Q2 2022 Gaming and Leisure Properties Inc Earnings Call
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Come to the gaming and leisure properties second quarter 2022 earnings conference call.
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Thanks, Kyle and good morning, everyone and thank you for joining gaming and leisure properties second quarter 2022 earnings call and webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at Www Dot G. L prop Inc. Dot com.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
Looking statements May include those related to revenue operating income and financial guidance as well as non-GAAP financial measures such as F. F. L. I F F L.
As a reminder, forward looking statements represent managements current estimates and the company assumes no obligation to update any forward looking statements in the future.
We encourage listeners to review the more detailed discussions related to risk factors and forward looking statements contained in the company's filings with the SEC, including its 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measure is contained in the company's earnings release.
On this morning's call. We are joined by Peter Carlino, Chairman and Chief Executive Officer at gaming and leisure properties.
Also joining today's call are Deseret Burke Senior Vice President Chief Accounting Officer, and Treasurer, Brandon Moore Executive Vice President General Counsel and Secretary.
Steve Ladny Senior Vice President Chief Development Officer, and Matthew <unk>, Senior Vice President Chief and Best Chief Investment Officer.
With that it's my pleasure to turn the call over to your host Peter Carlino. Peter. Please go ahead.
Thank you Joe and good morning to everyone who has.
With us today I'm happy to report another excellent and impactful quarter.
And I'll highlight as I always do that we have.
<unk> all the activities.
This quarter pretty thoroughly in our release.
And rather than have me go through or read it.
All the stuff that's available there I think if you look at page the bottom of page one right through page four you'll have a perfect idea of everything that we have accomplished this quarter.
Notably, we announced a significant transaction with valleys.
That is in the range of our over a billion dollars.
Which combined with the Cortez transaction in the last eight months aggregates about $2 $7 billion in new business.
And potentially as much as $3 1 billion, depending upon how the bally's transaction shakes out so it's been a pretty.
Successful quarter for us and I do want to highlight that again lots of lots of detail that we provided.
Then we'll turn to your questions.
Could I ask now Deseret Burke to highlight some financial points that I think it would be of value does.
Sure. Thanks, Peter Good morning.
Our total income from real estate outperformed the second quarter of 2021 by over $52 million.
That sounds a result of the fact that we closed the Cordish live transactions, which increased cash rental income by approximately 31 million. We closed the bally's transactions in June of 'twenty, One and then added the rock island and Blackhawk properties too that lease effective April 22, which resulted in increased cash rental Inc.
Kind of a $10 million, we completed the sale of the operations of Baton Rouge, and pairing of last year and leased the real estate, which increased our rental income by 4 million, we achieved escalators on our pinnacle Boyd Bell para in Penn leases, which added $3 million of rent and also had positive percentage rent resets for the pinnacle Boyd and bell.
Tara leases, which were effective in may of 2022.
Had higher noncash revenue gross ups and investment in lease adjustments, partially offset by straight line rent adjustments, resulting in a net $5 3 million dollar increase.
Our operating expenses decreased by about $16 million and that was primarily due to the decline of 28 million of gaming expense and G&A expense related to the sale of the Trs operations.
Setting this decline we incurred noncash charges of $2 2 million related to the provision for credit losses associated with the Cordish leases and an increase in the lease gross ups and ground rent from the new acquisitions as well as amortization of.
$3 5 million and an impairment charge on land that we intend to sell shortly for $3 3 million.
We have included in our release full year 2022 guidance for E. S. S O per diluted share in O P units ranging from $3.50 to $3.54, which does not include the impact of pending transactions and other than the Tropicana with that I'll turn it back to Peter.
Thank you guys.
One note I'd like to make it will introduce a bad them check in just a second.
If you look at what we've been able to accomplish in the.
Cap rates that we had been paying for these assets.
Likes to say that we as a company compete on capability rather than cost of capital.
Proud of that I think it is one of our great strengths and tackling some very complex transactions.
And and making them work for for our shareholders. So with that Matt do you want to go ahead.
Yeah. Thanks, Thanks for those thoughts Peter and thanks to everyone for tuning in.
Correct.
Backdrop really serves as a reminder of the volatility breeds opportunity.
It was the last year I've lived through a few cycles have learned that the key if you want to take advantage of it has to have staying power and that means a financial position that enables you to zig, while others are forced to zag.
