Q3 2022 Gaming and Leisure Properties Inc Earnings Call
Greetings and welcome to gaming and leisure properties third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note this conference.
Is being recorded I will now turn the conference over to Joe <unk> Investor Relations. Thank you you may begin.
Thank you Sherry and good morning, everyone and thank you for joining gaming and leisure properties third 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.
Forward looking statements may include those related to revenue operating income and financial guidance as well as non-GAAP financial measures such as <unk>.
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 a.
And in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.
On this morning's call. We are joined by Peter Carlino, Chairman and Chief Executive Officer of gaming and leisure properties.
Joining today's call are Brandon Moore, Chief operating Officer General Counsel, and Secretary designate Burke, Chief Financial Officer, and Treasurer, Steve <unk>, Senior Vice President and Chief Development Officer, and Matthew Dam check Senior Vice President and Chief investment Officer with that and then as always it's my pleasure to turn the call over to Peter Carlino. Peter. Please go ahead.
Well, thank you Joe and good morning, everyone.
Here with our entire team as usual hopefully to answer your questions.
Fairly well.
We're very happy to report another eventful quarter.
And as always this is all well detailed in our press release.
But notably we have closed on the Tropicana property in Las Vegas with valleys and begun our.
50 year ground lease pretty.
Pretty excited to finally put that one to bed.
And we're working to close what will likely be a combination of two of her 10 and Biloxi also with valleys of course subject to a final approval in Rhode Island, which we are hopeful will happen.
They soon.
And and finally, and I think most notably we have opened what I'll call a pipeline. It's a word that many of you know eight as we've never had a pipeline we kind of make it day by day, but in this case, we actually have done that with Penn National Pen.
Give me a pen entertainment.
I just had 50 years they call that place Penn National So I'm looking across the street through our window right now same I guess, it's now pen entertainment, so which is pretty exciting where we have worked with them too.
Allow them to take a couple of properties out of our existing master lease.
Oh, Aurora, and Joliet and move to much more advantageous locations in a pretty exciting.
Transaction.
Also are we.
We'll fund a long overdue hotel in.
Columbus, which you would recognize with much more difficult if not impossible for them with the lease arrangement that we previously had so all of this transaction was done to make.
It makes some of these things possible also we are talking about another tower at the M. In Las Vegas, which is having great success in that market. So these are some pretty exciting opportunities for us to put money to use with one of our major tenants and then consolidate all these new properties.
A couple of stragglers, we had out there independently under a new master lease with terms that are more fixed which is something that we wanted to achieve for a long period of time.
So all in all there's a lot of good stuff happened this quarter and we're looking forward to the balance of this year into what ought to be a strong year next year as well.
With that let me ask Deseret Burke to highlight some financial.
Items.
Thanks, Peter Good morning, our total revenue from income from real estate outperformed our third quarter of 'twenty, one by over $50 million.
You all know we closed on the Cordish live transactions this year, which increased cash rental income by approximately 31 million. We also closed on the bally's Quad cities and Blackhawk properties in April of this year, which also increased our cash rental income for the quarter by $3 million, we achieved their escalators on our pinnacle are buoyed our royalty.
And Penn leases, which added another $3 million of cash rent for the quarter over prior quarter, and we had noncash revenue gross ups investment in leases and straight line rent adjustments of $10 million.
Our operating expenses decreased by $57 million and that's really due to the gain on sale of our trop Las Vegas building of $67 4 million, which is offset by the gain on Perry, though last year, but up 14.8 million. We also had a decline in our G&A expense also related to the sale of the tear off that.
Operations in 2021 off.
Offsetting those declines in expenses, we did incur a noncash charges related to our land lease gross ups and land rights amortization of about $2 million.
We have included in our release full year 2022 guidance of $3.52 per diluted share in O. P units between 352, and 354 that is which does not include any impact of pending transactions.
Lastly, during the quarter, we completed an ATM equity raise a forward equity transaction and continued to strengthen our balance sheet and our leverage position is right around five times and so we feel very confident in our balance sheet. At this point in time with that I'm going to turn it back to Peter well. Thanks Deseret.
We have Oh, Matt them check on the line from a remote location not too far away, though Matt.
Would you add your comments please.
Sure. Thanks, Peter Good morning, everyone and thanks for joining us in these interesting times, our core gaming Triple net lease business model. It is relevant now as it's ever been in.
That relevant spans two fronts first with potential transaction partners as the financial markets and broader economy have rapidly changed with higher debt costs that unpredictability.
The interest from operators in the dialogue with G. O P. I is robust the same folks who SAR sale leaseback proposition is expensive debt last year now better appreciate its permanent nature as well as the fact that our sticker price is much more competitive with prevailing debt costs.
This results in strong value proposition for our tenants.
Second area of relevance is related to institutionalization.
