Q3 2022 VICI Properties Inc Earnings Call
Okay.
Yeah.
Good day, ladies and gentlemen, thank you for standing by welcome to the V. G properties third quarter 2022 earnings conference call.
At this time all participants are in listen only mode. Please note that this conference call is being recorded today October 28th 2022.
I will now turn the call over to Samantha Gallagher General counsel with Vg properties.
Thank you operator, and good morning, everyone should have access to the company's third quarter 2022 earnings release and supplemental information.
The release and supplemental information can be found in the investors section of the BG properties website at Www Dot V G property dotcom.
Some of our comments today will be forward looking statements within the meaning of the federal Securities law.
Forward looking statements, which are usually identified by the use of work as well.
Do you expect should guidance intend outlook project 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 a 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 and our third quarter 2022 earnings release and our supplemental information.
For additional information with respect to non-GAAP measures, a 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 for Tony at Chief Executive Officer, John Payne, President and Chief Operating Officer, David <unk>, Chief Financial Officer, Gabe Wasserman, Chief Accounting Officer, and Daniel Foley, Vice President of acquisitions and finance added 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.
The third quarter of 2022 for BG was a quarter of both realization and continuing activation.
Our realizations I mean that in Q3, 2022 we realize the full magnitude and impact of our growth activities in 2021 and by activation I mean that we continued to create incremental capital allocation opportunities for BG, especially in non gaming.
The key benefits realized in Q3 2022 included growing our revenue by 100% versus the same quarter in 2021 manifesting the full impact of our acquisitions of the Venetian and M. G. P. <unk>.
Growing our E F a vote by 83% year over year growing <unk> per share by eight 5% year over year announcing a dividend increase of eight 3%.
V G a dividend compound annual growth rate of 8.2% since our emergence in October 2017.
Our key growth activities in Q3, and early Q4 included announcing an additional $186 million of financings within our partnership with Great Wolf resorts announcing our $203 $9 million acquisition of Rocky Gap Casino resort.
<unk>, a $200 million real estate financing partnership with Canyon Ranch.
In 2022, we've invested in our relationships with high quality partners operating in high quality experiential segments, our year to date capital allocation commitments. The ones I, just mentioned plus our Cabot's investment announced in June 2022 are expected to generate a going in weighted average.
Unlevered yield on investment of approximately 7.4%.
This nearly $710 million of capital is deployed over time.
Before I turn the call over to John Payne, and David Geeky, who will talk about our outlook growth activities and financial results I wanted to say a few words about our new partnership with Canyon Ranch, which we announced just last week.
We announced a new partnership with Cabot golf back in June you heard me talk about our belief in the power and moat qualities of what we called pilgrimage experiences.
Many experiential categories, especially those with strong elements of expertise and knowledge accumulation our pyramidal in shape.
And at the apex of these pyramid are the purest rarest realizations of that categories experience. These.
These are experiences that tend to attract within that experiential category, the most valuable and loyal clientele able and willing through all cycles to pay a premium for the purest realization of the experience to which they are devoted.
B G as real estate investors. Our thesis is a simple and we believe powerful one places of pilgrimage are places of great value, we want to and we are investing in these places.
Cabot creates and operates golf resorts they represent pilgrimage experiences in golf, we are proud and excited to partner with Cabot on the creation of Cabot Citrus farms is their next big pilgrimage destinations and we believe we can partner on many subsequent opportunities with Cabot.
I must note as well as the Las Vegas strip is also a pilgrimage destinations for people seeking a breakfast variances of all kinds I was just there. This week it is the busiest place on Earth.
In the experiential category of wellness and personal performance Canyon Ranch has been is and I believe will be for decades to come the market leader, creating an operating resorts. It represents a different definition.
Image experiences and wellness.
The Canyon Ranch brand was born in 1974 for nearly 50 years now Canyon Ranch's clientele has traveled to Canyon ranch resorts to make the most important investment they can make.
Investment in themselves and the betterment of their lives body mind and spirit.
Kenyan ranch clientele in order to make this investment entrust themselves to the Canyon Ranch team and active trust the Canyon Ranch team takes with existential seriousness.
Under the leadership of Chairman and principal owner, John Goff, a legend in American real estate investing whose creation of Crescent real estate and C. E O, Jeff Cousar coronary North American head for Ralph Lauren Canyon Ranch has built a wellness and human performance team a great strengthened authority.
This team includes by way of example, our former U S search in general.
Our head of sports Medicine research and innovation at the U S. Olympic Committee, former head of physical therapy for the U S Women's National Soccer team, a former strength coach with the Philadelphia 70, Sixers nationally. We're now in behavioral therapist physicians, who have pioneered integrated and lifestyle medicine field former chef dieting.
And at the U S Olympic Committee, and a Harvard Divinity school appointed spiritual innovator.
