Q1 2022 VICI Properties Inc Earnings Call
As will believe expect should guidance intend outlook projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Therefore, you should exercise caution in interpreting and relying on them.
I refer you to the company's SEC filings for more detailed discussion of the risks that could impact future operating results and financial condition.
During the call we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website in our first quarter of 2022 earnings release, and our supplemental information for.
For additional information with respect to non-GAAP measures of certain tenants and our Counterparties described herein. Please refer to the respective companies public filings with the SEC hosting the call today, we have Ed <unk>, Chief Executive Officer, John Payne, President and Chief Operating Officer, David <unk>, Chief Financial Officer, Gabe Wasserman.
<unk> accounting officer, and Daniel alloy, Vice President of Finance, Ed and team will provide some opening remarks, and then we will open the call to questions with that I'll turn the call over to Ed.
Thank you Samantha and good morning, everyone happy.
The miles.
When we held our last earnings call in late February we had just closed on our acquisition of the Venetian one of the largest scale and highest quality single assets in American commercial real estate.
As we speak with you today, we have just closed on our acquisition of MGM growth properties and GP, one of the largest scale and highest quality portfolios of class a real estate and American real estate investing.
BT story over the last 14 months since we first announced our acquisition of the Venetian is a story of transformation we have.
Transformed the scale of our portfolio.
Our tenant and geographic diversity, and very importantly, the character and quality of our balance sheet.
Also become the leading real estate owner.
What we believe is the most economically productive street in the world.
Vegas strip.
In a moment John Payne will talk further about the transformation of our portfolio and David <unk> will talk further about the transformation of our balance sheet.
So let me first spend a few moments talking with you about what's been proven about our business model over the last two years and how timely are current transformation may prove to be from both offensive and defensive perspective over coming periods of economic uncertainty.
Over the last two years COVID-19 prove the resiliency of <unk> business model, because COVID-19 prove the resiliency of our tenant's business models.
We collected 100% of our ramp in cash in on time throughout the COVID-19 crisis because of the operating excellence and operating liquidity of our tenants our operators have shown their ability to operate through thick and thin the economic outlook for the next year or two may be murky, but we firmly believe.
But our operators are prepared their operating revenue cost and liquidity models or whatever.
May be coming.
What about our view on <unk> ability to continue to grow in the coming period.
There are five key capability as we see it to growing and but net lease REIT in all cycles.
<unk> whatever cycle may be about doing too.
Number one.
Same store NOI growth based on key lease terms regarding escalation and CPI protection.
Number two internal funding capability based on cash retention.
Number three the capability and opportunity to invest incrementally in existing assets and return for incremental rent.
Number four the ability to source acquisitions, when the frequency and intensity of asset marketing processes lesson.
Number five access to investment grade credit when high yield markets may be constricted or costly.
Let me say a few words about <unk> growth capabilities in each of these five areas point number one same store NOI growth.
Green Street and in September 2021 analysis showed the BG generate same store NOI growth.
Then four times higher than net lease Reits on average and in terms of higher in time, sorry of higher inflation <unk> same store NOI superiority versus other net lease Reits expand when factoring in the CPI elements of our leases.
Number two internal funding capability.
Pro forma for the annualized nation of <unk> net income and debt service, having closed Venetian in Mg P. If we maintain a dividend payout ratio between 75, and 80% that would lead between $400 million to $500 million.
Our retained earnings available to us for investment annually, a competitive advantage during periods when market may be constricted point number three.
<unk> incrementally and existing property and return for incremental rent.
Our assets measured on average over two 5 million square feet and sit on many acres of land that scale of building analogue <unk>.
Table us to invest incrementally in our existing properties and waves generally not available to net lease REIT, whose stores generally average around 25000 square feet one 100.
<unk> of our assets points.
Point number four sourcing acquisitions when asset marketing processes lessons.
<unk> heard us say before that.
We grow our business at Vg and our portfolio by growing our relationships.
As we pursue both gaming and non gaming investments and the coming years outside of marketing processes. We are confident that our ability to generate new relationships with operators, who operate in net lease white space will give us growth advantages point number five.
Tests to investment grade.
When the high yield credit markets tighten.
Through the great work of David key ski Aaron coronary and other members of our finance team, we achieved investment grade status with S&P and Fitch about two weeks ago.
We may be in the early stages of a challenging period for the high yield credit markets and see MBS financing.
We believe that the relative competitiveness and attractiveness of our capital could increase during the coming period as experiential operators look to refinance their existing businesses and or on their growth initiatives.