World focuses on risk risk adjusted returns our business model shines brightly and rightfully so pound for pound regional gaming real estate continues to stand out as incredibly attractive compared with other investments across the real estate spectrum. Since we last discussed the topic, we've watched economic and stretch.
Were all headwinds significantly impact a number of property types that were long considered blue chip holdings, well our business model has remained as solid as ever.
To build on a track record of cash flow resilience amidst the uncertainty and stand to benefit from our greater institutionalization overtime. When it comes to institutionalization, we're in the middle innings at best with a lot of game to go.
I'd be remiss, if I didn't say go Phillies gave you the baseball analogy.
The backdrop of volatility and heightened uncertainty also underscores a fundamental truths you cannot predict the future. We believe you can prepare for it and we've done just that.
At a time.
When uncertainty persists you can be certain that our do it right sleep at night balance sheet philosophy will help guide prudent decisions derisk the execution around the debt for valleys transaction. Our team successfully worked to put in place a delayed draw term loan with a five year term for $600 million, which is all incremental tour ball.
In economic terms, consistent with our revolver and structure to be drawn at the transaction's closing.
During the quarter, we also bolstered our offensive capability. In addition to our overnight issuance of the $350 million of equity related to the valleys transaction. We also issued another $169 million of equity through the ATM program 100, and for normal way and the additional 65 to the newly implemented forward the Deseret bunch I'm sure.
Ours were sold at an average net price.
$50.97.
This drove leverage well within our target range and bolsters our acquisition capacity is it gives us firepower and optionality to play offense, depending on how the acquisition opportunity set evolves.
With a pipeline of opportunity between the potential option for the valley's linking that asset the pen developments, where we have the opportunity to fund the landside development Baton Rouge, where we've got a contractual late in the quarter returned.
Pipeline activity, we're looking forward to deploying our capacity smartly.
Becoming periods.
We'll continue to stay disciplined in our decision, making and our doors remain open for business. Our efforts are focused on unearthing and creating opportunities to grow our cash flow per share to protect and perfect. The quality of those cash flows and to increase long term intrinsic value per share for our shareholders benefit with that.
I'll hand, it back to Peter.
Matt. Thank you that's very helpful and appreciate it so I think with that you've got a team here Sherry would you open the floor to questions.
Yes, if you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star. He is our first question is from Neil Malkin with capital One Securities. Please proceed.
Oh, Thank you good morning, everyone.
Nice quarter good morning, Neil.
Hi, first one for me I guess, Peter and then maybe Deseret tying in as.
Obviously, the recently announced promotions are first off congrats.
But yeah.
You gave some commentary maybe a couple of quarters ago, Peter about the sort of I dunno ambiguity out of the the C suites in terms of titles and rolls in and you really you know kind of hammer that point home that you were.
Really happy with how things were going balance sheet was in a great place, but it continues to be and so I'm. Just wondering you know what what caused the change to the named you know rolls officially.
You know just.
From that you know short time ago.
Well frankly, just as time has gone by it just underscores the reality of what occurs here, but I want to emphasize one point.
While we'll ultimately published an Org chart of some sort I guess, we're still talking about internally here.
We don't function that way not then not now hopefully well I'm around not in the future. We work as a partnership with co equal players and I can't emphasize that enough. So all the folks that you've got on this call. Each one is a part of every decision we make.
You know my mantra internally and I think of it. This way is that you know I don't have to be right, but I do have to do the right thing how we get there is what we as a group and as a partnership achieve so what this nothing's changed internally, we still function the way, we always did but.
I felt it was time to close out those positions.
<unk> two.
I'll highlight the reality of kind of how it all works today, but and and partly it's just a matter of longtime skills time and grade with the folks that we have here. So I wouldn't read too much into it at all it's business as usual, we've got a great team I think the best team.
And.
That's all I can underscore.
Okay, great. Thanks for that Peter.
I think the other question I have is is on.
Development Ah and I guess that kind of feeds into your favorite word Peter the pipeline.
Could you could you maybe I don't know if it's desert rate. This would be you know your category, but did you.
Help us understand now that it's grown pretty.
Pretty recently, what what are the amounts and economics.
On the existing and potential development and I mean, the casino Queen going landside I mean, the in Baton Rouge, I mean, the the costs are for the relocations in Illinois.
And just kind of the how you see that playing out you know Cos and again economics would be extremely helpful. Thank you.
Yes.
Sure. So we can continue to work on our relocation and Baton Rouge.
Shouldn't be a significant spend we have about $40 million remaining to spend on that project.
Throughout sometime in 'twenty three is when we expect it to open as far as Illinois, we have committed to $225 million for the relocation of the riverboat and Aurora and then we've also committed to the $350 million for the other projects that Peter mentioned earlier.
You know the cap rate on those other projects is to be determined in the future. Once we know current rates and timing of those projects.
