Q3 2023 Gaming and Leisure Properties Inc Earnings Call
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Greetings and welcome to.
Gaming and leisure properties, Inc. Third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief 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.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host, Georgia, Faunae Investor Relations. Thank you Mr. <unk> you may begin.
Thank you Andrew and good morning, everyone and thank you for joining gaming and leisure properties third quarter 2023 earnings call and webcast.
A press release distributed yesterday afternoon is available on the Investor Relations section on the company's website at Www Dot G. L prop Inc. Dot com on today's call management's prepared remarks and answers to your questions may contain forward looking statements.
As defined in the private Securities Litigation Reform Act of 1995 forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
Forward looking statements may include those related to revenue operating income and financial guidance as well as non-GAAP financial measures such as <unk> when they ask for.
As a reminder, forward looking statements 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 Form 10-Q and.
In the earnings release as well as the definitions and reconciliations of non-GAAP financial measure is contained in the company's earnings release.
On this morning's call. We are joined by Peter Carlino, Chairman and Chief Executive Officer of gaming leisure properties and joining Peter will be Brandon Moore, Chief Operating Officer General Counsel, and Secretary Deseret, Burke, Chief Financial Officer, and Treasurer, Steve <unk> Senior Vice President Chief Development Officer, and Matthew <unk>, Senior Vice President and Chief investment Officer with that it's now my.
Pleasure to turn the call over to Peter Carlino, Peter Please go ahead.
Well, thank you Joe and good morning to everyone.
As always you will hear from most of our team this morning.
So almost everything relevant has been highlighted in our earnings release.
However, let me let me underline that the there's a couple of other accomplishments.
This quarter.
We expanded our footprint with the addition of the hard rock casino in Rockford, Illinois.
By signing a 99 year ground lease generating an initial $8 million in rent.
Plus we've agreed to fund up to $150 million of construction cost at 10%.
This construction you should know is well underway and the temporary facility there is doing exceedingly well.
With a great management looking at the hard rock group going forward.
Yeah.
And as you recall, we sold our Hollywood facility in Baton Rouge at Casino Queen.
And as part of that sale, we retained the right to design.
Build and construct the landside facility eliminating.
Eliminating their old broke boat.
$78 million spend will produce a yield of eight 5%.
The new casino is doing spectacularly, well and I must say it was for the money invested there.
Say this is the issue of personal pride.
It's a terrific facility and it's kicking butt.
Queen folks to release the numbers when there.
Ready to do so.
Performance numbers are terrific.
As part of managing our design build capability, we hired Jim Bob.
Who was our head of construction that Penn National and my time there.
Our team here with Jim built many ground up casinos and major projects over the years.
So Jim gives us the ability to assess and monitor the flow of money into new projects.
Or expansion of existing.
Properties.
And we have a number of those on the horizon.
With that capability in mind, we acquired the land and certain improvements of casino Queen Marquette.
With annual rent increased or Queen master lease of $2 $7 million with a commitment of at least 12 and a half million dollars for new construction, perhaps more at the property.
I should highlight its not our goal to become a construction company, but Jim expands our capability to keep an eye on money is it's put out in these construction situations brings a great deal of experience.
We we are doing more thorough.
Examination of our properties Oh oversight understanding the utility costs some of the things that we need to know these days.
And making sure that the major systems are.
Inspected on a periodic basis, Jim runs that process as well.
And looking at our probable pipeline.
'twenty 'twenty four it should be strong as well.
So with that I'm going to turn it over to desert right.
Thank you Peter good morning.
The third quarter of 2023, our total income from real estate exceeded the third quarter 2022, once again by over $25 million.
The addition of the Bally's Black Panther Hurricane properties drove an increase in cash handling kind of about 12.
The Tropicana Las Vegas land lease increase their cash flow come by two and a half now and Rockford acquisition increased cash rental income by 700000 that casino Queen like Cat acquisition, and the Baton Rouge Landside development increased cash rental income by 900000.
I could mention of our escalators in percentage rent adjustments on that when he says added two $9 million of cash rent.
And the combination of higher noncash revenue gross ups and definitely he says in straight line rent adjustments drove the collective year over year increase of approximately $6 6 million.
Operating expenses were impacted by the prior year recognition of a one time gain due to the sale of the Tropicana building and other noncash increases such as depreciation.
We still anticipate an annualized rent reduction and the amended pinnacle lease percentage rents between five and $6 million beginning in November of this year, which was negatively impacted by casino closures from Covid during the five year reset period.
We also expect full escalation of $4 2 million annualized honestly.
And in addition, $3 5 million.
Escalation on the pending 2023 master lease.
Also Aaron 10 amended pinnacle and Boyd Master leases have rent resets occurring on my first of 2020 or.
It is too early to predict with confidence we expect these resets.
Increased percentage rent adjustments because of the resets that occurred on may 1st of 22 included months, where the casinos were closed due to COVID-19.
From a balance sheet perspective, our pro forma net leverage is at 474 times.
Times EBITDA.
Raised approximately $211 million at a net price of 48 24 under our $1 billion at the market program this quarter, which we used primarily to fund the Rockford transaction and repay some short term borrowings.
Current rent coverage ratios remain strong ranging from 196 to 278 on our master leases as of the end of June 30th.
We have refined full year 2023 guidance for E. S. S. L per diluted share in O P units to a range of $3 68 to $3 69 per diluted share.