Some up VJ has gotten bigger and Moreover, stronger.
We believe advantages will accrue to those rates that are bigger and stronger.
I'll now turn the call over to John who will talk about our view.
Portfolio and operating conditions, and David will talk about our financial results and balance sheet upgrade John .
Thanks, Ed and good morning to everyone. The first four months of 2022 were very productive for BG in February we completed the Venetian Las Vegas transaction and just last week as Ed noted we closed on the acquisition of MVP, adding 15 class a market leading assets with over 33000 hotel room.
<unk>, three 6 million square feet of convention space, and hundreds of food and beverage outlets to our portfolio as a management team having the opportunity to acquire the MVP portfolio in a master lease structured where the cash flow is cross collateralized with inflation inflation protection beginning in last year.
11, and a corporate guarantee from MGM resorts is something we are very proud to have accomplished on behalf of our shareholders are 43 asset portfolio is unmatched in size scope and quality in the triple net sector and we plan to continue to grow our asset base.
With our best in class tenant roster as well as new operators.
As some of you may know from recent data that has been released Las Vegas continues to be a top destination choice by consumers in the Las Vegas strip remains one of the most economically productive streets in the World gaming revenue in Las Vegas in March alone came in at 746 million.
Approximately 35% above 2019 levels I'm going to repeat that approximately 35% above 2019 levels. Additionally, the outlook for room revenue is very strong as midweek business continues to normalize with convention business returning to the city.
On their first quarter earnings call, both MGM and Caesars sided 90% hotel occupancy in March in Las Vegas room rate surveys published by the sell side have pointed to second quarter ADR better tracking 30% above 2019 levels.
D of Las Vegas, with its diversified entertainment economy that is no longer just about gambling, but centered around business sports and entertainment continues to prove to be the top destination in the U S and possibly the world as a real estate investment trust in the business of owning and leasing integrated entertainment.
Payment resorts within a triple net structure, we are big believers in Las Vegas for decades to come and are incredibly excited to now own 10 World class assets and a total of 660 acres along the Las Vegas strip.
Our regional casino assets with regional markets in General also remained extremely healthy in case you somehow missed the first four months of 2022 I'll give you. The quick note version in a nutshell. The casino industry is an amazing shape right now silver operators, including Boyd gaming Churchill Downs MGM in theaters have made it quite.
Clear with their quarter, one earnings releases and conference calls that the reports of the decline of the U S. Regional casino margins have been greatly exaggerated April results continued the March strength and not only is the gaming consumer healthy wealthy and wise they are still choosing to spend money on gambling despite having many.
Other entertainment options.
As we think about what comes next for Vg, we're fortunate to have executed some of the largest and most complex transactions and the net leased industry and we will continue working relentlessly to execute compelling opportunities that deliver accretive value for our shareholders now I will turn the call over to David who.
We'll discuss our financial results, our balance sheet and our guidance David.
Thanks, John I'll start with our balance sheet as at the beginning of 2022 encapsulates. The energy we have brought to transforming our balance sheet since Vinci emerge in October of 2017, we've discussed this relentless balance sheet focus with you over the last four and a half years. We believe it is important to ensure that we have a capital structure designed to.
Weather, all cycles and provide the safety and protection, our equity and credit partners.
Deserve.
Not to spend too much time on 2021, but it is a good reminder of how we take the long term view to safeguard our company.
We raised the combined total of $5 $4 billion of equity at the time of the announcement of the Venetian acquisition and shortly after the announcement of the MGE transaction.
These equity offerings Derisk the equity funding well ahead of closing on our $21 billion of announced acquisitions and allowed us to repay all of our secured debt last September .
Actions set us up for success in early 2022 and for years to come.
February 8th we closed on our new $2 5 billion unsecured revolving credit facility and 1 billion delayed draw term loan increasing overall liquidity with highly efficient bank capital on.
On February 20, <unk>, we closed on a $4 billion acquisition of Venetian.
The settlement of two outstanding forwards, bringing 119 million shares onto the balance sheet for total proceeds of approximately $3 2 billion.
So drew $600 million on our revolver on a revolver and use cash on hand to fund the Venetian.
On April 18th <unk> debt rating was upgraded to triple B minus by S&P and Fitch greatly broadening our access to permanent capital on April 20th we priced $5 billion of investment grade senior unsecured notes executing on the largest REIT investment grade bond offerings ever the blended cash interest rate for the senior unsecured.
