Q4 2022 VICI Properties Inc Earnings Call
Thanks.
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Okay.
Ladies and gentlemen, thank you for your patience for school is just comps in a couple of minutes time.
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Good day, ladies and gentlemen, thank you for standing by and welcome to the BG properties fourth quarter two earnings conference call.
Time, all participants are in listen only mode. Please note that this conference call is being recorded today February 24 2023.
I'll 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 fourth 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 Vg properties Dot com.
All of our comments today will be forward looking statements within the meaning of the federal Securities laws forward looking statements, which are usually identified by the use of words, such as will believe expect should guidance intend outlook projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to.
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 fourth quarter 2022 earnings release.
Our supplemental information and our filings with the SEC for additional information with respect to non-GAAP measures of certain tenants and our Counterparties described on this call. Please refer to the Companys public filings with the SEC.
Hosting the call today, we have <unk>, Chief Executive Officer, John Payne, President and Chief Operating Officer, David <unk>, Chief Financial Officer, Gabe Wasserman, Chief Accounting Officer, and Daniel Vice President of acquisitions and team will provide some opening remarks, and then we will open the call to questions with that I'll turn the call over to Ed.
Thank you Samantha and good morning, everyone. We're excited to talk to you. This morning about our results in 2022 and our outlook for 2023, John will also give you color on our operating environment and business development activities.
I'll start by talking about VTS first five years.
A couple of weeks ago, we reached the five year anniversary of <unk> IPO I want to thank every single <unk> team and board member for the incredible work they've done over this five year period, enabling vg among other things to become the first REIT to go from IPO to S&P 500 inclusion in under five years.
And I want to thank all of our operating partners in and outside of gaming for the amazing work, they do and making our buildings places a great experiential and economic value.
February of 2018, the time of <unk> IPO I don't think any of you would have been very excited if I told you that the ensuing five year period from <unk> IPO through year end 2022 would be a period in which the S&P 500 index would generate cumulative total Rick.
Turn over that period of 48, 5% or that their RMC REIT index would generate cumulative total return of 27, 9% I want to emphasize those are not annual total return figures those are cumulative over the entire period and that's exactly what.
The S&P 500 in the RMC REIT indices produced in cumulative total return over that period.
Over that same period since our IPO <unk> produced for its shareholders cumulative total return of 109.7% I'll repeat that 109, 7%. This cumulative total return by BG beat the S&P by more than two times and beat the REIT index.
By nearly four times.
Over that five year period, no other REIT in the S&P 500 produced cumulative total return superior to Vg Zip zero none.
Since 2018, BG has produced an <unk> per share compound annual growth.
Seven 7% and our quarterly dividend per share CAGR of seven 9%.
If we look at 2022 by itself, we see another year in which <unk> produced significant outperformance Pega was the only S&P 500, REIT that produce positive total return in 2022 <unk>.
<unk> 2022, 13% total return generated 31, one points of outperformance versus the S&P 500 index overall and 37 five points of outperformance versus the RMC REIT index or.
Stockholders, who received the outperformance they've deserved over the last five years and in 2022, given the support they have been given BG have given BG throughout our five year history of portfolio growth and balance sheet upgrading.
What we're most excited about is the opportunity to continue to create value for our stockholders in a moment David key Skus will lay out for you. Our 2023 <unk> guidance I don't want to steal all of David under the one David has shared that guidance with you I encourage you to.
Compare <unk> 2023 guidance to consensus 2023, S&P 500 earnings forecasts, which are generally trending between vary.
S&P 500, Reits once you've made those comparisons I believe you'll find the DG offers what we believe to be one of the more compelling 2023 price earnings growth or peg.
Plus yield ratios that you will find among all S&P 500 Reits to.
To help you along in that calculation I will give you. This starting point the <unk> growth represented by the midpoint of our guidance plus our dividend yield as of yesterday equals 14, 5% compare that 14, 5% figure to what other S&P 500, Reits are offering in 2023 of the <unk> growth rates.
Plus dividend yields and I believe you will see vg standing out.
Finally, I'll give you one more comparison.
With consensus estimates of S&P 502023 earnings per share growth running at 1% and the current S&P 500 dividend yield running around one 6%.
The combination of current estimated earnings growth and dividend yield would be two 6% for the S&P 500.
The combination of <unk> mid <unk> growth and our current dividend yield would be over 14%.
With that I'll turn it over to John for his remarks John .
Thanks, Ed and good morning to everyone.
Over the past five years, our team has worked relentlessly to institutionalize, our asset class and to deliver value for our shareholders by growing our portfolio Accretively. During this time period, we've expanded our roster of tenants from just one at formation to 11 best in class operators, who manage some of the most complex.
And profitable experiential assets across the globe.
Our hard work has also resulted in growing our portfolio from 19 properties that formation to 49 assets today with our portfolio income between what we believe are some of the most iconic properties across all commercial real estate classes and our real estate now crosses into international territory.