Which now includes the impact of Rockford and the market transactions.
Please note that this guidance does not include the impact of future transactions with that I'll turn it back to Peter.
Okay. Thanks Desert re.
Matt you want to add some comments upfront.
Thanks, Peter and good morning, everyone. Our decision to use our ATM program during the quarter was driven by the health and composition of our investment pipeline.
The quarter also prevented a unique event with our addition to the S&P 400, Midcap index. The 200 million that we issued bolsters our offensive capability beyond the 100 million in proceeds utilized already for Rockford. The remainder allows capacity for new opportunities on the topic of new opportunities.
So the portfolio, we remain disciplined thoughtful and measured in this environment traditional sources of capital are not as abundant.
Also proving to be less predictable at the same time the value in kind of the kind of the spokes solutions that we offer is as relevant as ever.
Our recently announced Rockford ground lease is a prime example of what is possible in this environment.
Relatively bite sized $100 million 99 year ground lease at an eight cap or about 30% of overall development cost with 2% fixed escalation would have been unthinkable, just 12 months ago with banks and other providers of capital were much more aggressive.
We've in effect waited for the world to come our way and it's beginning to.
Over the past year, we've been comfortable waiting to be thrown strikes.
Oxford was a strike in the.
Current environment holds the promise of throwing a few more we will see.
Dialogue with potential Counterparties has been healthy around a number of generally smaller potential opportunities and we remain highly focused on risk adjusted returns in this environment, It's Peter likes to say bad ear called and fewer chosen.
No mention of opportunities would be complete in this environment without a discussion around funding.
Our funding philosophy remains the same.
We do it right and sleep at night.
When we approach transaction funding and our overall business model you can expect to see the same continued discipline around match and pre funding that results in G. O P. I locking in transaction accretion for the benefit of our shareholders and.
And avoiding equity overhang and avoiding right like the call getting off sides.
Our balance sheet continues to be a solid foundation for all that we do and you should expect that to continue.
Overall, we remain focused on all aspects of our business with a goal of maximizing long term intrinsic value per share.
Also appreciate the partnership we have with all of our shareholders. Thank you for joining US This morning, I'll turn things back to Peter.
Well. Thank you Matthew I appreciate that and with that operator, let's open the floor to questions.
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One moment please poll for questions.
The first question comes from the line of Greg Mcginniss, but Scott Your Bank. Please go ahead.
Hey, good morning.
All doing well.
Given the broader economic backdrop and elevated interest rates, how is that impacting your underwriting your targeted cap rates or investment spreads.
The types of transactions you'd like to do and the availability of those deals and then if you could also just touch on.
The investment spread on the Rockford deal as well as our.
Yeah.
Our math is putting out like a 30 basis point investment spread that's thinking that hey, how are you guys thinking about it.
Okay, why don't you take that Paul.
Taking a step back and looking at the macro environment clearly rates are up volatilities up we see economic and geopolitical forces that make certainty a lot more challenging and we've got still a lot of money in the system from the printing that the fed did effectively.
Our goal is really to be agile and adaptable the environment. So we're playing against the new defense and we need different place to play.
Yeah Yeah.
We still stay resolute our goal also maximizing long term intrinsic value for sure. So you've seen a lot of this and the actions we've taken in the previous quarters to position ourselves for an environment like this getting our balance sheet at the leverage level talked about and also focusing on really the simplicity of matched funding pre funding.
And fighting accretion.
So I mean people seem to detach and conversations where cap rates were funding costs and for us, it's all about risk adjusted spread.
Peter's point on the Rockford transaction I mean to have.
Ground lease to be at that part of the cap stack with an eight yield out of the gate at a decent spread so look at the capital we raised during the quarter at 48 handle.
You can calculate the spread is very healthy there.
Very healthy for our business and value accretive.
One thing that seems to be missed in the environment by maybe some as they need to check two boxes with acquisitions not just the box of initial earnings accretion, but also the box of does this actually add value to the business over the long run and when you look at the deals we do but there's a lot of subjectivity qualitative and quantitative factors.
They go into the ladder and we strongly believe that Rockford checks, both boxes and the things that are in our pipeline.
Generally smaller so there enable us to be really balanced with our funding, but we asked the same questions. Then we have the same goals.
Does that answer what you're looking for.
Yeah, I think we can get what we want out of that thanks, Matt.
I'm looking at Queen Baton Rouge, I can appreciate you not wanting to disclose you know ahead of ahead of them does look like looking at the gross gaming revenue was up like.
85% year over year, so pretty pretty significant jump there.
Hum.
They also have the Belo Baton Rouge, which you saw.
Saw a bit of a decline year over year.
Caesars was looking at doing an investment there before selling the property.
I'm just curious what's what might be happening there doesn't blow out a couple of buildings nearby.
I'm just curious what that was for.
And then how it works in terms of making additional investments there as the assets kind of still out there.
The casino sorry, the Caesars Master lease will be owned and operated by Casino Queen just any details you can provide would be helpful.
I'm going to ask branded more too.
Can you speak to that Brandon is very close to that.
Yes, I guess I'll start with the last part of the question is whether or not that will be moved to the casino Queen Queen lease from the caesars' lease and the answer it answers, yes, we anticipate moving that property, formerly over from the Caesars' leads to the Queen lease.