It's a 5% the effective interest rate after taking into account our hedge portfolio, which was comprised of $2 5 billion in notional amount of forward, starting swaps and $500 million in notional amount of treasury locks for five 1%.
On April 29th we closed on the acquisition of <unk> as well as a $5 billion bond offering we used $4 four over $4 billion bond offering proceeds to fund our redemption of a majority of Mgm's M. GP LP units. Following the <unk> acquisition. The company has approximately 963 million shares of common.
Stock outstanding and <unk> is $12 2 million additional <unk> units outstanding held by MGM that were received in the merger.
The remaining proceeds from the bond offering plus cash on hand were used to repay the $600 million outstanding under <unk> revolving credit facility.
In terms of leverage we ended Q1 2022 with net debt to adjusted EBITDA of three six times. This highlights the fact that we significantly over <unk>. The balance sheet ahead of the closing of the MVP acquisition positioning our balance sheet to raise the incremental debt to complete the funding and bringing on the associated income with that transaction.
As we sit here today pro forma for the MGE transaction, we have total debt of $15 5 billion inclusive of our pro rata share of the JV debt on a run rate net debt to adjusted EBITDA.
Excuse me on a run rate our net debt to adjusted EBITDA is approximately five eight times, we have a weighted average interest rate of 438% taking into account our hedge portfolio and a weighted average eight four years to maturity.
Just touching on the income statement <unk> for the first quarter was $305 5 million or <unk> 44 per share totaled <unk> <unk> in Q1, 2022 increased 19, 8% year over year, while <unk> per share increased approximately five 1% over the prior year.
A disparity between overall <unk> growth in <unk> per share growth is due to an increase in our share count for fully diluted share count increased approximately 26, 3%.
<unk> as a result of the regular way portion of the September 2021 equity offering, which added 65 million shares to our balance sheet. The settlement of the June 2020 forward sale agreements last September which added $26 9 million shares to our balance sheet and the settlement of the March and September forward sale agreements in February of 2022.
Which added 119 million shares to our balance sheet.
Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong in the high 90% range when eliminating noncash items.
Our G&A was $9 5 million for the quarter and as a percentage of total revenues was only two 3% in line with our full year expectations and one of the lowest ratios in the triple net sector.
Turning to guidance, we are updating our <unk> guidance for 2022 in both absolute dollars as well as on a per share basis.
As a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions dispositions capital markets activities or other nonrecurring transactions.
And as and as we have discussed in the past, we recorded noncash Stifel charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and <unk> with accuracy. Okay.
Our guidance is <unk> focused as we believe <unk> represents the best way of measuring the productivity of our equity investments in evaluating our financial performance and ability to pay dividends.
Our guidance incorporates the recently closed <unk> acquisition, including the issuance of $214 5 million shares of common stock to former <unk> stockholders and the $5 billion bond offering we executed subsequent to quarter end.
We expect <unk> for the year ending December 31, 2022 will be between $1 66 billion and $1 69 billion.
Or between $1 89, and $1 92 per diluted share.
With that operator, we ask you to please open up the line for questions.
Thank you we will now start our Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If you have joined US online please press the red flag icon.
Ask your question. Please ensure that your line is on mute locally.
And our first question comes from Anthony <unk> from Jpmorgan. Please go ahead. Your line is open.
Yes.
Thanks, and congratulations on everything you guys have gotten done recently.
My first question is just given everything that you've done and getting past all that.
What has it done to just the conversations youre, having on future growth opportunities has expanded.
Sort of your discussions and just increase the profile and stuff that youre looking at and how reorganizing all those thoughts.
John you want to start.
Sure well, Tony Thanks for the comments and it's always nice to.
To hear from you there is no doubt Tony that we've changed quite a bit of the company.
From when we started the company back in 2017, just due to size scale scope magnitude of assets.
And it has caught the attention of folks that I think when we started the company.
I did not know exactly who we were and what we are doing so the funnel is definitely as wide as it's ever been for us numerous opportunities you've heard us talk about obviously gaming opportunities. We will continue to pursue in markets, where we want to own more real estate or we don't own real estate and then.
A lot of companies that have noticed what we've done in the experiential space I've heard Ed and Dave and myself, Danny others talk about making real estate investments.
Outside of gaming and experiential I know, we've been in contact with and so as Ed and is confident comments.
We build relationships and we build relationships that we hope.
Turning to real estate ownership and so we are we are organizing we're meeting were traveling we're doing all of that right now Tony and we will see how it plays into our growth, but we feel really good about the magnitude of opportunities that we see in front of us.
Tony Tony I'll just add.
