Q2 2022 VICI Properties Inc Earnings Call
And especially perspective market conditions could yield Vg, we believe highly attractive growth opportunities in the quarters ahead and further the topic of growth ill now turn the call over to John Payne John .
Thanks, Ed and good morning, everyone. During the second quarter, we completed the acquisition of MVP, expanding our portfolio to <unk> 43 of the highest quality experiential real estate asset under our Triple net model with a combined 58000 hotel rooms, hundreds of food and beverage and <unk>.
Payment outlets and millions of square feet of high quality meeting and convention areas. Thanks to the tireless work of team BT, we've completed over $29 billion of transactions since our company's formation less than five years ago. We're very proud of these accomplishments and at the same time, we're excited that our work has only just.
Started one.
One of our primary objective as a company is to work with our existing tenants to provide capital solutions that help meet each operator strategic objectives. As many of you have heard me say before our team does not take a break after announcing or completing an acquisition or development team remains very.
Active expanding our relationships and sourcing opportunities that we believe will continue yielding accretive outcomes for vg during the second quarter. We entered in a long term partnership with cabinet, a leading destination golf operator railroad.
<unk> will provide funding for the redevelopment of Cabot citrus farms in Florida, and convert a portion of our loan to real estate ownership under a long term sale leaseback.
We're very excited about this relationship and we will look to potentially expand with cabot over the coming years.
While many of you enjoy asking questions about on the ground operating trends I would like to remind you that we are a triple net lease landlord, we collect fixed rent streams with annual escalations over very long periods of time.
Those who have followed our story will recall that we continued to collect 100% of cash rent. When every one of our properties was forced to close due to the government mandated restrictions in response to COVID-19.
There have been many questions about the outlook for consumer spending and I would simply repeat that our income does not fluctuate based on monthly or quarterly trend now with that said in Las Vegas strip continues to produce incredibly strong numbers. For example, gross gaming revenue in May was 40.
1% above 2019 levels and Harry Reid International Airport, just registered an all time record for passenger traffic. This past June while the growth rates are becoming more difficult to surpass given the record activity levels. The gaming industry has proven its resilience over decade.
And anyone who researches operator profitability will understand that the business models are leaner and more flexible today as compared to pre COVID-19 years. The gaming operators successfully navigated a very uncertain period at the start of the pandemic in 2020 and emerged on stronger footing with record.
Breaking margin expansion as they've created ways to monitor consumer activity and adjust their cost structures. Accordingly, we are very proud of our track record to date and our relationships with stable industry, leading tenants, we will remain disciplined as we evaluate opportunities and ensure future acquisition.
Our investment criteria.
Thanks to our exceptional balance sheet, which David will touch on we believe we're in a very strong position as we evaluate growth opportunities in an environment, where cost of capital fluctuate daily we will continue to pursue transactions with appropriate underwriting and accretion for our shareholders now I will turn the call over.
To David who will discuss our financial results and guidance David.
Thanks, John I'm going to start with our balance sheet and overall liquidity available to BG to fund future growth to recap the second quarter events on April 18th BG was upgraded to investment grade by S&P and Fitch greatly broadening our access to permanent debt capital on April 20th we priced $5 billion of investment grade senior unsecured notes executing.
The largest REIT investment grade bond offering ever.
The blended cash interest rate for the notes was 5% while the effective interest rate after taking into account our $3 billion hedge portfolio was $4 five 1% on.
On April 29, we closed on the acquisition of MVP as well as the five $5 billion bond offering.
We used $4 $4 billion of the proceeds to fund a redemption of a majority of Mgm's M. GP LP units. The remaining proceeds plus cash on hand were used to repay the outstanding balance on our revolving credit facility.
The company also issued approximately $4 1 billion.
Principal amount of senior notes in exchange for and with the same interest rate maturity date and redemption terms as notes originally issued by MVP pursuant to the settlement of the exchange offers and consent solicitations. Following the settlement of the exchange offers and consent solicitations approximately $90 million of the original <unk>.
<unk> notes remain outstanding.
In terms of leverage we ended the quarter with a total with total debt of $15 5 billion inclusive of our pro rata share of the <unk> JV debt, our net debt to adjusted EBITDA pro forma for a full year of rent from the <unk> transaction is approximately five eight times, we have a weighted average interest rate of 438 <unk>.
Taking into account, our hedge portfolio and a weighted average seven two years to maturity.
<unk> had many accomplishments in our short existence as a public company, but being added to the S&P 500 index on June 8th as a continued endorsement of our growth.
