Q4 2022 Gaming and Leisure Properties Inc Earnings Call
Greetings and welcome to the gaming and Leisure properties, Inc. Fourth quarter 2022 earnings conference call. At this time all participants are in a listen all smoking 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 your host, Georgia, Bonnie you may begin.
Thank you and good morning, everyone and thank you for joining gaming and leisure properties fourth quarter 2022 earnings call and webcast. The press release distributed yesterday afternoon is available in 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 F. L. A F L.
As a reminder, forward looking statements represent managements current estimates and the company assumes no obligation to update any forward looking statements in the future.
We encourage listeners to review the more detailed discussions related to the risk factors and forward looking statements contained in the company's filings with the SEC, including its 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial 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 also joining today's call are Brandon Moore, Chief Operating Officer General Counsel and Secretary Deseret Burke, Chief Financial Officer, Treasurer, Steve Louden, Senior Vice President and Chief Development Officer, and Matthew <unk>, Senior Vice President and Chief investment officer with that.
My pleasure to turn the call over to Peter Carlino. Peter Please go ahead.
Well, thank you Joe and good morning.
Let me now.
The noise on the line.
Let me announce at the outset that several of us have dialed in from out of the office.
And hopefully that won't affect the smooth flow of our presentation.
We're very pleased to announce.
Another positive and eventful year here at G. L. P I.
Documented with considerable detail in our public release.
Some of the highlights.
Uh huh.
We.
We'll look at in more detail as we get through this call include notably, reaching a new fixed rent agreement with kind of entertainment.
Significantly limits the ramp volatility that we've experienced in the past.
Additionally, we have signed agreements that define the arrangement by which we will.
On the previously announced relocation of patents properties in Aurora.
Illinois in Joliet, Illinois.
Along with providing long term funding for a new hotel in Columbus, Ohio.
Supporting the second hotel tower at the end of Las Vegas, which was pretty exciting stuff and we're delighted to be doing this with with Penn.
Also this quarter, we closed on valleys pivoted, Rhode Island property valleys hard rock Biloxi.
And Additionally, as we'll probably discuss in more detail. We worked hard this past year in last quarter to protect our balance sheet.
Keeping the lowest leverage we've.
Average oil and.
Positioning us to do.
With the option to do things using that now if we wish and still stay within the five to five five leverage range that we have discussed.
I'm Gonna have deseret to put some numbers behind some of these things that I've just outlined the Deseret. Please go ahead.
Thank you Peter and good morning, everyone and thanks for joining our call. We reported record results for the fourth quarter of 2022 in our total income from real estate exceeded Q4, 'twenty one levels by over $50 million. This growth was driven by the cordis live transactions, which increased cash rental income by approximately 30.
1 million. Additionally, bally's Black Hawk in rock Island properties, which drove an increase in cash rental income of $3 million that Tropicana Lv land lease, which increased rental income by $2 6 million the recognition of escalators and pep percentage rent increases on our leases, which added approximately $4 million of cash.
Rent as well as the combination of higher noncash revenue gross up investment in lease adjustment and straight line rent adjustments, which drove collectively our year over year increase of approximately $8 million.
Our operating expenses declined $33 million, primarily due to a reversal of prior periods provisions for credit losses on our cordis leases, resulting from improved property performance and a decline of approximately $8 million in gaming and G&A expense related to the 2021 sale of our Trs operation.
We continue to see strong coverage ratios across their leases in the fourth quarter, we realized full escalation on the Penn Master lease, which increased annual building base rent by $5 7 million 1 million of which was recognized in 2022.
In connection with the Penn transactions, which created a new master lease and amended the existing Penn Master lease and terminated the parizeau meadows leases the portion of our rents that are variable as a percentage of our cash rents will decline to approximately five 3% in 2023 from 11, 7% and 22.
<unk> additional visibility into and certainty of our future revenue streams from this tenant.
Our balance sheet perspective, we had a very busy fourth quarter during the quarter. We sold three 2 million shares of common stock under our ATM program, raising net proceeds of $156 million.