Matt.
I didn't get.
You have a truism across every real estate asset class.
There are benefits in owning marquee assets that are well known to whatever category well known within whatever category you're in.
Because it increases your visibility.
And we were fairly invisible when we got going for and a half years ago and there is no question that in owning assets like Caesars Palace, Las Vegas like the Venetian like MGM Grand and Mandalay Bay like National hardware like Caesars New Orleans.
<unk> and visibility that is very very helpful as John points out.
And giving us greater top of mind status when people think about who they will call.
Got it okay. Thanks, and then.
With regards to the opportunities to reinvest in the asset base, including things like the <unk>.
The Mirage can you talk about timing in around may be hearing more about.
A project like that and also just does anything in the rate environment or macro volatility changed the thinking or or prospects for some of those investments or do the <unk>.
Trends on the ground there kind of win the day right now.
David do you want to start with answering the second half of Tony's question and John can add.
Sure Tony Great to see how glad to have.
Have you back on the team.
We were.
We're very cognizant of the macro trends, we were fortunate to get a bond offering up a couple of weeks ago.
Just.
And execute what we were able to execute every day brings something new volatility obviously with the fed speak yesterday.
So we're going to work to ensure that art.
Partner property growth fund is ultimately what we're talking about here delivers accretive returns and thats touched on that being able to invest in these magnificent assets the size scale and complexity that rivals nothing other out there.
We will make sure that.
The capital that we deployed generates.
Generally incremental return that's accretive to us.
As it.
<unk> to the Mirage Tony.
The hard rock team is going through the licensing process in the state of Nevada.
They are amazing developers and operators and we obviously are already partners with them and our Cincinnati asset and so we're excited with what they are going to have plan for the redevelopment of the Mirage.
Hard rock Las Vegas, but no timing yet as they need to go through that process.
Tony I, just want to add one more thing and that is that.
We.
Often in the early years were often told by would be partners that Oh, yes, I can borrow money cheaper than than your money.
And we were very.
Humble about it meaning we are learning every day, how to tell our story better and what we've really focused on.
Helping people understand and our capital and the cost of it should not be compared simply the cost of their debt, but to their blended cost of capital accounting for both the cost of debt and the cost of their equity and even before we saw the recent widening of credit spreads and before we saw there.
A recent.
Multiple contraction that many operators across experiential both gaming and non gaming our cost of capital versus their blended cost of capital was already very attractive. It has only grown more attractive in the last couple of months.
Okay, and then just one last one real quickly I guess somewhat related to that like what is your preference are thinking right now as you think about.
Yields and contractual growth like D. Do you want more inflation protection or more upfront yield or how do you think about the balance of that or are you solving for an IRR.
What's the thought process there.
David you want to take that.
Yes, Tony I mean, ultimately we're solving for.
Spread to our cost of capital.
And like every deal is different.
Obviously inflation and CPI discussions are more relevant today than they were when we started to BG, but ultimately as a net lease company deliver.
Delivering attractive 100, 150 basis points, sometimes less sometimes more spread to our cost of capital is what we strive for we also look at our.
Underwriting in terms of cash on cash returns and the IRR over a period of time to ensure that we are delivering incremental accretive deal for our shareholders.
Okay got it thank you.
Perfect. Thank you for your question.
Next question comes from our sponsor.
From Green Street. Please go ahead.
Yeah. Thank you, maybe just going back to external growth from Manhattan, just in regards to the <unk> and other call agreements you have in place with operators has there been any discussion on those eligible for execution and how do you think about the relative attractiveness.
John .
Yes, Spencer nice to talk to you this morning.
As it pertains to the ROFO I assume you're referring to the Las Vegas for Ofer I'll just refer you to the CEO of Caesars, Tom Reeg during his earnings call.
It was very clear on what is going on which he said look Caesars has started the process in early 'twenty. Two we expect there to be another update by the middle of the summer and the sales process really is governed by the BG agreement documents and so that process is in the works we are aware of the <unk>.
<unk>, we have with them today as I said in my opening remarks, we do own 10, great assets on the strip in Las Vegas, which make up about 600, and we also have 660 acres that those assets sit on as well as vacant land. It is a market that is truly incredible as I stated.
When you have business up 35% gaming revenues is simply amazing and it really is as their new AD campaigns as the greatest arena on Earth.
And so that is a market that we are big fans of we'll continue to study do we want to own additional real estate, if we do it needs to come to us in a very accretive manner.
And we will continue to follow our process on that.
Okay. Thank you that's great color.