Does that answer your question are there any other.
Yeah, Yeah sure I, Yes, I guess so the total cost you think for Baton Rouge is gonna be what is it like you said 40 million left to spend.
What is the total.
$8 million in total we've already funded and saw over 20 million and we have 40 million left to spend.
Now there I should add there are soft cost beyond that which we were not involved with so to be clear that's not the total project that's our piece right.
Sure Oh. Thank you helpful. And then I guess, just the logistic again cleared up if the projects in Illinois, I'm sure they're going to be you know great based on the commentary you gave but if if if you guys don't get the.
Returns that you are underwriting are you still confident in the coverage you'll have on those two properties.
Yes, I mean, we definitely expect to get some furniture and I mean, we do have an implied cap rate there for the.
For sure and Oh.
All counts show that the project should be very successful for Penn and therefore the coverage.
For G. L. P. I. It is also going into a master lease.
That has other properties that are performing well within it.
Okay. Thank you thanks, everyone.
Our next question is from Barry Jonas with truly Securities. Please proceed.
Great and congrats to Brendan Deseret.
Wanted to start you know given the current capital markets environment as the deal pipeline shifted at all do you think.
Theres been a reset in our sellers' valuation expectations are not just yet.
[laughter] I'm going to give that to see for a minute but.
I think everything is still fluid, but we see plenty of activity out there and see why don't you take just take that one that's short stay today sure from from a pipeline perspective, the we remained very active.
Potentially more active than it's been in the prior quarters I would caution that though too to your second question, which is that yes, I do believe sellers are.
Have not necessarily stayed connected to where the capital markets are currently reside.
I do think there is a disconnect.
On certain in certain instances with certain transactions between what the seller's expectation may be and where buyers borrowing costs have moved too. So I do think we could see we could see a little lull, even though it's very active before everyone kind of resets new expectations in new levels.
I would say the only other area that that kind of falls under the pipeline is is from a development perspective, new Greenfield development projects, where obviously as you would guess starting to see more and more of those come across our desks, mainly because the financing market for project finance is either an achievable.
Or just too expensive. So we're starting to see a bunch of those things. However, again I would caution that.
We need to be disciplined we need to get a return for our risk and compensated for a risk so as our borrowing costs come up the spread we would need to get above and beyond our cost of capital.
Would remain substantial and then and then the individual risk associated with each of those projects would obviously later on.
Other economic attribute so so long long winded way of saying we were very active there's a lot of stuff going on right now, but I'm not sure that the marketplace on the buyer and seller side are seeing eye to eye.
Got it got it and then just as a follow up Peter you've talked over the years about your preference for regional markets over the strip given sort of the inherent risks.
Around destination markets, you've obviously dip your toes in the water with Tropicana, but as it gets bigger and bigger is there more of an argument to increase your diversification into a more sort of strip assets.
Look we've never had any ill feeling towards strip assets. Its just a matter of cost.
That that we've found more value in the regional markets I will say this I've been chasing a little bit following this.
Our latest downturn in and recognizing through after Covid that the strip proved to be a lot more resilient than I would ever have guess ever have guests quite candidly. It really I mean, we knew what would happen in the regional markets that people. The first minute. They can fall out of the door.
Head over to our properties and did so with great enthusiasm.
But vegas I was a little bit more cautious about it and I was wrong frankly.
Do you see the result, so look it's only about money, there's nothing that we won't own it.
Go both directions, we'd love to have a strip properties I've, often said to many of you that.
I don't know a shack on the beach with no windows and doors, if the cash flow was rock solid where in the cash flow business, that's kind of what we do so big small it's simply can we get a proper return.
A proper spread through our cost of capital and manage our balance sheet effectively at the same time. So no no prejudice. We we we look at Vegas assets frankly, all the time.
That's great. Thanks, so much for all the color.
Thank you.
Our next question is from Greg Mcginniss with Scotiabank. Please proceed.
Hey, good morning, once again like to pile on off my congratulations to the ovarian brand when the new titles.
I've also been getting some incoming calls about the impact of these new titles as it relates to Steve and Matt.
Yeah, maybe this goes back to your counterparts.
Any change to their roles.
Or reporting structure or ability to make decisions and influence and direction of the company.
Ah you're reading much too much into this.
I'll always kind of done and solidify what has transpired over many many years does it change steves position doesn't change Matt Matt made some significant commentary earlier.
Steve its point of the spear in much of our new stuff. So again, we operate as a partnership I cannot emphasize if we sit around the table.
And each of the people you've mentioned and every transaction every financing everything that affects this company involves every single person nothing passes that the group doesn't sign off on it. That's just the way. It is that's the way we choose to operate I've got a great team here and it's really all I'm going to say about it I mean, it's just is what it is.
Oh, no diminishing of responsibilities for anybody.
Got it thanks and.