None of this would've been possible without the efforts of our dedicated team on many occasions ended up working nights weekends, and unfortunately holidays for that we as an executive management team are very very grateful.
Some ways 2022 was the hallmark of our achievement early in the year, we completed the acquisition of Venetian resort in Las Vegas, arguably one of the most iconic experiential assets in the world at a very attractive 625% cap rate.
Those of you who have followed our story may remember that the Venetian was announced during their very unique time period, while decision to acquire that asset may appear simple today. The transaction came together in early 2021, when many believe the recovery of Las Vegas was uncertain during.
During our underwriting period, we allocated resources towards studying the market and performing in depth due diligence.
That process, we grew increasingly confident in our underwriting and ultimately confirmed are very bullish on the Las Vegas market.
As we sit here today, we continue to see that the Las Vegas market is producing record results leisure business remains robust meetings and conventions have returned and consumers continue to visit the city in record numbers in essence, we believe consumers did not find a replacement for the experience offered by the Las Vegas.
Market, nor do we believe they ever will the Las Vegas economy continues to diversify catering to a broad array of consumer preferences and the city continues to leverage the vast infrastructure by hosting unique events and events of scale. We remain firm believers in the Las Vegas market and we will continue to be vocal.
About our belief in the outlook for the city.
Following our completion of the Venetian transaction just a few months later, we completed the strategic acquisition of MGM growth properties, adding fifth keen exceptional assets to our portfolio and beginning a formal relationship with MGM resorts. These two transactions alone deliver growth that would satisfy many companies.
However, as the year carried on we supplemented those achievements with the pending acquisition of Rocky gap Casino in Maryland and investment in our property growth fund.
The acquisition of Blackstone's interest in the MGM Grand Las Vegas, and Mandalay Bay Joint venture, which we closed in January we closed on the acquisition of two additional regional gaming assets with foundation gaming and we invested in the fountain Bleu Las Vegas, alongside the renowned Koch industries.
In addition to our achievements in gaming, we deepened our relationship with great Wolf resorts during the year by financing certain growth projects, and we announced partnerships with Cabot golf and Canyon Ranch widening our university of growth opportunities for years to come.
Last but surely not least as the calendar turned to 2023, we announced our first international investment by closing on the acquisition of four casino properties in Alberta, Canada, we've talked about expanding our portfolio internationally on many of these earnings calls before and are thrilled to demonstrate once again that we do what.
We said as we look ahead to 2023, we will be planting the seeds of growth for the next five years and beyond first and foremost we're going to continue establishing relationships that yield mutually beneficial outcomes and as always we intend to focus on opportunities that deliver accretive growth for our shareholder.
Now I will turn the call over to David who will discuss our balance sheet, our financial results and our guidance David.
Okay.
Thanks, John .
I want to start with our balance sheet 2022 demonstrated the continued discipline. We have maintained over five plus years of existence by ensuring that we have a capital structure designed to weather all cycles that provide the safety and protection, our equity and credit partners deserve.
This focus has provided <unk> with continued access to the capital markets throughout 2022 to support our growth and just to recap a few highlights from the year in April we achieved our goal of investment grade credit rating as both S&P and Fitch rated Beachy Triple B minus allowing us to raise $5 billion of investment grade debt across a series of three.
Five 710, and 30 year Tenors to fund the acquisition of MVP.
<unk> ability to access the 30 year tenor was a first for a first time investment grade REIT issuer and we're thankful for the support we receive from our credit partners in this transaction.
<unk> added to the S&P 500 index, marking the fastest timeline a REIT has been added to the index from IPO to inclusion deepening our access to equity capital in November we raised $575 6 million of net equity proceeds through a 19 million share forward sale agreement, we utilize the ATM throughout the year raising equity very.
<unk> for a total of $696 6 million in net proceeds through the sale of $21 6 million shares via forward sale agreements. Those amounts include $208 3 million through the sale of $6 3 million shares via forward sale agreements that occurred in Q4.
Subsequent to year end in January in January we raised $965 million of net equity proceeds through a $30 3 million share forward sale agreement, which remains unsettled today and available to fund future transactions.
Currently we are currently we have approximately $3 $8 billion in total liquidity comprised of $426 million in cash cash equivalents and short term investments as of December 31, 2022, we have the $965 million of net proceeds from the January forward sale agreements and $2 4 billion of availability under the revolving credit facility as a reminder.
In January we drew down $140 million Canadian or approximately 103 million USD under our revolver in connection with our peer Canadian gaming acquisition, we will look to term out this revolver draw in the future.
In terms of leverage our total debt is currently $17 1 billion, which reflects the consolidation of the full $3 billion of CBS debt that encumbered the MGM Grand Mandalay Bay JV, our net debt to adjusted EBITDA pro forma for a full year of activity from our recent acquisitions is approximately five seven times, we have a weighted average interest rate of four.
