Q4 2024 Gaming and Leisure Properties Inc Earnings Call
Speaker Change: Greetings and welcome to the Gaming and Leisure Properties fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentations. If anyone should require operator assistance, please press star zero on your telephone keypad.
Speaker Change: 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, President and Chief operating Officer, That's right Burke, Chief Financial Officer, and Treasurer, Steve <unk> Senior Vice President Chief Development Officer, and Matthew <unk>, Senior Vice President and Chief Investment Officer.
Speaker Change: That it's now my pleasure to turn the call over to Peter Carlino. Peter. Please go ahead.
Speaker Change: Well, thank you Joe and good morning to everyone.
Speaker Change: We are of course pleased to present another strong quarter.
Speaker Change: Which is well summarized in our earnings release.
Speaker Change: I should highlight that projections this quarter were especially difficult because there are so many variables that are you.
Deseret: Here a bit from Deseret, who has to deal with those.
Speaker Change: [laughter] everyday.
Speaker Change: Nonetheless, the estimates that we have put out we believe are with great Dane a fair representation.
Speaker Change: Citation of what we see going forward.
Speaker Change: Cause difficulty that we have.
Speaker Change: Is that even when we're committed to a project.
Speaker Change: We can't determine when funds are going to be drawn because that rest with our tenants. So that we could only est.
Speaker Change: Estimated to the best of our ability.
Speaker Change: Nonetheless, we are prepared to handle all of the known demands that you folks are aware of and we have capacity to handle some things that may be on the horizon.
Speaker Change: But when I emphasize that we are committed to the gaming space.
Speaker Change: And.
Speaker Change: With the sense that it's the best.
Speaker Change: Vehicle for us to develop and maintain long term dependable rock solid cash flow.
Speaker Change: So with that in mind.
Desert Ray: Desert Ray I'm looking across the table you're on.
Desert Ray: Thank you Peter and good morning.
Speaker Change: For the fourth quarter of 24, our total income from real estate it exceeded the fourth quarter of 2023 by over $20 million. This growth was driven by increases in cash rent is over $22 million, resulting from acquisitions and escalation.
Speaker Change: For example, the tailgate acquisition increased their cash income by three 6 million. The Rockford loan increased cash income by $2 8 million. This strategic acquisition increased cash income by $2 3 million.
Speaker Change: Chicago land increased cash income by 5 million Valley's Tropicana funding by 1 million and valleys, Kansas City Shreveport increased by $1 4 million. We also have the eye on loan which increased our cash income by 400000, and obviously the recognition of our percentage rent adjustments and.
Speaker Change: <unk>, which added approximately $6 2 million of cash income.
Speaker Change: The combination of noncash revenue growth investment in lease adjustments on straight line.
Speaker Change: Since partially offset these increases driving a collect drove year over year decrease of two 3 million.
Speaker Change: Our operating expenses increased by $7 7 million, mainly resulting from noncash adjustments and the provision for credit losses, primarily due to increases in the commercial real estate index projections.
Speaker Change: The Companys development properties, we will capitalize interest in deferral rent received during development for financial reporting purposes. However, we will add the rent back and deduct the capitalized interest into arriving at a F F. One and.
Speaker Change: In today's release, we gave full year guidance ranging from $3 83 per share to $3.88 per diluted share in O P units.
Speaker Change: Please note that this guidance does not include the impact of future transactions. However, it does include our anticipated funding of approximately $400 million for the development projects and the expectation to settle our forward sale agreements in June 25.
Speaker Change: From a review of the notes last night. It appears our 2025 <unk> guidance is slightly below consensus due to a number of factors.
Speaker Change: The timing of our foreign share settlement, which you should assume June 1st the amount and timing of our development funding, which we should assume 400 million weighted towards the end of the year.
Speaker Change: Interest expense assumptions, which there are multiple changes during 2024 that will impact 2025 interest expense be including all the bond issuances, the bond repayments as well as the new revolving loan, which I will note that it's subject to a bally's guarantee and part of their tax strategy and will remain.
Speaker Change: Outstanding.
Speaker Change: We will redeem the $850 million five in a quarter bond on March 3rd of 'twenty five a rent coverage ratios do remain strong ranging from $1 79 to $2 55 on our master leases as of the end of the prior quarter.
Speaker Change: With that I'll turn the call back to Peter.
Speaker Change: I did say a lot of variables that I think there's always highlighted.
Speaker Change: Matthew you have some notes that you'd like to sure sure. Thanks, Peter and good morning, everyone. Our results for the fourth quarter and full year reflect the continued success of our strategy rooted in a conservative financial approach, our prudent capital allocation mentality and our unique ability to generate.
Speaker Change: Value to both deal origination and our creation of bespoke deal structures, our strong financial position provided the flexibility to stay proactive throughout this past year. The capital deployed in 2024 is purposely laid the groundwork for growth extending well into 2025 and beyond.
Speaker Change: Tenant relationships remain a powerful competitive advantage, enabling us to identify and act on opportunities that others may overlook.