We also settled the forward sale agreement in February of 'twenty, 'twenty, three and issued $1 3 million shares raising net proceeds of $64 6 million. We used these proceeds to partially fund the early redemption in February of 23 of the 500 million five and three eights notes, which were coming due in November .
<unk> of 23.
Net leverage is now just under five times EBITDA. In addition, we entered into a new $1 billion at the market program, which remains unused as of today.
In today's release, we provided full year 2023 guidance for <unk> per diluted share in O P units ranging from $3.61 to $3 67 per diluted share and O P unit.
Note that this guidance does not include the impact of any future transactions.
For modeling purposes, our noncash straight line rent adjustment for 2023 will be approximately $39 million, which will need to be included in revenue, but then deducted for a F. F. L. As it is noncash and it is changing due to the new leases that we entered into in 2023.
I would also like to note that we declared a first quarter dividend of 72 cents per share on the company's common stock as well as a special earnings and profits dividend of 25 cents per share. The special dividend is related to the earnings and profits from the sale of the Tropicana building, which was completed in the third quarter of 2022.
Two.
With that I will turn the call back to Peter.
Yeah.
Yeah.
Okay.
Peter do you have any other further comments if not I think Matt had a few things he'd like to address.
Oh, Hey, I had put the I put my speaker on I'll hold my apologies, yes, Indeed, I had turned it over to Matt So.
Go ahead I know you wanted to focus on a couple of points you thought were critical.
Thanks, Peter and thanks for everyone for joining us on a busy earnings season.
And it environment.
Economic and monetary environment with significant cross currency volatility and uncertainty I want to remind everyone that <unk> business model was built with environments like this in mind towards shareholders can benefit from our platform is strong.
Zillions and opportunistic.
Work hard and long in the effort to strengthen our balance sheet.
And liquidity levels.
Served both as a ballast and also a strong foundation for growth.
Net leverage positions us for significant Optionality as we look to fund future opportunities.
That and we've also worked diligently.
Past many years to expand our tenant roster.
The seeds of future growth through various structures.
Specific assets.
Dialogue with new potential partners and to fortify our reputation as a collaborative landlord problem solver that is interested in enhancing the long term success for our tenant partners.
You've got a seat at the table for opportunities.
New healthy conversations across the board and.
And to the extent one of our many conversations leads to an opportunity of interest.
We're poised to pounds.
We take our role as stewards of shareholder capital very seriously.
Resolutely focused on increasing intrinsic value per share over the long term.
With that I'll turn the call back to Peter.
Well this time, thanks, Matt I don't have my my.
My mute button on.
No I think that says it very well what we're all about here and I must say just one editorial comment that I'm very pleased with where we find ourselves today, so with that let's open the floor to questions.
Somebody would you please.
Open the mics.
Sure at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Maybe first start to if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your answer it before a person at each store.
And our first question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your questions.
Hey, good morning.
This guidance range are a bit surprised by the low end of the range given what appears to be a pretty straightforward story on lease escalators and limited percentage rent impact in November and December .
And I guess based on our math the guidance range doesn't fly another 2 million shares outstanding versus where you stand today. So could you just touch on your expectations in terms of utilizing the ATM or settling for equity and what would end up driving you to the bottom end of the guidance range.
Yep. So certainly so we did actually use the forward. If it was one 3 million shares that I think that you're missing from where we ended 22 to where we begin twenty-three we did pull that forward as I mentioned in my notes in order to repay the $500 million.
That was coming due that we redeemed early.
So I think that is the biggest share count.
Teams that you have as far as the high to low I mean, our interest rate environment, we now have $600 million of variable rate debt.
So as you know the interest rates are changing daily so we have some.
I mean like.
Up to a 1% change in the interest rate that could happen in our low end.
Well as you know we do not plan for.
But that is another difference between our high end in our low end and the third item to think about is just M&A transactions and how many things. We review in the course of the year and go into due diligence on and do some tax work on and legal work on that will change our G&A.
A number based on how many of those transactions we look at so that is.
What's causing the range from the high to low and I think the biggest number that you would be missing in the share count.
Yeah.
Okay. Thank you very much for that.
Just second quick second question here.
Now that we're kind of closer to the end of Q1 do you have more visibility into how our Baton Rouge development is coming along with respect to timing and spend.