As we've watched funding Godfrey copies diverge are thoughtfully constructed portfolio safe durable cash flows combined with our commitment to balance sheet strength and liquidity and capital markets discipline kind of set that stage for opportunity and to that end. This past quarter, we again demonstrated our team's ability to uniquely suit.
Our structure a transaction for the benefit of our shareholders.
Our team is again created a bespoke solution for a tenant partner with our recently announced valley's transaction.
Illustrates peters pointing that we compete all capability not just cost of capital at a time when a few large scale transactions have been announced we were able to use structuring and other levers to achieve a noteworthy seven six cap rate.
He has again demonstrated discipline with their funding for the transaction locking at adequate equity a QD in conjunction with our transaction announcement announcement to position our balance sheet well within our target leverage range of five to five and a half times. Our recent bank Backstopped equity raise was over five times.
Right.
<unk> very strong support from existing and new shareholders.
We've also begun the process for a delayed draw term loan to support the funding tax structuring of our bally's transaction.
Our actions reemphasize, our commitment to balance sheet strength.
And our respect for the role it plays in our long term success, our core message to potential Counterparties is that despite the macro backdrop and the recent volatility we are emphatically open for business with our leverage at a comfortable level and benefiting from our continually demonstrated match funding discipline our team continues.
And its unrelenting efforts to on Earth and create opportunities with attractive risk adjusted returns. Our overarching objective remains the same increasing long term intrinsic value per share for all our shareholders. Thanks for joining today and I'll turn the call back to Peter.
Thank you, Matt I think it says it pretty well.
Lines, what the ethos of this company is as we think about creating value for our shareholders and with that Kyle would you open the Florida questions.
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One moment, please while we poll for questions.
Our first question is from Neil Malkin with capital One Securities. Please proceed with your question.
Hey, everyone good morning nice quarter.
I'm sure everyone. Appreciate you reinstating guidance so thank.
Thank you for that first question.
You know, Matt you talked about being thoughtful in making sure the balance sheet was in AR.
Our position to.
Yeah.
Be able to perform well in uncertain times, but also be in a position to be opportunistic and along those lines do you feel like you.
Have or will see.
More opportunities with existing or potential new tenants as they look to you know grow or access to capital markets.
But at a time when the high yield debt market is less attractive than a sale leaseback opportunity that's providing them with.
Lower cost long term capital.
To execute or you know any of their discretionary growth.
Endeavour's does that is that something that you think will we'll start to to occur and.
Have you seen that yet.
Yeah, well so the first point you made I'll reemphasize, having a balance sheet and liquidity position that makes us open for business. It certainly.
The first step in that process and having all of our connection points with existing and potential tenants is the next key piece and then beyond that I'll I'll call them.
I mean, certainly if you look at our relative all in cost of capital versus that same metric for the folks we talked to you. It would suggest that the backdrop could be ripe for more opportunity.
But there's also more to it I mean, we were we're not trying to replicate market risk and returns when you're just looking at the cost of their debt or where that trades because.
Because we can do that by just buying a portfolio of unsecured debt and our potential counterparties are mandates really to create a superstructure of lease terms and coverage and credit enhancement and all the other factors that you watch us continually put into our structures that collectively result in our shareholders getting attractive risk adjusted returns and if you looked at the deal we just did.
With valleys I think it's a great Illustrative example, where we.
We're able to thread the needle to achieve something important to them that are arguably the backdrop helped facilitate I mean, they had to recently share repurchase out there that I'm sure they've got far better returns on in their eyes than then we might get on a real estate, but we are looking for a different risk profile and when we think about the relevance of that for our counter.
Party, it's kind of a win win because to your point, there's certainly a perpetual in nature to the capital that we're using.
Big Picture watch us continue to have the relationships to understand when the stars align to move meaningfully when they do and to make sure that we're always positioned to move aggressively and quickly when opportunities arise and continue to use a disciplined again on the balance sheet to your point to support that.
Peter I think the answer was yes.
Okay.
I highlighted it very well I just like my neck out earlier in this year to say for.
For the first time that I think there is an increased likelihood.
And we'll.
We'll be able to get together a project or two with one or more of our tenants I mean, we're working hard at it this year, we see that window the windows open.
That is very attuned to that and we could probably say more but we will we take that opportunity very seriously.
Okay I appreciate that wont push that are too much. The other one is just <unk>.
You have an update in terms of the the bally's transaction with.
Excuse me.