No you just mentioned, obviously Vegas revenue has been strong, but just curious if any conversations with the operator.
Gain a sense of how regional and our Vegas operating margins have held up with the inflation pressure.
Yes. Another good question and many have released their earnings just a friendly reminder, that for US rent is paid with margin dollars not necessarily not margin percentage points. So if you take a company like one of our tenants pen.
Which generated almost $50 million more in margin dollars year over year with the earnings that just came out so the businesses continue to be incredibly strong, especially when you compare it to other businesses around the United States. So we couldnt be happier as Ed said in his comments about our tenants how.
They've adjusted their business how their margins are up most importantly, their margin dollars are up.
Many are seen record EBITDA, I think Caesars announced that to 18 properties set all time records in Q Ron EBITDA. So.
I could go on and on about our tenant.
Exciting to see that even with the macro.
Issues going on they are continuing to perform very well.
One point that's great. Thank you Matt is that with.
Yes.
Spencer I was just going to say one more point I want to add on top of what John .
Just rightly said.
Is it with all the focus on inflation I think it's important to note.
That obviously, we enjoy superior CPI protection in our leases versus other triple net but I also want to make sure everyone understands that our tenants are in the business.
Nightly leases and in some cases, even hourly leases and that pertains to their ability to constantly re price.
In respect to demand and then with respect to inflation and I think that going back to John's point is a key factor in ensuring that they continue to produce.
All of the margin dollars, they can possibly produce given their ability based on mainly the lease business to constantly reprice.
Okay.
Okay, great. Thank you for that color.
Yeah.
Thanks Spencer.
Thank you Spencer for your question.
I would like to ask everybody to keep to one question and one follow up question Tun.
Our next question comes from Smith from Citi. Please go ahead.
Alright. Thanks.
I wanted to ask just a little bit as you look at potential opportunities are you seeing any tools.
At this point and potential transaction cap rates with the rising cost of capital that kind of weighing that against.
The continued kind of institutionalization of this real.
Estate space and improving operating trends I think you pointed out Eric.
Or is it too soon to sort of seem a little changes.
Yes.
It's a very very good and very timely questions Hamid and good to talk to you.
In my experience and I guess this is one of these rare occasions, when it actually pays to get old.
What I've seen over the years.
When when you enter a period of tightening.
When the cost of credit and our equity go up.
It usually takes sellers.
Longer to recognize a change in reality then.
And then does it for the buyers right and so I think right now we're probably in somewhat of a situation of a slack tide.
We're really proud of the part of would be sellers that would be buyers, but did it hasnt and see as to what is market right. We are fortunate that we have a number of discussions going on that have a momentum to them that can carry both us and our.
Natural partners past this hesitation regarding the future cost of capital, but I do think we'll probably see a purion as we have in so many cycles, where they are.
That it will take some time for buyers and sellers to recalibrate. It will take some time to refined equilibrium, but its pretty axiomatic that if the cost and the availability of capital goes up.
So I'm sorry, the cost of capital goes up and the availability goes down cap rates tend to go up accordingly, now sorry to go on so long.
Gaming it may end up adding to somewhat of Mei.
More or less a stasis in cap rates because.
This is a category that as you were saying Smedes has been seeing cap rate compression.
Perhaps the velocity of compression slows or maybe even stops.
Maybe a category, where you won't see cap rate expansion given the increasing interest in the category as we've seen over the last year or two.
Great. Thanks, that's interesting I just wanted to.
Switch gears John .
I can switch and go through the transcript of the operators, but I'm just wondering it sounds like the leisure customer is still very strong in Las Vegas, you have any thoughts on how the.
Convention business is winding up over the next year or so ago.
However, you think about it.
Yes, I mean based on what we've heard we now have.
Caesars MGM and the Venetian running assets in Las Vegas, who run the largest convention.
There that they are seeing that business planning to return later this year and very strong as you've heard them say in their earnings in 2023.
Smedes I was quoting the gaming revenue, but what I haven't quoted yet.
Another thing Caesars said in their earnings their Las Vegas properties in the month of April had record room revenue.
So that's pretty amazing and in place.
We're also getting strong gaming revenue. So you can see the consumer I mean, most importantly for our tenants.
The consumer simply has not found a substitute for their entertainment dollars Vegas continues to be again, the number one destination in America I've argued with my colleagues. It's the number one destination in the world right now and not only is the customer coming to you once the gamble, but we're seeing that they are diversified.
These resorts and Theyre getting business travel they are getting room revenue, they're getting food and beverage revenues fall revenue pool revenue and it's the beauty of these integrated resorts and all the credit goes.