That was holding that back was a small piece of litigation involving two of the leased properties. That's now been resolved and so we're working to move that property over the bigger question on what's happening with the Bell I think is probably a better question for bally's than it is for Queen than it is for for it for us, but clearly they've they've made some.
They have put in an application to do a landside move off the boat into the atrium there at the Bell.
I think thats still being evaluated and we're currently evaluating what our role in that will be but I think if we can play a role in moving that land side in a way that's accretive to the shareholders will certainly be a part of that so I think there's more to come on that we've been focused more on solving the legal issues, there and being able to move that property into the Queen Master lease.
And I think we'll be able to do that shortly yeah look it's right in the sweet spot of what we do and coming off the heels of a terrific job by patting ourselves and our team on the shelf at what we did.
Down the road, if you will with the old Hollywood property.
It really is quite exciting so I invite anybody to get out and take a look at.
About 78 million Bucks betting and gaming so anyway.
You've got a good answer we'd love to participate if it fits in and fits our their desire.
Okay, Great last question for me.
I'm thinking about your kind of commentary on leverage how are you thinking about addressing the $400 million term loan coming due next year are there any plans to take that out early or addressed it early.
Or potentially just pay it off using cash free cash flow ATM.
And.
It's actually a 400 million dollar bond that isn't doing that I'm, sorry number, yes, and they wouldn't have.
Timber first F 'twenty four and all of them those are options I mean, we when you look at our cost.
Cost of borrowing or close to raising equity on a daily basis, and then obviously, we have a free cash flow each year. So we haven't concluded at this point that you can stay tuned for that but know that it's definitely an area.
Alright. So it is the overall plan to be reducing leverage from here.
So we mentioned last call we were at a steady state place, we like any Incrementals Delevering is really pre funding opportunities and based on the health of our pipeline.
So where we're effectively at our sweet spot and this at this level in this environment. So there's no need to proactively delever for its own sake, it's really to do things offensive like yeah, the desert pretty well answered it.
This is an everyday event for us like we're in the finance business.
I get it bank, we're looking at bonds were looking at equity and we will take advantage of any one of the three if they you know they lineup in our gun sight. So.
Where we're gonna be opportunistic where we can but realistic at the same time.
Alright, thanks, everyone I appreciate the time.
Thank you.
Thank you next.
Next question comes from the line of Jay Kornreich with Wedbush. Please go ahead.
Hey, good morning, everybody I'm wondering if you can just start up start out given some commentary around the depth of the buyer pool, you're seeing in the regional casino market and how that maybe impacting cap rates holding steady even in this uncertain market or if the buyer pool is sitting out which.
Cap rates rising.
Steve you're looking kind of quiet at that end of the table so what.
Yeah look I think the I think the buyer pool is ever evolving I.
I feel like the market backdrop.
Backdrop as far as the capitalization and the credit markets has changed the players slightly so the cash buyers, who were who were highly levered and taking advantage of low cost debt at pulled back. Some however, others others have started to participate.
As you've seen with folks.
Folks like Realty income so so I think that the players might have changed the game remains the same.
I think broadly speaking everyone involved realizes that cap market cap rates have moved so whether you are a new entrant.
Buyer bidder or you're an existing and longstanding person like ourselves you realize that the market is changing and the cap rates need to adjust.
Adjusted in order to to garner the upfront accretion that Matt mentioned earlier, even though there is the qualitative aspect.
And I guess just on that comment do you have a sense of how much cap rates.
I have already moved or do you need to see more transaction activity to get a sense of that.
I mean, I think you're ultimately going to it's going to be dependent on the on the transaction right. There is not a.
Cookie cutter so yeah.
We've seen historically, even if you look back before the credit markets have dislocated you had very very different.
Cap rates for different assets, we bought an asset in a mess.
Maryland from the Cordish folks and we paid out we paid a low cap rate. There. There was an asset that traded also in Maryland than you know six months later at a at a materially different cap rate. So it's going to be very dependent on the asset the market and things of that nature.
But I think wholeheartedly I think the entire marketplaces is seeing a shift.
Okay. Thanks for that and then if I could just throw in one more regarding the construction financing that you guys made some.
Commentary on specifically with the $150 million to $150 million development commitment to the hard rock Casino development is this type of higher interest construction financing is something that you guys like in we should expect to see more so going forward and then also just specific to the Rockford, how likely do you foresee that becoming a roper going forward are used.
The broker I should say.
Okay.
I mean, obviously, a 10% rate on the construction loan was specific to the Rockford transaction, because you know it was well underway when we entered into the financing so whether or not we would do it going forward sure. It depends on the facts and circumstances as to which projects we determined to undertake.
To answer your question on the welfare and you know we negotiated for it specifically, we would like to own the asset someday, but we cant quantify whether that will occur or not yet.
I think the ROE for you should see is what we've said in the past with we would do these types of loans. If there was a segue to property ownership. So in this transaction, we acquired the land and we negotiated the ROE for soda. That's a building changes hands, we would have the ability to potentially acquire that building I think that we're somewhat uniquely positioned in this area.
To underwrite a loan like this because as you've seen in Baton Rouge, and if you look back to the history of Penn National Pen and entertainment, we have significant development expertise here with Jim and Peter and others that I think we're confident in underwriting that type of alone. So in Rockford, we were pretty confident with the hard rock team.