Canyon Ranch clientele is able and willing to pay through all cycles premium for the experiences in life improvements. They obtain a canyon ranch as many of you know I worked across ski resorts healthy ski resorts Beach resorts golf resorts and now casino resorts I can tell you based on my experience.
Canyon Ranch capital and operating economic model is among the most compelling and productive I have seen in revenue intensity per dollar of capital invested in margins and returns on invested capital Canyon Ranch, we believe will benefit greatly for decades to come from highly positive demographic and color.
To a tailwind.
Growth opportunities for Canyon ranch or medical both domestically and internationally and we're very excited to be Canyon ranch's capital partner funding this growth.
You can hear John Goff speak of the role he sees V G playing and Canyon Ranch's growth. If you watch the Mad money segment that John and I did with Jim Cramer on October 17th at clips can be found at our website Www Dot did your properties Dot com.
We're particularly excited about our first investment with Canyon ranch, because it enables us to invest capital into and ultimately gives us the opportunity to own high quality real estate and one of America's most dynamic metropolitan areas Austin, Texas, a region that at least for the perceivable future we cannot invest in through gaming.
Let me now turn the call over to John Payne, who will talk about our outlook and growth activities John .
Thanks, Ed Good morning, everyone. It's good to be talking to you. This morning during the third quarter, we announced the acquisition of Rocky Gap Casino resort in partnership with our existing tenant century casinos.
Upon closing rent under our master lease with century will increase by $15 $5 million, representing a seven 6% acquisition cap rate.
Given our relationship with century, we were able to leverage our existing master lease and our combined cost of capital to structured transactions that work for all three parties involved that being beachy century, and Golden Entertainment. The seller of the asset we're excited about expanding our relationship with century as.
Witness their relentless operating focus firsthand since we jointly acquired three regional assets in 2019 and upon the closing of Rocky gap, we look forward to adding another remarkable regional destination asset to our portfolio.
Moving to the outlook for growth. We are often asked how the transaction environment appears in real time, I'll repeat something I, often say, which is that transactions do not come together overnight Ed touched on our great Wolf Cabot and Canyon ranch partnerships and I would simply point out that the transactions were.
Able to discuss today.
Represent just a fraction of the effort we undertake behind the scenes throughout the third quarter. Our team remained as busy as ever introducing our company to potential partners and forging relationships across a variety of sectors. In fact, our entire company is actively involved in finding ways to position Beachy that's the capital.
Partner of choice for gaming and experiential operators as you can imagine capital market fluctuations can make it challenging to pinpoint our exact cost of capital at any given time, however, I stress that remaining discipline is core to our underwriting process the landscape for <unk>.
Actions remains competitive and it's important to understand that seller expectations do not necessarily adjust in real time.
With that said at Beachy, we focus on what we can control, which is one our partnership approach, we encourage potential partners to speak to our existing tenants and believe we can position ourselves to ultimately when the times.
To disciplined and rigorous underwriting we strive for accretion in every transaction and thanks to the work of our team believe we can remain competitive and third finding ways to create our own success. The landscape for propco transactions is not zero. So we've learned to.
DAP to a variety of scenarios and believe we can uncover opportunities that may not be obvious to our competitors.
Just a few weeks ago, we crossed the five year Mark since we started the company. We wholeheartedly believe that our track record, which includes over $30 billion of transaction speaks to our relentless focus and dedication to create long term value for our shareholders. We will continue to adhere to the approach that is responsible.
Well for success to date and will strive to grow the company accretively for years to come.
Now I will turn the call over to David who will discuss our financial results and access to capital David.
Thanks, John .
We're clearly in a volatile macro environment, where ongoing inflation and rising interest rates are not only dominating the financial news, but also factoring into the transaction market requiring buyers and sellers to adjust to a market backdrop, we have not seen in many years.
As John mentioned Vg turned five years old on October six.
Since our inception, we have been disciplined in maintaining a positive spread to our cost of capital. So even in an environment, where the 10 year treasury rate is north of 4%.
They raped up many younger investors have never seen in their lifetime Beach is focused on maintaining discipline in everything we pursue.
We are fortunate that we have a built a balance sheet to weather. These turbulent times with no floating rate debt no maturities until 2024 and ample liquidity to deploy capital Accretively with leading operators like we did with century, great Wolf and Canyon ranch since the second quarter.
In terms of beaches liquidity and balance sheet.
As of September 30th we had approximately $4 7 billion in total liquidity comprised of $726 million in cash cash equivalents and short term investments $490 million of estimated net proceeds available upon settlement of our outstanding forward sale agreements.
$2 5 billion of availability under our revolving credit facility and 1 billion of availability under the delayed draw term loan.
During the quarter, we sold approximately three 9 million shares with an aggregate value of $135 million after fees under our ATM program. All of the shares were sold subject to a forward sale agreement and as such are not reflected on our balance sheet.
In terms of leverage we ended the quarter with total debt of $15 5 billion inclusive of our pro rata share of the B REIT JV the.
