offer and not a deal at this point, but is there any impact to either kind of your in place leases or opportunities either structural or kind of hypothetical from the proposed.
Acquisition about values by standard General just thinking that you have.
Kind of controlled tenants.
Staying in general in the portfolio today.
Yeah.
Matt you want to.
Hi.
Right.
I think I'll pass the brand yeah, I'm not sure we're in a position to really speak to the standard general offer for valleys clearly from the press release, the Bally's put out they have formed an independent committee they've hired a banker I suspect that they'll run that process and to the extent, we have an opportunity to be a part of it for sure will try to be a part of it but that process.
We will take care of itself and we don't have any inside knowledge into that yeah. The one thing I'll add is to the extent there is something there. The lens. We look through is always going to be the same its asset quality, operator quality four wall coverage credit support and figuring out ways to get accretive spreads based on all of those factors.
And I guess is there anything kind of structural within the existing leases or <unk>.
Agreements that would be impacted at all by that becoming a private entity as opposed to a publicly traded one.
No I don't think theres anything structural in the leases it was particularly a problem I think that if it were to become a privately held entity clearly the leases would remain in effect and if we had an opportunity to participate in that we try to bolster those leases, but I don't think it changes the structure of the lease by the nature of the owner.
Okay.
And then if you think about potentially working with existing tenants to deploy capital and property who already own.
Is there any kind of cap rate advantage, you're kind of getting that deployment versus need to know about transactions, especially we've seen kind of cap rate compression in de novo transaction.
Or are you kind of competing frankly.
Frankly with alternative sources of capital to hear existing tenants can can access to fund those improvements.
Improvements that property.
You know that that's a fair question Judy question. The answer is yes, I think we can do better.
And in almost every case they are reasons why under existing leases would be very difficult to go elsewhere in other words there'll be a trade off of some sort we will give you X you may want y and yeah.
It's a it'll be a discussion so I don't.
I don't have any fear that a transaction like that it could go elsewhere.
Because clearly it's going to take a discussion.
And a trade off of some sort so I just kind of leave it at that but Uh huh.
Yeah, it'd be almost impossible to go elsewhere.
Yes.
Great. Okay, maybe just Steve real quick maybe what what I would add is I think that the tenant typically looks at it with a different lens.
For example, if we own a casino property, we own the land and the building they're deciding they think theyre thinking about adding a hotel at the end of the lease I still own the land and the building.
So in many cases as simple as it may seem to just say well they can borrow at X rate and I might offer wide and know she makes you just pick the lower of the two in many cases dislike the psychology of it all changes because they know they're leaving it behind at the end so they're going to either fund it maybe potentially cheaper with a bank loan but.
At the end of the day I get it because it's all my property and not going to pick up and move the hotel. They just built so ultimately in many cases, they look to us they might look to use our capital in a in a more advantageous way for us.
John This is Matthew I'd also point out so your latter point about them comparing our capital with other sources of capital as relevant but the other side of the equation as other potential uses.
We've watched equities for some of the operators get pressure to the point that they've instituted share buybacks.
If there's an incremental dollar on their balance sheet and they can use it for either buying back their shares at a very opportunistic price or putting it into a building our capital and they still have an interesting gap there.
Okay that was all very helpful and that's it for me. Thank you very much.
Thank you.
Our next question is from the line of Spencer alloy with Green Street. Please proceed with your questions.
Thank you gentlemen, digital gaming front, it seems as though the operator, I'm sorry to gain market share and customer acquisition costs are up here, Hi that said Penn does seem to have some sort of advantage with a captive audience from its partnerships. Just curious if you can comment on how you view this playing out over the next couple of years.
Well, it's kind of hard to know.
We have no insight.
Whatsoever into Penn's thinking or philosophy, all of that and awareness that they decided to be very disciplined in marketing spend.
And claimed or believe that they are profitable today.
Today.
And that's been a goal to get to profitability earlier, that's all we kind of know.
What the impact on the bricks and sticks operations will be we will have time will tell I do know for example near to US. They just opened the facility.