To our operators and how they are running these facilities.
Great. Thank you appreciate it.
Thank you for your question. Our next question comes from Barry Jonas from Trust Securities. Please go ahead. Your line is open.
Alright, great.
And happy Cinco de Mayo to you to Ed.
Given the scale and scope.
Be cheated date for M&A strategy or perhaps your minimum requirements change at all.
Barry how do we think of the Miami you I Hope a margarita is in your future.
I would say generally not.
And if I, if I if I if I can.
Guess what might underlie your question.
Given the BG has gotten so big.
BT.
Sort of establish a red line below which we do not go in terms of asset size or NOI.
And I think the answer is no again.
As a as a triple.
Total that we enjoy rent per asset.
Over $50 million box the average triple net store produces about 250000 a year Brad.
We.
We will always evaluate.
The materiality of a given asset not unto itself, but really as part of a larger relationship.
Whomever may either currently own and want a sale leaseback that asset or an operator with whom we partner in the acquisition of that asset. So we will be much more focused on the long term growth potential of a given category.
Our opportunity our partnership than we were.
Good on individual assets and that's how we believe over time will develop a more sustained and sustainable business model of deal flow.
Great Great. That's really helpful. And then just as a follow up question are you seeing a wider group of Green shoots out there now looking at gaming deals and maybe to what extent are you competing with operators looking to do holdco deals. Thanks.
Barry I just wanted to ask.
Alright.
Yes.
I'll go ahead and jump in I mean, obviously, we've seen with the.
The wind transaction in Boston royalty income getting into the queue.
Space, but for us it.
Ever since we started the company we always knew there was going to be competition in this space.
Clearly people have seen the resiliency of the model they've seen the high quality of the assets they.
<unk> seen how it's performed.
In the toughest time ever.
Which was COVID-19 with the business shutdown and rebounding with all the records that I've been talking about today. So that obviously has attracted me.
More potential owners of the real estate or of the Holdco. As you mentioned so we go into every transaction expecting that there's going to be competition and we are not surprised at all that there are more folks that are interested in this just incredible real estate space.
Yes.
Okay. Thank you so much guys I appreciate it.
Hey, Barry Thanks.
<unk>.
Thank you for your question. Our next question comes from James corner Rich from SMB CLEC. Please go ahead. Your line is open.
Hey, Thanks, good morning, and congrats again for getting a <unk>.
<unk> done and everything else.
Just going back to interest rates, but in a different question that.
As the rising interest rates are putting pressure on what was previously expressed in cap rates, you're going to walk us through how you're thinking about the puts and takes and structuring of new lease such items like cap rate rent coverage inflation, CPI kickers and what opportunities there may be for you to potentially get more aggressive.
David you want to take that.
Yes, Jay Thanks for the question.
As I mentioned, a little bit earlier each deal is unique.
Not every one size fits all so.
What's critical for us.
Is that any transaction that we ultimately underwrite and ultimately announce and then sign up is accretive day. One you saw some hotel Reits or last day or two announce a four cap and theyre going to turn it into eight or nine yield.
We can't do that under our structure and if we ever did that that would probably be our last deal that we ever did so.
CPI is a very hot topic. These days, but it's important for us to have escalators that are.
One are reasonable for the market that we're in whether that's regional Super Regional Vegas.
Destination, and then annual bumps that work for us and work for the operator, and we ultimately want to push for no CPI cap operators are pushing back on that a little bit and so it's always a negotiation in terms of value duration of lease.
The cap rate that we can pay.
As a few levers that we underwrite with and make sure that we are underwriting and strong credit and a strong operator that his conviction coming into the market.
So we want it.
Our fundamental goal is to make sure that we what we sign up is accretive day, one because we live with that for 30 years plus.
J J I will just add that a bit of wisdom that one of our most important and valuable board members, who many of you know Craig Macnab, one of the first outage and he shared with us.
Gentlemen.
The rent should be as low as possible.
We absolutely believe in that we want them to be.
Be as low as possible in regard to the economics of the tenant's business.
Because the lower the rent as a percentage of their economics, the more successful they will be.
The better credits they will be and then more willing and able they will be to occupy the building for a very very long time to come.
Yeah, absolutely I mean.
The portions of the tenant credit the landlord side makes a lot of sense and then I guess just as a follow up.
We've previously spoken about the benefits of becoming investment grade and the lower cost of capital that comes with it which may open up the door for more non gaming opportunities. So just curious about how youre thinking about that at this time now that you've achieved investment grade status.