Our net debt to adjusted EBITDA pro forma for a full year of rent from the M. G. P transaction is approximately five eight times, we have a weighted average interest rates of four 4% taking into account our hedge portfolio and a weighted average 6.9 years to maturity.
Turning to the income statement as Ed mentioned, we doubled our GAAP revenue year over year, a feat we are very proud of and I want to thank the entire V. G team for all their efforts in delivering this growth F. O for the third quarter was approximately $471 million for 49 cents per share totaled <unk> <unk> in Q3 increased 83% year.
Per year or <unk> <unk> per share increased eight 5% over the prior year.
As a reminder, 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 M. G. P. During Q2, and our acquisition the Venetian resort during Q1 of this year.
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 90% range when eliminating noncash items.
Our G&A was $12 1 million for the quarter and as a percentage of total revenues was only one 6% in line with our full year expectations and one of the lowest ratios in the triple net sector.
Turning to guidance, we're updating <unk> guidance for 2022 in both absolute dollars as well as on a per share basis.
<unk> for the year ended December 31, 2022 is expected to be between 1.682 billion and 1.692 billion or between $1 91, and $1 92 per diluted common share.
Our updated guidance reflects the uncapped CPI lease escalation of eight 1% of Beachy will receive under our Las Vegas Master lease and regional Master lease with Caesars effective for the lease you're beginning on November one 2022.
Additionally, the per share estimates reflect the impact of treasury accounting related to the pending $15 3 million forward shares sold under our ATM program. During Q2 and Q3 as a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions or capital markets activity or other nonrecurring transactions.
Yeah.
As we've discussed in the past with you we recorded noncash Cecil charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income in F F O with accuracy.
Our guidance is F. F O 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 with that Megan. Please open the line for questions.
Absolutely.
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A reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Anthony Powell loan.
Your line is now open.
Thank you and good morning.
I was wondering if can you talk about just your efforts to look at investments internationally and how that's coming along and also just your appetite around that given what's happening around the world.
John you want to start.
Sure Hey, good morning, Tony how are you nice to talk to you. So it's definitely something that we have been focused on for the past couple of years, you've heard us talk about this that we've grown obviously domestically in our first five years, but we always have positioned the company to grow internationally and we are spending time not.
Only in the casino sector, but also in the experiential sector outside the U S and study in markets, where we think we would like to own real estate and we're in the middle of that process and understanding.
Understanding the underwriting and understand in the countries, where we would own real estate in their laws and we're right in the middle of it Tony nothing to announce at this time, but it's of interest for us to grow internationally.
Great. Thank you.
Okay.
Thank you.
Our next question comes from Steve Issaquah with Evercore ISI.
And airline is wondering.
Can you hear me.
Yes.
Okay. Thanks.
And I was just wondering if you could make.
Maybe talk about where youre seeing more opportunities as it with sort of the some of the public gaming companies that have seen a big change in their cost of capital in that market or is it more on the private side with.
With companies like Cabot, and and Canyon Ranch, where maybe cost of capital was even less available.
Yeah. It's a good question, Steve and good to talk to you I would say, we're seeing opportunities on both sides I would say the private side, though your two year I think implicit point is probably even richer fishing ground right now and that has to do really with the state of the credit markets as most of you on this call know.
So bank credit, especially to real estate credits has effectively dried up.
And I was I was reading the transcript of the Blackstone call last week, which I always do because if you don't listen to what Jon Gray and saying at any given time, you're missing an opportunity to pick up a lot of intelligence and I thought it was telling the degree to which John was emphasizing the degree to which they believe a lot of there are.
Real estate capital allocation in the near to midterm is going to be credit focused.
And you've seen that from us as well I would say that we're at a point in the cycle, where would be sellers have still not gotten the memo that the world has changed radically and you know.
As an indication of how radically the world has changed.
Oh I've been trading emails with Mark Streeter of Jpmorgan, the Iga credit analyst and he sent me. These graphs of the volatility of credit and if those were at U K G that patient would be in a world of hurt and then I saw last night from heart net debt U S. Treasury Department. This year is the word.
Sure.
<unk> 88 in the United States of America was a funky little start up so the the state of the credit market is to your point Steve like.
It's tough if you don't have access to capital and as David just emphasize we've got over 4 billion of liquidity, we've got almost $1 3 billion of the effective cash and we are very excited to put that to work and put it work local private operators in public.
And in some cases it'll go into credit in the near to midterm with conversion to a real estate ownership in most cases.
In order to frankly capitalize on the fact that we have capital when a lot of other people don't.
Okay. If I could just ask one other question I know youre, probably not giving individual yields on say Cabot and Canyon ranch, but could you help us think about the yields you know maybe a broad sense for those development yields, which clearly carry more risk versus kind of stabilized.
Our acquisition yields and and you know deals that you might get on your ROE for so just how are you thinking about yields on development versus maybe stabilized acquisitions.
Yeah, well clearly, Steve we do need to be compensated for the risk that is associated with development and I'll just go back to the 7.4% Unlevered yield.