The ownership team and the ability to get that casino constructed and so you may see more of that from us, but it'll be thoughtful and it'll it'll it'll depend on each project and what it brings to the market and what we view the risk of the construction to be.
A J as a tool in our tool chest to provide an EBIT more holistic one stop solution for a counterparty.
Yes.
Okay that all makes sense. Thanks, so much for the time guys.
Thank you.
Thank you next question comes from the line of Barry Jonas with Teresa Counties. Please go ahead.
Hey, guys. Good morning, there's been some commentary this quarter on macro pressures for the operators and I think we all understand how safe you rent streams are but wondering how you're thinking about the current environment. There I guess I'm curious if it's influencing any of your guild discussions.
Who wants to grab that one.
A question as to how the macro environment plays yeah.
Look we have to be continually careful the odd the volatility is higher and the odds are things moving our or more significant but theres more natural openings for folks to need against solutions from folks like us.
And if they need money or theyre in environment develop and redevelop its something they need to do there.
Reality is that cost of funding for everyone's moved up but as a counterparty, we're uniquely positioned to try and meet their needs. So that's bleeding into all the conversations we're having with folks yeah, Let me Oh go.
Go ahead, Steve.
On a on a deal specific or property specific underwriting, though Barry I think to your question.
I think we are comfortable that the gaming revenues have.
Have held in pretty well, obviously the commentary coming out of some of the operators calls is that their costs are escalating and so I think when we look at the underwrites.
We're scrutinizing the ultimate cash flow, that's coming out of those assets and in the surety and stability of that number and whether there'll be a deterioration as costs continue.
So what I guess long way of saying, we're very focused on the rent coverage upfront and ensuring that we feel comfortable with it longer term.
Great.
Really helpful. And then just for a follow up question can you maybe just give us an update on next steps for Tropicana and I'm curious if you have any thoughts you can share on what might drive you to allocate more capital there than what you've outlined so far.
Brandon why don't you take that we all have a thought around the table, but one of them.
I think Tropicana is the process largely driven by the A's and valleys at the moment.
Land owner, there and we have a unique interest in making sure that the value of what we have what we own there is preserved and then I think to your question as to how much we might participate you know that we I think we already disclosed that we've committed to a minimum investment number to help demolish and clear the site and to do a little bit of shared.
Sure as to whether or not we decide to invest more into that project I think it really depends on how the project comes together, we're sort of waiting to see what the <unk> put out in their stadium design and then we will work with with valleys, Andy as to determine what the casino resort might look like and when the time comes for us to make a decision.
Isn't as to whether or not to invest we will do that based on the project and what we see in front of us at that time I do think there will be an opportunity for us to invest more but its way too early in the process for us to make any sort of commitment on that now.
Perfect.
That's the best.
Alright. Thank you so much guys.
Thank you.
Thank you next question comes from the line of Handel St Juste with Mizuho. Please go ahead.
Hey, Thanks for taking my question.
So my question has to do on non gaming side one of your peers.
Execute another non gaming deal and only after that.
Here I'm curious if that's something you would have considered and how differently, perhaps you'd underwrite non gaming investments versus conventional gaming investments today. Thanks.
You know our answer has been pretty much the same for three years, we look at everything we've looked at bowling I mean, I'm being very direct and this decided a particular transaction that it just didn't fit what were looking for.
Look I think the best answer is we'll continue to look.
So long as we can find the kind of transactions that we're finding in the gaming sphere.
And you've seen a couple right in front of you that we presented today, we're going to stick with that it's what we do it's what we do best.
I've always said someday, maybe will be someplace else, but we're not in the heritage up into bowling or frankly anything else unless it makes such a terrific sense that we could sit here with a straight face and say this is a fat fat deal solid solid solid I mean, you know what our criteria are and so would we have done that.
Transaction.
I can't I can't speak for somebody else, but we look at everything that use my favorite line actually probably from the Bible. Many of your call, but fewer chosen and that's kind of the way we operate here.
Handoff pound for pound you'd look at we think the dollars we put into Rockford.
Clips the upside of anything we saw outside of gaming in the past quarter. If we found something that was better.
Seen some sort of headline on it but remember we used to sell a piece of our portfolio every time, we buy something new in the form of our equity and if we're not getting a better return on that incremental capital and also doing something with Thanksgiving increase intrinsic long term value for sure we're not going to do it we don't mistake activity for progress we're very methodical in the way we think.
Thanks, Yeah, not saying, we're right versus somebody else, but it's kind of the way we operate.
We take it only takes a long long view, that's a good thing in a world where there's a shortlist of bidders I mean, once you start getting outside of gaming and some of the more traditional triple net opportunities that the list of folks bidding on its greater typically the price deficiency is greater and the opportunity for alpha from the kinds of things we bring to the table.
It was less generally.
Appreciate that context and color.
Maybe then what is your how do you view the right investment hurdle one what is your current hurdle rate today in light of the current environment.
Yes, I mean, we hate to quote a number because every situation is different you can kind of back into what we did in Rockford and it is very healthy spread for that set of circumstances that quality of cash flow and we went out and they make things that have.
Some similarities to that spread but we can't book, where we are the price discovery for some of the deals in our pipeline right now we can't really negotiate overlay on our calls around what the appropriate spread as.
We can say with confidence is more is better than less [laughter]. We try for every basis point, we possibly can get and it has to check both boxes. It has to be initially are earnings accretive and larger value accretive.