Speaker Change: By year's end, we secured a meaningful share of all announced gaming real estate transactions, including our innovation in the tribal gaming world proof that our strategy is bearing fruit this positions us well to continue uncovering new opportunities in 2025 and beyond.
Speaker Change: These relationships are also the cornerstone of our long term growth each partnership unlocks future possibilities, creating a powerful compounding effect as time moves on while gaming real estate is still a relative newcomer in the broader real estate world the strength and consistency of cash flow from our gaming real estate portfolio, especially.
Speaker Change: In periods of market volatility continue to provide valuable data points. These data points, coupled with the end to end transparency of our cash flows and our lease coverage position us to continue driving the revaluation of our cash flows in relation to other sectors of the wider real estate market.
Looking ahead, our focus remains resolute prudently deploying capital to maximize long term value for all shareholders and our goal is simple to drive lasting endurable intrinsic value per share.
I'll turn it back to Peter Thanks, Matthew with that Paul will you open the floor to Q&A.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is open the question queue. You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment it might be.
Speaker Change: Sorry to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Thank you. Our first question is from Brad Heffern with RBC capital markets. Please proceed with your question.
Brad Heffern: Hey, good morning, everyone. Thanks for taking my questions.
Brad Heffern: The $400 million of fundings. This year is maybe a little less than I would've thought can you just breakdown that figure by project and has there been any slippage in timing on those projects versus what maybe you expected three or six months ago, that's affecting that figure.
Brad Heffern: So where we're giving the $400 million in total only.
Brad Heffern: Obviously, a big chunk of that is the Chicago project for 2025.
Brad Heffern: I don't think it's affecting the timing of the projects. It's just our expectation of when we fund.
Brad Heffern: Our tenants so they will put money out first and then we will reimburse them. So there might be a lag to what youre thinking.
Speaker Change: Yes look these projects are underway they're committed.
Speaker Change: No doubt, they're going to happen, what we can say and I said in my opening comments just can't tell you what the pace is going to be we take against them. We talk with our tenants do our best to understand what may be possible, but.
Speaker Change: What you've got is our best guess.
Speaker Change: Okay got it.
Speaker Change: And then obviously the Bally's casino Queen deal has been closed can you walk through any positives or negatives that you see from that now that the deal is closed.
Speaker Change: I think it's all positive, but anybody want to comment.
Huge success, Yeah, I can I can provide I guess, some thoughts and if anyone else wants to join in look I think I think generally speaking.
Speaker Change: We do view this as a positive I think the I think it gives the company overall are new.
Speaker Change: New found consideration and evaluation that they can utilize as they move forward.
Speaker Change: From the from the equity valuation standpoint, which is not necessarily directly impacting us, but we will provide them potential for growth going forward that maybe didn't exist before.
Speaker Change: I think ultimately our relationship with valleys and even with with the <unk> folks.
Speaker Change: It's kind of ever been.
Speaker Change: We continue to look at different different opportunities to work with them on things that are currently in play as well as future opportunity. So we view this as an expansion of the relationship still.
Speaker Change: It's still the same players are all still around and we look forward to expanding the relationship going forward.
Speaker Change: Okay I appreciate it.
Speaker Change: Thank you. Our next question is from Ron Camden with Morgan Stanley. Please proceed with your question.
Ron Camden: Hey, just two quick ones from sort of my and I, just love to hear a little bit more about sort of the pipeline.
And sort of how conversations are going obviously, you had a little bit of a volatility in the rate environment.
Ron Camden: In December and into this year just.
Ron Camden: Curious just high level, how conversations are flowing if they fall off or not thanks.
Ron Camden: Yeah look I think I'm, Steve I'll jump in again.
Speaker Change: I think from a broad scale.
Speaker Change: Massive M&A transaction that has multiple billions of dollars I think those conversations have not picked back up due to due to the rate environment.
Speaker Change: One level I think though the broader market more generally speaking has been pretty active we've had a lot of discussions <unk> been looking at a lot of different things.
Speaker Change: Ranging from commercial domestic.
Sale leaseback to a commercial domestic development and redevelopment to.
Speaker Change: Tribal discussions in international So we continue to see a lot of things out there.
Speaker Change: What becomes actionable and finally gets served up in announced is very different.
Speaker Change: Tell you the largest operators seem to be most focused on their own properties at this time.
Speaker Change: You saw that through Boyd's announcement about how well treasure chest is doing in their fact that they might take a paradise laying side and I think others are starting to pursue the same mentality and take the same tax. So I think the largest guys in the country are going to kind of focus on repositioning assets to enhance the customer experience, which obviously helps.
Speaker Change: Top line at the same time provides operational efficiency when you do things like move landside.
Speaker Change: Great and just going back to the guidance any chance you can provide any color on just interest cost then.
Speaker Change: Why growth any other sort of color on whats going into those assumptions would be helpful. Thanks.
Speaker Change: [laughter].