And then just a couple of balance sheet funding questions. One what's the team views on the interest rate environment and how it impacts your business and two on the capital raise size. The ATM usage was maybe a bit out of your historical norm and raising equity with no immediate acquisition I'm. Just wondering your thoughts on the execution of ATM and holding cash on the balance sheet as well.
Thanks.
Yes, do you want to take that.
Sure. So our equity raises were in line with looking at the funding of our Penn transaction at some point in the future as well as our $500 million bond. That's due next year and depending on what rates look like at that time, we'll make a decision as to how to deploy the capital that we were you know happy with.
61 dollar price raise them to in order to fund those transactions and lock in some of the accretion.
Okay, and how are you thinking about interest rate environment impact.
And then the business or.
Uh huh.
And cap rates.
Capital markets are affecting all of us quite a bit the interest rate environment is something that we need to be cautious about and understand and prudent and disciplined in our financing our transactions. We look at it every day. It changes so trying to pick a cap rate to finance that transaction at this time is definitely.
Challenge, but we are working through it and we are continuing to look at all deals that we think we can get done in an accretive manner.
We had two formal meetings over the last couple of days that involves everyone. On this team I for men mentioned Oh around that very subject I mean, we don't have a crystal ball as do none of you and we spend a lot of time talking about what the possibilities are how we protect ourselves because look we're in the long term.
Business, our short term borrowing is not an answer to the kind of stability that we're looking for so I'm not sure. We can answer anything until we actually get confronted with the next transaction, what's the market look like.
At that day in time. This is kind of an hour by hour day by day situation that we find ourselves in.
I'm gratified to see however that the market is up today in that our stock is trending in a positive way so.
I wish we could give you a clear answer it's will I think does answered it correctly that.
We'll see as we get there.
Yeah, No I think that's fair. Thank you very much.
Thank you.
Our next question is from Hendel, St. Just with Mizuho. Please proceed.
Hey, good morning.
Thanks for taking the question.
So.
I guess stepping back for a second and perhaps what can you tell us about why you don't expect Lincoln to close them now the pivot to Biloxi and I assume you're still.
Tenant interest in acquiring the lithium when it became available.
Much unnoticed with families.
We're quite forgive you and how does that impact your thinking on the balance sheet strategy.
Let me see if you want to handle that or Brandon Yeah, I'll I'll take it I'll take a shot at it.
So so I think the short answer to your question on why we are why we're.
Decided that we're buying Biloxi and to retain is just the lender consent has not been achieved by.
By valleys. So they do not have lender consent and hand, therefore, they cannot sell us the real estate and Lincoln at this time.
What that does mean is we'll have a an option to.
To acquire Lincoln at the same terms that were negotiated originally with respect to the acquisition.
And we will have through December 31st of 'twenty 'twenty four so we'll have a little more than two years.
With that option with that fixed price locked in.
Oh it is.
Is that without all the questions.
Yeah.
No.
Also as well as how.
Notice would they be required can give you if at some point. They did get members that didn't have that kind of impacts your thinking 1000 status in Europe .
I don't remember you have to go back and look at the agreement I don't have it off the top of my head I think it was 60 or 90 days, but I think the reality is that we're in constant communication with the bally's team we understand the complexity of this lender consent process and the reason I think you're seeing a 30 month option. In there is we didn't want to get in a way of valley's business decisions.
And their relationship with their lenders as they navigate those waters. So from our perspective, the Biloxi and <unk> acquisition is a good acquisition those are good properties and we feel as though the Lincoln property will eventually be in our portfolio, but the valleys team needs time to get through their other issues and we we felt two and a half years was a lot of time to do.
Yeah look they may have to reset their financing along the way to make move the lender consent.
You've got a lot of stuff on their plate and I suspect there'll be back to their bank group.
Often oh over the next year or so so that we're quite happy to take the assets. We can take today and looking forward to achieving Lincoln later.
Got it got it Okay question on the 500 million maturity next year I E. The rate of five 3%, which I guess look pricing the rearview, but.
Or less refinancing headwind that many Reits are facing today and lower costs that come through I guess can you talk a bit more about what options today, you're considering for the refinancing where you could issue 10 year unsecured today and would you consider perhaps shorter term. Thanks.
Right. So you.
You know we haven't as I said earlier I haven't made the decision on what we want to do with that there is a potential that we use our free cash flow and the forward equity that we have out there that is scheduled to mature in August of next year. When we have the new par call date on the 500 million dollar bond I think our rates that we would be looking at us.
Probably seven and a half or so for a 10 year bond, but theres nothing to say that we would actually enter into a bond that's that yield.
Okay, and then last one if I could sneak one and Peter for you.
Lots of chatter about new casinos here in the New York City, I guess I'm curious how do you raise the prospect of that occurring any possibility that.