4% taking into account, our hedge portfolio and a weighted average six seven years to maturity.
Turning to the income statement total GAAP revenues increased 109% year over year to $769 9 million in Q4 as a result of a transformative 2022 acquisition activity John mentioned.
<unk> for the fourth quarter was approximately $488 million or <unk> 51 per share total <unk> in Q4 increased approximately 75% year over year, while <unk> per share increased approximately 15, 5% over the prior year just as a reminder, the disparity between overall <unk> growth and <unk> per share growth is due to an inquiry.
And our share count, which increased primarily primarily from the equity raise and shares issued to consummate our acquisition of MVP during Q2, and our acquisition of the Venetian resort during Q1 of last year.
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 our margins continue to run strong in the 90% range when eliminating noncash items, our G&A was $15 million for the quarter and as a percentage of total revenues was only 2% one of the lowest.
Ratios in the Triple net sector.
Turning to guidance, we are initiating <unk> guidance for 2023 in both absolute dollars as well as on a per share basis <unk>. The year ending December 31, 2023 is expected to be between $2 115 billion and $2 155 billion or between $2 10 per share and $2.
13.
<unk> per diluted common share.
Our guidance reflects the full year of 2022 closed acquisitions as well as the acquisitions. We completed in January the peer Canadian gaming acquisition and the acquisition of Blackstone 49, 9% stake in the MGM Grand and Mandalay Bay JV. Additionally, the per share estimates reflect the impact of the treasury accounting related to the pending $30 3 million.
Forward shares sold in January of this year as a reminder, our guidance does not include the impact on operating results for many announced but unclosed transactions interest income from any loans that do not yet have final draw structures possible future acquisitions or dispositions or capital markets activity or other nonrecurring transactions.
And as we've discussed with you in the past, we recorded noncash seasonal charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and <unk> with accuracy Accordingly, our guidance as <unk> focused as we believe <unk> represents the best way of measuring the productivity of our equity investments in the valley.
<unk>, our financial performance and ability to pay dividends.
With that operator, please open the line for questions.
Thank you <unk>.
I'll ask a question. Please press star followed by one on the telephone keypad.
If you would like to withdraw your question. Please press star followed by chicken.
Ask your question just show your devices Luckily.
When we ask you limit yourself to one question and one follow up.
Last question comes from Anthony <unk> from Jpmorgan. Your line is open.
Yes.
Thank you and good morning.
First questions for David I guess.
In the past you guys have been really good at matching your investments with the debt and equity needed to complete them as you kind of think about 'twenty three and looking forward just what's the appetite to.
Either reduce leverage or look out further on the horizon and an address future maturities just to give yourself room.
As you think about what you may buy next.
Yes, Thank you talk to Tony Good morning.
Just to level set our first maturity our next maturity comes due.
May one 2024 from the $1 55, and five eights notes that come due so we have no maturities due in 2023.
And I think we will continue to.
Our focus on bringing the leverage back down to five and five five times and just to remind everybody. When we consummated. The MVP acquisition, we worked with the agencies and help them understand the merits of the deal.
And they were they were thrilled with the transaction given the diversity and allowing us to take leverage up just north of our five five and five and a half guidepost and so as you saw is due at the end of last year.
With the significant free cash flow, we have in the business, we will <unk> some of the smaller acquisitions used free cash flow to fund some of the smaller acquisitions in the loan fundings that we have.
And then as we navigate potentially larger transactions, we look to match fund that as efficiently as possible, but again with the goal of bringing leverage over time back down to five to five five times.
Okay. Thanks, and then just a follow up.
As you speak with tenants and think about things like property growth fund and more capital being invested in the assets any change in the dialogue.
They are tapping the brakes because of economic.
Uncertainty or capital markets or just generally what's what are those conversations like today and if that changed.
John .
Hey, Tony Good to talk to you this morning.
We're fortunate to have tenants right now that are doing extremely well I think those on the phone to follow the gaming industry are watching the results coming out of <unk>.
Out of Las Vegas in particular.
They're not all time records or close to all time record. So we continue to be thoughtful in our conversations with our tenants and they continue to look longer term about how they grow their business.
And we're there to have those conversations and hopefully be a part of their growth plans with as you mentioned our property growth plan.
Okay. Thank you.
Thank you Tony.
Steve just aqua from Evercore ISI your line is open.
Great. Thanks, maybe sort of following up on the line of question is Tony had I'm, just curious Ed and John how are you thinking about the world today, maybe versus six to nine months ago, and just how are you thinking about underwriting changes and potential issues down the road how does that.
Sort of colored your view on kind of yield expectations or how you think about coverage ratios or business lines that you may want to go into.
It definitely has seen good good to talk to you.
The lack.
The visibility right now almost equals opacity.
And you just need a week like this one in the markets.
To be reminded in case, you need a reminder.
As to how uncertain things are so.