Sure.
Steve why don't you take that.
Thanks Peter.
Yeah, so so with respect to.
The Hollywood Casino in Baton Rouge at this point in time, we are continuing to move forward a lot of the major <unk>.
<unk> had been bought out, but we are still facing scheduling and timing disruption.
Associated with supply chain and labor market. So I think at this point are our best approximation of hard cost spend funded by G. OPI will be $70 million.
And our expectation of timing for opening is likely to be some time around the start of the fourth quarter.
It could be sooner if some things go right, but I don't want to over promise.
Okay, and even though the spend is going up you guys are getting a return on that investment right.
The full amount that you end up spending correct. Yeah. There was no there was no cap on the conversion or whatever to rent. So yeah, we'll get 8.25% cap rate applied to whatever the total hard cost spend ends up.
Yeah, I must say looking at it.
From valleys point of view looking recently at the construction and the progress there. It's very impressive I must admit it's pretty exciting I kind of wish we still we still have we're operating there. So I think it's a well.
Partnership with Valley. This is gonna be a terrific project for them.
And it's well on its way.
Really quite exciting.
Thanks Peter.
Thank you our next question comes.
Next question comes from the line of Brad Heffern with RBC. Please proceed with your question.
Hey, everyone. I was just curious if you could talk through what youre seeing on the deal flow fronts.
And maybe where youre expecting cap rates to trend.
Steve do you want to talk about that.
Yeah, why don't you take that.
Sure Yeah look as far as as far as deal flow goes I'd say, we're where arguably as busy as we've kind of ever been.
There are lots there are lots of different things that are coming are coming in from every direction.
Some of it's some of it's development related.
Some of it.
Some of it's domestic some of it's not we're.
We're seeing all sorts of different transactions come our way and it's mostly related to the gyrations in the capital markets presenting.
Presenting some opportunity.
Maybe that dovetails to your other part of your question, which is I mean, I think from an expectation perspective.
I think that youre going to see cap rates potentially float a little bit higher.
The kind of counterbalance to that is I think that our asset class has really outperformed over the last few years.
And it's taking starting to get noticed by other people, so where we're seeing increased.
Competition coming in at times.
Or at least an interest in the sector.
And as you saw in Boston for example.
But at the same time, I think the capital markets and the cost of capital are kind of offsetting that and so I do think you'll see deals get done slightly higher cap rates than we've seen in the past two years.
Yeah.
Okay.
Any updated thoughts on potentially acquiring Lincoln at some point down the road.
Yeah, I mean, our best right now our best expectation is that it's it's likely a likely a 2024.
Event.
Don't see a lot of reasons why valleys.
Would be incentive to try to effectuate.
Receiving that approval in 2023, but I do think there are a number of reasons.
They may be in fact in position in 2024.
To look to go that direction. So that's that's our expectation here.
Okay. Thank you.
Our next question comes from the line of <unk> St Juice.
Please proceed with your point.
Hey, good morning. Thank you I wanted to go back to the capital allocation in the quarter you guys were very active in the quarter and I was hoping you could provide some color on some of the decisions you made including paying down your $500 million notes with cash.
While you also issued it looks like about 200 billion of equity from <unk> into early <unk>, while also receiving.
The $200 million back from valleys, and while you're sitting here with lots of great liquidity and leverage so I guess help us understand the some of the decisions made in the quarter and how do you expect to I guess deploy some of that excess liquidity over the near term.
I see you have some development projects in the pipeline so help us understand the balance sheet philosophy as well thanks.
Sure. So you know.
He wanted to repay the $500 million because as you know issuing 10 year debt and this market is you know.
Although six handle I'm not something that we would really love to live with for 10 years as well as the fact that we had the bally transaction, which was requiring us to have debt financed proceeds that needed to be guaranteed by balleys. So we had to borrow 600.
So we thought it was a prudent to use some equity in order to do that we paid down some debt and Barbara new debt. So there was some equity utilized for the Bally transaction, even though in essence, it was a debt finance transaction.
Yes, let me.
Oh I'm sorry does it do you want to go ahead.
I was going to say that look we walk a tightrope.