The regulators are approvals and you know is that gonna be.
Where you can actually you can actually do both Lincoln and Pepper 10 or is it going to be you know looking more like a black sea to pretend and then potentially Lincoln later any any update that would be great.
Granted of course, we're sitting here with US right now I think he was hoping it.
To stay silent on this call, but with that Brandon why don't you take that please.
Well I think I think as it relates to the regulatory process for this transaction as a whole as you probably know these are the only two assets in Rhode Island, So, Rhode Island regulatory has not ventured into the REIT world yet. So we're we're their first where their first foray into that and I think there's.
There's some work that needs to be done to figure out how we're gonna be licenses, there and how our lease structure and our governance structure and all of that plays into licensure that being said I don't think that differentiates between temporary tenant Lincoln I think the regulatory process in Rhode Island will be approving a REIT structure in Rhode Island, and what we're offering and so I don't I think.
It will be both of those likely to be approved at the same time.
Or neither of them and so.
And so I don't think it's a situation where temperate and gets approved and Lincoln doesn't or vice versa.
This is Steve if your question was more around the amendment with respect to the valleys as you may be aware they pulled the amendment.
They were unable to reach a consensus agreement with their lender group. However, valley's continues to be open to discussions to try to reengage on that topic. If in fact circumstances were to change in the parties were to decide to to try to pick.
Pick that back up again, so I think from our perspective.
We have you know the way the deal works is the.
The pivot excuse me to Biloxi doesn't happen until November and if in fact that happens as you're well aware. We would have then a two year option on Lincoln.
What Peter alluded to in his opening remarks of theirs I guess, an outside chance that we could in fact end up with with an even larger aggregate transaction. If in fact, we closed <unk> in Biloxi first and then came back in closer linkage.
Yeah, I guess not to belabor it but when does that makes sense based on what you just said, it's either going to be all or nothing.
Uh huh.
Lincoln doesn't get approved would cover it and also not then get approved.
We're I think we're mixing comp.
The concept that Brandon discussed with the regulatory concept in his commentary around Lincoln and Tiverton was that they were both in the same state of Rhode Island, and therefore, an expectation that if you were able to get regulatory approval for one you likely then you can get regulatory for both the Delta.
I think were you are bringing up now is there is a lender consent required not a regulatory concern of lender consents required for.
For Bally's with respect to the Lincoln asset and that's why that.
The outcome of Tiverton and linking could be disconnected, because you don't need the lender consent to get the tumor to an asset you just need the regulatory approval.
Okay makes sense. Thank you.
Look I'm going to speculate that that's the minimum.
Possible outcome pivoted and Biloxi.
Irrespective of what consensus they may need from their lenders.
There is the question of approval and in Rhode Island structure do they license all the management for example, or is it a as in many states no licensure required at all this is that parts unknown, but we expect that ultimately we will get there.
Thank you guys.
I would now like to introduce Barry Jonas with true of Securities. Please proceed with your question.
Yeah.
Thank you for that introduction.
Whereas the drumroll.
I wanted to start with Tropicana.
Any sense within the second half when the deal could close what are we what are we waiting on and then any update on redevelopment opportunities there.
Is it kind of you guys about he really driving those discussions.
Well I'll tackle the first part probably the easier part of your question. The regulatory process is a little bit opaque to us because we're not licensed in Nevada, as a REIT, but from what we understand that process is coming to a conclusion. So I would think that in the next few months, we hope that that transaction.
And we'll be in a position to close.
I'll, let others address the reinvestment in the property well.
Right a sensible he has nothing to do with us necessarily it might be an opportunity under some circumstances, but there is nothing defined today.
I think you're all generally aware of the kind of things that are the valleys as looking at for development at that site, but that we don't run that process. We have obviously an interest.
Strong interest we understand it's proceeding at pace, but can't really tell you where that stands today.
Got it got it and then just as a follow up can.
Can you give an update on the construction and Baton Rouge, whether that's timing or budget any update there would be great.
Steve you want to take that yeah, I think the I think the timing our expectation is it's still first quarter of 'twenty. Three I think I think you know as everyone's aware of the macroeconomic and actual just labor sits.
<unk> nationwide I think that you would imagine there there've been some fits in and we've been dealing with a number of different complications, but projects moving along like I said, our tenants looking forward to moving land side, there and where are we.
We're actively working to make that happen.
Okay.
Great. Thank you so much.
Yeah.