For the nearly $707 million of capital that we've deployed in Q2 and early Q3, and I think that 10, 4% unlevered yield going in should give people comfort that we have been adequately compensated for our risk.
Okay.
Great. Thanks.
Thank you Steve.
Thank you.
Our next question comes from the line of R. J Milligan with Raymond James Your line is now open.
Hey, good morning, guys.
Certainly appreciate your comments on cost of capital and maintaining discipline.
And certainly the track record that you guys do only do deals that are accretive, but I'm curious how you view your cost of capital today, how do you calculate it.
Given John's comments with sellers expectations don't always adjust with the changing cost of capital do you expect a pause on external growth on more of the middle of the fairway gaming assets, while the bid ask spread remains relatively wide.
David do you want to start on that.
Sure.
It's great to talk to you.
I mean, one of them one of them. We have this debate every day and totally right. That's when you'll see the tenure moving 10, 15 25 basis points and obviously the stock market is doing what it's doing.
Hard to price a deal on a daily basis. So we look at but we do look at the spread to our cost of capital.
Right now we're getting to in your pricing of 7%. So the $5 billion that we raised back in April with 5%.
Net adjusted at four 5% with our hedge portfolio looks really really good but R. J, we're going to always maintain a spread to our cost of capital I was your stock has held up well the pricing is what it is is it just touched on we have a billion.
Billion three of liquidity that is on the balance sheet, which does not include the term loan or the revolver.
Being cognizant that cash is not free and if there's an implicit cost of that cash.
We are going to ensure that we continue to do the deals that we've done in the past maintaining that spread in your comment around.
Kind of middle of the fairway deals I think youll see more of the Rocky gap to the world, We're a little bit smaller deals and some of the large mega deals will probably take a pause for a while.
Given the uncertainty around kind of where the world is ultimately going but we feel good about our pipeline I think its busier than it's ever been in.
The dialogue is greater than it's ever been but we've gotta be relentless in ensuring that we can continue to deliver consistent accretion here and in Europe for for our shareholders.
Thanks, David and then just as a follow up.
Go ahead.
Oh, I was just going to say, our Jamie and well obviously the cost of that capital has been incredibly volatile and for most REIT. The cost of equity capital has been very volatile or just simply negatively trending. We you know we are in a unique position where our equity on a relative basis has held up so well with US you know having been the best performing S&P 500 rate year to date.
Through September 30th and I'm guessing as of yesterday, we still are so we do have a strength of our equity price or equity cost that on a comparative basis does represent a competitive advantage.
Back to U R J.
Thanks, just as a follow up given that bid ask spread for sort of the middle of the fairway gaming assets do the call options that you guys have become a more attractive option to sort of bridge the gap until cap rates adjust.
John .
So RJ, it's nice to talk to you. This this morning. When you were speaking I think you're speaking more of the one foot call. We have on the Indiana assets and we continue to watch the great performance that our tenant Caesars.
Caesars.
It has been in handling these assets they have.
Capital is still going into the two assets in Indianapolis, they've rebranded both of those casinos and they continue to grow. So we will continue to look at those those the put call is active all the way through 2024, we sit here in October of 2022, So we'll monitor them, we love those out.
We really like what Caesars is doing with them in growing that business and.
Like I said, we will continue to look at those over time.
Thank you guys.
Thank you.
Our next question comes from the line of Carlos Citarella with Deutsche Bank. Your line is now open.
Hey, guys. Thank you.
David I was just wondering as you think about the positioning of the balance sheet and obviously at 5.8 times pro forma today and likely to go down in the absence of transactions.
How much does the current rate environment changed Graham Bruce that you want to operate within.
Yeah.
It's a good question Carlos good to speak to you hope you're well.
Current rate environment is.
It bounces around every day and so we've got to run the business, taking a long term view, but being mindful of.
If we had the price something or if we had to close on something today or in the near term how that would impact ultimately accretion right. We've got to drive we've got to drive accretive deals and be disciplined in what we've done since day. One so it's something we watch we've got access to the revolver. We've got access the delayed draw term loan.
Thankfully, we have no maturities until 2024, where we have to go to the debt markets, but it's.
It's it's something that we're gonna be monitored monitoring and making sure that we continue to drive growth to the balance sheet through the balance sheet and can maintain the balance sheet.
Position of strength and as you said, bringing down leverage over time through potentially funding deals with our free cash flow.
Great. Thanks, David.
Okay.
Thank you.
Our next question comes from the line of Wesley Golladay with Baird. Your line is now open.
Hey, good morning, everyone. How are you guys are having a good success with follow on deals you seem to be at a good negotiation position with a good relative cost of capital, but you did mentioned sellers are a little bit slow to adjust pricing.
Are you looking to potentially get some exclusivity rights to their expansion as a way to maybe bridge the gap on the pricing at this point.
If I understand your.