As mentioned <unk> was the fastest route to be added to the S&P 500 index from IPO to inclusion and we believe being added to the index will broaden our investor base and improve our access to equity capital.
During the quarter, we sold approximately 11 4 million shares with an aggregate value of 367 4 million before fees under our ATM program.
The shares were sold subject to a forward sale agreement.
And as such are not reflected on our balance sheet.
As of June 30, we had approximately $4 $5 billion in total liquidity comprised of $614 million in cash and cash equivalents $360 million of estimated net proceeds available upon settlement of our forward sale agreement $2 5 billion of availability under the revolving credit facility and $1 billion of availability.
The delayed draw facility in July the revolving credit facility was amended to permit borrowings in certain foreign currencies up to the U S dollar equivalent of $1 25 billion enhancing our financial flexibility.
Turning to the income statement.
<unk> for the second quarter was $430 1 million or <unk> 48 per share total <unk> in Q2 increased 67, 9% year over year, while <unk> per share increased approximately 4% over the prior year.
The disparity between overall <unk> growth and <unk> per share growth is due to an increase in our share count which increased primarily from the equity raised and shares issued to consummate our transformative acquisition of MVP.
At the end of Q2. The company has approximately 963 million shares of common stock outstanding and BG Op has $12 2 million additional OPE units outstanding held by MGM, which were which were received in the merger a full reconciliation of the share count is included in our earnings release.
Results once again highlight our highly efficient triple net model given the significant increase in the 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 $11 8 million for the quarter and as a percentage of total revenues was only one 8% in line with our full year expectations and one of the lowest ratios in the triple net sector. We believe this represents the appropriate go forward run rate when accounting for the increase in certain expenses related to the MVP acquisition.
I just wanted to touch on seasonal or corn current expected credit losses out of the $552 million noncash charge, we incurred in Q2, 80% or approximately $443 million was related to the initial allowance. We were we were required to record upon entering into the MGM Master.
Lease.
This allowance did reduce our GAAP net income for the quarter, but as previously noted noncash seasonal charges do not impact cash flow or <unk>.
Turning to guidance, we are reaffirming 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 activity or other nonrecurring transactions the per share estimates reflect the impact of treasury accounting related to the pending $11 4 million forward shares sold from our ATM program in Q2.
And as we have discussed we recorded noncash seasonal charge on a quarterly basis.
Which due to its inherent unpredictability leaves us unable to forecast net income and <unk> with accuracy Accordingly, our guidance as <unk> focused as we believe <unk> represents the best way of measuring the productivity of our equity investments in evaluating our financial performance and ability to pay dividends <unk> for the year ended December 31.
2022 is expected to be between $1 66 billion and $1 69 billion or between $1 89, and $1 92 per diluted common share.
With that operator, please open the line for questions.
Thank you as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind any time, please press star teacher Mr question.
Please standby loss we've listed today.
Yes.
We.
We have the first question on the phone lines from.
Anthony <unk> of J P. Morgan. Please go ahead, when you're ready Anthony.
Great. Thank you and good morning.
My first question relates to your efforts outside of gaming. So you have four of these <unk>.
Experiential relationships going can you comment on where you are.
When we might see some of these convert into straight up property acquisitions and also.
Do you see more of these or these growing over the next 12 to 18 months.
Yes, Toni good day and good to talk to you and I'll start out this is Ed.
And before I answer that question I Hope I don't preclude.
Second question, you may be asking I want to thank you for doing the math that you did in your note last night regarding the potential impact of CPI on Bg's rent roll.
To answer your question.
I think Cabot the Cabot transaction is representative of sort of transaction we wished it.
To duplicate in many if not all of our non gaming transactions in so far as the Cabot transaction is predicated on a period of lending into development with the land capital converting into real estate capital upon stabilization of the development.
That will obviously apply in situations, where there is development in other situations. We will obviously look for opportunities, where we have the opportunity to own real property right out of the gate.
But we're taking an approach.
In non gaming did often requires pioneering insofar as one of the fundamental opportunities. We believe we have at <unk> is to pioneer the opco propco structure into the experiential white space that has not seen the opco propco structure before and in order to do that and we're very happily doing it.
We're willing to create structures like we did with Cabot.
Got it.
Okay and then.
With regards to the equity raise in the quarter off the ATM any comments on the planned usage, there or how should we think about doing it or why you did it.
Hey, Tony It's David Good to talk to you, it's really an opportunistic.