Speaker Change: So and we have most of our debt is bond related so they're all fixed rates, we do have $932 million of variable rate debt and honestly, we use the so far the forward curve and we have one 3% on top of that is our spread.
Speaker Change: Great that's it for me thanks.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from Barry Jonas with Truth Securities. Please proceed with your question.
Barry Jonas: Hey, guys I was wondering if you could talk a little bit about the pipeline for co investment with Cordish and are there potential opportunities to swap your equity into real estate at some point. Thanks.
Speaker Change: We continue to have a very good dialogue with cordish.
Speaker Change: Ongoing obviously, they've been very active not only in the gaming space, but also the non gaming space. So.
Speaker Change: I think I think with respect to the equity component I think we continue to have dialogues with them around that and whether there's a whether theres a clear cut opportunity to reposition and investment dollar from equity to a real estate I think is going to be transaction specific.
Speaker Change: And something that obviously as a REIT our long term goal is to own real estate.
Speaker Change: How we get there and how we ultimately how we get there could take different different modes and different paths, but that is our ultimate goal.
Speaker Change: It's pretty obvious it's a relationship we wanted to continue.
Speaker Change: And we feel pretty good about where we have been with those folks. They are very aggressive and are excited about the prospects for the future. So we view that in the most positive light.
Speaker Change: That's great and then.
Speaker Change: Maybe a question for Mark can you talk about your plans on the equity side for your 25 business plan, given your 25 or even 'twenty six capital needs.
Yeah, Barry we came into the year with a strong cash position.
Speaker Change: Got it.
Lot out currently on our forward. So if you look at the forward, while the cash and the Treasury, we have on the balance sheet. It really covers.
Speaker Change: The business plan for 2025, we should think about the ins and the outs, including our free cash flow, we're going to generate show, we're really into the hey, how do we prudently look forward into the next.
Speaker Change: On a forward 12 month or 18 month basis into the next chapter of spend and on that I'd say, we're going to continue doing what we've done will be methodical will be balanced certainly have tools in our tool chest help us lock in some of our capital as we move forward closer to the spend along the way so we have greater certainty of what.
Speaker Change: Spread were ultimately going to deliver for shareholders, but I wouldn't give any further detail beyond that you have a lot of optionality.
Speaker Change: Perfect. Thanks, so much guys.
Speaker Change: Thank you.
Speaker Change: Our next question is from John <unk> with Wells Fargo. Please proceed.
Speaker Change: Yeah.
Speaker Change: Thank you good morning.
Speaker Change: Apologies Peter.
Speaker Change: Your first comment on the guide we talked about the $400 million of investments and I understand that the vast majority of that seems to be the development timing in Chicago and I just want to make sure I understood your comments correctly.
Speaker Change: Does it contemplate any contribution from the casino Queen the stadium Aurora pad in the IL alone.
Speaker Change: And that $400 million contemplate the bell, which we have in developing and we have announced it contemplates the ion funding and it contemplates Chicago as well as market. We don't have anything in for the Penn transactions at this time, that's a forward transaction that we don't know.
Speaker Change: No.
Speaker Change: Okay. Thank you that's helpful.
Speaker Change: And then.
Speaker Change: Secondly, just kind of high level.
Speaker Change: And just may be out there theyre not there might not be much but this administration has done a lot.
First month or so im curious if theres anything thats on the table that we should be aware of as far as regional gaming is concerned or anything else. They are doing that may be impacting your business.
Speaker Change: I haven't heard of anything certainly nothing negative I'm looking around the table folks anybody.
Speaker Change: Not at all I haven't heard anything that impacts the rates per se.
Speaker Change: I think positive.
Speaker Change: No nothing positive or negative.
Speaker Change: So Scott if he can say.
Speaker Change: Billions of dollars of Waster funds I guess is positive for our country as a whole, but no nothing specific to <unk>.
I'd say at a macro level, if they can't actually get their arms around.
Speaker Change: The deficit and the national debt.
Speaker Change: At least evidenced to the outside world daycare definitely doesn't hurt there's some just a uphill battle to.
Speaker Change: With the current position and I think the people and they are really qualified to work on it so that's a plus.
Speaker Change: I think you could also see a scenario where if they are very effective with right sizing the government workforce and if some of those people are in some of these states, where we hope that new licenses might come about.
Speaker Change: Oftentimes the state has to pay the unemployment in that depending on how large the magnitude is could be a drag on some of the state budgets opening the door to maybe a little more receptivity to gaming opportunities, we'll have to see how that plays out in the new license context, but that's like two or three steps removed, so, but let's wait and see a few more months.
Speaker Change: What happens I don't think anybody at this table has any <unk>.
Speaker Change: Special insights.
Speaker Change: You get them aligned on that and give us a call would you. Please.
Speaker Change: We'll do alright, Thank you guys.
Speaker Change: Our next question is from Greg Mcginniss with Scotiabank. Please proceed with your.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: In the amended pinnacle lease rent coverage dropped below the escalators threshold this quarter and it's now closer to its pre pandemic level.