And that hasn't been said you know, we're not always the low bidder I mean, frankly, that's not our goal our.
Our goal is to provide a complete answer to the needs of our of our clients and sometimes it's a pricing but more often it is.
The assembly of things that we can bring to the table that others can't and I think the Queen deal in Baton Rouge is illustrative of that.
Currently currently one minor follow up I.
Appreciate the comments on the balance sheet earlier, but it wasn't.
Clear I kind of where you guys felt the right target leverage range wasn't heard environment I think that that would be but I think for seven are really good.
Really low, but where should we see that migrate to or what do you. How do you think about that the right target leverage range today.
But we've for a long time pointed out five to five and a half is the target range over time and we've also said more recently that we're very comfortable being near at around or below the lower end of that range given the environment, but remember that gives us capacity to be opportunistic and you may in certain situations you get closer.
The bottom end of that range for the right opportunity and the right situation, we've got Optionality.
But.
I'd expect to see us toward the lower end of that range over the intermediate period of time.
Thank you I appreciate it.
Thank you.
Thank you <unk>.
Next question comes from the line of Daniel Khalili Animal with capital One Securities. Please go ahead.
Hi, everyone. Thank you for taking my questions.
So on the operator side, it's pretty clear that growth from an organic perspective in the brick and mortar is gonna be a little tougher near term and management teams may need to spend a little more to get there have you been getting additional inbound inbound calls around financing that kind of stuff anymore.
Maybe moving up the timeline or any projects already in the pipeline primarily relates to the hiring of Jim too.
Steve do you want to talk about that yeah sure no I think you're I think you're you're correct that.
As as the capital markets have become more difficult to navigate most of the gaming operators are not normally issuers of equity.
<unk> traditionally leaned on the high yield market to access additional funds so.
Rewind two years.
When people were going to build or contemplated a new hotel tower, they were going to funded themselves.
<unk> or cost of capital than I would've offered fast forward to today and the exact opposite is true. So we have had I think theres two things one the the operators have a renewed interest in investing in their properties to try to try to drive growth.
I think the external growth pipelines are a little more challenging right now and secondly, I think they're much more open and willing to have conversations with us around potential funding source.
Especially in properties, we already own with them. So the velocity of those conversations has definitely picked up.
Okay, great. Thank you.
And then just around the bally's relationship and thinking about the linking Lincoln option D. All things that can still happen next year or is that going to be like the option. You went out to 2026 is that going to be kind of later I know theres a lot of moving pieces at the valleys debt, but just kind of thinking about it from like a modeling perspective I'm not sure.
Thank you.
Yeah sure.
So I think look we pushed it out to 'twenty six.
Our negotiations mainly because we don't have clarity right theyre not our lenders that are holding up the the ability for them to do it. So so we didn't really have clarity we are cognizant of the maturity date on that on the revolver and therefore, we did we did look to move.
That timing out such that if that debt gets refinanced and that prohibition is removed we feel comfortable and confident that we would have then an opportunity to complete the sale leaseback transaction. So we don't have any insight into the timing or any insight into.
Dated conversations, which may or may not even be happening with their lenders.
Yeah.
Okay. Thank you.
Thank you next question comes from the line of Chad Beynon.
Macquarie. Please go ahead.
Good morning, Thanks for taking my question.
Just in terms of destination versus regional Peter I know you've talked about this a lot regional obviously being more resilient during different times of the cycle, but hitting kind of a near term ceiling right now destination I E Vegas.
Really capitalizing on the inflation pricing environment, but having more cyclicality has anything changed just in terms of how you're thinking about you know the 2030 year long term lease opportunities and kind of the spreads between regional and destination.
Oh, that's a fair question I don't think much has changed because it varies property to property you know how secure is that it is a property in a given market.
I'm just picking one that jumped in my head the Cortez property in Maryland. For example that thing is a rock solid you know the Penn property at Charles Town, you can look at a handful of regional properties that for unique reasons arent going to be a strong today and going to be strong tomorrow were not in Las Vegas.
If we saw more opportunity in Las Vegas, you'd probably see us and we do poke around there as well.
We're not opposed to owning property on the strip or elsewhere in Nevada.
And we do look at things there on a routine basis, but.
It just gets down to can we add value pretty much Mets mantra can we add value long term value for shareholders really don't care, what it is and you've heard me say before and it's actually kind of serious that you know I don't a shack on the beach with no windows and doors.
If the revenue from that because I don't care much about asset quality I am being bit facetious, what we care about is income quality. How secure is that income now and 30 40 50 years from now that's what matters and that's the only thing that drives us no matter, where it is or what it is.
Yeah.
Thanks, I appreciate it and then as we think about the I guess the purchase price size of opportunities. Obviously, Rockford circa 100 million you know you've had others in the in the last year or two that we're kind of in the you know.
502 billion range with with Tim Burton.
And and Cordish.
As we think over the next couple of years should we expect more of these bite size opportunities. The circa 100 to 500 million or do you still think there's opportunities out there that are that are north of that next.
I mean, it's tough to see a two to three years, but in this in the relatively short term, we certainly see a robust opportunity set that $100 million to $500 million range.
After that I mean, this environment has the season before we see kind of larger.
Mega deals.
That said.
That can change.
Thanks I appreciate it.
Yeah.