Especially in our industry, because theres not a long string of predictable acquisitions on the horizon. So we kind of take the temperature of where we are you know what's in the shop at any given time.
And try to pick a prudent level.
Be prepared.
Caught.
Unprepared.
And when we need to have cash I mean, you raise money when you can and as favorably as you can sometimes I and I've said this on earlier calls that will accept some at least I will some drag.
From over equity rising because it's a safer place to be and you know that's the model that we operate with safety safety safety for our investors.
So we were opportunistic about that obviously it says something about what we hope to have in the future and I think that as Ray explained what our short term needs were.
This is the prudent way to raise cash the debt market, obviously was very unappealing.
Got it got it yeah.
Yeah.
Go ahead.
Yeah, Okay, that's lumpy.
Was there more.
And I think probably all of it.
This is Matt I'll add a little nuance I'm, taking a step back.
Long term approach of targeting a five to five five times leverage range remains really important to us at the same time tactically when we issue equity, it's really with it it's a permanent capital.
With a long term view in mind sort of approximate use of that cash towards that that wasn't the driving decision. It was the pre fund.
The future opportunity set might be and to add optionality into our business model as I mentioned in the intro. So whenever theres next opportunities might come from the past we have the option to choose using more leverage to the extent, we wish to at that time.
Or equity in the mix remember, we've got a very deep tool chest between.
The overnights bought deals ATM that we've used with them without forward.
The different debt strategies between the term loan we used and also long term unsecured debt.
Really the Peter's point artfully woven together to get the best outcome for shareholders and the Punch line is as we fund Whatever's next we've got more choices than we've ever had as a company to do what's best.
Great guys appreciate that color.
Separate question one for you, perhaps Peter I think the Governor of Texas has mentioned the other day that you'd be open to experiential assets that have an element of gaming quote if it can be built in a way that was.
Professional provides a form of entertainment for people. So I guess I was curious if you could provide your thoughts on the potential legalization of commercial and destination casinos.
Texas, and if you would see that as more of an opportunity or a threat.
Well, it's certainly not a threat.
It would indeed be an opportunity.
For one or other of our operators, but and we do stay fairly close to that that my sense is the moment nothing material was going to happen you may see sports betting because remember the teams are involved.
The professional teams are involved in.
Texas, So I have a feeling that that's what you may see first.
Our move to sports betting.
Flat out casinos I think are farther down the line and who knows.
I've always said somewhere in my lifetime I hope that.
Texas gets full gaming, but my sense is and from what I'm hearing that's not likely to happen in this first round, so, but what it's worth which is not a lot. That's my sense of.
Where texas stands today.
We keep a close eye on it.
And obviously want to make sure that we're around the hoop for any state any activity anywhere and you can bet that we are.
Take rate is tough.
Well, we'll see I think it's going to be a multi step process.
Got it got it. Thank you guys how are you.
Thank you.
Our next question comes from the line of Rich Anderson with D. C. Please proceed with your question.
Thanks, Good morning, everyone.
So you get some form of this question every quarter, probably but a lot of talk about.
Expanding outside of gaming.
And I wonder if it's in between the four walls of <unk>, if it's going something like the Trs deal that.
Or you got talked into.
Taking that off the books and going full triple net lease on those.
In those situations.
You sort of you because you got poker chips coursing through your veins are you is it hard to sell you on non gaming investments or do you think that is in the reasonably short.
Future for you guys in terms of expanding your horizons.
You know we've said from the beginning we will look at anything absolutely anything and I've used this silly analogy time and time again and I mean, it look I I would take a shack on the beach with no windows and doors.
If it had demonstrably stable cash flow made all of the goals that we have but the problem is we're in such a terrific space right now so rock solid.
Said many over many years, our revenues are bullet proof that I stand by that.
Tell me something else.
They can offer the same thing it's hard to go backwards and you're already at the top of the heat. So look we look all the time and again I have said someday I expect we'll be somewhere else, there's probably not a week go by that we don't look at or I presented some non gaming activity, but.
I don't think we get any points for jumping off the cliff with or without a parachute.
I think.
Our job is to look at everything and anything but frankly, we're not in a hurry to go elsewhere there's enough.