Yeah. It could be involved in any way and then how do you think that would impact the broader trade area and maybe a ripple effect in the northeast are your assets included Oh.
Well I don't yeah, it's going to have an impact there's little doubt about that that's why are arguing for years that our northern Jersey ultimately is going to have to.
Cavan and figure out a way to keep some of that business closer to end, but.
Well, let's say this I don't want to say too much except to say that we've had some conversations with prospective developers, it's Steve leads that process, but I've been with him on occasion, so I'm Steve.
Steve what what are you prepared to offer all of that I don't want to say, but yeah look who we are.
Yeah, No. We've we've met with a number of a number of the parties involved.
We're not a we're not exclusively tied to anybody and we're anxiously watching what's unfolding.
At this time I think we you know back to my comments earlier about Greenfield development project financing dollars.
I think we continue to think that that some of those projects could have some some difficulty with their financing. If it is a $3 billion number, but where we're close to the situation. We're talking to a number of folks and we're anxiously awaiting to see how it will play out.
Yes.
Okay fair enough. Thank you.
Our next question is from Jay Carnage, let's see M. D. C. Please proceed.
Hey, good morning, I guess first going back to the pipe.
Going back to the pipeline can you provide any update in terms of further potential opportunities with Barclays in the quarters company and in addition.
Interesting.
You might be looking at.
What was the last question.
Oh, Okay any further interest interest yeah opportunities.
Yeah, So maybe I'll, maybe I'll I'll touch on valleys in the court aside from the from a gaming angle and then maybe I'll, let Matt touch base on Cordish and the non gaming piece as well so from.
From a bally's perspective, we're in constant communication with the company in there and some of their stakeholders are we we you know.
We are we're always trying to be helpful to any of our tenants not just valleys, but as you can see with the transaction with Penn we've.
We've had conversations with with Boyd, where we're always trying to be supportive of our tenants and in whatever capacity, we can be and so we'll continue to have dialogue with them I don't think right now they're there's a current need for for us to be involved in any capacity with the current app.
Assets, they own and run them other than the ones, we've already contracted with and so that's that's kind of our focus now is getting those things to the goal line with respect to Cordish. We've worked closely with them on a number of of different potential acquisitions in the last few quarters and have Oh I have not gotten to.
The finish line, but we do have ongoing dialogue with them and look to try to help them grow and expand and in the ways in which they they aspire Oh on the gaming front, Matt maybe I'll turn to you now.
Sure Yeah, so on non gaming.
We continue a very robust dialogue across opportunities are with all the right folks, but you have to remember our base case is bottom up decision, making and the question is is whatever we were going to do going to increase long term intrinsic value per share you know.
Cost of capital pricing or opportunities in gaming outside of gaming when that algorithm flashes of green light, we're more than happy to move and do it at scale that said, we're also not pressure to keep up some pace of activity or do things for the sake of doing them our goals and that activity. Its progress. So I'd say more broadly the fact that the fed.
It has effectively lifted there's some off the scale and the subsidy for that across the capital markets is now.
Somewhat volatile way being removed from the market, there very well could be opportunities, where our mentality around making bespoke structures for folks that are win win health of them, but also achieve our economic goals, maybe more and more relevant. The reason we're at the table for the conversations and that's by the way.
The same in and outside of gaming, but at the end of the day, if we're selling a piece of our portfolio in the form of equity to do something new its merits have to be more attractive than our starting point and we havent found anything to date that is checked those boxes.
We will see this next six or 12 months could be really interesting depending on just how dislocated aspects of the capital market, yet and how big the advantage, we have because of our solid and dependable balance sheet and access to capital compared to some of the folks that may not be in that position it might make great partners for us for the long term.
Yeah, Matt let me add to that look as much as we'd like to find and continue to look for other opportunities.
It makes more sense for us to put money in say a hotel in Columbus, Ohio. It that outstanding property that are that are.
And enhance the performance. There then they'll go off and you know some other area.
We haven't run out of gaming opportunities, yet I mean, maybe that day will come but it certainly hasn't happened now and we have several years of visibility ahead of us of some pretty nice projects. So we're quite content to to suffer along with where we are in the gaming space. If you will.
Yeah.
Alright. Thank you very much like color and then as a follow up going back to that development Penn Master lease.
Okay.
Maybe talk about how that process.
Together and if it's replicable with other operators that might be looking at top of your capital or add on opportunities and set up the debt capital markets.
Well, let me say this we're highly motivated to work with our tenants I mean, that's kind of our job to be we want to be the the REIT of choice.
For our tenants and develop a reputation is as people willing to make things happen. It was no small deal to take an unwind I turn you over to desert ready to talk about how difficult. It was the pole properties out of our existing master lease it is very very complicated but.
Penn had an objective that they wanted to achieve our job is to try to figure out how to help them do that which I think we've done that well and in part and parcel of that by the way with some lease adjustments.