A couple of months ago in Morgantown, Pennsylvania, right down the road from our offices, probably 15 minutes away.
The sports book presence and so forth has been pretty successful in attracting.
Customers choose that facility, who then play on.
Our.
Bricks and mortar facilities. So what the overall impact is likely to be I think it's gonna be positive, but I think it's going to take some time to really understand.
Where that's going.
I'll just add Peter.
We have seen a lot of investment in our properties by our tenants and expanding and building sports books to attract customers into the facilities and I think if you look at the product that the Cornish team offers you know they they.
Really offer a fantastic product of a sports bar atmosphere, where in many instances I think you'd probably agree it'd be better to be there than in the stadium with a 80 foot wall T V and food and beverage and so I think what sports betting has done is it has it spread across the country. As it has resulted in quite a bit of investment in our <unk>.
Portfolio assets.
The quarters people have gone down.
Better than just about anybody else on the planet their lives facilities not even gaming license facilities are hugely successful because they saw exciting physically as branded points out scaled.
Big time.
Beautifully done.
And they just are.
Very attractive to new customers. So I mean, I think this is evolving but.
For the casino companies I think it's a plus I know early days at Charlestown, when they opened up early.
The sports betting.
It was very successful in attracting new customers, mostly male who would come and play tables. In addition to what they came to do with the sports betting. So I think this is a symbiotic arrangement, it's not been a net draw.
Draw, it's actually been a net plus the companies, we'll see where it goes in the future.
Spencer this is.
Yes.
Sorry, Spencer I don't I'd also point out the theme over the next number of years may likely be convergence as well what do you think about the sports based place, making that that Peter and Brandon articulated and the reality that some of the folks betting on their phones or in the casino has been a lot or in other places the likelihood and there's some data that shows this.
Is that those people will enjoy making those bets and make more bets if there isn't a fun exciting environment like some of the ones that cordish develops creates and manages and that's something that we certainly are thoughtful about and it ties into David's question earlier too about thinking about what our strike zone is how things might play out over time with the kinds of properties that we think.
It makes sense for us.
Okay, Yeah, no we would agree that it wouldn't be out of them.
Really appreciate the insight, especially at the property level and just last one for me as you look towards the future and you're signing new leases has there been any consideration to have uncapped CPI linked escalators, just giving me in placing concerns around long duration leases.
Yeah.
I would suggest this I mean I can't imagine anybody in the current environment.
Who is the tenant prospect.
Winning an uncapped.
I mean you'd have to be out of your mind to do that I know I wouldn't.
Just back nobody on this call would do it either.
It just it's so dangerous in the current environment.
Would we love to have it absolutely, but I think we're walking a tightrope and try to get as.
As large an adjustment as we can.
But.
The uncapped I think is just just isn't going to happen I'd be shocked if anybody.
These days I don't know how you could see.
Spencer It it's Matthew again.
Say, it's a top consideration at the same time, you've got interestingly in the last number deals look at M. G P's, new lease reset or lease Realty income's lease there. There's caps that are certainly crept into the market that have become market, but I want to point you to a couple of points that realty income made and even with 175.
<unk>, which is what they have for the initial term of their lease and the same as in our lease with Cordish, even at that rate. It compares incredibly favorably to the standard Triple net escalator, which is a lot closer in their case I think the 1%. So the fact that we're not fully capturing inflation.
True, but in the other direction. There's certainly is the case that we're doing a lot better than a lot of the other leases in the triple net world. The other thing I want to point out when you think about our company and our shareholders and our risk exposure. There is the fact that a point back to this long dated staggered maturity debt schedule. So one thing we've been very focused.
With new debt issuances.
To not go short.
Even if he could get cheaper capital. So we've skipped over three year five year, and we actually did a 100% 10 year debt on our last issuance in fact, we even thought about a 30 year bond, but market volatility ticked up into when we actually were able to hit market, which was we had a threat needle based on of course is timeline and wanting to get done by the end of the year.