David.
Yes, Jeremy.
Thrilled to be.
And we will continue to do as we talked about on the on the debt roadshow in the marketing process will continue to migrate up to triple B curve over time.
As we continue to.
The diversity of our tenants bring our leverage back to the five and five five times that we've always been very focused on from day. One. Thanks Erinn is great work with the <unk>.
Ferrari owner team. Thanks for her great work with the agencies, we were able to get the rating upgrade on April 18th.
But that does definitely broaden the funnel is another question was asked earlier.
At the end of the day, we're spread investing so if we can lower our cost of capital not only through the debt markets as we migrate a critical <unk>, obviously that cost of capital.
Can be reduced and then with the index inclusion that has occurred with.
<unk> class a shareholders being converted to <unk> shareholders.
Potentially one day S&P 500 inclusion we can continue to lower our cost of equity capital to.
As you say, Jay and frankly, so broaden that funnel and continue to diversify both in and outside of gaming.
Okay, Great I appreciate the time thanks, guys.
Thanks James.
Vivek. Thank you for your question. Our next question comes from David Katz from Jefferies. Please go ahead hi.
Hi, Good morning, everyone. Thanks for taking my question.
Just wanted to talk about.
Kind of the next phase if I'm characterizing it right, where some of the acquisitions that you may pursue.
Come from internal or funded by internal.
Capital sources or cash flow.
The accretion that comes out of that.
How big of a trend is that and is that something we should be thinking about this year.
David you want to start.
Yes, David.
David Good to talk to you.
As Ed mentioned, and we've talked about our free cash flow after dividends.
That's true free cash flow somewhere $4 million to $500 million.
Run rate. So you kind of think about levering that one to one.
<unk>.
Up to $1 billion of buying power and so small gaming deals like the century deal that we announced.
June of 19 $278 million that can be done with cash on hand, and so all of that accretion dropped straight to the bottom line.
And some of the non gaming stuff that you've seen us do is obviously smaller.
Just by the <unk>.
Opportunities that were presented in front of us at the time.
So those that's free cash flow, where we don't have to go to the equity markets and do what we did last year and raised $5 $4 billion of equity for the transformation that we undertook and we're thrilled to have done them and we would looking back but I think as we continue to.
Grow as Ed said, Thats sustained and sustainable flow business as youll see more of that going forward.
Hopefully that answers your question David.
Well, David just asked I would just tell you just go ahead.
Yes, David Cassidy I was just going to add that.
When we when we.
Look at retained cash as a capital source.
We are very cognizant that the shareholders' money and our obligation to produce a superior return on investment spread on the use of that cash is every bit as strong as it would be if we're going out into the market raising equity.
Yeah.
Alright.
If I can.
Just follow up I think the last part of my question is.
Is there a landscape that you could see some of these kinds of opportunities happening.
12 months ish.
Yes, I'd say, Jon we're very confident of that or we're not.
We are we are obviously, David can tell you in our next transaction Sam Smiling at me that I can't tell you in our next transaction will be.
But in all seriousness I.
Whereas as you have heard me say, we're as busy as we've ever been in the funnel is wider than it's ever been for numerous reasons.
That we talked about earlier of our size or scope.
And so.
I think thats very realistic within the next next year or so.
Perfect. Thank you very much.
Perfect. Thank you for your question David Our next question comes from Greg Mcginniss from Scotiabank. Please go ahead.
Hey, good morning, everyone.
So last night with the main Greg Flamingo is currently being marketed by Caesars.
So.
Information that some investors have not been interested at the marketed 1 billion plus valuation, which not only just the two questions. The first is the perfect property is being more widely marketed mean you also passed on that initial price and then two what kind of cap rate would you target for an investment of that size given capital today self imposed leverage.
The minutes and your desire for immediate accretion.
Yes.
Well, Greg I was going to talk to you and you definitely get the award at least so far for asking the questions that we can and will not be yes, Sir on this call.
I think John did a good job of describing.
What Tom Reeg was on record, saying the other day and I don't know John I think we just leave it there.
Couldnt agree more.
But I figured I had to shoot me a shot there.
But maybe as a setup.
We absolutely do.
So march or asthma.
So separately then so based on current inflation numbers could you just give us some indication as to what's being assumed in guidance for the escalators for the remainder of the year.
Yeah.
Okay, Great David similar to.
Yes.
Including unannounced acquisitions or dispositions or capital markets activity guidance includes.
The base case escalators.