That were favorable to us.
He wanted.
And I think we achieved to get less variability, a which was a long term goal of ours plus we took some disparate properties that are we're outside the master lease and rolled them into the master lease for strength and stability. So I mean, we're constantly on the move on the lookout. If you will clearly for bally's, we'd been in answer to a.
A whole bunch of things that they have asked us to support them with and we'd like to be in the future.
Where it may apply to us may not but where we can we're highly focused on being supportive of our tenants and we talked to all of them.
Okay. Thanks, so much for the color I appreciate it.
Our next question is from Brad Heffern with RBC capital markets. Please proceed.
Hey, good morning, everyone I know in the prepared comments, you said, you're hopeful that the the Rhode Island.
<unk> will close soon I'm just curious if you can give a more detailed update on on where exactly we are in the regulatory process there.
Brandon This is best equipped for that.
So we have a G. L. P. I, we've made all the applications and submitted all the documentation that's been requested of us in Rhode Island keep in mind, Rhode Island with excuse me only two assets has no REIT in place at the moment and so were the first REIT to come to Rhode Island, We're working closely with the regulators I think we are optimistic.
On our side, having been license than all the other jurisdictions that we're licensed in that this won't be a problem for us, but I think it's a process and each new jurisdiction. We went through it in Delaware now we're going through it in Rhode Island, it's hard to predict exactly when that will occur. We are still hopeful that that will be ended the end of the year. So around the end of.
Of the year and put us in a position to potentially close on those assets in early January but you know I hate to get in front of a regulator and doing their work and Theres clearly a lot of work to be done and getting us to the finish line, but we have no reason to believe we won't get there on a on a timely basis at this point.
Yeah.
Okay I appreciate that and then the the forward equity raise was a little bit different during the quarter I'm curious if you see that as a preferred way to raise capital going forward in order to manage the dilution. When you typically have deals that don't close for a number of months.
That's fine.
Sorry.
Yeah sure.
I'll start feel free to add the simple answer is yes, I mean, the fact that our business model necessitates some very long periods between the issuance.
Or the placement of the equity in the actual need for the cash.
It's a model that certainly people have used widely and in our case once we used up the.
Call it capacity, we needed towards the valleys transactions to fund them and keeps us well within our range. The excess we then pivoted to using that as a tool and as we go forward. It will give us the ability when go out for us.
Actively pre fund opportunities and have some optionality to desert race point with the balance sheet, given where debt costs are and it just gives us another tool in the tool chest for us to be able to better and more cleanly fund future growth.
Okay. Thank you.
Our next question is from David Katz with Jefferies. Please proceed.
Hey morning, everyone.
For taking my questions.
Can we just talk about the one of the avenues.
Hum of extending capital on a credit basis, effectively issuing loans or notes.
Avenue can you just talk through sort of the puts and takes of using that.
As a vehicle for or growing the business growing revenues.
Look I'll give you a quick comment it.
Loaning to own it could make some sense, but where we're not a bank we're not in a straight loan business that said something important earlier of course that you know are our cost of capital now is a lot more appealing and it was a little while back so that we can be more competitive now and and yes.
We would consider and have talked with folks about that very possibility, but but we're real player we have to own the real estate at the end of the game.
I think you've seen our history historically, we haven't gotten wound down.
That is how we got the lumi are asset no parent park out that anywhere.
It's a good point transferred into our REIT structure.
Yeah, I mean, I think we use loan strategically so will you use loans as part of a way to solve problems or as part of a bigger transaction and sometimes you'll probably see us use them as an element of safety. So if we're not sure when the asset will start generating revenue or something like that alone permits us to put capital to work at an interest rate.
During that period, so I think loans can effectively be used in our business too as a means to an end, but not as an end themselves.
Yeah.
I think that's totally fair and do they do.
I mean, it would seem that that evolves a bit more favorably in the current environment is that a fair perspective.
Yes.
Yeah.
We're all looking around the table, who wants that one I mean, the answer is yes.
Right Okay.
Okay perfect. Thank you.
Yeah.
Thanks, David.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from Smedes Rose with Citigroup. Please proceed.
Hi, I guess I'm, just thinking about you have got some capital and some of the things that you you've said on this call.
Yeah. When you look at our gaming operators, maybe smaller ones that are sort of outside of your current tenant base. I mean, do you have a sense of that.
Maybe they'll need to kind of.
Set expectations more quickly, giving the blooming refinancing issues on the horizon and we're hearing that credit is as you know very much pulled back into that sector. I'm, just wondering if you're sort of seeing that.
And then maybe just maybe there'll be a realignment of expectations like more quickly relative to what we might see in other asset classes just kind of.
Wondering if there might be more opportunity over the next year. Then then we all realize.