Our next question is from Handel St Juste with Mizuho. Please proceed with your question.
Hey, guys good morning.
So I guess first question is a follow up on valleys I guess.
Hoping you could help us understand the tax structuring in the valleys transaction any implications for D. L. P I.
Yeah.
Sure so at a very high level and they will be by buying into our operating partnership and we will be getting teams some of their debt to help them.
Delays in payment of any taxation.
And the tax structuring is the key to that transaction, how we're pulling that together.
It's at a very high level, how the attack traction will work.
Again, it's a deferral attack them.
By using that structure.
Okay. That's helpful. I guess curious how much of the dirty guarantee.
Just a quick follow up.
Yeah, we havent determined not just yet we have to wait and look at their tax basis in our assets and some other diligence items that we have to do in order to be able to complete that.
Okay fair enough.
But maybe one for you I guess the thoughts on equity use of the ATM and leverage in this environment and if you feel youre positioned today to execute on more transactions given I guess, what's a slightly higher cost of capital and your balance sheet objectives that you want to take that.
Sure Yeah, so as I stated in the interim.
Where we're happy with their leverage level now I mean really.
Saying within our five to five and a half range is the key for us.
And to the extent, we had an opportunity set that made us feel.
Somewhat confident.
Certainly could see us use.
In conjunction with that mentality, the a T M as a tool in our tool chest, we don't have a goal of <unk>.
Delevering for the sake of Delevering.
Being within that range.
There's a certain efficient frontier of our leverage that we want our shareholders to benefit from but that said, yes. It's certainly a tool that we have and we'll be thoughtful about its use within the context of those other continents.
Wonderful Thank you guys.
Our next question is from Jay Kornreich with F. N. B C. Please proceed with your question.
Hey, Thanks, good morning.
New cities have recently legalized or we're in the process.
On a full scale casino is such a New York City, Chicago, which led to the recent.
All of the transaction with their development. There can you maybe give just an update on any other cities or states that you expect to approved full scale casinos or add licenses in the near future, which could provide additional external growth opportunities for you.
Oh sure sure. This is Steve look I think our expansion of the gaming Tam is something we're always focused on and so.
So we we are closely watching.
And eager to do try to be helpful and participate.
Chicago, and New York seem the most near term.
You know we continue to monitor what's going on in Georgia.
And some other states such as Alabama.
I think our I think as far as near term goes I, probably would not put Texas in that in that bucket, but you know I think we constantly look around the country and realize the opportunity not only for the gaming operators in the gaming REIT, but more importantly, the states and the tax paying public and the.
Benefits that improve so we are actively looking I think you've named the two that are most near term, but I don't.
Would never suggest that there's no others that could pop up in the.
In the medium term.
Yeah.
Okay. Thank you and then just as a follow up within your current portfolio are there any expansion opportunities that your tenants are looking into at this time, which could be a development opportunity for you to finance.
Yeah, Let me, let me take that as I suggested before we are in active discussions with a number of our tenants today are about some interesting possibilities I mean, they're just that it's the tenant who decides when and if they want to pull the trigger but we've talked about that without naming locations our hotel.
<unk> this year and I think the stars maybe aligning are better than they have been almost from the beginning so we're feeling optimistic that as the best word I think I can use that you'll see some significant.
Investment with one or more of our tenants are in the next 12 months.
Pull that out of the air, but we're hopeful that that will be the case.
Okay. Thanks, very much for the time.
Our next question is from Ronald Camden with Morgan Stanley . Please proceed with your question.
Just a really quick one on you know obviously a lot of talk there's a recession in the sort of the gaming having very recession resistant tumors and spending question is really when you look at sort of the facilities are today is there something different whether it's a diversification of revenues.
You know, whether it's marketing whatever it could be what are some of the sort of intangible factors that gives you guys confidence in sort of that those facilities producing and if we go into a downturn.
Yeah. So look Ronald this is Steve I. Appreciate the question I think if you look back at the last recession, and we had a slide I might be able to comment if it's still in a decade, it's been in the deck for years now and it showed what happened from from a rent coverage perspective.
The regional properties versus the strip and this is not me, saying that the strip is going to act the same way as it did historically, obviously we've seen them.
Nice run.
Run up post Covid AR on the strip, but if you look back at the slide and in history I guess it would suggest that the regional assets held up better in the recession and I think we attribute that to the fact that there is not the same level of diversification of revenues. The revenues are majorly focused on the gaming.