As John spoke of we really have so much confidence right now in our operators and we believe our gaming operators, who can continue to do very well for a host of reasons, particularly having to do with the demand drivers Vegas enjoys for at least the next couple of years, but when it comes to access to and cost of capital.
To be a silver as everyone else has to be about the fact that obviously credit conditions have tightened.
Definitely benefited from that.
Cost advantage on cost of equity given how well we performed but we certainly need to be careful about underwriting yields that probably do need to be higher than they've been over the last couple of years and we also have to be very mindful.
We're in consumer discretionary, which we are as to what a tenant's performance might be under different operating scenarios should we see soft landing hard landing.
Long soft prolong current landing.
I need to be mindful of inflation.
But we obviously do enjoy versus many of our REIT peers, and certainly net lease REIT peers.
The advantage of some CPI protections that the.
The definitely benefit our investors this year in 2023.
Okay, and then maybe circling back on the international deal in Canada, just curious as you kind of look at the landscape and you sort of just look at the opportunities out there I guess are you seeing more opportunities internationally today or do you see more in the U S market.
The bigger market, but if you kind of size that do you see better opportunities outside the U S. Today are inside.
I'll turn it over to John in a moment, Steve but.
The way, we think about growth as we think about growing both categorically and geographically and so as you as you watch us as you actually see what we did last year and as you look at us going forward.
We will always be looking for great opportunities to grow into new categories. As we did last year with Cabot and Canyon Ranch.
And we look we look to grow in new geographies as we do with <unk>.
Canada, but I'll turn it over to John for his thoughts on how to how to think about the way we look at the U S versus international John .
Yeah, Steve Good to talk to you. This morning, I'd say, a little bit as we've gotten more mature as a company and we've talked to you all before about adding resources to our organizations, which then allows us to go out.
Round, the world and look at opportunities I wouldn't say there is better opportunities internationally than domestically I'd simply say, we're able to learn more about different countries and the opportunities that are out there right now.
As Ed started out this.
During those question, we're being very thoughtful.
And anything we do right now in our underwriting.
But again, we're we've got resources now that allow us to go and look all over the world for opportunities not only in gaming, but in certain experiential sectors that we really like.
Okay. Just a quick follow up and then I'll yield the floor is there a yield differential when you sort of think about international and currency risk against the U S.
Yes, David.
And is your question that is the key right.
What's the currency risks and whats the tax leakage in an underwriting.
Underwriting a yield that makes sense to take that into account.
We did that with the Canadian transaction and as John mentioned, we're learning about other parts of the globe, and where where our capital can make sense.
And then where it where we can efficiently structured transactions that work for both sides.
Great. Thanks.
Thank you Steve.
Now turning to Smedes rose from Citi. Your line is open.
Hi, Thanks.
There was an activist proposals earlier.
Around six lags that brought you guys into the mix and I know youre, probably not going to comment on that deal specifically or that proposal, but I'm. Just interested would you be interested sort of theoretically a big picture and that kind of owning theme park land or real estate and how would you think about underwriting back versus maybe some of the other asset types and Sarah.
Yes, so you're right we won't comment on any specific situations, but we have talked in the past on an earnings call and in our investor engagements.
Our interest in the theme Park space, We think it has an awful lot of attributes that remind us.
And very good ways of our gaming investments. These are very complex assets. They are very large scale assets are very capital intensive assets.
They have proven themselves over decades.
What we also find interesting about the theme park landscape in the U S is it is it is it really on network landscape you have hubs.
Obviously in the form of Anaheim, and Orlando and you have folks in terms of the regional theme park operators, but they are not connected.
And that kind of puzzled less and again I'm thinking well geez what was the power be if you had ever connect these things.
And we'll see if anything ever comes of that but yes. It is a category and experiential category that we believe has real investment merits for us both strategically and economically.
Great.
And then I was just wondering it sounds like everything in Vegas.
Go go go.
Are you hearing maybe just a little more specifics around sort of regulus user visitation versus return of corporate groups or any kind of.
And you are hearing.
On your tenant kind of on the different <unk>.
Drivers of the business.
Yes, Smedes nice to talk to you. This morning, just spent time with all our Las Vegas operators over the past couple of weeks.
And as you started out by saying the business continues to be very strong.
Robust and the beauty of Las Vegas is that they are seeing.
Growth in demand from all of those different segments. That's what's made makes Las Vegas, So special that they do.
The international game or they get the domestic game or they have the meeting business that's coming back.
Business and.
And the operators there continue to add resources and add assets to their facilities. We just can't say enough about our tenants that are there and the performance that they are having and they've seen they do not see a slowdown in their business and then later this year they'll.
Probably have one of the biggest weeks in weekends that they've ever had with Formula One comment and then we're going to turn the year in 'twenty four and go right into the Super Bowl. So.
The city like no. Other we talk internally is there a city performing better than Las Vegas in the world.