Thank you.
Q.
Next question comes from the line of David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone. Thanks for bringing me on it.
Morning.
So I wanted to just talk more about the truck side.
Which.
And I think one of the earlier questions. You may have touched on whether you know this 175 million like what the what the ceiling on where that could go is I assume that the once the property does shot right the rent.
Suspended or do they continue paying rent.
It's gone forever rent rent goes on forever.
Okay.
But in terms of where the boundary is as to what you would consider participating in it.
Is there a boundary.
And presumably the outcome of whatever you do participate in is going to be rent based not.
Operating base at the end at the end of the day correct.
Oh, I, absolutely well if there's no.
Most of it relates to the last question. There is no real limit I mean, we do a $5 billion deal, but as money available can we do it with a proper spread.
Just going to get it.
Yeah. It all gets down to the same issue. So we haven't seen yet where this is going to go the script is not written in the drop site. We have an interest in obviously the long term plan there and preserve the value of what we've got a we could do something more but we haven't seen that yet where we're well ahead of where that is so.
We'll have to see anythings possible, but.
It's the same criteria applies.
Alright at the end of the day, Okay. That's it for me. Thank you Okay. Thank you David.
Thank you next question comes from the line of Smedes Rose with Citi. Please go ahead.
Hi, Thanks, I just was wondering you talked about this on the last quarter call a little bit of is there any sort of update from 10 in terms of their plans and your would.
Would you still expect to cause.
Capital towards those projects next year that they talked about I think you said you bought some land.
In the last quarter and Aurora I'm, just wondering if there's anything.
That that you can speak to.
Nothing certain Ah I can say.
Because I've been in touch with some of the architecture or the architects doing work for these projects that they are going full speed ahead with design and so forth. So precise timing. We don't have really don't maybe you need to get on the phone and give them a call just for fun and say what's up what's your what's your timing.
But we know that they're committed to those projects and timing I don't have anybody around the table have a better sense I don't have a better sense of timing as far our fund raws I mean, I think kind of said that those projects are moving forward and we don't have any reason to believe that they're not so I think it's just a matter of where they decide or when they.
Decided to draw funds and I think you can look at the market and their borrowing rates and.
We're trying to stay in close contact with them. So that if there's a change in the timing of it needs over those funds that we would we would be we would have advanced notice of that but I'm not aware of anything specific thats changed their timing at the present time, but we're looking forward to it so we're expecting that somewhere down the road.
Okay.
That's it for me. Thank you I appreciate it.
X means.
Thank you next question comes from the line of Congress, who Muskie with Wells Fargo. Please go ahead.
Good morning out there. Thanks for taking my questions first one to start on labor I mean just across.
<unk> intensive businesses in the U S. We've seen a ton of strike activity over the last year or so and I'm wondering where this sits on the spectrum of risk for <unk>, and then whether or not higher labor expenses are making their way into your underwriting framework as you.
As you address future opportunities.
Well with that.
One advantage of having 61 properties L. A.
In our portfolio that we can have.
I used to say that I read I still say our revenues are largely bullet proof.
I think they are than they used to say we've taken it sounded like attack to really threaten our business, we actually had one called the COVID-19.
The equivalent of a neutron bomb that shutdown properties coast to coast, but let's hope that that's a one time aberration that we'll never see in our lifetime again and again and then we look to the distribution of our income.
Across the portfolio, but getting master lease it means a lot in that case. So I don't think there's anything on the horizon that we find threatening anybody around the table have a different view.
I agree that it has impacted our tenants, but it hasn't been packed in Iran that rent is fairly fixed across their portfolio and so and you're right you have to consider their margins when youre doing the underwriting that we definitely do that and as we said we had really strong rent coverage still at every property and sell it.
You know hasn't impacted us and it will first impact attendance so far at one P M.
Yeah, one of the advantages we have is it where gaming people that's kind of who we are so that we will look at these markets. We know them. We spent decades understanding them. So that I do think we bring and understanding of risk and location and all the things that we.
Consider as part of our underwriting.
Yeah, all right understood and just to clarify I'm asking that question in the context of rent coverage, but I understand your points. There and then second maybe just taking a more abstract look at the world, but you know a couple of interesting things in that lease earnings. This week. So on one end you have to temper expectations, they're not really.
Penalized by investors on the upper end, we saw some accretive transactions take place that you know were not well received so from the perspective of G. L. P. I as we look into 2024.
Any sense out there that it could make sense to put on the breaks even if even if accretion as a parent if it's just not you know not an asset.
And where you're comfortable taking on that kind of risk and then maybe specifically if we look at values. For example, I mean, we have an operator that seems to have a challenge cup cost of capital. There are expansion plans that need to be funded so.
Does this open up the door for G. L. P I to become the preferred funding source you know like maybe a couple attractive opportunities on that end and then maybe taking it a step further is it worth taking on a degree of what could be perceived as corporate level of risk for assets that are performing well at the property level.
I'll take the first part of your partner I mean, we live with a foot over the gas and to put over the break.
Last year I mean done someone asked last call. It's been 12 months why didn't you do anything.
And I'll say here one of the deals that we didn't get we were exact same a cap rate, but we wanted more coverage to your question about how you think about risk where we bet. We've done it before it was popular werent fashion. So that that vitality is not going to change in this environment and I suspect, we did rockford not long ago.
And.