Speaker Change: What are the challenges facing those properties and as guidance assuming that escalator is or is not achieved.
Speaker Change: So the low end of our guidance assumes it is not achieved the high end of students. It is achieved I do think the footnote that we have.
Speaker Change: On that adjusted revenue to rent ratio of 179 as important what it says is that plane ridge is gets excluded in the calculation.
Speaker Change: The actual escalator of adjusted revenue to rent, whereas when they report to US. They report all the properties that are in the lease which includes fragrance.
Speaker Change: Expectation is that it should be a little bit higher when you exclude plain ridge. So the 179 is and exactly how the escalator is calculated if that helps.
Speaker Change: At all.
Speaker Change: Okay, alright, so it I understand.
Speaker Change: Plain Ridge is that most likely are lower.
Rent coverage ratio, but it's not actually at the end of the day, it doesn't actually impact whether or not they escalate.
Speaker Change: She achieves that.
Speaker Change: <unk>.
Speaker Change: And then on the.
Speaker Change: One final one on the funding assumption.
Speaker Change: Funding has been dispersed for the stadium so far so I'm curious why there's not more of an assumption there or.
Speaker Change: Are you is the 48 million all that youre expecting to spend.
Speaker Change: I'm looking at it Brandon has been silent here.
Speaker Change: That unhappily silent but.
Speaker Change: No I've been content to sit and lesson here for a little bit, but look I think Vegas is proceeding as we would have expected as far as the timeline goes that being said the development of the Master plan and the integrated resort around the now more certain stadium location and development is still taking place so I think ultimately.
Speaker Change: What we're asked to fund will depend on what is being constructed in conjunction with the stadium and I think that's still unclear at the moment. So we've committed up to $1 75. We've spent the 48 on the demolition is we agreed we would.
Speaker Change: And we're waiting to hear from valleys and better understand the development and what might be expected from us for the remaining $1 25, and potentially more or less depending on what they are doing so I think right now it's just too early to tell.
Speaker Change: Our engaged on the issue so that we can assure you.
Speaker Change: Okay.
Speaker Change: Sorry, just one more.
Speaker Change: Follow up on that is on the pen commitments I guess right. So that that payment would happen at the end of end of the.
Speaker Change: Construction process is there any expectation that they may not.
Speaker Change: Come to you for that capital or are you guys, assuming that it will happen.
Speaker Change: Can you just I think I think as it relates to pen so just to be clear they could take the funding earlier in the process. So far we've expected that it's likely to come towards the end of the process based on where they are but they could conceivably take it before the Aurora funding is required the other three projects are not required so technically they could not take the funding for those three <unk>.
Speaker Change: <unk>, we don't have any reason to believe that they will or they won't at this point.
Speaker Change: We just they are following their timeline of construction and Thats whats pushed out the potential funding of these projects beyond 2025 at this point, but it's not impossible that they would call us and seek funding for those projects earlier than that if for some reason they decided to do so and one perverse sense I'm delighted to have the cash flow to the patient.
Speaker Change: So.
Speaker Change: Okay.
Speaker Change: Really strong.
Speaker Change: Thank you. Our next question is from Handel St Juste with Mizuho. Please proceed with your question.
Ravi: Oh good morning, guys. This is Ravi within the line for Honeywell Hope you guys are doing well.
Speaker Change: Can you describe this new funding agreement with Penn.
Speaker Change: Is it do you think that you'll be able to fund the $150 million and I guess, the 7% is a little lower than some of the other funding deals that got them to ask for some more color on that please.
Speaker Change: Yes, we can offer a little bit of color on that I think this is not the typical funding commitment youre seeing across the rest of our portfolio.
Penn had asked us in connection with discussions we were having around the noncompete for Chicago to provide funding for them at <unk>.
Speaker Change: <unk> rate for that project, which we agreed to do so our agreement to fund at that rate is not indicative of the rates that we think are competitive or that we will be doing in the future. This was in connection with the negotiation we had as I'm sure you know their leases have noncompete provisions in it and the valleys downtown Chicago project was within that.
Speaker Change: <unk> zone.
Speaker Change: And so that was just part of that negotiation I wouldn't read too much into that beyond that.
And whether or not they'll take it I think if they if they go if they move they will probably take it if they don't they won't either way is probably okay with us.
Alright, just maybe just one more here can.
Speaker Change: Can you with.
Speaker Change: With the adjustment that happened with the Rockford loan with the lower rate, but also significantly shorter term.
Speaker Change: Can you can you kind of give more color as to what happened there will initiate it.
Speaker Change: Then what that process was like.
Dave: Dave sure.
Dave: Yes, so look I think the reality is that.
Dave: The property opened up.
Dave: On budget on time, its performing exceedingly well and a number of.
Dave: A number of other lenders approached.
Dave: Approached the owner ship group and offered to refinance the debt and.
Dave: We had a negotiation and we decided we wouldn't mind, having the loan outstanding for a little bit longer at a at an accretive rate to us. So we had the option of getting repaid.