And we're not sure we can find one and all the credit goes to our tenants and the way they are marketing that city and their properties.
Okay. Thank you.
Our next question comes from Barry Jonas from <unk> Securities. Your line is open.
Thank you Hey, guys good morning.
I wanted to keep on the Vegas, Steve and maybe start with Fontainebleau can you talk about sort of your expectations for what this relationship could develop into down the road.
Given any intentions around sale leaseback at some point and then how should we be modeling timing of the full loan.
Yes, Barry I can start and John chime in with anything I missed but we went and we looked at this asset over a period of a number of years and I think it is a phenomenal asset and even better backed by the equity support of Koch industries, and then the sofa organization.
We will have the vision and get it open towards the end of this year. So there's nothing formal in terms of our relationship in terms of a path to real estate ownership, but when.
When you Act as good partners you will help support.
Other partners objectives that leads to more opportunities and just the size and scale of Koch industries in everything that they have and the size of their real estate book, especially focused in leisure and hospitality.
Hospitality, we think there could be more things to come in the future.
And we were excited to partner with them and be involved with that project.
Okay, Great and then just maybe just spending a minute on hard rock and Mirage what are the next steps there for that potential redevelopment.
Redevelopment and.
Also the partner property growth fund.
Loan potential loan there is there a general timeline for specifics to be worked out here.
John It's John Yeah.
Alright, good to talk to you this morning really.
A question for our tenant on that but.
Jim Allen in the hard rock team just took the business over earlier this year, they're getting.
It used to the property understand where property understanding demand.
Understanding how busy Las Vegas is right now, which is which is great.
And the last communication as they're studying their plan working through this year and will be in contact with them over the next coming months and we'll have a better idea of what the ultimate timing and what their ultimate plans will be.
So nothing new that last time, we talked about this.
Okay got it. Thank you I appreciate all the color.
Thank you Barry.
We now turn to Wes Golladay from Baird. Your line is open.
Yes.
Hey, good morning, everyone, let's have a quick follow up to the last question.
Are these types of rates for these projects such as the Mirage with the harder rock.
Yes, thanks for the question.
David David is best equipped to answer this and I don't think David heard Curt it quite clearly.
I think I got it you say, where do we set the rates for these partner property growth plans.
Is that did I get that right yes.
And the model say around 8% or so but I don't know if those are set up a time you mentioned the deal at the time of the closing of the transactions and there's always a future opportunity, but I don't know if these rates are already locked in and when they can plan the project around a certain yield or get the scope of the project and then you set the terms.
Yes, the rates are not locked in west that's part of the negotiation when we announced the acquisition of the Mirage, We said we'd be happy to commit up to 1 billion five of our partner property growth fund or even more if they needed it but that would all be subject to negotiation in terms of final terms rate structure timing.
Okay and related to that with the consolidation of the joint venture.
Go ahead go ahead go.
Go ahead Sir.
No no go ahead.
I was just going to say needless to say.
The pricing of capital right now.
Is an exercise that.
It's not easy to carry out obviously, having a forward view.
Of the cost of capital in the future and then pricing our capital to a borrower or a partner.
It's not an easy exercise.
Go ahead.
Yes.
Yes, so my.
My last follow up would be the for the consolidation of the joint venture for the Blackstone deal that you did earlier in the year.
How are you going to handle the debt for that will be a mark to market for just the JV portion or the whole portion and in the sense of the magnitude.
Gabe.
Yeah, Hey, it's gave here. So I think we have some flexibility where we can either inherit our partners existing basis on the debt or we can roll over that basis, or we can choose to market to market. So still having that debate internally at.
And we will start focusing on that in the months ahead.
Great. Thanks, everyone.
Thanks Wes.
We now turn to Sean to create from CBRE Securities. Your line is open.
Hi, everyone. Thank you for taking my questions.
One Big picture question, Ed to put you on the spot a little bit you gave a nice recap of Bt's first five years quite successfully in your prepared remarks wondering if you'd kind of venture a prediction or a plan kind of for the next five years.
Yes, yes, David David Discovery of the year.
Matt Gallagher.
G C.
Yes, John well.
<unk>.
Okay.
Really forthright.
Five years ago. If you had said okay I want your prediction for the next five years Ed.
I would not have predicted what we have done.
We always had a conviction that we had a wonderful opportunity to institutionalize that real estate asset class. It had not really yet been institutionalized and we think so much of the story of this first five years. So much of our outperformance two times two times. The S&P 502 times, the NASDAQ I, probably should've mentioned that as well as how does the Nasdaq.
Was during much of that period crazily Hot at times.
The NASDAQ performance over that five years was that on the S&P 500 performance and we beat them both by two X right. So as we look ahead, we certainly cannot base our strategy on continuing that kind of outperformance do you get to base our strategy on that kind of outperformance might involve would likely involve taking risk.