Use of the ATM and we as I mentioned, we put it under the Florida agreement so with the <unk>.
Inclusion in the S&P 500 index, we saw elevated volumes.
The level and are priced share price.
We thought it made sense to raise a little equity just for the given the current state of the environment and enhance our overall liquidity.
And I think you can take a Tony is a sign of our confidence that we're going to have opportunities to deploy capital.
Okay, great. Thank you.
Thanks, Tony.
Thank you Tony we now have the next question from Steve <unk> of Evercore. Please go ahead, when you're ready.
Okay.
Yes. Thanks, Good morning, Ed I wanted to circle back to your comments, you talked about sort of the downturn and obviously that doesn't really affect you, but it does affect the operators.
And I'm, just wondering if a pending recession or weakening fundamentals might actually spur.
More transactions in the near term.
And then I do have a second question. Thank you.
Yeah, Steve good to talk to you.
The.
As I mentioned in my opening remarks, while we do not fear is a recession, having harmful effect on our operators operating results and they're in their overall credit quality, but I think one thing to be silver about is the outlook for refinancing in 2023, 2024 and potentially even.
Beyond but especially in those two years.
And one of the one.
One of the.
One of the data collections I read most avidly every Monday is the credit trading data.
Our existing and potential partners and when you look at the yield to worst of a lot of a lot of the experiential credit both gaming and non gaming youre looking at yield stores right now that if they had to refinance at those levels.
And then compared to cost of that refinancing to the cost of our capital through sale leaseback structures. We can frankly in many cases beat the hell out of that.
So I think I think we do see I think implicit in your question, Steve We agree with your implicit suggestion that there could be very attractive opportunities to for us to support very strong operators, who nonetheless could suffer from a refinancing marketplace over the next couple of years.
It makes our capital that much more attractive.
Thanks, and then the second one maybe sort of along the lines of development I know when we were talking over the last few weeks densification opportunities along the strip our opportunities.
And sort of similar you talked about the non gaming in Cabot and doing lending into development would you use a similar structure for densification opportunities.
On the strip or would you just wind up you think purchasing those upon completion.
I think it would depend on the circumstances, Steve, but just to make sure everybody understands that the basis of your question. We are very excited about the densification and intensification opportunities that we and our partners have along the strip we have 660 acres all tolls and in due course, we're going to be mapping.
660 acres to identify either unoccupied acreage or acreage that is otherwise not being put to its highest and best use and we think we have the opportunity to support our partners in the intensification efforts in ways that could lead to billions of dollars of incremental investment opportunities in terms of how we would structure the capital.
<unk> in those opportunities, where where the opportunity is there to learn and then convert to real estate ownership, we might do so but in many of the properties, we already own it could simply be a case, where we are we are financing the development of the real estate with our capital and effectively owning real estate as it gets built if you will.
Great. Thank you.
Okay.
The next question comes from.
Milligan of Raymond James You May proceed with your question RJ.
Yes, good morning, guys.
So.
Secured an investment grade rating plenty of liquidity stock is now trading near an all time high so despite the macro uncertainty and volatility it seems like the market's giving <unk> the green light for growth. So do you think it's time to get more aggressive on the acquisition front, even more than you already have been and why not call. The centaur assets now in.
<unk> pretty attractive accretion.
I'll turn it over to Ed.
John but the idea that that.
We would exceed the velocity we have transpired.
Transpired, so far 29 billion and a little over four years, that's a pretty strong pace, but I'm going to turn it over to John for his thoughts.
<unk>.
Potentially taking advantage of both our current cost of capital and market conditions John .
Yes, RJ good morning, Youre, given me a heart attack already RJ for moving doing more than we've already.
More than we've already done.
R. J I think your observations are good but.
As good as we are doing right now we need to continue to be disciplined.
Our approach to evaluating opportunities and making sure we're meeting our investment criteria.
I can assure you and as Ed said in his opening remarks, we've added resources to the development team or.
Not only our expertise in gaming, but we've added kaelin, Florida as our Chief investment officer is going to focus on non gaming.
So more to come here, but we hear you and we're out there turning over every rock of opportunity.
Thanks, guys and follow up question and this is related to Steve's earlier question, but I wanted to focus more specifically on Caesars because we've gotten a lot of questions on caesars and their balance sheet and sort of their plans.
You see the coming rent increases are positive for beachy right given that boost your internal growth above most of the peers in the net lease space, but it also stretches coverage and so if you factor in a recession, maybe that stretches coverage as well. So I'm just curious how you feel about Caesars right now the current and future coverage levels and then specifically in.