Question correctly, Wes and good to talk to you I I would say that you know when we.
<expletive> partnerships with the likes of Cabot and Canyon Ranch, and Great Wolf and others.
We're most interested in developing relationships for the long term it gives us a steady flow of capital allocation opportunities. Obviously, you want to be properly priced and we want our investors.
To do enjoy the yields that they deserve to enjoy off of these investments, but I would say, it's more about developing a long term pipeline as opposed to using any kind of negotiating leverage or or or anything else frankly, two to enhance pricing per se I mean, we're very satisfied with the pricing as I noted in my remarks.
Yeah. It was seven 4% blended unlevered yield across both development and existing assets, we think is pretty good.
Pretty good yield in this environment in fact meeting is really good deal but.
But I wouldn't.
I wouldn't say that we we necessarily use these long term partnerships in order to acquire.
Pricing as much as we do acquire a long term pipeline growth.
Yes, I think that everybody is looking at as you look at you just like you have so you get the initial yield which is good and that may be a little bit slow to adjust but then you will have some kind of other value whether it's your embedded options maybe an exclusivity I was just wondering if there's anything more qualitative or more structural than an initial nominal yield that you've made.
Deal to get it sounds like it's just for a base. We're just going to have this good relationship and that's going to naturally lead to more deals which is currently occurring.
Yeah, and one factor, where it's especially when you've got a team that's as small as our V. G team, where we're still just a couple of dozen people would probably lowest G&A among all of the big reasons as a percentage of revenue is it one of the benefits of forming these long term partnerships is that we create the documents.
The foundational documentation that enables us to basically rinse and repeat as we continue to grow with those partners.
Yeah, great. Thanks for the time everyone.
Thank you Wes.
Thank you.
Our next question comes from the line of Richard Anderson with S. M. D. C. Your line is now open.
Thanks, Good morning, everybody. So some of these non gaming investments you guys are.
Taking on the role of a lone Ranger, if I can put it that way.
As a way to sort of step in on these things and I'm curious.
Is there a is there a situation where that sort of strategy of investing in sort of.
Taking the pulse of these investments initially does it break down at all in this environment and if it did would you be willing to be a little bit.
Higher or should say lower in the capital stack them in any of these great Wolf Canyon Ranch Cabot and so on you know what's your appetite for taking on more risk at the outset of these non gaming assets.
Yeah, I'll turn it over to David in a moment, Richard and good to talk to you Oh, obviously when we go into these relationships, we really we work hard to make sure that our last dollar exposure is a level of last dollar exposure, we're very comfortable with such that if we ever did have to step in we're stepping into a situation that at that.
S dollar level of exposure for us.
<unk> is very well protected and means that there is still a lot of value left in the asset.
Beyond that I will turn it over to David for his thoughts.
Yeah, it's great to talk to you.
One thing that we like about these.
Loan investments as it gives us a seat at the table. It gives us insight to the business that gives us exposure to the operator.
As you have seen with Cabot and King in a path to real estate ownership.
And so things like the great Wolf, where we our attachment point is that the.
As you know 75 per cent L. P C.
I think your question is would we be willing to go higher or potentially even provide a senior portion.
Wood.
If if it's the right operator to the right sponsors and the right relationship and again to the overall cost of capital return on that capital.
Is commensurate with our capital and I think the one thing to point out as I know, we we refer to these as development, but they're really build to suits.
The broader real estate Parliament.
Vichy is not doing the developing we're partnered with.
High high quality developers.
Set GMP contracts.
Oversight, but it's very very experienced builders. So while our development pipeline is as robust I think you could potentially see it.
Deviate, meaning we could go lower in the cap stack or even higher depending on what happens with the credit markets and making sure that we were rewarded for that.
Okay and then the second question is you know the U S. Remodel is largely a function of focused strategies and if you're a hotel REIT euro multifamily REIT so on.
You guys are more of a Berkshire Hathaway model you know in your understanding that there's a shared knitting of film Oak Ridge.
I'm.
So I can't pronounce that word for some reason this morning.
But.
But you know it.
A common thread to them all experiential you said just before you have a couple of dozen people working for you how do you avoid pitfalls, where one or some of these investments.
Investments don't quite work out are.
Are you or should we expect to see substantial increase in in in.
People with experience in these individual asset classes and so on I'm just I'm just curious how the the overall entity will adapt as you expand your horizons in experiential real estate.
Yeah, Richard it's it's it's a very good question. It's a very top of mind question for both us as a management team and for our board and and and we do have a small team I will just say, though this has nothing to do with your question I would say in an inflationary environment, where our G&A is so screamingly low as a percentage of revenue inflate.
And obviously it doesn't have an effect on our cost structure the way it will on others, what we do Richard in order to extend our reach is I believe we get more value out of our relationships with our advisors than anybody else. We know from day, one we have treated our advisors the best we pass.
We can so that when we go to them and say Hey, you know a lot about a category we want to learn a lot about help us they are right there for us and so whether it's experiential categories or geographies with which we're not familiar internationally.