Business and therefore, our belief that that people do focus on the gaming and enjoy that activity remains true their focus on paying $200 for a stake might wane.
And so I think that that slide if it's not out there anymore, we'll make sure we will get it out there again and Matt do you know if that's in the deck.
I'm sure it's part of it back and it just.
The answer simply drive two is better than fly to do you have a recession lower fixed operating costs are better than high fixed operating costs.
And higher state tax rates or better than lower tax rates. When you think about how it impacts the bottom line and to Steve's point, the regional assets check all of those right boxes.
And it's also very important for us to be thoughtful about coverage.
This environment and you'll see in the last few transactions we've done whether it's this last deal with a blended coverage at two times the deal before that with Cordish, Pennsylvania, too and then Maryland as a single asset two seven times, we certainly look to build in a margin of safety in our underwriting to ensure that we can sleep at night knowing her.
Our rent will be collected now and well into the future.
Yeah, that's slide which I think many have seen that you'll recall.
Indicated that are at the low point of weight in that whole collapse, a coverage in Vegas dropped to one one to one or even slightly below.
At the at the are.
At the Nadir.
The coverage in the regional market never below one four to one and one and a half.
So it never got to disaster range, even in the worst of times, which is something that I think we've been pretty firm and I've been clear about in many many presentations that the regional revenues are essentially bulletproof.
Helpful. And then my quick follow up is the valleys or is that still expected to close.
And Ah ended this year or could that could that slip into next year.
Yeah.
Yeah, the Tropicana you're interested in or is this the Tropicana Las Vegas, or the Rhode Island, Mississippi, Rhode Island, Rhode Island, I don't think we have enough visibility to know we're still targeting year end I think in the coming weeks and months, we're going to have a much better idea as you probably can imagine the regulatory process is usually the long pole in the tent for art.
Transactions. This one is no different so as we continue to work with Rhode Island, I think we'll have better visibility into whether or not year end is possible, but we're certainly targeting it from the business side well it may be a little bit slower or unpredictable simply because they don't have any REIT experience.
I think they do.
Got it and I'll understand it but it does add a layer of complexity that they've got to get their arms around yeah, certainly a layer of uncertainty in the timing of your states that already have read so we usually have better visibility into how long that process might take and I think that's one we expect to work cooperatively together with the regulators and in fact, we have already started that but we just do.
Don't have enough visibility at the moment to really accurately prudently predict whether that'll happen by the end of the year, but that's the goal.
Yeah.
Thank you.
Our next question is from John Mexico with Ladenburg Thalmann. Please proceed with your question.
Good morning.
Good morning.
Maybe just turning to the the new guidance I'm just kind of wondering.
Yeah.
I understand there's some seasonality.
Hi, Ryan.
And you didn't have dilutive impact.
The share issuance in July that's not been deployed till later this year or even potentially next year, but kind of I mean, what is kind of the pushes and pulls there.
That got you to.
The guidance range on a per share basis.
Given.
Obviously, if you annualize Q would be way above it.
And if you can't do that but just you know maybe.
Maybe any other kind of factors that are going into that guidance that kind of created 50 354 range for <unk>.
Oh for sure.
Sure so what's driving the range or different assumptions on so far the interest rate on our variable rate debt. The assumptions that you make on percentage rent and how the Ohio properties for Penn perform as well, we havent reset coming later this year for the meadows property assumptions on the timing of the tropics.
Can a transaction when that occurs.
Sanctions on escalators and there's a few left remaining to happen this year.
So those are the key assumptions and drivers and I agree you can't just take the quarter, but you can take you know year to date numbers in almost double them and get close to within the range but.
It's really hard to do that because of as you said there is some seasonality in the and the Ohio properties as well as the fact, the timing of when like Black Hawk in Rock Island closed and that wasn't until April and when you know that Cortez transactions closed in January and March so.
Those are the big drivers there really four things what's happening with our interest rate what's happening what are your assumptions on the percentage rent, what's the timing of the closing of the Tropicana.
And what are your assumptions on escalators.
Yeah.
And I guess, maybe just.
Theres no other capital market assumptions besides.
The July closing of the equity offering correct that's correct.
Okay.
And then maybe you know.
Look out at future deal volume.
Assuming we still are in a rising interest rate environment, how do you think about tiny.
Timing of deals it seems like.
And.