Dave: And having no additional income coming from that loan or taking a slightly lower rate and continuing to get the income so that was the decision.
Dave: And an interesting way I mean, we ended up as you think about it to steves point with it open in doing so well within it as good or maybe even better risk adjusted return on the second bite at the Apple versus letting in prepaid and go with the bank and frankly that rate is it fair to say, Steve we kind of back in the middle we didn't need to go all the way to where banks were so we value the relationship and the fat.
Dave: That we'd be a turnkey a simple solution.
Dave: Got it thank you for the color guys.
Dave: Thank you.
Dave: Yes.
Speaker Change: Our next question is from David Katz with Jefferies. Please proceed.
David Katz: Hi, good morning.
Speaker Change: I was wondering.
David Katz: Good morning about Native America.
And any updated thoughts you have in terms of.
David Katz: Tam.
David Katz: And that opportunity and whether we might see more and more.
David Katz: More of what we have already.
David Katz: Any updated thoughts there please.
David Katz: Yes, I think David.
David Katz: The Tam itself I don't think our views have changed so the Tam is what we what we expected it to be we've had a lot of productive meetings with tribes over the course of the last couple of months.
David Katz: The opportunities range from refinancing existing debt to expansion opportunities at existing cash flowing properties two relocations to Greenfield development. So the spectrum of potential opportunities is pretty broad we continue to dig into these now that we've had these meetings and theres a mutual.
David Katz: Desire to move forward and explore them further we've entered into a number of NDA has and will continue to drill down on the east to see what if any deals we want to do and they and the tribes and want to do that will be positive for our cash flow moving forward. It's really all I anticipate the next question what are the magnitude of those deals.
David Katz: And how many of them are there I think it's a little too early for us to predict that so so as far as how big and how many.
David Katz: We don't know, but I will say there is a lot of interest in the tribal communities to understand better what this financing opportunity is and what it may be able to offer.
David Katz: Okay very helpful. Thank you.
David Katz: Thank you thanks, David.
Speaker Change: Our next question is from Michael Halloran with Green Street Advisors. Please proceed with your question.
Michael Halloran: Hey, good morning, Thanks for taking my question.
Michael Halloran: Following up from earlier on the Cordish agreement to co invest with a 20% equity.
Speaker Change: Some of the reports have been plans to develop a new Hampshire historical Horseracing development in.
Speaker Change: Just curious what your guys thoughts are on that segment of the business.
Speaker Change: No.
Speaker Change: Buyable segment and.
Speaker Change: I'm also just kind of curious if not even falls under the scope of that agreement given.
Speaker Change: 20% equity investments requires.
Speaker Change: A new license.
Speaker Change: Yeah, Yeah, we haven't had we haven't had conversations around that project with them they have a JV.
Speaker Change: Partnership there.
Speaker Change: We have spoken with them in other jurisdictions that they're either pursuing or have been awarded.
Speaker Change: But look I think I think we believe that the project in New Hampshire will be will be successful.
Speaker Change: Well located property in that state is the state that we have looked at before.
Speaker Change: And I think they might have they might have one of the best locations. So.
Speaker Change: So look we obviously, we we would love to have conversations there, but I think that we have to we have to respect their current partnership.
Speaker Change: Understood. Thank you and just one quick one I saw that the lease was extended.
Speaker Change: The size of a five year option just curious if there was anything for any particular reason for that decision coming.
Speaker Change: Over a year earlier.
Speaker Change: So just assuming there are no adjustments to that lease.
Speaker Change: Visible to us.
Speaker Change: There are no adjustments to the lease it is simply an extension and they did have they do have a requirement to advise us whether or not theyre going to extend they did it a little bit early but there is there is nothing new.
Speaker Change: No special about it.
Speaker Change: We're excited obviously, but theres nothing Theres no reason for it.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed.
Hi, everyone I have another question on the development funding.
Speaker Change: It looks like the Bel Chicago market in your documents. They all mentioned an amount up to kind of X dollars and then the iron loan is the delayed draw so as we think about.
Speaker Change: Those quoted amounts.
Speaker Change: Is it that you might not reach those full amount or do you think you will and that's just a technicality if that makes sense, yeah, and it's really around the timing of when we will reach those I do think we will reach the announced weeks.
Speaker Change: I agree.
Speaker Change: I would expect us to reach the top amounts on each of those projects.
Speaker Change: Keep in mind, we're funding hard costs. So for some reason if the scope of that project were to change in the hard cost would come in under its possible that we would fund last so we don't see that happening those projects appear to be on the same budget and scope as before but I think thats why you see a lot of the up to numbers, we're trying to focus on the hard cost real property development parts of these projects.
Okay, and then just on the timing even earlier you guys mentioned, how some of them might be slower than we might expect because it's like the tenant pays and then you reimburse them. So when like Chicago says that the spend is by year end 'twenty six and the <unk> as an example, since it will be completed by September 25 is that your funding or would your funding be potentially somewhat later than that.
Speaker Change: <unk>.