Every feedback item, we heard was positive because it checks both boxes not just the myopic short term GAAP accretive, but people agreed with US. This is long term accretive to the value of your company. Thanks for doing this and when you think about smaller deals that we've kind of bite size match funded a balanced way I'd expect to have similar responses as long as the risk profile fits.
What were mandated to try and fight.
And I'll get Peter to the second please go ahead.
Gonna say, Steve Oh, well.
So I'll try I'll try to answer your two and three and then people can people can help help out where needed. So the second question was around valleys and opportunities funding look I think I think with respect to development transactions, whether it's bally's Rockford.
Player to be named later, I think where we look at these things are twofold. One is how do we reduce the construction risk.
So we're gonna look at you know, what's our level of oversight.
Do we have a seat at the table to help make decisions monitor the budget. How closely you can would be to kind of foot in the door on the ground and and at the table to control. The budgeting experience. Secondly, we have obviously a lot of experience between Jim and Peter.
The rest of the team here and then lastly, you know, we're gonna look at contractual and procedural protections.
To make sure that we have you know everything buttoned up so that there are no surprises and there is no budget buster overrun or something of that nature now once we get through all of that if it still somehow makes sense and we can feel comfortable that the risks are manageable then we have to get a commensurate return to balance that.
That and offset that risk. So I think it's a large process I'm, giving you a secured circuitous answer that until we do all that work and can get her head and hands around all of that information on any development project.
I could not tell you, whether something makes sense or it doesn't make sense in and rest assured if we get to the point, where we feel comfortable with the risk and we feel like the return we're getting is commensurate with the risk then you know you'll probably hear about the transaction.
So that's that's kind of how we go about the underwriting process on the development side.
With respect to a corporate deal versus a property level deal.
I think right now.
There are a number of there are a number of gaming companies that or are seeing their share prices impacted by things that are at the corporate level, whether it be growth opportunities interactive opportunities and alike and I think in many of those cases, if you look at our master lease performance.
We have very strong rent coverage. So I think I think in situations, where we're comfortable with the underlying properties and who's running them and how they run them in the future long term cash flow prospects. We are comfortable still transacting on those on those bases I think.
It depends on the corporate level.
You know it depends on what's going on at a corporate level I don't think where youre going to see us run into a burning burning building.
So if if there is a pending bankruptcy coming I'm not sure how how quickly you're eager we're gonna be too to step in and buy a property because it's covering a two and a half times only defined ourselves going through some process. So.
I think it depends on the pendulum of of opportunity, where we're seeing <expletive>, but ultimately we're underwriting the assets we own we're comfortable with the assets we own in one of the things we consider when we look at transactions is would someone else be willing to run these properties and operate these properties and step into this lease is.
This party that we're currently working with who's no longer there and so if that's it. Yes, then it makes the underwriting decision are significantly different.
Alright, thanks for the color there about the two of them.
Yeah.
Thank you.
Next question comes from the line of Robin Farley with UBS. Please go ahead.
Great. Thanks, a lot of my questions have been asked already I guess, just circling back to you.
With your potential non gaming can you describe a little bit more you said you'd look at something and it wasn't really a fit for you is there.
Any more color on kind of what made it not fear Kohl's and then.
Were you, suggesting you made a comment about.
When there are a lot of bidders for something about it.
No not necessarily something that you would end up doing are you, suggesting that that was the case for for that non gaming transaction or I didn't know if that comment was that related.
Probably probably robin are unrelated, but kind of like options I'll just speak for myself around the table are whether it's art, whether it's cars.
I like to say that the when it loses.
And I think often that is the case.
So did say I'm high bidder in for any one of those things.
Things, including I wouldn't take as a point of pride that we paid the most.
For any property of any type so look we I think do business around.
Our med has the best word for it I misspoke.
It's the the ability to provide something that our clients.
Won't that maybe somebody else can't provide it's a package of things and I think we do that extraordinarily well, but just a straight up we're going to bid the highest price for almost anything that just as it is in our DNA, that's saying we wouldn't do it under some circumstances, but it's certainly not our goal first second or third.
Is it with respect to other properties no I don't think we've lost a bit or anything like that or any other group of assets like we've looked at golf courses. We looked at every possible entertainment on the planet that we've been doing it year in year out just haven't seen anything that gives us the kind of secure comfort that we get from that.
Stuff that we present to you today.
And if we run out of that stuff I don't know maybe will.
Oh, well, we'll deal with that if we ever get there, but so far that hasnt happened in fact, we're very encouraged by what we see as our pipeline and portfolio of opportunities right. Now so we're going to stick close to our knitting. We will look at other stuff, we do have almost every week, but.
We haven't seen it that's fair game.
I mean, when we look outside of gaming. The goal is not to focus on just experiential its defined durable cash flows that have some strategic tie into what we do currently and if you look at the continuum of consumer discretionary from one extreme staple she other extreme totally discretionary regional gaming tends to be about as staple as it gets.
You can look at the resilience of the cash flows of our underlying.
Company to start with the overall and it's really hard to find that on a risk adjusted basis outside of gaming I think that's the point you keep hearing from us.
We know what it looks like we do with our day job all the time and to the extent, we see something that adds to that.
We're happy to do it but it's it's a tall task.
Okay.