This leads to Steve's question about potential transactions with them in the future.
John .
Look we feel great about Caesars under the leadership.
Tom Reeg as you all know we help support them when they were El Dorado, taking over the company. They had a business plan in place and they've executed it.
And a very disciplined way on the bricks and mortar facilities.
Would we continue to find opportunities to work together, we hope so.
Hope that they continue to perform well and we find opportunities.
To help them grow their facilities and they've been very good partners to us and I hope they all feel that we have been good partners to them.
Thank you guys.
Thank you as a reminder.
If we could please limit questions to one question and one follow up.
And as a reminder, it still flip I wanted to ask any further questions.
We now have a question from.
Please rise of Citi. Please go ahead, when you're ready.
Hi, Thanks, good morning.
I wanted to ask just kind of specifically about the $1 billion of funding commitments that you mentioned in your Q.
Coming from the property growth fund.
And just given.
More recessionary concerns do you feel like your.
Existing tenants may be.
More likely to kind of pull back on those funding commitments because its I guess its initiated from from their end.
Correct and I'm just wondering if you have a sense that maybe the.
Your appetite for investing maybe slowing a little bit just given maybe the need to.
Horde capital, if you will present any kind of thoughts around that.
John .
Yes.
Well I'm going to sound like I'm repeating myself here, but it's nice to talk to you. This morning.
If you look at Las Vegas, right now Smedes.
Where there could be a lot of this capital deployed in my opening remarks, I talked about the growth in Las Vegas in May was 41% <unk> up over 2019, and then the June numbers came out this morning in June .
<unk> grew 23% year over year. So again, we have to be aware of the macro conditions going on but there are some markets such as Las Vegas that are seeing tremendous growth. The consumer continues to visit in my opening remarks, I talked about the record number of passengers.
Planning in Las Vegas in the month of June .
So if you are an operator and you have a facility in Las Vegas.
Can see it as a town that is growing and there could be opportunities.
To deploy capital Accretively and as Ed mentioned in his remarks, as well or in his comments about Las Vegas. It is the talent that we have 660 acres and we'd love to continue to grow there.
The other thing I would add.
The other thing I would add Smedes is that we could be it remains to be seen the velocity at which this rollover.
Youre beginning to see the beginning are beginning to see the beginnings of a rollover in construction costs.
And I think.
If we continue to see a more benign construction cost environment it could obviously.
Create a stronger greenlight for further development.
Okay, and then David I just wanted to ask you on the ATM I mean it look.
Like the growth.
Raise was closer to $374 million and the net was 360 that seems like a particularly high kind of fee and I'm. Just wondering if that is that typical or was there something specific maybe you bet.
The growth was off $3 67.
Sorry, it's Vince.
The gross number is $367 4 million and the net was $3 60. So these are.
Market fees.
Okay got you.
Thank you.
We now have the next question from Neil Malkin with capital One Securities. Your line is open now.
Hey, everyone. Thank you.
At the time.
David I'm still waiting for those BD razors.
We can talk offline about my address where it has been.
Hi, Helen I don't know if <unk> done that.
I don't know if he's on the call.
But obviously you brought him over to focus on non gaming and I'm just wondering.
Maybe just a broader general question you can take or however, you want.
What does he see I guess in terms.
What do you guys see as the biggest opportunity the biggest untapped segment.
That has the most potential to be executed on over the next.
At 12 months to 24 months.
I know you talked about pioneering and you guys are definitely.
Done that on the different parts of the capital stack for sure.
But I'd be really interested to get some.
Some insight.
<unk>.
Conversations with Cowen and particularly again with very strong stock price.
Yes, Kevin this out on the call.
John will answer this for you Aneel.
Yes, Neil good morning, good to talk to you I don't know if I have a specific category you have heard us talk about.
We love the indoor Waterpark business the theme Park business family Entertainment centers, there's parts of sports that I think are quite interesting that we're studying in parts of fitness that we are continuing the study.
You mentioned.
We're really pioneering some areas here that have not.
Traditionally.
Thanks.
Worked with a REIT and so we're working on different structures as Ed talked earlier in his comments that will eventually.
Turning to real estate ownership, so I don't have a specific area, but it is nice to have an additional resource because its clearly an kellen short time being with us a little over eight weeks, our funnel has gotten a lot wider and we have we've had the opportunity to talk to.
More companies domestically and internationally.
Okay, great Thanks, and maybe.
John I don't know.
The other follow up question would be.