So we're not sure we should take in terms of creating and sustaining value for our investors. So what youll see us do over the next five years is continue to grow categorically continue to grow geographically.
Do accretive deals.
Be willing to over appetizing the way David.
Spoke of at the beginning and answering Tony's question.
And just make sure that we never put the value we've created together with our investors at risk one of the great benefits I.
I shouldn't say one of the great benefits one of the great drivers of our performance. During the first five years is we never went backward for sustained periods. We obviously had volatility as everybody else did over that five years, we never went backward and stayed there for a long time and we don't want to start doing that in the next five years. So I think youll see us be.
Disciplined in how we allocate capital in order to do that we'll be disciplined in how we underwrite.
And always look to learn from reeds, who have succeeded in doing what we want to attempt to do so whether its a pro largest in terms of how they've grown internationally, whether it's great ideas on how you grow categorically like full marks to meet in the royalty income team for the deal they announced this.
Weekend plenty like that that kind of deal making on the part of our peers really inspires us because it is evidence of how to think creatively and innovative Lee in developing into new categories. So I think that's what you can expect of us over the next five years John .
That's great insight on a on a curve ball there.
Maybe maybe a bit of a softer what are the follow up.
Last couple of acquisitions, you've made and maybe for John or kind of.
Maybe lesser known tenants.
Little bit smaller.
Companies, how do you think about the kind of underwriting.
Standards different from your large public tenants relative to smaller private companies and then.
Is that a trend you've kind of see emerging more this year, a little bit more activity with smaller maybe private companies or would you expect to see similar kind of deal flow from the larger public who is realizing that they probably have a bit more to do but curious how you're thinking about those kind of two different types of tenants.
Yes, Jon very good question, but it's not new to <unk>.
<unk> right I mean part of.
We're proud of is that we've taken the time to go talk to all the operators inside the gaming industry and hopefully over the next five years and most of the experiential companies, where whether you are big whether youre, a small whether your private whether public we take the time to understand how they're trying to grow their company.
And is there a possibility for us and our form of capital to help them grow and so that won't change is that just went through the next five years.
What won't change I think thats the curiosity that we have.
The business development team to get to know it may be a small company and it may be a small deal, but we're hoping that over the course of our time together with them, we take a small deal and we make it bigger we help a small company become larger and youre going to continue to see that you've seen it since we started the company and I think Youll continue.
To see us do deals with smaller.
Private companies and I believe Youll see us continue to do deals with large public companies and that will allow us to continue to grow our business as we expect.
Thanks, John and thanks, everyone and congratulations on another exciting year.
Thank you John .
I will now turn to runoff Thompson from Morgan Stanley . Your line is open.
Great just maybe a couple of quick ones from me.
The first is just on the <unk> growth.
Almost 10%, which is pretty impressive compared to some of the other triple net peers and that sort of flat to 3% range. I was just wondering if we could sort of get a breakout.
Organic versus external growth of that number so how much of that is being driven by sort of the in place and escalators versus some of the acquisitions that were done in 2002.
Ryan It's David Nice to talk to you, it's all driven by well.
Said differently the way we model the escalator in November with Caesars that 2%, we did not make any predictions about the future. My counsel next to me would be very upset.
And then so the acquisitions as I mentioned in my remarks are all baked in including the pure deal, which closed in early January as well as the B.
Consolidation in early January as well and then it does not include Rocky gap, which is still outstanding.
And Ron if I understand your question right. There is no question that the.
Rent escalation.
That kicked in in November for Caesars and I believe it's January for century.
Definitely plays a role in generating that 10% <unk> growth.
But to David's point, we obviously havent towards the end of this year, we've only underwritten.
Base level rent growth.
Do not presume any we do not make any CPI assumptions for forward rent.
If that's of any help.
And we don't include any on closed acquisitions just to be clear.
Or on loans that do not have a fix.
Fixed draw schedule as yet.
Great.
That's helpful unclear.
I can have moved on to sort of the pipeline.
I think Paul we've talked about sort of sizing the market.
All have done, but I'm curious if you guys have any sort of quantifiable numbers on pipeline and the amount of deals that you are in talk with.
And the lineup at $50 billion, whatever I think that would be sort of helpful.
Okay.
John .
Yes, I don't I don't have a specific number on that right now I would tell you as I talked earlier in this call about adding resources to our organization to our business development team. So what I would tell you is that.
We are as active or more active and deal flow than we ever have done before it's obviously an uncertain time, we have to be incredibly thoughtful and any type of deal that we do on the underwriting that we do but we've been able to expand not only in gaming and you heard me talk about public companies and private company.
But in many of the sectors that we've talked in previous calls about so we're touching more companies. We're meeting more companies than we ever have done before we're explaining our capital ultimately can help.
Those companies grow.
But I don't have the exact size for you I don't have Danny is almost call and wanted to add anything to my answer.
No John I think you've covered it well I mean, we've talked about.