Speaker Change: We could fund beyond the opening date for sure I mean, there has to be a closeout of the project to know what the exact spend on those hard costs are so it could definitely be beyond the opening day.
Speaker Change: And then it gets stuck that project as you would know costs are always back ended.
Speaker Change: The bills come in late <unk> and.
Speaker Change: And you can expect that while we think the top number will be achieved.
Speaker Change: And I think we said it now four or five times today, knowing exactly how the the draws are going to come is.
Speaker Change: Yes.
Speaker Change: We have no perfect insight he got it sounds good and then maybe just bigger picture on the development funding kind of business.
Speaker Change: Do you think about the opportunities that you guys have and how it compares versus more traditional acquisition or sale leasebacks.
Speaker Change: The development funding does obviously get repaid so when you think of like the future portfolio for <unk> and the recurring nature of income how does this sort of development funding compare in your view versus acquisitions.
Speaker Change: So our development funding on many of our projects is different it's not alone the ion project happens to be alone, but the Marquette project, the Bell project and the Chicago project.
<unk> owned real estate that the funding turned into rent or is Brendan.
Speaker Change: So it does not and like you would think in a normal term loan.
Speaker Change: The properties.
Speaker Change: The property has hit pro forma we ended up with the basis, that's favorable to market.
Speaker Change: In other words is the cash flows generated if you were to wait five years and then step in later in the game you'd likely to pay a lot more for the real estate. So we're direct funding were locking in our basis, which should lead to better coverage over time with the other pieces fall into place.
Speaker Change: Makes sense. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question is from Todd Thomas with Keybanc capital markets. Please proceed.
Hi, Thanks, Deseret you you talked about the variable rate debt. That's outstanding today, some of Thats related to the tax strategies or the tax that you are providing.
Speaker Change: That you mentioned, obviously a lot of uncertainty with the new administration, but there is talk about a higher for longer interest rate environment and I'm. Just curious if you can speak to the strategy.
Speaker Change: That floating rate debt exposure versus swapping it out and how much more exposure you expect to have over time and how much more you'd be willing to tolerate.
Speaker Change: Yes so.
Speaker Change: I do expect the 932 to remain outstanding as I mentioned, because it is related to a valleys guarantee we do have the Lincoln property acquisition that $735 million, which will also be subject to that same valley's guaranteed potentially.
Speaker Change: And that is about all that I would expect for that variable rate and we do look at swaps and.
Speaker Change: The amount of this the cost of the slop visa visa cost in what we're paying on the debt.
Speaker Change: It's just it doesn't make sense for us right now, but we do look at that on a regular basis.
Speaker Change: Okay. So guidance does not include anything related to swaps I mean is there any intention.
Speaker Change: In the future.
A layer in swaps or begin reducing that exposure.
Speaker Change: Potentially with with Lincoln increased.
Speaker Change: Increasing that variable rate debt I mean, just given given generally fixed rate longer term nature of your cash flows I'm just curious how your how you're approaching that.
Speaker Change: Like I said, we're open to it and as we do increase I mean, right now it's only around 12% of our entire debt stack as variable rate as that does increase with Lincoln does come on we'll certainly reconsider whether or not we want to enter into a swap to swap to fixed rates, depending on rates, where they are and what you said what happens with this.
Speaker Change: Administration, and what happens with rates during 'twenty five.
Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question is from Mitch Germain with citizens JMP. Please proceed with your question.
Speaker Change: Thank you you did did the ion transaction I'm curious how it was received and did it create additional inquiries incoming inquiries from other tribes.
Speaker Change: Yes, so the short answer matches, yes, the island transaction did generate.
Speaker Change: A lot of attention and the leadership of ion is very well respected in the tribal community and that also has led.
Speaker Change: Some additional conversations and credibility to both our team here and it's in the structure that we're offering in general so yes that has been very very helpful to us.
Speaker Change: And the more tribes, we meet with the more interest we're getting so we.
Speaker Change: We will continue to meet with rides and look at opportunities and we'll be thoughtful about them and try to fine tune the structure that we have with I own and so I'm more.
Speaker Change: Long term structure that we might be might be willing to roll out.
Speaker Change: With more volume so we'll see as these as these conversations continue we are underwriting drives they're underwriting us there's a lot of different.
Speaker Change: Levels of opportunity out there just like there is in commercial gaming and not every tribe would be a try we'd be willing to underwrite in a long term scenario and quite frankly, I don't think every tribe out there we'd be willing to engage with us on trust land.
Speaker Change: Transaction, So we'll see how much there is in the coming months, but I think so far we're pretty we're pretty optimistic about what we're hearing and seeing.
Speaker Change: Great.
Speaker Change: One more for me.
Speaker Change: Maybe desert ranking can we just walk through the cap interest accounting and then.
Speaker Change: Just curious when you start recognizing revenue as anything changing so maybe just kind of is.
Speaker Change: Is it just really the balance outstanding that Youre funding on the bell by your average weighted average interest rate like how should we think about this.