So does that mean, where it could be greater of 2% in CPI or something 2% or.
How should we think about that.
It doesn't include any CPI estimates around CPI.
Guessing game, so we can't predict the future because we probably be doing something else. So.
It's the base rate.
Right and the leases it's in the guidance number.
Okay, and then let's see.
Yes.
I was just going to say, Greg the key period.
Our CPI measurement for us comes in that.
Early second half of the year isn't that the right way to think about it David.
Yes for the bump in November if we look at September August and July numbers and compare that to the prior year.
That's what gets factored into the increase in November one.
Okay. Thank you Caesars leases with Caesars Master Greensville Master lease from the Caesars' Las Vegas lease.
Great. Thanks.
Okay.
Thank you Greg for your question and as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
And our next question comes from John Masonic Huh.
<unk>. Please go ahead.
Good morning.
Hey, John .
Okay. So given some of the kind of new stories of prints, we've seen on Las Vegas land prices or even assets that maybe have more of a.
Redevelopment components to them how are you thinking about your land holdings.
In Las Vegas.
And maybe can you kind of remind us what the process would be for either monetizing those or kind of turning them into development if opportunities arose on that front.
John and perhaps Samantha you want to take that.
Yes, so good talking to you John just as a reminder, we have.
<unk>.
Really 34 acres.
In Las Vegas that are underdeveloped seven are in front of Caesars Palace.
Those that sits inside the Las Vegas Master lease and then there are incremental 27 acres that we own Caesars also owns some acreage next to our 2007 as it pertains to development as you can imagine as you and you were alluding to or as you mentioned there have.
Ben some significant sales of real estate acreage.
On the Las Vegas strip, our near the Las Vegas strip continues to make our Lamb.
Land very valuable and the process would work if we were to develop would be with Caesars on the land, particularly in front of Caesars Palace as well as the land that is behind.
Behind the Flamingo.
<unk>, Paris and valleys we.
We would work in partnership with them should there be an appropriate development, but we sure do like.
The prices that are coming out if they are.
Completely true I think.
There was one that just took place small acreage of almost over $30 million an acre.
So we're excited to see that and it's not that surprising when you heard the statistics I went through in my opening remarks about the city and the success of these resorts and how the operators have turned them into an incredible places of EBITDA generation.
Okay.
And then in terms of the.
The competitive set you talked a little bit about publicly in the.
Place have you seen any change in either.
Private investors in casino real estate or maybe some of the tenant not publicly traded players that are out there given some of the moves and cost of debt capital I mean is that competitive set changed at all.
Sure.
Any color there would be helpful.
Yes, So I think John exactly two interesting things going on one is the increasing.
Institutional interest in net lease generally.
Any of you would.
Would have seen yesterday the publication of an article as to how names like KKR and Aries in Carlisle are coming into the net lease space and Theres, obviously been other PE firms.
And credit claims there.
Focusing on net lease generally.
And then.
Within that there is exactly as you are saying or suggesting increased interest.
Publicly non traded REIT and net lease focused private equity firms on what is we believe one of the most compelling forms of triple net real estate. There is which is to say gaming real estate and I think it's important.
So recognize too that.
And focusing on gaming.
Actually not losing the point there I think the key point is yes that absolute increased interest.
Both the superiority of the net lease model generally and incredible attractiveness of gaming real estate.
But I guess, maybe over the short term.
What we've seen interest rate moves since the beginning of the year has that demand change at all I understand long term are you seeing kind of institutional capital gravitate towards some.
That had to fade away because.
Frankly, the cost of debt financing has gone up.
Yeah again, I think it goes back to the answer I gave this needs John and that is the degree to which there may be a bit of a slack tide right now because to your point.
As an example, the MBS market has tightened up quite a bit.
And Thats fair.
There is probably not quite the gold rush veeva that there might have been six months ago, but it has not gone away. Because these people are sitting on an awful lot of dry powder.
Okay, that's very helpful.
Thank you very much.
Thanks, Ken.
Perfect. Thank you Joseph question. This concludes our Q&A session and now I'd like to pass back over to Ed <unk> CEO for any final remarks.
Thank you operator.
In closing we thank you for your time with US this morning, especially given how busy you are saying.
Zane how much earnings reporting is going on this week and the REIT sector.
With your support BG has become one of America's leading rates and portfolio scale and quality and an economic magnitude. We will continue to work hard for you every day, we look forward to connecting again, when we report our second quarter results.
Bye for now.
Thank you everybody for joining today's call you may now disconnect your lines.
Yeah.