<unk> work.
Work with our advisers as if they are full members of the team and that extends our reach in a way that's very cost effective but it's also risk mitigating because we've come up the learning curve on both categories and geographies very quickly.
And Rick if I can this is Jon if I can just just add one other thing on this that's important to understand that when Ed and I started the company in October 2017, we always position this REIT as.
And experiential REIT and our first five years, we were more focused in the in the gambling space because we saw the opportunities there but in the background. We were always spending time studying these different sectors that you now start to see investments that we're making so this is not a shift of our.
Our company strategy at all it's just you're starting to see these new investments being made.
Okay fair enough thanks, guys.
Yes.
Thank you. Our next question comes from Barry Jonas with Truest Securities. Your line is now open.
Hey, good morning, guys, great to talk to you.
Notwithstanding current capital market conditions and bid ask spreads I was hoping to get your thoughts on what inning, you think you're in for U S gaming real estate deals I guess, just how penetrated is your addressable market here at this point thanks.
John .
Yeah, well, it's good to talk to you very we still think there's a lot of opportunity out there I know we saw each other you were in Vegas recently and.
You've heard me say, we Theres no place you've heard Ed say, there's there's no places busiest Las Vegas, and we obviously have great real estate on the strip, but there is.
Many opportunities in the regional market in Las Vegas downtown market theirs.
Other states that are opening that we did not own real estate. There's other locations that we do in our own real estate. So.
I don't know exactly what inning. It is but I would tell you we still see incredible amount of opportunity.
To grow our business and owning casino real estate.
Yeah.
Great and then if I could just ask a follow up on them.
Gaming operators will or maybe should move to a full opco model I mean I'm assuming coverage is still the key question here, but curious if your thoughts here have evolved over time.
You know very I I think it's it's it's up to each operator to determine what's the best business model for them given the overall nature of their business. You know, we think obviously partners like M. G M in pen.
Are demonstrating that they can be very successful in their capital light asset light model.
And at the same time, we have an incredible admiration for the way, Tom Reeg, and Bret Yunker running Caesars, where they maintain ownership of a lot of real estate I think it'll be interesting to tell over time and I think the key question for any Buddy we partner with weather in gaming and non gaming is if we do a deal what would you do with the proceeds right. If we do it.
Sale leaseback with you what will you do with the proceeds and it's having a compelling use of proceeds that I think is one of the key determinants.
When you're an ASIC controller, whether in gaming and non gaming as to how attractive having a sale leaseback relationship with us would be.
That's a great point alright. Thank you so much guys.
Thank you Barry.
Thank you. Our next question comes from the line of Todd Thomas with Keybanc. Your line is now open.
Hi, Thanks, good morning.
Wanted to follow up on the discussion around your cost of capital and investment spreads.
Your cost of equity capitals held up relatively well Ed you mentioned that and it has but it's also been volatile the markets been volatile in general and I'm, just curious how you manage deal flow and underwrite.
Potential investments when that investment spread on your in your cost of capital may be volatile.
During that time that you're underwriting or negotiating deals and I guess, along those lines is there any consideration.
Clearly you have liquidity.
Which you've you've outlined but is there any consideration for doing more on the ATM or issuing equity in advance of some potential transactions to lock in your cost of capital and.
And provide even greater certainty of seller expectations might be gradually changing here.
Yeah, Todd good to talk to you and I'll turn it over to David in a moment I would say one of the benefits of having the amount of liquidity, we have the $4 $7 billion that David alluded to.
And especially that you know the 1.3 billion of.
Basically equity capital, we already know the cost up.
Is that we have we have a relative degree of cost certainty I want to emphasize relative we do not have enough degree of cost certainty that a lot of others with much lower liquidity just simply do not have at this time.
But I'll turn it over to David for his further thoughts to your question.
Yeah, Todd good to talk to you I mean, I think implicit in your conversation was or your question excuse me. It was you know are we shutting down our pipeline are we pulling back I mean, I would tell you we are busier than we've ever been.
You saw in June June 1st we added a CIO, killing florio from Goldman Sachs. So, we're thrilled about and focused on opening more doors in the non gaming world.
And it's been very very active.
So we constantly look at opportunities, but ultimately if the opportunity doesn't make sense of the market backs up or there's a change we will not pursue a deal that is not accretive right. The minute. We do a bad deal that will be our last deal. We do because we will not be able to raise capital going forward from our owners our investors both of them both on the equity and the credit side.
And we are we're living at a time, that's pretty unique obviously [laughter]. This this sort of interest rate environment has not been around for many many years as Ed highlighted in his remarks and some of the charts that we've seen.
But we will continue to be a.
Focused on.
Raising liquidity like we did in June and August on the ATM, where.
We cut a little bit of a tailwind in the equity markets and bolstered our balance sheet.