Speaker Change: Alright adjustment going forward got it yeah. So while look I project is under construction the rules require to take the total spend time as your average interest rate and that's the amount that youre going to capitalize per month, which means youre, reducing your interest expense and you're putting that on your balance sheet as an asset going.
Speaker Change: Forward that asset will depreciate once it opens and you will start to fall.
Speaker Change: You're in common stop capitalizing your interest once that project opens and instead you would have.
Total interest expense coming through and you will have depreciation.
Speaker Change: That makes sense that answer to your question it does.
Speaker Change: So as Mark Hurd and Chicago start spending.
Speaker Change: That amount is going to continue to rise is that the way to think about it absolutely. Yes, so you're basically smoothing out any adjustment to <unk>.
Speaker Change: When the when the assets come online, it's not going to be any real lumpiness to your interest expense you just kind of smoothing that out is that the way to think about it yes.
Speaker Change: Yes, that's why I have decided to reduce <unk> for the capitalized interest in other words show that cash that was actually paid in surety income that has deferred for GAAP show that actually as it's paid.
Speaker Change: For exactly that reason to remove that lumpiness.
Speaker Change: And one reminder, mentioned and everyone. If you look at the Bell you've got the capitalized interest piece desert prevention, but on the revenue side Theres, a theres effectively a step up so theres nothing being collected on the rent side there until June 1st of this year and then whatever the prevailing dollars out nine.
9% of that will be the rent them out that starts beginning of June and that ratchet up as we get up to that 111 million total so the earnings power of the asset right now beginning of this year isn't captured and then we'll kick in.
Speaker Change: Close to full or fourth depending on how much we have deployed at the time.
Speaker Change: Thank you.
Speaker Change: Our next question is from Chad Beynon with Macquarie. Please proceed with your question.
Speaker Change: Hi, Good morning, Thanks for taking my question just one for me. Please you mentioned that the conversations are pretty active with commercial operators with potential <unk>.
Speaker Change: L Leasebacks. So I guess my question is at this.
Speaker Change: You know, obviously, they're they're they're not meeting to waste anyone's time whats. The hesitation is it more gaming specific meaning I gaming threats margin plateauing or do you think it's just the timing of where we are in the cycle and maybe some uncontrollable that caused some of that.
Speaker Change: Hesitation of getting some of these deals across the goal line. Thanks.
Speaker Change: You know.
Speaker Change: Giving you.
Speaker Change: Philosophically the way you think about this.
Speaker Change: There've been a couple of.
Speaker Change: Timing is everything.
Speaker Change: You've got to have.
Speaker Change: A seller or someone willing to do a sale leaseback with their asset.
Speaker Change: For some reason or another.
Speaker Change: Just put it that way some reason or another I can remember a particular asset you would be known to you all we're here.
Speaker Change: The owner.
Speaker Change: And I don't want to do that with you guys because I can't.
Speaker Change: The money anywhere.
Speaker Change: So much cash and then he was telling the truth.
Speaker Change: Absolutely so much cash that I don't know and over a period of years, we had the compensation year on year out.
Speaker Change: I finally, this throwing the towel walked away, but a few years later that person data deal with somebody else because times change less and of course, there is you'd never give up until.
Speaker Change: Either you or they die I guess, you stick with it but the point also is who knows what variables lead to availability of an asset so we.
Speaker Change: Say close.
Speaker Change: Close to that.
Speaker Change: And try to be there when that day comes around so some people do it first state reasons that well you can fathom all of the possibilities, but it's just a matter of I am I prepared to do this today.
Speaker Change: That's the best answer I can give you.
Speaker Change: Yes, So you think the.
Speaker Change: The potential tenant partners still feel great about the growth of the business overall I guess is the point that I'm getting at.
Speaker Change: Well, Steve you want to add something to that I think the potential tenant partners that are most active in dialogue now are not publicly traded gaming companies. So like there are a lot of assets that are held by private enterprises families sole proprietors and have been passed on.
Through generations or or not and those are I think are the bigger opportunity in regional gaming is.
Speaker Change: He is talking and meeting with the private guys, who many cases haven't done this in the past. So there's a learning curve that takes place and then there's ultimately as Peter pointed out a timing aspect of it has to align and so at times you know that.
Speaker Change: They can borrow money cheaper than this or they don't like the idea of selling the real estate or do you know.
Speaker Change: Their son likes to have the parcel so they come and look at the horses every once in a while like Theres all kinds of stuff that goes on and at some point in time at all all the moons will align but we continue to have a lot of active dialogue. There continues to be a lot of interest. Obviously this is a way to unlock a lot of value for.
Speaker Change: For a company or a family if they if they are willing to move forward with the transaction and all of the underwriting aspects makes sense for us to move forward with the transaction. So I'm very optimistic about the future opportunities that lie ahead, we just have to be constantly looking in and.
Speaker Change: The active.
Speaker Change: Thanks I appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question is from Rich Hightower with Barclays. Please proceed with your.
Rich Hightower: Hey, good morning, guys.