Well Smedes, we're hopeful thats the case I mean, it comes down to what do people want versus what do they need and you're right to the extent, there's any looming maturities. The cost right now is certainly not what people pro form but back when they entered their investments and.
And that's where the dialogue that we've talked about previously on the call. It really comes into play to be able to structure a solution that gives us the back and look at the real estate, but real time gets them a bridge from here to there is really important and it was even frankly a piece of the dialogue with pet right I mean, they're in the market where incremental development costs.
Steve's earlier points is a little more expensive than they like and it made a lot of sense for us to figure out a way to help them permanently finance those properties. Yeah. That's the flavor of the conversations in real time. The question, though is price discovery.
And it's our job to stay disciplined on how we price our capital and we've got to wait for the game to come our way in some cases, because there's some bid ask gap.
Like the house, Sally looking backwards and knowing what it is houses worth six months ago.
Fact that mortgage rates have doubled and it's probably not worth it anymore.
Yeah, but that doesn't matter until that person is to sell the house someone has to buy a house. So we're in that phase, but at the same time it feels like fertile ground for things to happen.
Okay. Thank you.
Our next question is from Ronald Camden with Morgan Stanley . Please proceed.
Hey, two quick ones from me just going back to the pipeline you.
You talked about sort of loan to own you know opportunities and stuff can you just contextualize just.
How much has that taken off versus just straight sort of a real estate by.
Sure.
Every one of these is.
Kind of it gets span the spectrum I mean people have something they're trying to solve for.
And we step in with a solution that directly or in the future ends up with real estate. So I I don't know that we can tease out and say this is specifically this or that.
The exception is related to developments, maybe where there's some more dislocation in real time.
People, maybe at first looking for alone solution before some sort of sale leaseback or two step process.
Broadly, it's really the conversations are hey, how do we permanently solve a debt position.
Yeah, and I think from a broader context, our goal is always to own the real estate right. So so first and foremost in any transaction. We're looking at our goal is to add a real estate asset to our portfolio and if the loan is an avenue to do that based on the facts and circumstances with with whatever tenant. It is a current or a new 10.
That's something we'd certainly consider it but it doesn't it doesn't change our goal of owning the real estate.
Great and then my last one was just on the the new Penn Master lease obviously reduced some of the.
Variable rent exposure is it just from going forward is your is the thought that now you're at a level that you're comfortable and that will naturally decline as you sort of do more deals or is there anything going to potentially trying to get a little bit down even more.
Yeah, So I'll take that I mean, basically we reduced our variable rent component from around 12% to around 6% right. So that transaction significantly reduced our exposure to the revenue raise that percentage rent reset. It also and you know shored up our.
Escalation as we have guaranteed escalation on the entire balance of that new lease rents rather than just a component of it and it is fixed escalation absolutely no powered on both of those were a lot of our calls we don't have an extreme amount of variable rents in the future that we would be concerned about and so I think that.
We're happy with the position that we're currently yeah look we love the variable rent what it was going up.
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Maybe made us very happy.
Look what goes up can also come down and look in this REIT world as we well understand certainty is a lot more important than maybe the opportunity. So nailing. This down has been a long term goal at the request frankly of many shareholders and so we got there and we got there at a good place with where those properties were performing at.
The time, and we feel pretty good about that accomplishment.
And really excited about the good stuff that's means for Penn and having developed many most of the well in fact like all of the new Penn properties over the years I'm excited to see hotel go up in Columbus.
Better and newer facilities in and Aurora in Joliet and the M has long needed a tower that property is doing extraordinarily well.
And needs of.
More capacity I mean literally there.
Well I'll just leave it at that desperately needs more capacity. So these are all good things that are going to unfold over the next couple of years and we're quite excited about that.
Great. Thank you.
Right.
Our next question is from John Messenger with Ladenburg Thalmann. Please proceed.
Good morning.
Good morning, Jim.
So.
In terms of the smaller valley's transaction.
What are the debt needs associated with that.
Investment, especially in the context of the kind of attacks.
Indemnification negotiations with the tenant is that kind of cover by a smaller debt amount then was kind of originally contemplated.
In some of the documents released around the original deal.
Yeah, so and that smaller transaction requires $600 million of debt financed proceeds in that $600 million is coming from the new term loan credit agreement that we entered into in September and announced that allows Bali to guaranteed T. L. P is that for that transaction.
Okay perfect its financing on that.
Is the rate on that term loan fixed at this point or is that something he did go out in the market and fix them as we get closer to closing.
Our term loan is the same basic floating rate that is exactly what is in our unsecured credit facility today.
Okay, and then in terms of the $350 million of potential kind of development funding.
Beyond Aurora, that's in the Penn deal and you know how is the cap rate for that going to be determined it didn't kind of market cap rate, but that's something that's you know de novo negotiation or is there some kind of.
Economic parameters put in place to determine that.