Along the same vein is when you do these when we do these exercises.
Looking at.
New types of.
<unk> business model to put a triple net structure on top of.
Can you just.
Quickly like outline or.
How do you think about the.
The risks and.
How do you adjust to protect yourself from like unknown risks because it's a new industry. How do you think about alternative used replacement cost.
All of those things that obviously offer.
Downside protection.
If something unexpected happens to that segment.
Yes, so neal.
Four fundamental evaluation factors when we look at at any experiential category.
Starting with lower than average cyclicality versus consumer discretionary and large.
We really love about gaming is it does have lower cyclicality and we generally want to trend toward segments that have that same characteristic.
Two we want healthy supply demand balance.
This usually means investing capital in assets that have a cost or complexity that tends to mitigate against unwarranted supply. We do not want number three we do not want secular threat.
To be a big factor, we generally want the real estate to provide an out of home experience that must almost by definition be an out of home experience.
And thus be less vulnerable to as we say getting Amazon by displacing the experience through putting in a box or shipping it through a wire to your house and then finally number four we want one proven durability of the end user experience because the durability of the end user experience.
Constitutes the durability of the operator's business and it is the durability of the operator's business and ultimately constitutes the durability of our rent.
Okay.
Okay. Thank you.
Yes.
Next question operator, thank you.
We have next question from Wes Golladay from Baird. Please go ahead, when you're ready.
Hey, good morning, everyone I just have a question on the property.
Property growth fund, how should we think about the trajectory of deploying capital will you expect to deploy capital into 'twenty 2023, and will it ramp up 2020 for 2025, and then do you have a max exposure for this segment.
Wes it's David good to talk to you I missed the tail end of that but let me just address Max exposure. Thank you.
So it depends on the project.
We are actively working with all of our tenants they understand that we have the partner property growth.
We have the ability to invest into their assets as we've talked about on this call.
<unk> serves as an attractive source of funding for our tenants, but somewhat depends on the project.
<unk> for example, we committed $1 billion to their partner property growth fund and that $1 billion.
It could go into the extent or the continuation of the funding of the hotel that was stopped in 2008. It could go into some other expansion ideas and renovation ideas that Paula team has and.
We hope that that some of that May start later this year, but it's again all up to our tenants and their timing and then in terms of the deployment of that the nice thing about the partner property growth on this important that does not come all at once if it's a new hotel tower or you take the Mirage, we're hard rock coming in and we've committed up to 1 billion five if they so choose to use that money.
The 12 to 18 to 24 month redevelopment timeline, where we get to kind of deploy that capital on a monthly basis not having to go to the market to raise large amounts of capital day. One so it's a flow business for Vijay into the correct attractive funding source for BG in terms of Max size.
Yes.
We want to be cognizant of the development risk at the end of the day, we are not the developer, but our capital obviously is going into projects that are being developed.
It will depend on where that capital is whether it's in gaming non gaming if it's on the strip. It's regional so we're going to be cognizant of the total size, but right now we don't have a threshold for you, but we're going to we're excited to use it we're excited to help our tenants grow.
I'd just add.
Sitting here with a team in our one of our New York Conference rooms, and I'm looking at beautiful big aerial photos of a couple of our Las Vegas assets Caesars Palace in the Venetian and I think one of the things we're starting to realize Wes.
And is it we need to do a better job of communicating the nature of the real estate, we own, especially along Las Vegas strip and then when we described when we or anyone else describes it as gaming real estate, we're not accurately describing it as I look here at the Venetian I'm looking at a complex up nearly 13 million square.
Feet on what are we $80 90 acres.
And gaming occupies I think.
Then about 2% of the square footage of that asset right and so if you want to think about our Las Vegas assets and come up with a corollary of real estate corollary to our Las Vegas assets I would encourage you to think of the correlate being theme parks right because of the mass.
The mass size complexity layout and development potential of these assets and this is true of all.
10 assets, we own along this journey.
More to it some than others, but very true many of them.
<unk>.
As an example, the Venetian the.
Photo I'm looking at you can't even see where the MSG sphere will go and it represents a densification of the real estate I think is among the most exciting developments going on in global Entertainment right now and for your music fans out there was just announced this last week the Youtube will have the opening residency at the MSC.
Fear when it opens in 2023.
We hope in time for Epsilon.
Sorry, I got a little oversight with airlines for it if you have one.
And remind me of what I am looking forward to that as well.
Real quick I speak of a sports.