First off it.
Said, we can't find anything to equal of where we are but b we've got.
Well as Steve highlighted we're not out of opportunity quite yet.
Not sure over the next couple of years that we're gonna be there anyway. So we.
We see enough stuff on the horizon to say well stick to our knitting until we can dose.
Okay Fair enough second question is.
Talk about a smoking ban in Atlantic city that the workers like but I Wonder what you think the net would be in that case or if this were to be something that.
Got it got it got legs around the country do you think a smoking ban.
It would be.
Good thing or a bad thing for your business when you kind of roll it up.
For G. L. P. I, it's not going to have an impact.
It really well, it's just not going to affect us.
Will affect operators and the thought that somehow you can put a smoking gamblers smoke I mean thats. The simple fact that we seen right.
Again, you would pose a band you're going to see a 15 to.
The 15% drop in revenue and it doesn't come back it doesn't come back.
A lot of businesses are doing in states, where it's possible are building these smoking.
The platforms.
Qualify as outside.
So long as there is the ability to do that in companies operators again, this doesn't affect us, but operating operators have gotten pretty clever.
It's a very very nice smoking facilities that it works.
So a lot depends on how does the legislation can go but by and large the smoking bans or not a good thing for operators to leave it at that would protect us.
Okay, Yeah I remember.
The smoking section on a plane when I was much younger it didn't seem like that was really.
Yeah.
Creative approach to addressing the issue, but we'll see how it plays out in the in the gaming space.
In particular.
I think we're feeling the secret behind the Guy smoking, yeah, I didn't quite get that but whatever.
Thank you.
You're welcome.
Our next question comes from the line of various join US with Securities. Please proceed with your question.
Hey, guys good morning.
Congrats on a great year I think years ago, you used to talk about a target of like $500 million a year of M&A I'm curious, how you think about that today.
Look I'll just answer quickly I think we're still there.
Maybe not be in a particular year, but I think you can pretty well, but we're willing to stand by that.
Anybody else on the <unk> side wellness opine.
I mean I'll throw it to second answer I guess, I mean, I think 500 millions.
As a as a goal I think we continue to outperform that.
Past and I don't necessarily believe that we would underperform it in the future. So I think it's fine for a target I think between the pin transactions that we have.
Hope to fund over the next few years.
And some of the capital improvement dollars that we expect to put out to different tenants for different projects. I think we were gonna be we're gonna be there again or through it. So I think think all signs point to that as a continued goal and continue.
Continued purpose of outperforming.
Great Great and then just just wanted to sort of follow up wanted to touch on I gave me in cannibalization.
And really how it plays into any long term strategy or how you may start underwriting future deals you know Peter I think I asked you. This question like a year ago and you said it was too early but curious another year of data any updated thoughts here or still too soon thanks, Larry I know look I'll stay with where I was a year ago.
And it is for this reason I look.
I gave me provide the convenience.
We all understand but people are social animals, I mean, my whole feeling about that is that.
People may but you know you're going to place a bet on the college game. For example, so we'll look at some sports betting in your driveway to bet on your college team or some other.
Our game around the country, but that's not a an experience that people like I I guess I look at it this way I look at how well the cordish people are doing with their life facilities that don't even offer gaming Pat Dan.
My 22 year old granddaughter this year could have watched the eagles at home with a giant screen.
What's the play where did you go he went all the way down to Philly live and.
You know joined all the other crazy down there drinking party and have the Grand old time, because look gambling is a social experience and you can play you can play poker on your on your iPhone, but it's not the same as looked at the guy and the sunglasses.
Baseball had turned back backwards across the table from me I'm trying to figure out where that person exactly it is that dynamism as what people thought so I'm, suggesting it's just gonna be a hell of a lot more gambling going on but I don't think it's going to have a negative effect at all in fact I'm more convinced of that now.
The bricks and mortar property.
Great. Thanks, so much.
Thank you.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi, Good morning, everyone. Thanks for taking my question.
One of the areas I continue to ask about and think about as the ways in which you might engage with native American entities.
Who are you know more and more expanding what they have on reservation land as well as trying to grow off reservation land or contiguous Torres reservation land.