But that's something we're going to continue to focus on.
And matching better the duration of the cash flows from our income stream, which you pointed out are very long dated with very strong credit.
And the credit on your balance sheet.
Okay. Thank you.
Thank you.
Thank you. The next question comes from the line of John Decree with CBRE. Please proceed with your question.
Good morning, everyone. Thanks for taking my question I think you covered a lot of ground, but maybe one more Peter.
And one of your peers talked about possible international gaming opportunities and then in the context, maybe digital gaming and sports betting blurs the border a little bit between the U S and Canada International gaming something that you would consider seriously and kind of under what you.
Pretenses or how would you kind of evaluate those opportunities.
Well, we've looked at international for a long time to look at my days with Penn.
I could write a book on just how many places no.
Well I've spent time.
Japan of course, China Vietnam.
Portugal's I mean I could go on a long list, Australia keeps keep going I'd been to all these places you know finding the right transaction.
That makes sense, and then given exchange rates and in Canada.
It is particularly tricky, we just haven't found the right opportunity, where we felt we could be competitive would we do that absolutely do we look there you bet we do.
So look we look at everything I am not being flip, but we look at everything that's kind of our job, but you know kind of taken a Bible quote many are called but but few are chosen I mean, that's that's kind of the process.
John a couple of the key guardrails for us are countries with judges with long black robes and property rates, we want to make sure that we can certainly collect rent and have the ability to perfect that he issues and also all the math, we look at to Peter's comments is really net of taxes translation any.
Explicit cost that would be involved in getting the cash out of the asset and ultimately onto our balance sheet and then the same process takes place looking at risk adjusted cash flow and how it impacts the company's value.
Thanks, Matt that's helpful and maybe one more in you know probably know the answer here Peter Matthew but.
I think you've kind of spoken to you know potential opportunities with native American tribes in there, they're pushing to commercial casino.
Obviously reservation gaming, it's about half of all gaming in the U S and very tricky there from a regulatory perspective, but.
If theres a creative way to get involved perhaps on the non gaming side, where there's adjacent hotels two native American casinos that have you had any of those conversations is there any you know.
Movement on that front or is it just too too tricky to get anything done keeping all the restrictions as it relates to gaming.
It is very tricky, we've looked hard at it for many many years, but I will say this I think that the opportunity may be heating up now.
Hum.
For a variety of reasons.
And that is the tribe's becoming more commercial.
In many many markets so that opportunity may now be more open and.
And just kind of leave it at that but yes of course, we are very aware of that.
Yep.
That's a part of the U S gaming industry. So you know curious how long or if and how we can start to crossover so.
The thoughts everyone. Thanks, so much for taking my questions.
Thank you.
This call I'm, just looking at the clock sets, an all time records for either by many many years with pan or hear a G. L. P. I.
Why don't we take maybe just one or two more questions.
And then we'll wind up.
Sure. The next question is from the line of Daniel Adam with loop capital markets.
Alright, thank you.
Morning, everyone.
Just one question for me so yesterday, one of your competitors alluded to being open to embracing of a joint venture structure for for certain deals should they arise I'm wondering if if you've considered.
That kind of structure and under what circumstances might a joint venture would make more sense than going out at it alone.
Oh, that's a pretty fair question.
As we spent a lot of time.
Yeah.
Examining that possibility.
No what we're prepared to say, Matt do you want to make any comment.
I think that is the comment obviously for us to have every tool in our tool chest, we need to be able to access capital and get some value for our platform and our validation in a transaction where pricing might be aggressive. So we haven't done it to date, but we certainly have dialogue with the right folks.
If and when it's appropriate to be able in a position to use it.
Okay, great. Thank you.
Yeah.
How about one more question.
Unless we've we have no additional questions at this time, Mr. Carlino I'm trying to make some closing comments.
Well simply to thank those who have dialed in this morning.
We're excited about what we accomplished last year were particularly excited about the things. We believe are going to get done this year. It looks like another strong year. So we'll look forward to talking at the next quarter and thank you all very much.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.