Did you ever considered doing stadiums company, obviously, that's massive scale not anyone not anyone can do those and it just seems like maybe an untapped market for you.
Yes, so stadiums stadiums are intriguing, but I do think we are mindful of the fact of obsolescence risk in stadiums.
For every Fenway Park, Wrigley field over and feel their old Trafford Theres a stadium that had proved to have about 20 years of useful life and then.
Atlanta, Atlanta Baseball Stadium situations. An example, I will tell you that one area.
Pro sports globally that we're very interested in as a whole dimension of training facilities and as you know Wes that's become a bigger area of focus of investment for pro sports teams.
And we've been having discussions and doing a lot of study around being a virtuous capital provider as global sport, obviously becomes more and more of a focus of <unk>.
Capital provision.
Great. Thanks for the time everyone.
Thank you Wes.
Thank you as a reminder, if we could please limit each question to one question and one follow up at a time.
I'd now like thank you Barry Jonas from TD Securities. You May proceed with your question.
Thank you for that introduction.
What percentage of the portfolio would you guys like to see non gaming longer term.
Yes.
John you want to do that.
Yes.
Yes, very good to talk to I don't think.
I have a specific number I think we've been clear that.
The magnitude of gaming assets in the magnitude of EBITDAR that they generate are significantly higher than what we've seen in the non gaming space.
We may end up doing more non gaming transaction.
But they may not add up to the quantity of rent.
Our rent so to speak of just one or two gaming assets. So we're continuing to work on this you can hear me talk here Ed talk here, David talk in our remarks that we are spending more time in a variety of areas in the experiential space.
But we don't have a specific number today of how large that will be or what percentage. It will be of our total portfolio, but I think as we refine this over the coming years under <unk> leadership.
I have a better idea of the segments of business that will go into and how big that can be.
And then the other thing I just wanted to make sure Barry.
No one ever lose track of our sign up is that we are as excited about global gaming investment as we have ever been.
And we believe our opportunities to continue to grow in American gaming and an international gaming.
<unk> represents our.
Most exciting compelling large scale growth opportunity.
Just want to make sure that does not get loss.
That's great. Thanks for that and then just as a follow up question.
You've certainly highlighted the resilience of gaming.
On this call and in the past, but given the macro uncertainty.
Out there how does that impact how you guys think about transactions and credit quality now, especially as you're evaluating new op goes.
Sure.
Yes.
Thanks, David.
Good to talk to you.
Okay.
As Ed alluded to and then as we talked about it a lot right. The gaming customer will always game one of the things that's going on in our underwriting more specifically is obviously, there's been a ramp up in EBITDAR over the last post COVID-19.
EBITDA is much greater than it was in 2019 and before and so one of the things that we're working with anything we evaluate is what is the true run rate what is where does the margin settle out.
We're all comfortable that EBITDA is going to be greater than 2019, but is it really going to double or triple or is it more.
One in three quarters times or two times and so we're spending a lot of time with the operators on their belief that the future of the market and it all depends on the market the asset.
And the opportunity.
And then in terms of credit quality.
It's a big focus of us and with our master leases are corporate guarantees and knowing the operators the way that John and Danny and team know the operators were able to underwrite the overall opportunity and we talked about the acquisition environment. We continue to believe our ability to put points on the board here as we go forward.
Barry Let me just add.
I do.
There is another dimension is that also speaks to the opportunity for gaming operators to continue to grow their competitiveness and consumer discretionary and that relates to sports betting and I feel like sports betting in the last.
Six to nine months Barry.
It feels like the dotcom explosion of the early two thousands when every baby got thrown out with the Bath water right and if in 2000, and you said, okay dotcom blow up I'm never going to own Amazon again, you. Just you don't even want to think about the value you missed out on right and.
I think one of the things that's being missed here is it the gaming operators.
Have made investments in increasing their bandwidth increase.
Increasing the bandwidth with which they can reach activate engage and generate.
<unk> from a much bigger deeper consumer market in America, and I think we're going to see the benefits of that in the years to come, especially by the way in which gaming sorry sports betting has enabled the gaming operators to activate the next generation of customers.
Again, I think the whole the whole kind of.
Cloud over over the sports betting investments has really gone too far and people are losing sight of the fact that it is going to be a key key means by which gaming competes in the American consumer marketplace.
Great great. Thank you for that.
Thank you.
David Katz of Jefferies. Please go ahead.
Hi, good morning, everyone. Thanks for taking my questions.
Ed earlier on.
I think I forget exactly how you phrased it but in reference to Cabot.