If you could update us on your pursuit of those potential opportunities. If there is any please.
We look at things and of course recognize the potential if you can figure out a way to to make it work I don't know Brandon you've been kind of softwood profile.
Kind of rolls into the legal areas.
The business opportunity what you.
Can you add any color.
Yeah, I mean, we do spend a lot of time looking at opportunities and tribal gaming I think there are some obvious challenges in dealing with the tribes.
The protection standpoint, because there's only.
So much you can do to exercise on the collateral and so for us. It's a it's a prudent research and development project to see if there's a way that we could.
<unk> finance or otherwise invest in some of these commercial developments that tribes are doing in a way that we can protect our asset our investment and our shareholders. So it's something that we do focus on it.
We've engaged in for a number of years, we obviously haven't done anything to date, but it's not to say that we don't think that there is an opportunity. There I think I think there is an opportunity there with the right tribe, the right project and the right investment.
Okay. Thank you very much.
Thank you David.
Our next question comes from the line of Daniel.
Capital One. Please proceed with your question.
Hey, everyone. Thank you for taking my question just one from me. So services inflation is still elevated in the U S.
I'll run.
<unk> operating model, where tenants are large employers in their various locations are there certain things you all are watching out for into 2023. Thank you.
Yeah.
Oh look.
My own opinion is not really.
Again, we're so far buffered with the kind of coverages, we have with our tenants does that does it have to be a catastrophe.
Imagine proportions for it to actually get down to Washington, and meaningful way.
So there's nothing I'm not losing any sleep this year over any any real harm to our tenants.
Anybody else have a.
I mean, that's my flat out answer, but anybody else have a thought about that.
Yeah, I'll add one.
There's another angle here and it's what do we think about when we look at acquisitions.
Yeah.
Very thoughtful and disaggregated the income statement.
Finding coverage that has an appropriate margin of safety given the asset location operating history et cetera, and a piece of that is assessing this very point.
On the acquisition side, we give a lot of thought to.
Okay.
Great. Thank you.
Thank you.
Our next question comes from the line of Ronald Camden with Morgan Stanley . Please proceed with your question.
Great just two quick ones for me one just on bigger picture of regional gaming revenue operating trend some of the data we've seen in December .
So and it was sort of down year over year, I think down a percent.
Not no alarm by any means but just curious what you guys are seeing on the regional gaming front.
Any commentary there would be helpful.
Well remember, we don't get any information that you don't get.
We're not privy to accept that what's publicly available.
But we've seen nothing that suggest there's a problem on the horizon I think the 1% is an aberration.
Ignorable.
So we have the general feel that our tenants are doing well.
And they have a long way to go before we have even given any thought to.
At all.
Anybody again on the <unk> side have a.
Any insight around that.
Yeah sure. So you know, even though coverage may come down due to these items that we're seeing in our regional markets, we still feel that our.
Tenants are strongly there the rent coverage is stronger than it was in 2019 and when you also recall that it's coming down 1% off an all time high.
After COVID-19 and what has happened in 2021, so we're not concerned at all certainly won't impact our business from the perspective that in my opening remarks, I I noticed that I noted that only five 3% of our rents as maryann long anyway.
So even if it did impact our revenues at the tenants and drop their coverage a little that we have such strong coverage well over two times that.
Our master lease tenants that it will not have an impact on NGL cat.
Great helpful. And then my second question was just.
Going back to the guidance.
On the <unk> growth.
It's two and a half just just sort of curious what's baked into that in terms of organic growth or rent bumps.
And presumably what.
What's baked into that for the.
External drivers thanks.
So we have baked in all fixed escalators that will happen in 2023.
We have baked in the that transaction that we did with valleys or.
You know the recent one with Biloxi and Tim Burton, we have not baked in any additional acquisitions into the 'twenty two 'twenty three guidance number.
Great. That's it for me thanks, so much.
Thank you.
Our next question comes from the line of John <unk> with Ladenburg Thalmann. Please proceed.
Good morning.
Good morning, Joe.
So sandy going at the cap rate question from a different angle you've seen a couple of transactions in the regional space closed or be announced in the last couple of months.