Some of the opportunities that we look at within gaming.
That ranging from anywhere from $40 billion to $50 billion of potential transactions, that's not an all encompassing blue sky numbers. Those are opportunities that we think are actionable at some point in time, but as we've talked about a lot here.
The universe of opportunities is growing, especially as we look internationally as we continue to study and explore other experiential sectors. So it's it's difficult to give you a single number right now.
I would just add a little bit more to that Ron.
Last time, we saw data.
American commercial I want to emphasize commercial gaming sector was about 40% region that would contrast say with the mall space, which I believe is 70% plus <unk>. The other thing to keep in mind is if we do have an American tribal gaming sector that is equal in size to American regional gaming and we are now up to.
Two three years or four travel relationships.
John and Danny.
And that that is a sector.
And those that sector is led by operators were very eager to do more business with and all the ways. We can possibly think of the thing I'll. Finally add is that there are obviously, new jurisdictions opening up to gaming and we just saw a headline this morning about governor Abbott of Texas, saying if were going to get gaming in tech.
<unk> I wanted.
I wanted to be how did you put a John great Great Wolf Lodge type of gaming.
I can't remember exactly how this yeah, and we read that headline that's great because we're already in business with great wall and we definitely are in business and gaming.
So you look at a market like Texas and Needless to say, we get quite excited given the capital allocation opportunities a market like that could represent.
Great. That's it for me Super helpful. Thank you.
Thank you Ralph.
We now turn to David Strom Jefferies. Your line is open.
Sure.
Hi, good morning, everyone.
Covered an awful lot of detail and we don't need to.
Sort of double back over those but what I wanted to just throw out there is a question that has come up with investors in my travels which is the next couple of years.
We spend time thinking about potential capital raising is more.
More so equity then that.
For obvious reasons on our side can you just talk through what you have in front of you in and obviously the Caesars.
Pipeline as well.
The prospects for you.
Could be.
Having to go out and raise some more equity and under what circumstances you might do that.
Well as a starting point.
David and I will turn this over to John in just a moment as the starting point as a REIT you can be confident we will we will perpetually raising equity.
But we will be perpetually raising equity for years to come as all good growing rights due to fund accretive growth that benefits all shareholders.
And that's been our track record to date as evidenced by the kind of <unk> growth per share, we're producing in 2023 and half on a compounded basis since our beginning in 2018, but again, so that we will we will raise equity.
When the opportunities are there to do so.
And we will raise equity to fund accretive acquisitions in terms of the pipeline I'll turn it over to John .
Because we obviously have opportunities like the Indiana assets in our future John .
Yes, David good to talk to you this morning, and as Ed alluded to.
And our.
Our view is the opportunity with Caesars to put call opportunity with two Indianapolis assets that are performing incredibly well.
That put call is is kind of alive right now and we'll see how that ultimately plays out but that is a.
A really nice opportunity that we hope we can bring into our portfolio.
In the coming years, and then obviously I spent a lot of time on this call already talking about the numerous.
Relationships that we're building in.
In gaming and non gaming and I hope part of our growth will be with our existing tenants, whether thats an opportunity as they grow into new jurisdictions like New York or.
Ed mentioned, maybe Texas will break at some point and I Hope, it's also growth with new tenants as well.
Hey, David if I could just add.
Please.
Yeah, David again, one more thought in relation to this and it's something we haven't talked about on this call, but when it comes to being.
<unk> growth oriented REIT.
When it comes to being a REIT that will likely continue to access the capital markets.
There is really no question in our minds and don't think there should be any question in anybody's mind as to the advantages of scale. When it comes to access to the capital markets and I think what you could see over the next three years as an increasing bifurcation.
Or a barbell effect emerging.
Across the American REIT landscape, where great advantages accrue to the biggest Reits.
With the most compelling value creation story, because their access to capital in large volumes will be highly superior yields.
You'll always have the small reach it can produce.
Significant growth in their early years, but the problem is you can reach a no man's land of what we'll call mid cap REIT, where it's really it's tough to access capital at high volumes and it gets a little bit tougher to produce material growth year over year over year, and we think at the scale were at now is I believe.
The ninth largest REIT in the RMC.
It definitely brings advantages when it comes to access to and cost of capital and sorry.
Now I'll turn it back to you for your next question David.
I appreciate that.
Okay.
With respect to the native American.
I know we've talked about this before about.
Building those relationships.
Way, where you can own hard assets or is it more building relationships by.
Providing loans on reservation land that will enable you to sort of own real estate.
Other areas or are you trying to solve the code for.
Reservation land.
We definitely worked on that and we think there could be solutions down the road in the near term and I'll turn it over to John our greatest excitement is helping them grow either off of tribal land or adjacent to try the latter John .
Right.
That's exactly that's exactly right David I mean, we continue just as just as we are building relationships with commercial.
Operators were getting out and meeting with many native American nations just to let them understand who we are how we could help them grow into commercial opportunities.