You talked about the possibility of the expectation that that is a relationship that continues to grow and broaden overtime would you mind coloring that in just a bit.
Cabot is somewhat new on our consciousness.
For those of us that aren't pilgrimage golfers.
Yes, David good to hear from you.
I'm going to ask my colleague and partner Samantha to offer her thoughts here because he was our business later on on developing and.
And creating our Cabot partnership so Samantha yes, thanks Ed.
So we are very excited about this partnership.
The extent you have followed Cabot at all they have opportunities.
<unk> growth opportunity internationally and beyond just the United States that we certainly would look at with them. They.
David happened in St. Lucia, they've just announced an asset in Scotland, and so we think there's growth opportunities together, there and one of the things we love about what we've done with this transaction is we've created a template that we can really follow so as we discussed earlier on the call. This loan because it is development, but it does convert into real estate ownership and we have the documentation already in place for that <unk>.
If you use that template to grow with them.
So as my follow up.
You noted that there are two that are underway.
It fair to assume that they that they cabot have a vision for.
10.
Long term.
Sure.
Good.
Walk along that journey, where it makes sense.
I think they have great expansion and growth opportunities I can't speak for how many but certainly we would love to walk along that journey together and we've developed a really strong partnership. This was a relationship that we've been working on for at least 18 months before we sign the deal. So this is now a very strong relationship between our two teams and we look forward to growing together.
Yes, David I would encourage you and everybody else.
They're just beginning to get to know who Cabot has to go to their website.
And I can't remember that corporate website for Cabot you remember the address.
We will get that for you and how it should.
Civic cabinet links dot com and.
And then any way David as you well know having covered the depth and breadth of hospitality and recreation that you that you do.
So much of the scalability.
Of the business in leisure hospitality and recreation is based upon the scalability of the management team and one of the things I think you'll be very impressed by is the caliber of the management team they've been calling dewar the founder Cabot has put together.
Because that is the limiting factor right that is the biggest constraint for organism organizations like this in terms of the scalability of their portfolio is the scalability of their management team and they have built an outstanding management team as you will see when you look at their website, which is.
The Cabot collection Dot com.
Got it.
Okay.
Probably five more but I'm not allowed and I'll circle back. Thanks.
Give us a call David give us a call.
Thank you now have Ronald Camden of Morgan Stanley . Please go ahead, when you're ready.
Great.
Two quick ones from me. The first is following up on the non gaming opportunities.
Good job, giving us some examples of the verticals, but when you sort of put it all together in your mind, just how just broad strokes, how big do you think that Tam is.
You guys are talking about opportunity.
Yes Ronald.
Question. We're working on is the thing we would most emphasizes this would be global Tam.
These are these are categories of leisure entertainment and recreation.
That we see investing in on a global basis, and we are only at the beginnings of determining what that Tam would be but I think you can be confident that when looked at globally. It represents a very big universe of potential investment.
And Ronald I'll, just add that rate if you would ask US. This question last last quarter.
We added two or three other categories that we're now studying so the Tam is going to continue to to ebb and flow as we continue to find new categories that our capital can be put to work.
Excellent and then my quick follow up would be you talked a lot about sort of international opportunities.
Obviously, you're adding to the Tam but.
As there are markets that are closer than others.
Can you provide more detail there is it Europe .
Is that the countries so forth would be helpful. Thanks.
John .
Sure.
Yeah, we've been we've been on the road.
Poor Kellen started as I said eight weeks ago in its first week. He was with me on a trip to Europe to look at numerous assets.
We've spent some time.
Canada as well.
We like the country of Australia. So.
We are out and about better understanding opportunities again, as Ed mentioned earlier, not only in non gaming, but the opportunities in our core gaming so.
We're active in these spaces right now and the funnel is just going to get wider as we've added more resources to our development team.
Great. Thank you.
Thank you.
May I have a question from.
By the way is Green Street. Please go ahead when you're ready.
Thank you maybe just staying on the international theme I'm, just curious do you guys as well.
Look at the Crown resorts sale in Australia.
Could there be a potential of a JV with a partner like Blackstone to Ethernet tuition costs that come with expanding abroad.
Yes, good to hear from you Spencer John you want to take that.
Yes, good to hear from you Spencer as you know we never comment on specific deals that are out there, but I think youre asking us are we aware of the crown resorts and do we like a market like Australia in wood, we partner.
With a company like Blackstone, which obviously, we have a couple of different occasions in gaming and non gaming. So the answer is we are interested in is there is absolutely. We think they are wonderful.