In terms of our intention going forward I can't talk about that and we'll see what tomorrow brings but I think we've we've set up a balance sheet. We've set up a cost of capital that still can be competitive in this environment, but we're just going to be even more disciplined than we have in the past.
Hey, Todd I, just wanted to add to David's remarks, and and and and I think it's pertinent to your question.
If you look at the total liquidity that David outlined for you about $4 7 billion that represents that isn't amount I should say equal to about 10% of our current balance sheet, our $45 billion of enterprise value.
Don't know how many other Reits out there have total liquidity equal to 10% of their balance sheet, especially if they're anywhere near as big as we are and that really does represent the amount of firepower. We have at a time when firepower is otherwise very hard either very hard very costly to achieve the last point I would make is of that $4 7 billion of liquidity.
And David prescribed me, if I'm wrong here only 700 million of that $4 7 billion is actually currently on the balance sheet, the cash and the cash like instruments that Dave referred to the ATM proceeds and the delayed draw term loan and the revolver, obviously, you're not on the balance sheet because they all remain undrawn are unsettled.
Okay. That's that's helpful.
I appreciate that if I could just follow up real quick then on the credit investments.
That you've made more recently here you know you talked about Blackstone and and you know clearly there are other credit investors out there I'm just wondering if you could address the competitive landscape.
For these types of non gaming credit investments and some of the transactions that you've announced more recently.
I'll turn it over to David in a moment, but I think the fundamental issue that we're finding in anything that's resembling a competitive situation in terms of a would be borrower or partner evaluating our credit.
I think we're a lot easier a lot friendlier to do business with David.
[laughter] Yeah, that's what it comes down to it I know that's hard to understand in order to put it into your report, but relationships matter you've heard John talk about it for years.
If you see the clip that Ed referred to with John Golf, and Jim Cramer and Ed on C. N B C.
He was very bullish about the opportunity to do more together. These are relationships that we foster and build and spend time with when we did Chelsea piers back in June of 2020. It was competitive it was the bid process, but part of our part of our ability to win that was one of our long term.
If you were not a fun driven we don't have a fun life and ultimately our relationships.
I mean a lot.
You know how you treat as Ed mentioned number with respect to our advisors. We treat our counterparty is extremely extremely well because we want to do more together, we want both sides of the table to win and feel good and come back to the table to do more together in the future.
And just to add to that Todd when we when we're in these lending relationships. We do we don't see our partners to death, we're not a G P that needs to pay our bills by seeing our would be credit partners to death.
And that not only makes an economic differences and it it makes a relationship differently.
Okay alright, thank you.
Thank you.
Our next question comes from the line of Greg Mcginniss with Scotiabank. Your line is now open.
Hey, good morning.
Just first couple a couple of quick ones here given that we're four days away from November evil to disclose the CPI based lease escalators that you're expecting.
Yeah.
Yeah, David good to talk to it.
It was in my remarks, it's a eight 1%.
Oh my apologies thank you.
And then also given your current cost of capital are you know does the high 7% cap call right on the Indian assets when it makes sense to you today.
John .
Okay.
I talked about this a little bit earlier that we continue to watch this business grow.
Capital from the.
The operator Caesars the owner today continues to go into the business.
This call is put call is active until the end of 'twenty. Four so we will continue to monitor the growth of the business will see the capital go in and we will determine the right time for this call option.
Alright. Thank you and then just the final one for me and in the earnings release, you spoke about the multi trillion dollar place based wellness sector. We're just hoping you could expand.
On what concepts are actually included within that sector.
And broadly where you see the best opportunities for investment might be and how you're thinking about structuring those investments does that sound like it.
On the credit side right now.
Ah well, it's well it just to be clear Greg it's on the credit side right now with Canyon ranch with a very clear path.
To own the real estate of Canyon Ranch, Austin, and also own real estate potentially in places like Tucson Atlantic and elsewhere that we can go together, both domestically and internationally with Canyon Ranch. Obviously, we're most focused on the place based dimension of global wellness and I would say that based on the research we've done.
One of the really appealing things about place based wellness on a global basis is it the model.
Some continent to continent, it's really quite similar that's in contrast to gaming.
The U S. Singapore Macau are notable for having great real estate intensive either gaming models, but that real estate intensity has not found to the quite the same degree and a lot of other areas around the globe.
On the other hand again place based wellness is really very much the same kind of concept as you go from the U S to for example, Europe .
In the U K.
Where there are many operators operating very much like Canyon ranch at the high end with a good amount of real estate intensity.
Yeah.
Okay. Thank you so I guess similar than to the type of model that we're seeing at Canyon Ranch is the other types of.
Operators that you'd be looking to invest with in this space.
Yeah, and I mean, when you think about it you know historically think about the great European Spa towns that started to become popular back in the 17 hundreds.
You know the spot tradition.
Has centuries.
Of history.
The modern spa experiences grew out of those more ancient traditions Black frankly, it goes all the way back to the enrollment.