Kind of in a rough high 7% cap rate low to mid 8% cap rate range do you think thats an appropriate level of return.
What we've seen in terms of interest expense and cost of capital increases both for.
Landlords and operators.
Yeah.
Probably not.
Steve or Matt do you want to.
Opined on that.
I'll I'll hop in.
Firstly, I'd say I hope, that's an achievable rate for the kinds of things we like to buy.
Do you want to transactions with.
A lot of characteristics that for various reasons didn't work for US yeah. The reality is in the broader world I think you've seen more of a expansion in cap rates and broader triple nets, and a gaming to Steve's earlier comments around people appreciating the stability of these cash flows. So the good news is for our business model.
For our inputs to our cost of capital equation, we can get a healthy risk adjusted spreads at rates like those if their situations, we like and it's really going to come down to asset by asset.
Okay.
Okay.
And then a quick kind of detailed question on the balance sheet.
Any updated thoughts on swapping out the term loan and I guess, if you were to do it today, what would kind of be rough pricing on that.
So you know we only have about 95% of our total debt at a variable rate that we have looked at the swap rate and we are comfortable that we at this time do not intend to swap that out.
Okay.
Any.
Broad thoughts on where pricing is today.
Pricing is today relative to <unk>.
Last year just.
Right. So the last time that I looked at a three year swaps was around five 2%.
Okay. That's helpful. Thank you very much.
Thank you.
And as a reminder, if anyone has any questions you May press star one to join the question and execute.
Our next question comes from the line of Robin Farley with UBS. Please proceed.
Great. Thanks, I wanted to ask as a follow up you kind of made it past passing reference to it earlier.
Earlier in the Q&A, but can you talk a little bit about the environment for transactions in terms of other buyers that youre competing with sort of the appetite and the number of buyers in the field and you know kind of how those have changed in the last quarter too. Thanks.
Yes.
Robyn.
Okay.
Yeah, it's clear there's a lot of people a lot more people are interested in aerospace for obvious reasons. It's a great place to be I'll make my general comment that we're generally not in the bidding business.
Most of the transactions, we have done well crafted and solve some other.
I mean I I.
To say that in a flat out auction the bidder loses we generally don't like to be there specifically we are not there because we can provide.
Other than the last dollar.
To make a transaction effective.
I think Steve was right that there are seemingly more people out there, but it hasn't affected us yet we don't we don't lose many things that we go after Steve do you want to comment on that.
Agree or disagree.
Sure Al.
I'll say it one.
One or two centers and then let Matt jump in too.
Look I think there were a number of there've been a number of competitors, who have who have come in and who have then disappeared I think that could be somewhat capital markets related or based on their funding structures, but it's.
It's undeniable that this asset class is gaining attention.
You know based on based on ours, and our competitors' performance from a total return perspective in the past and based on just the stability of our performance through Covid and I think as you look forward and some people have.
Various views on what the economy may do.
Moving forward, but I think looking back at Covid is a pretty good glimpse and gives you a sense of what may or may not happen to to folks tenants and in our case, our tenants performed wonderfully through that end and we would expect the seem to be true going forward. So Matt I don't know if you have something to add I mean, it's kind of.
Interesting. If you look if you went back to last June or do you have kind of summer of last year and asked the question there would've been some names that we were thoughtful about it.
What kind of inside the bidding tent that aren't there anymore and anecdotally at least one of them.
This is kind of a mispriced credit.
And got into the space and then I think came to the conclusion based on the capital markets and the opportunities in gaming dead or other places that the better return would be elsewhere. There's a lot of hassle to be a landlord and you've also seen headlines from some noteworthy large private equity folks that clearly are not playing offence as aggressively as they were.
And a lot of that speaks to their reliance on really where real interest rates and real time, whereas inflation and what's the cost of the.
Did you say you can get from the debt side of things and we've got an arrow in our quiver.
Petitor perspective, with our cost of equity and access across all those areas I mentioned earlier, when you think about our capital sourcing that now gives us a competitive advantage in that bidding scenario. So again, we've positioned ourselves to use that thoughtfully throughout this year to this that we get opportunities and were hopeful that backdrop stays about the same.
Great. That's very helpful. Thank you.