I mean, the opportunity for alpha within gaming, where do you think about where cap rates are and how the durable cash flows is theres still a fundamental in this pricing in the market. It has been institutionalizing, but it's not there yet and at some point maybe it will be maybe this map is the opposite and maybe you do see is due more to Peter's point, but we're still.
Somewhere mid innings of that in that curve, Yeah. Let me add this robyn we're not opposed to doing something outside of gaming, but by no means at all.
Maybe we'll know it when we see it.
But if we can get on a call like this and we've done something else I wouldn't be able to have the greatest confidence on the planet.
The story, we're telling you is is a terrific one.
And we just haven't seen that opportunity.
Great. Thank you.
Thank you.
Thank you next question comes from the line of dramas Captain.
Morgan Stanley. Please go ahead.
Hey, you have generally Oh, Ron Good morning, just two quick ones for me I think the first as if we just begin on the pipeline right now like English even higher like made in light of that do you think that's even lower your conversations in the last quarter. That's that is the deal conversations ongoing right now.
Is it still on the same pace or I mean, part I'd, rather wait a little bit longer to continue like any color on that would be helpful.
He's going to take that.
Format.
Is the question is if conversations have slowed I'm, sorry, I wasn't following.
He was slower.
Or do you think like all the conversation you have ongoing right now is still on the same pace or.
Yeah, No I think look I think I think our I think the market's obviously cause people to two.
To kind of react I think get a little more measured pace. So I think there's probably some some truth to the fact that things are moving a little slower and people are constantly reevaluating, where we're seeing sit and where things stand. So I I don't disagree with that I think that's accurate.
Nice.
One is a follow up question about the refinancing I'm seeing like the current interest rate on that 400 in Atlanta is only 3.35, given this higher for longer environment, I think about 'twenty 'twenty four right from a modeling perspective like how should I think about a potential let's say interest rate headwinds.
That's the only 2024 or even 2025.
That will be helpful. Thank you and if we were to refinance it with a 10 year, we're talking mid Sevens I'm, sorry, you're right obviously.
Like everyone else is going up.
Yeah, I think now yep.
Yeah right.
Yeah.
Yeah, maybe the market will give our equity the price it deserves.
Raised a lot of cash that way look.
I said earlier today that we this is a tough environment for everybody in the borrowing world.
We look at equity we look at bank that we look at bond.
Debt and and and it's an everyday process I mean literally random people wandering around the halls. Among this group here, saying Where's the window, we're not going to hold out for the unimagined.
We're going to be opportunistic as we see best but we're also gonna be practical so I wouldn't pick at that point, along the way that seems to make the most sense for us, but it really thinking about where it is we want the lowest prices.
However, we get there and only time will tell just where that's going to go.
But look we keep an eye on that.
Yep.
Thanks, so much that yep. Thank you so much.
Yeah, Yeah and by the way your guess is probably as good as theirs.
We might end up so.
Yeah makes sense. Thank you that's very helpful. Thank you.
Thank you next question comes from the line of Archie Milligan.
Raymond James Please go ahead.
Hey, guys just two quick ones.
First is what is the expected impact of a rent reset on a master lease coming up here in a few days.
Right. So and we gave you that in my introductory complaint we expected to be between five and $6 million.
Rent reset down for Penn.
Okay. Thanks, and then what is the expectation for internal growth for 'twenty for just sort of based on the rent escalators.
And so the Max on escalation that we can get in any year is around $20 million.
Okay. That's it for me thanks.
Hum.
Operator, I think we'll take just one more call, where we're past 11 o'clock and I think it's time that one things up I'm, sorry, if we have to cut somebody off but.
Do you have anybody else on the line.
Next question Mr. Milligan.
Have you done the deal.
<unk>.
Yes, some of it I think.
Alright.
Next question comes from the line of Chris Darling Green Street. Please go ahead.
Thanks, Good morning, everyone.
It's more about the market.
Thinking about the Marquette transaction and given that you now own all of this casino Queen assets can you help me understand how you think about the holistic risk of owning the entire portfolio of the single operator, then I suppose the flip side of that as you know you might also benefit from incremental growth opportunities given that deep relationship. So just any thoughts there would be.
Helpful.
The quick answer is if they're doing well and have demonstrated they're capable of running these properties successfully but we're thrilled to have it all whatever.
Last time of their opportunity.
So far I think I can say with some confidence there they're doing a terrific job and we're delighted to be partnering with them.
Thoughts around the table that's the quick.
Completely honest answer Steve do you have any thoughts no no I mean, I just harking back to like when we did the pinnacle transaction. There was only one asset that day. They retain that we didn't we didn't own the real estate of at that point and that was a that was a tax driven.
Negotiated point so so it's not the first time that we will have a tenant where we will own.
All or almost all of their underlying properties and we've done it before and it's they've managed successfully and that's that's kind of how we look at the underwriting yeah. So many are doing well, we want to own all of everyone's properties.
They are one of our best performing rent coverages at around two to four times and you know with the addition of a new Baton Rouge property, we expect that to continue to be strong so.
We feel it's a good underwriting effort.
Yeah, we feel good about it so.
And I think further around.
Okay, well look I think we were kind of out of time right now, but we invite you always to contact us directly if we've left somebody at the altar here.
And you have a question call any one of us and we'll do our best to.
Provide what you would wish with that we thank you very very much for dialing in this morning, and we hope. This has been helpful to you next quarter.
Thanks, operator.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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