They they were in the Spa business right. This is a business that actually now that I see.
Stay it it doesn't go back century that goes back millennia.
So you think it has.
And then I guess is what you're saying.
I think I mean, I think that's pretty safe anyway. Thank you Greg.
Yes, Thanks Ed.
Yeah.
Thank you.
Our next question comes from the line of David Katz with Jefferies. Your line is now open.
Oh, hi, everyone covered a lot of ground and so I don't want to just pick up time on general principle.
But one very specific question as I talk to operators and gaming who are would have classified 12 months ago.
Never Counterparties for you.
My sense is that there might be some softening.
And those conversations would you concur with that.
John .
Hey, good morning, David I would and I just think they wanted to just a matter of time, we've been around for five years and I think we've been out explaining why are a form of capital can work for gaming operators, particularly as Ed said when they have.
Great use of proceeds to grow the company and I think that many cfos and Ceos of companies that said they would never do it now or have spent the time to understand how our capital work and how we can be partners and are now thinking about it doesn't necessarily mean, they will transact, but I think if you're in a C suite of any company that you should be thinking.
But all the different ways that you can.
Work with your balance sheet and restructure our balance sheet, so not not surprising at all David that we're hearing youre hearing that and we're hearing that.
Right.
No they should consider it until they do but it sounds like they are apologies please finish.
Yeah, I was just going to say David to add onto John's remarks.
You go back to October 21st the yield to worst on gaming high yield credit on a blend blended basis it was 8.21% right.
Actually the blended yield to worst on leisure was 10.03, so whether it's gaming operators or leisure operators, they're looking at current yields doors on their high yield credit in almost all of them are high yield very few of them are I G.
When when they start to look at are cap rates, they realized that when they have to refinance this debt, it's currently yielding 8.21% or higher.
Our capital could look very attractive.
Perfect. Thank you very much.
Okay.
Thank you.
Our next question comes from the line of Smedes Rose.
With Citi. Your line is now open.
Yeah.
Hi, Thanks, I just wanted to ask you for when you potentially have opportunities in smaller regional gaming markets, where maybe they have you know refinancing issues coming up and you have talked about it as a competitive cost of capital, but they're in a recessionary environment in smaller markets, where potentially that demographic, it's more hit in <unk>.
Session do you think about how you underwrite your rent coverage and those would you expect to change that at all or how do you kind of I just sort of wondering how you're sort of thinking about that as you look at these opportunities.
Yeah, I will tell you this.
Yeah, John just before I turn it over to you I just wanted to acknowledge smedes that we.
We Miss when you Miss your your friend and colleague Michael Bilerman, We always enjoyed when Michael showed up on our calls and we wish him the very best in his new role at Tanger.
Anyway over the limit on too.
Yeah.
Yes, maybe it's a it's a very good question and we spend a lot of time and all the different markets with all the different operators as we look at deals understanding the market understanding their segmentation of their customers. What they are seeing I think you know this because you followed gaming it's a unique time for our tenants. We've spent a lot of time on this call.
Call talking about the market fluctuations.
But in the gaming business right now, depending on what market and who you're talking to somewhere having continue to have record earnings and almost all.
All of the operators are seeing strong business continued to see strong business. So we are very careful in whatever deal that we underwrite and understanding the market dynamics the type of consumer or how far the consumer comes from all of those things.
And when we underwrite and we will be careful as we look at regional markets and Las Vegas markets, but our tenants have jumped and amazing job in operating their businesses and continuing to grow them. During this very unique time.
Okay, and then I just I appreciate that and then just one thing I just wanted to ask you I mean, when we look at other triple net Reits. The transaction volume is because look come down a lot in in cap rates arent really moving you know theres as you've talked about sort of the standoff between sellers and buyers.
But in recent deals in gaming I mean, there haven't been that many but cap rates have moved from prior prior announcements. So I'm. Just wondering do you think this sort of asset classes more sort of willing to move or are they in a position where they sort of need to move because of because of their financing issues or I mean would you agree with that but maybe if things are adjusting a little quicker.
Uh huh.
I you know its hard to tell smedes.
Yes every deal is so specific.
Whether it be the <unk>.
Graphic location and the asset is in the nature of the asset itself that tenant and its credit quality I don't know I'd be I'd I'd have a tough time, saying that cap rates within gaming have moved considerably.
You know, which is implicit in what you are saying given the market backdrop, I think it's still a bit too early to tell.
Yeah, because I wouldn't generalize from the fairly limited amount of activity that we in G. L. P. I engaged in over the last few months.
Okay.
You guys appreciate it.
Thank you.
I will now turn the conference back over to Tony for any closing remarks.
Thank you very much and.
In closing, we simply want to thank you for your time with US today, we believe we're really well positioned to be G to continue growing our portfolio. During what may be we'll know what is a very uncertain period, while driving superior shareholder value again, Thank you and good helped all.
Yeah.
That concludes the Vg properties third quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your lines.
Okay.
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