You know what kind of net lease broadly speaking there's been this idea that you know.
Cap rates are going to kind of expand in the back half of the year and maybe kind of prudence on deploying capital makes sense because of that and is that something youre seeing if that's something that makes sense strategically or just because of the bespoke nature and independent.
The limited nature of kind of asset you can buy.
That you.
You kind of take me you can get when you can get it.
Yeah, Let me say, if I know I'm gonna have Matt answer that question, but essentially you used the right word the bespoke nature of the transaction that we've done many of them are driven by some other thing that one of our tenants or a new prospect might want to achieve.
And that's been the driver.
So Matt why don't you why don't you take that.
Yeah, what I mean broadly John there's clearly a bid ask gaps and a lot of the real estate world and the structuring and all the things we've talked about throughout this call with valleys enabled us effectively to get to our economic asked which was the 76 cap rate that you saw just a few fees beyond that to conclude those that's even.
Slightly better return all in so we wouldn't have done that if we didn't get over our return thresholds and we calculate that based on our cost of capital at the time some plug the actual numbers and then the key next piece, which we've now delivered on multiple times.
That in I've watched a lot of folks get offsides by getting along the transaction did not locking in the cost of capital of the world changing as long as we follow that discipline again, we're open for business Theres absolutely no reason for us to say, we're just not going to do deals as long as we get a spread and lock. It in we can do that deal and the bedroom. One later in the year, if they come up to.
Your point as long as we're in the position to keep doing it and that's what we've positioned herself to do remember we did.
Peters comments at the beginning of the call, but close to $2 billion towards the end of last year and then another $1 billion.
The last few weeks.
If you asked this 12 months ago, I think the quantum of the.
Transaction volume you might expect.
Could have been much lower than the visibility is not there, but you also I mean, there's errors and omission too you can't you.
You can't pass on an opportunity just because of the macro if you can make the math work and you can walk into return it's our job to do that so were when things when the stars align we know what it looks like and we're happy to push the button at the right time for our shareholders' benefit.
That makes sense.
And then one last quick detail one if I guess the timing for the close the Bally transaction.
How can that roughly be impacted by a switch to <unk>.
Yeah, the hard rock Biloxi Biloxi deal versus having you know you do somehow get Lincoln niche everything together I mean, what what's kind of a timing differential.
If you switch to the smaller transaction.
I don't think the timing is materially different from a regulatory perspective.
As you know we have several facilities in Mississippi, we're fairly confident that a sale leaseback in Mississippi.
It'll be a fairly streamlined process.
The issue is if Rhode Island approves.
Our entering into a lease for properties in their state and a sale leaseback. The only question will be whether or not the Lincoln lender consent has been obtained and so it won't be a regulatory issue.
So so so I think I think that will be the the real dictator is wind, Rhode Island approves our entering into a lease for properties, there will either be buying temporary tenant Lincoln or we'll be buying to Everton and Biloxi, because lincoln is impossible because of the lender consent I think that's the real.
And tree.
Okay.
Thank you very much that's it for me.
Thank you.
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Our next question is from Smedes Rose with Citi. Please proceed with your question.
Hi, Thanks, I just wanted to understand a little more about how you might be thinking about financing the balance of the valleys transaction.
I mean, you'll generate a lot of cash through year end.
Are you sort of leaning more towards debt issuance to O P issuance to bally's and it's the timing really just related to the regulatory par correct. You mentioned going through are you sort of is it more.
Sort of opportunistic around where your cost of capital or just trying to sort of think about how about how those things might kind of match up as we move towards that closure.
Yeah.
Steve It's Steve I'll give you I'll give that one a shot I think the timing the timing as you as you're hearing from US is related to regulatory I think with respect to the funding of the transaction. We obviously issued the equity we issued equity already we do have the proceeds coming from the Tropicana sale, we expect.
Back to have those.
Then that sales of $150 million to remind you and then.
The remaining portion of the of the financing need will come from that.
And we expect that form of debt to be predominantly in the form of bank debt.
So we are where as Matt mentioned, we're in market with that now and should have a obviously an update for everyone by next quarter for certain.
Hey, it's Michael Bilerman here with Smedes just had a quick question.
Just going back to the guidance and I appreciate you putting up the gross a F F L. A as well as the per share numbers given the equity raise and those proceeds are obviously dilutive until they can be put to work and maybe just focusing on the gross <unk>.
Guidance, because I think that may help sort of bridge the gap between street expectations.