Yeah, John I'll, just say, it's a nonpublic dine.
Dynamic pricing structure, that's pretty discrete so theres not any qualitative factors in it but.
But we haven't given specificity I will say, it's based on a spread to our permanent capital cost to make sure that we will have an appropriate spread for our shareholders, but we didn't want to do upfront was lock in the cap rate on the entirety of projects that would go well into the future because the backdrop like we talked about it's pretty volatile. So we broke things up.
The 225 at the prescribed 77, five cap rate and then structured this other piece or they could be sure that they have capital if they ask for it at the current price.
And we're not obligated to give a price outside of what we've put in place.
Okay.
And then in.
Terms of some of that.
Funding I mean, how contingent or some of those projects on you providing the funding I'm just thinking you know.
Columbus for instance, you know do they have to come to you to fund that hotel expansion or if.
If whatever reason they can find it better pricing out there in the market in the future is that something they could do without tapping that $350 million. Yeah. The answer is yes, and yes, I mean, it's completely at Penn This discussion whether or not to take care of funding and whether or not to do the project.
Yeah.
Okay.
That's it for me thank you very much.
Yeah.
Our next question is from Robin Farley with UBS. Please proceed.
Actually my question's been answered thanks.
Thanks Robyn thank.
Thank you and our final question is from Todd Thomas with Keybanc capital markets. Please proceed.
Hi, Thanks, Good morning in terms of the morning in terms of the new Penn lease.
Right right now is it structured I guess you know it looks like the dollar amount actually maybe slightly higher if I'm not mistaken on an annualized basis and you mentioned that you you know you shifted a lot of the variable rent the fixed rate to a fixed rent so bigger base for the escalator, which which came down I think about 50 basis points right and Peter you mentioned that.
Bill rents good when revenues rising, but can cut both ways I mean, how do you feel about the the variable rate portion today, you know, which which you know that's right you mentioned still a little over 6% any sense of what's going to happen there and can you remind us on the timing of the the next reset.
Yeah. So you know obviously the remainder of the partner the percentage rent resets happen they happen in 'twenty two 'twenty three in November and that is a five year period that you will be looking back on that transaction and in that five year period. We had quoted so we serve.
We expect the percentage rents rehab down next year, we haven't quantified the amount until we you now have a full trailing five year history.
Yeah.
Yeah.
Yeah, but.
You're right five years later, you can go back up as well so it does go both ways.
I would expect you won't have to.
We are also in that next five year plan exactly.
Exactly.
Balance this was a good this is a good transaction for us and for shareholders.
Okay and in terms of the variable rent, though that that remains in the in the newly structured a lease.
Any sort of sense or you know, maybe if you could book and you know what type of.
No adjustment or a range that you you might be you know looking at you know today realize theres still you know a bit of time between now and the next reset but you know how should we be thinking about that.
Okay.
Yeah.
You know, it's a nonpublic memory, we don't know the number yet so I'm not really ready to bookend. It would probably when we put out our guidance for 2023 mm in the fourth quarter you can look for us.
What that number will be.
Okay.
Uh huh.
Yeah, we were not Privy to any information that you don't have so.
Okay, No I understood and then just last question I just wanted to go back to to Lincoln Real quick and I'm I'm, just curious am I see it.
You know what exactly you know what hurdles or you know why was lender consent, you know not not necessarily achieved I mean, you know any any color there in terms of what what what's what happened or why you know you you blend or consent was was not necessarily.
Achieved by.
So far.
Yeah look it's a it's Steve but I can only speculate right, where it's it's not our lender consent, where it's not our lenders. So we can only speculate look I think I think it was tough timing when they launched their amendment it kind of when the market started to show some cracks.
Ah I think obviously with all amendments there's there's a level of of pay down that was probably anticipated a certain amount of fees and expenses. They were anticipated and then whatever other.
Qualitative changes, where we're being requested so where we're at all.
Out of line I can't really speak to that I think we feel very comfortable though that in the next two years there'll either be in a moment in time, where all parties the lenders and the company.
Being valleys decide that it makes sense to to Reengage and cut a deal when their current credit facility, where we feel comfortable.
That the parties and valleys effectively needs to re cut a brand new credit facility in which case still then make sure that they remove the language and will accommodate us acquiring yes. So I think we feel good going forward over the next two plus years, but.
But I don't have a perfect answer for you as to why it didn't didn't alloy.
Okay alright, thank you.
Okay.
We have reached the end of our question and answer session I would like to turn the conference back over to Mr. Carlino for closing comments well, Thank you Sherry and thanks.
To all of you who have dialed in this morning.
We're happy with this quarter looking forward to next and we'll we'll catch you in a couple of months.
Thanks, and have a great great weekend bye bye.
Thank you. This does cause I start today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yeah.
Oh.
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Yes.
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