Thank you.
And our next question comes from the line of John Decree with CBRE Securities. Please proceed with your point.
Good morning, everyone.
Maybe to kind of continue the conversation.
Rather than potential competitors for new deal activity, maybe Peter Steve I'm wondering if you could elaborate on the type of activity I think Steve in the prepared remarks, you've mentioned you're kind of seeing similar potential deal volume over the last couple of quarters curious kind of what the mix of that is is it.
Existing tenants looking at M&A as it maybe sellers looking for an exit.
And then the follow up would be how is the bid ask.
The last year, given the volatility in capital markets that we're still facing today. The bid ask is seemingly widened for potential.
Transactions curious, if <unk> seen any normalization or reasonable expectations among different different parties in the market.
Steve.
Yeah sure.
As you would see as you would expect.
Sales processes, which were launched prior to the capital markets and the debt market in particular dislocating.
Many of those are probably not going to.
Kind of reach finality other than other than Doa so.
I think that in there.
Those cases the <unk>.
Well our expectation.
Was dramatically different from the reality as the as the debt markets corrected and the cost of capital just you know.
Rapidly increased on people so.
I think that things that are coming to market now everyone. At least has the same lens that theyre looking at the world through so I feel like things are probably a little more achievable at this point than they were you know.
The beginning of last year.
So.
So that would be my first commentary on that piece, but I mean with respect to what we're seeing look are our current tenants.
Our in our in various.
Various places within their lifecycle. So some of them are looking to grow with.
Type of assets, maybe available some are looking for certain geographic locations are certain sizes.
But there is dialogue and no one's looking to be stagnant. So we have dialogue with them around potential acquisitions. We also have many more partnerships and relationships with folks.
That and dialogues than than have materialized.
Materialized into tenancy so.
At this point I think we're very hopeful that transactions will continue to be able to be created.
And constructed and we're working hard to make sure Thats achieved.
This is Matt let me add one thought I remember there was some subset of Counterparties that used to say Hey, you guys are an expensive form of permanent debt.
And they were comparing us against that prices in the wider market.
Other side of that equation has moved meaningfully.
The competitiveness of our cost of capital versus all those other options is certainly converged to an extent that's favorable for us.
Yeah.
Thanks, Matt Thanks, Steve I appreciate the color.
Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.
Hi, Good morning, how should we think about the economics behind the <unk> and its associated with the valley steel.
So we only issued 15 million.
Thank God Oh P units in the valleys deal.
$15 million, yes, sorry did I say units I'm, sorry, ladies only issued $15 million that was around 300000 shares. So it is a pretty small drag but it is in our guidance that we've provided.
Understood and then last one for me.
I assume pen funding is not in guidance, but should we think of any of that potentially starting to hit towards the back part of 'twenty three or is it really more of a 'twenty four event.
It's hard to know, but if we had a guy who's someplace.
I'd say later rather than earlier.
Candidly I don't have a real good handle on where they are in the design phases. I mean, I think is the highest.
The degree of confidence that these things are going to happen, but the wind is just not real clear.
Yeah, I mean, I think Steve I think Penn has.
Been public with stating that they expect to start these projects by the end of 'twenty, three but that debt.
All four projects are likely to not open until some time in 2025.
So they are not obligated to to take.
From Us from day, one for all of these projects. So they do have some flexibility around when they would want to access our capital. So so it's just an evolving tie.
Timeline that we're going to continue dialogue with them and you know kind of as soon as we know Youll know.
And the way.
Got it.
I was just going to say that fulfill.
And about what their own cash needs are or whatever else is going on at that at the company.
They may or may not need the money sooner look at they can fund it internally it will be later, but it's the long term solution they'd probably in the short run they use their own cash if they had it. So we'll just have to see how it plays out.
Got you congrats on the year.
Thank you.
And we have reached the end of the question and answer session I will now turn the call back over to Peter Carlino for closing remarks.
Well, thank you very much and thanks to everyone who has dialed in today.
We are really excited about having closed out a very eventful year, but we think that the 2023 is gonna be a strong year for us as well fingers crossed working hard.
And hope to see you all next quarter. Thank you.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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Yes.
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