And you get about $453 million of F. A file in the first half and based on that 900 to nine 'twenty sort of implies about 460.
In the second half of the year.
And that's where you called out interest expense percentage rents the Tropicana sale and the escalators can you sort of goalpost each of those items.
Actively what you've embedded into that second half mid point range of $4 60.
So we really understand the puts and takes of those items that are already known.
Can you break that out a little bit more for us. Please.
Yeah, we don't have any other detail that we put into the release, so I can't break that out for you, but again, it's just assumptions on those four items to get to that yet but are those really those positive or the negative drags I recognize those are the items. We knew those items last night, but we actually need the numbers right. So are the <unk>.
<unk> rents are you are you assuming it's a you know.
How much within there when are you assuming the Tropicana sale what are you assuming for chauffeur right.
That's the detail that we really need.
To really understand how the numbers are going to shake out.
Yeah, well, obviously for the Tropicana it could either be closed this year and we always say, we said the second half so there's.
Six months, a range, where it could be closed this year or it could not close it all right. If it closes on December 31st.
There would be no impact to that one so that's how that swings the percentage ran it it's pretty much an all or nothing when you're looking at the one whether or not they hit their adjust revenue to rent ratios and as you can see in the tables on page 14, and 15, you can see that most of the leases look.
They're going to hit their percentage rent.
Well, they're going on there.
Escalation provisions.
Right.
Oh right right I, you know you pull a forward yield curve and and it's changed significantly.
On the sofa rate has changed significantly over the last month, even so it's anybody's guess as to what that will look like when we get to the end of the year.
You provided guidance. So I'm just trying to get you provided the 909 20 for the full year for 60 midpoint I'm just trying to understand what assumptions you have you I know, it's a lot of volatility uncertainty, but I'm just trying to better understand what you actually put into those numbers. So we can make sense of the guidance.
Okay.
I don't know why you mean, the Tropicana so what's at the low end of the range and what's at the high end, but it's not like this shouldnt be rocket science.
Yeah.
And obviously, it's it's nothing or it's all of us around like it it's it's all or nothing.
Well, that's what I'm kind of really what's embedded right I'm just trying to understand what's embedded in the numbers you put out. So if you can put the goalposts for each of those line items that impact. The 900, because you really have a simple strategy you know most of your rent should be earn spread that's what makes this company is very easy to understand but when there's when there.
There is variables that can swing understanding the impacts to your numbers is obviously important, especially if you're going to provide bottom line guidance.
Actually understanding the assumptions that drive it is more important than the bottom line number.
I'm not sure if you have anything you would add to that.
Frankly, we're just not prepared to go any further with.
With that question now.
Alright, so it sounds like given what we didn't want to deal with guidance in the first place.
Well, then don't give guidance I mean like you can't.
He didn't want to do it but you've done it and we're just trying to understand the impacts to these variables that's embedded in those numbers and so that that's just like the fact that you said, okay Tropicana zero, probably at the low end and the high end. It's the full rent assuming close I don't know I don't know if that's closing in that.
Understanding what's embedded there was much more important than the bottom line number.
So that's you know.
It is worth it.
Okay.
We have that that's okay.
Thank you.
Yeah.
Our next question is from David Bellinger with Green Street. Please proceed with your question.
Good morning, sorry, if this has been clarified but I just wanted to ask a clarifying question on this valleys deal. So those two Rhode Island properties are closed.
Is there anything that would preclude you from still being able to proceed the Biloxi property later.
The the Biloxi will not be part of the transaction if if those two close it doesn't preclude us from participating in a sale leaseback on the Biloxi property down the road should valleys elect to do that.
Yeah, I think the real question is do they feel they have a need or a desire to do that at that time, but it's clearly a brand and I answered it.
Precisely right that it's not part of the transaction if we get the other two properties, which really where our first goal.
Got it so we can take that as a signal that this is a property that you would be potentially interested in valleys decided later on that.
Leaseback makes sense.
We're in the business of our leasing property. So you bet.
Got it and just wanted to touch on the Meadows, Greece, just looking at coverage levels.
I know with the escalator coming this October and he's coverage levels I recognize that those are trailing him in the casino business has been pretty strong. This year, we don't know where that could go but can you remind us that end date when that reset would occur that sort of last day, where you would look at coverage to decide if they qualify.