Assets, we think that Blackstone is a great operator, but is there an opportunity for us today I can't comment on that but those are areas that we would have interest in.
<unk>.
Okay. Thank you.
Thank you.
We now have.
Jay Kornreich from F&B fee.
Your line is open.
Alright, Thank you and good morning.
As we look at it.
I know you spent a lot of time during the first two years in the business educating investors about gaming real estate and at this point I think generally there's a good understanding of the asset classes, if cash flows, but as we know.
Transition to the potential size of non gaming.
Just kind of evaluate the opportunities to grow in that segment with the risk of <unk>.
And any time to digest and to understand new asset classes and restarting that education process.
Yes, it's a very good question Jay and.
The responsibility lies with us to explain the nature of the business, we're investing in the nature of the operator's business model and the credit worthiness.
Operator.
And we realized.
We own that responsibility and we'll exercise it very diligently obviously, helping people understand the gaming story was good training for what we need to be able to do and what we're responsible for doing in non gaming I will say I think there's a bit of a michigan positive mitigate at workday insofar as yes, we have the obligation to help <unk>.
<unk> understand this new category, but with each new category, assuming we can convince them quickly that this is a category worthy of investment. It. Obviously also helps them answer the question how does <unk> continue to grow now that it's gotten so big.
So again, we won't share the responsibility to educate.
But we think with each new category. We go in we prove that there is a lot more we can do to continue to create value and growth at <unk>.
Okay.
Okay understood and then just as a follow up with the potential potential Caesars in Las Vegas sale I know you try not to comment on that but just in terms of the current marketplace with interest rates, where they are how would you guys kind of assess your willingness and ability to acquire Las Vegas real estate and then accretive matter at this point.
Yes.
And obviously it needs to be accretive Jay that's absolutely that's absolutely their requirement and and.
And I think that.
We're in a very interesting period right now.
A period in which.
Some people realize is not 2021 anymore and other people haven't quite figured out.
It's not 2021 anymore, what I would say is that the marketplace.
Borrowers or those who need capital.
Hess has more quickly figured out that the world has changed.
And with it the pricing that goes with that change and then there is others.
Actual sellers some of whom haven't really figured out it's not 2021 anymore. So it's really going to be highly circumstantial as to whether or not.
There is the potential to get a deal done.
It will only get done based upon mutual recognition that the world has changed and prices need to change accordingly.
Okay. Thanks very much.
Thank you Jay.
Thank you our final question comes from.
John decree of CB <unk> Securities. Please go ahead. Thank you. Thank you John .
Hi, everyone. Thank you for taking my question and all the questions.
Maybe I'll just piggyback on your last response, there about how the world has changed and to revisit your earlier discussion on cost of debt yield to worst of your tenants or potential tenants.
You've often get compare to that capital, but you are a source of financing is typically more permanent.
And that and we've had a recent conversation about your partners and how they should consider their overall cost of capital.
Given the longevity of your financing I'm wondering in this environment, if you've seen partners or prospective partners starting to to compare your capital to their overall cost of capital or are you still competing with with just debt capital at this point how is that kind of education process gone in has anything started to change given the current environment.
Yes, so John always good to talk to you, it's our responsibility to educate.
Whether it would be existing partners or potential partners and we're doing the work.
As we speak of making sure that they understand not only the nature of our capital, which Youre absolutely right Jon It is permanent.
But also the caught the comparative cost of it to their exactly to your point to their weighted average cost of capital. If you take their current yields to worst on their benchmark bonds.
And then take their implied cost of equity most of our would be an existing partners are looking at a weighted average cost of capital.
Tend to be in the 10%, 11% range right and.
And needless to say with good quality assets under the REIT leases, we can beat the hell out of that cost at the right cap rate cap rate, that's very accretive to us, but representing capital that is very attractively priced for them.
And Thats again against your weighted average cost of capital as I alluded to earlier in the call. John there are situations, where their debt in some cases is trading so wide and probably unfairly wide.
And there will be cases, where the weakening beat the cost of debt never mind, the blended cost of debt and equity.
Good point, Ed. Thanks, I appreciate the additional color on that.
Thank you John .
Thank you we have no further questions in queue I'd like to hand, it back to <unk> for some closing remarks.
Yes. Thank you operator, and thanks to all of you, we're sorry to keep you a little long, but it's great to engage with all of you I look forward very much to talking with you again next quarter Bye for now.
Thank you that does conclude today's call. Thank you again for joining you may now disconnect your lines.