That's what their mission is is to so.
I'm spending a lot of time on the road doing that and.
Letting them understand.
Already have partners with three.
<unk> Native American Nations.
Understood Thanks very much.
Our next question comes from Todd Thomas from Keybanc. Your line is open.
Hi, Thanks, Good morning, I just wanted to go back to your interest in non gaming and following up on your comments about sensitizing underlying businesses and operators in various economic scenarios.
Your appetite changed around non gaming assets today, just given the more uncertain macro and maybe sort of consumer backdrop or does it just require additional coverage on return.
Yes, I would say Todd that are.
Our interest in <unk>.
Non gaming hasn't diminished at all even amidst this.
Lack of visibility around the consumer economy, because of our strong conviction around the secular tailwind of experiential businesses.
We have seen with Covid finally, starting to leave the landscape.
Matt.
What had been in place for the prior 10 years or so 15 years prior to Covid, which was increasing consumer preference for experiences over things has definitely reasserted itself.
And we don't think that that's going to diminish we think the aging of the baby boom into their prime leisure years, we think millennial family formation, those or demographic waves and together with this increasing preference for experiences over things is going to give experiential operators across a number of spectra.
Really compelling growth opportunities and very strong economic performance almost no matter, what cyclicality looks like.
Okay.
Okay and.
How do you how have you increased your required returns as you think about underwriting investments going forward. I mean can you can you sort of quantify.
What youre, what youre seeing what youre underwriting and also whether sellers are adjusting their expectations today.
Hey, Todd it's David Good to talk to you I mean as a net lease REIT, obviously were spread investor and we have to ensure that we had.
We receive an appropriate spread for the for the risk of the.
The investment in that sector of the location of the asset the tenant the business and taking that all into account in our underwriting and the last part of your question. There are spot on right and you've heard this from other net lease Reits right. There is still a bid ask spread for a lot of folks in terms of what they think the assets were somewhat.
We can actually acquire that with an appropriate rent coverage and generate an attractive return.
Attracted risk adjusted returns so I would tell you we're being more diligent in terms of underwriting the business.
The proof of concept of longevity of concept everything that we've talked about since day one of this company.
Was there an enduring experience to <unk>.
Consumers are going to go to overtime and so we are spending more time in going deeper on some certain sectors, where we think there's some opportunities in growth up larger growth opportunities going forward in those sectors.
Okay.
You look out.
During the course of the year ahead here do you expect the spread at which you're investing relative to your cost of capital do you expect that to be be wider than it was in 2002.
So we expect that to be wide.
He is going to generate 100 150 basis point spread to our cost of capital is kind of what we set as a preliminary benchmark.
It can be higher at times or it can be lower at times, depending on the quality of the asset quality of the operator or riskier asset riskier operator locations in the country.
Okay alright, thank you.
Our next comes from Jay Kornreich.
Your line is open.
Alright, thanks, good morning.
Just wanted to start with a follow up on the thought to Las Vegas that there'll be a great asset.
And I guess, providing construction loans.
Riskier higher return investment option that you guys typically have Deborah Jason I'm. Just curious if you saw this is more of a one off opportunity.
Providing.
Hotel construction loans is more of a path towards growth in the future.
Okay David.
With our capital, we always want to find where it makes sense at the right point in time with ideally a path to real estate ownership and as I mentioned earlier, we do not have a direct path to real estate ownership.
Blue, but we've developed a phenomenal relationship with coke and so for that could lead to other opportunities.
But as we've talked about with our partner property growth fund.
We've talked with other gaming operators and non gaming operators about providing ground up development. We are doing that with Canyon ranch, where we're doing that with <unk>.
Form with Cabot in the golf opportunity so.
The nice thing about our capital it is flexible.
Can come into different parts of the capital stack, so to speak but again.
We have a path to real estate ownership over the long term, where we can continue to generate the types of returns and growth that we've done in our first five years.
Alright, Thanks for that and then I guess just on.
On the non gaming side with some of those partners that you just mentioned.
That are quickly growing that youre looking for.
For example, the capital kind of fund that expansion no do you have a sense of just how large the potential pipeline is in the U S. For these types of quickly expanding not getting platforms that you'd feel comfortable investing in.
Yes, Ken.
Category by category, Jay and Elliot. This is just a heads up this will have to be the last question.
These these categories theres, so many of them and so many of them run into many many tens of billions of dollars of growth opportunities. Some larger some smaller but it is the landscape and experiential landscape that we see.
<unk> represents decades of growth ahead for BG.
And thank you for that question Elliot and I think we'll close things out now.
I'll just add.
I haven't heard enough.
Just across the street.
Okay.
Okay.
And with that.
Thank you.
Really appreciate your attendance.
Very excited about the value creation opportunities we have ahead of us.
Thank you.
You may now disconnect your lines.
Yeah.
Okay.
Okay.