Yep and it's never did for you on page 14 of the lease but it is the the lease commencement date is that's the date in which they look at them each year, depending on which one you're looking at.
It's out there on page 40, I think meadows in September if I recall correctly.
We're looking at it thank you.
Okay.
15.
Our next question is from John decree with the C. B R. E. Please proceed with your question.
Everyone. Thank you for taking my questions I think we covered a lot of ground. So just to one is is just the kind of forward looking clarifying question.
But in any event the alternative transaction AR is the one that it works with valleys. This time and Biloxi has included.
Between now and when when the option expires is there a mechanism that would require a bally's too to get lender consent ahead of time or would that just be addressed at the time. It did you'd prefer to exercise that option. Just curious if bally's has to kind of actively worked towards that that amendment.
<unk>.
Yeah, so the stand or where we're in the process of negotiating the definitive documents the standard by which valleys has to act hasn't been fully flushed out I think you can assume that we will expect them to pursue that concerned whether or not they should be actively doing that at all times I think as a business judgment on their part as to how to work with their banks and how best to get the option.
Doesn't necessarily require them to be actively pursuing that concern at all times and I think that's why it has a link that you see.
Stretching out two years gives them quite a bit of runway to deal with their banks or whatever fashion. They believe is best for their business and their relationships.
Yeah, that's that's kind of what I figured I appreciate that clarity and then just maybe one one big picture on kind of perspective deal volume I think with a little bit earlier in the call. We've we've touched on it but given where interest rates have gone and.
You know the market starting to adjust to the new normal perhaps at higher cost of capital than what we've been used to have has the phone started to wring more than it has I imagine it's always a pretty steady.
Flow of conversations, but curious if if you've seen maybe some.
Some of your partners.
Start to start to think.
A little bit more about about doing something or maybe folks that you haven't heard from in a long time that are now kind of reassessing their kind of cost of capital relative to what you can offer. So just curious if you've seen any any change yet in kind of inbound flow theme. Yeah. Go ahead, Steve Yeah sure. So I think deal flow is been consist.
And for a.
A few years now to be to be totally honest I think the conversations have changed so what you're alluding to is.
Two years ago, if I called someone out of the Blue and said Hey, you have a bond maturing.
And you know why don't we consider a sale leaseback chances are myself leaseback rate was higher.
Higher than whatever their borrowing rate was.
That dynamic has shifted so it's still the same conversation it's still the same phone calls that we're having the.
The discussions changing slightly because now my cost of capital may be advantageous for them and and or even just the fact that I'm I'm open to to transact might be better than where they find themselves in the current high yield market environment. So so the dialogues change I don't know that the volume of calls as as nest.
Shirley change, but the discussions have taken a different angle and.
And the second point I would make is I do think though with with current tenants.
And with properties they own in particular already leased the discussions around reinvestment in those properties has picked up so.
That I know it was part of your question and I know Peter has made some commentary earlier today, suggesting in the next 12 months you would expect to see us doing an investment with a tenant I think that dialogue will continue to trend and be more active going forward.
Yeah.
Thanks, I appreciate the additional color thanks, everyone.
Thank you.
Our next question is from Robin Farley with UBS. Please proceed with your question.
Hi, Great I'm actually that last question was what I was going to ask as well. So maybe just the other thing I'd ask about it.
I don't know if you can kind of give us any color on how you think about the upside for Jill P. I from.
Ultimately gets developed it at the top.
Oh do you mean in participating Robin in something that.
Yeah, I mean, I think the value of the land improves depending about what they actually do with it.
We're still in the early stages again, we get paid we get our lease payments, but what actually is going to happen at the site is still an unknown. I mean, you can bet. We've looked at some of the concepts that they're dealing with right now, but until they actually nail it down I can't quite answer it.
Are you you could ask this question and you know are we about to do something crazy.
With our company's capital.
The answer is no.
We're not so well we ourselves a wait and see what what's proposed maybe there's an opportunity for us maybe there's not.
Look we look we're in we wanted to do as much business with valleys as we responsibly can.
Okay alright, thank you.
Thank you.
We have reached the end of the question and answer session and I will now turn the call over to Peter Carlino for closing remarks.
Thank you Kyle and thank you all who have dialed in today, we feel we've had a great and as I said at the outset impactful quarter. We're excited about it the balance of the year is looking good as well so we're.
We're pleased to share. This information we're always available to your calls if you like so thanks again have a great day everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Uh huh.
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