Rich Hightower: You covered a lot of ground. So just one from me, but maybe desert just I think maybe for the benefit of everybody here from a modeling perspective, we've talked a lot about interest expense.
Rich Hightower: Just to flip it to the interest income side, obviously, you guys carried a lot of cash last year that that has changed.
Rich Hightower: I think the interest accruing from the zero coupon bond is gone away. So just help us understand the modeling on the interest income side. Thank you.
Yeah. So the interest income side, obviously, we will have much less interest income in 2025 than we had in 2024.
Rich Hightower: We did come into the year with over $1 billion of cash, but we will be on March 3rd as I mentioned repaying $850 million bond.
Rich Hightower: Part of our cash will decline at that time and then the rest of the year is kind of based on how much we fund and our free cash flow and on top of that the forward that were going to call on June 1st So.
Rich Hightower: It's fluid throughout 2025, but it's certainly much lower than what you saw in 'twenty four.
Rich Hightower: Okay. That's helpful and then just to be clear that.
Rich Hightower: The zero coupon bond that was accruing to some extent on the income statement, even even though it was noncash at the time just to be clear absolutely. Yes that was an interest income growing 24, Thats correct. Okay. Great. Thank you.
Speaker Change: Our next question is from Daniel Googly, Moe with capital One Securities. Please proceed with your question.
Speaker Change: Hi, everyone. Thanks for taking my questions.
One more on the Penn relationship could <unk> be the startup more kind of Penn property redevelopment projects or have you had any additional conversations with them around that potential.
Speaker Change: So I think I'll jump in and if anyone else, who Saturday, yes, I think the answer is yes.
Speaker Change: Yes.
Speaker Change: They have started dialogue around a number of projects I don't know if any will actually go forward I don't think they've made definitive decisions, but they are reviewing their entire portfolio and I would tell you I think that most gaming operators right. Now are the performance that we've seen out of Baton Rouge redevelopment out of the treasure chest developed.
Speaker Change: But boy a number of these properties have seen all kinds of upside both on the top line and on the bottom line. So I suspect that that others and Penn will continue to evaluate their entire portfolio for opportunities to enhance it.
Speaker Change: <unk> made a major commitment as we know.
Speaker Change: And I would guess that the wait and see how some of the hotel development.
Speaker Change: Unfolds and if it's successful as they.
Speaker Change: I hope and expect.
Speaker Change: Then could easily see the mad anymore, I know a little bit more about that but suffice it I can't speak for them.
Speaker Change: But they are not afraid to invest capital in bricks and mortar which is pleasing to us.
Speaker Change: Great I really appreciate all that color and then kind of as a follow up to that you and your partners are doing a lot of building and I expect Jim and team are on the ground in Chicago, What's your sense of the current construction environment kind of a cross those projects is there anything of note around timelines labor supply chains on color.
Would be helpful.
Speaker Change: Yeah.
Speaker Change: As far as labor and the actual construction I haven't heard of any any hiccups at all I'll tell you frankly, we have had some suppliers of materials.
Speaker Change: It might be from outside of the United the domestic United States that have either added a a premium based on a tariff assumption or have alerted to folks that their bid was was excluding any type of tariff impact. So I think that there is a reality that there's some certain companies that.
Speaker Change: Might be domiciled outside of the United States may ultimately be impacted and bidding processes against companies that are within the United States, but that's just the reality of it.
Speaker Change: That's really helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from Robin Farley with UBS. Please proceed with your.
Speaker Change: Great. Thank you Peter.
Speaker Change: Peter I heard in your opening remarks, you are sort of your quarterly comment about how much you prefer the gaming industry for for the deals that you would do is it fair to say that especially with maybe this sort of whole <unk> segment getting unlocked at Europe.
Speaker Change: Probably further from looking outside of gaming than you ever.
Speaker Change: And then the Japan, where ever has been before or is that kind of fair to say in terms of thinking about whether you go outside of gaming.
Speaker Change: And Robin we've had this conversation with you and others over many many years now.
Speaker Change: We look at stuff I mean, we look at everything.
Speaker Change: <unk> gotten into the development business of it.
Speaker Change: Actually appear down kind of the loan business.
Speaker Change: All centered around gaming.
Speaker Change: We look at and we will continue to look at other things now and always but while we have what we've got in front of us gaming opportunity I've never found a reason to go elsewhere.
Speaker Change: You can find a better deal we would certainly do it it's not that we don't look or consider the better word we're not looking but consider other things.
Speaker Change: Gaming space is terrific ive been arguing for years. It gave me revenues are bullish and they've proven to be close to bullet proof as any revenue on any property in the United States. So while we can still do this I don't know why we go elsewhere yeah.
Speaker Change: Yeah Robert.
Robert: I think it's like we're down in a bind and theres a vein of gold and we keep digging deeper and we don't know how deep it goes.
Speaker Change: Just keep going if there's more of it and that would hit a second one with the travel piece. So our goal is to find the most attractive risk adjusted returns and to Peter's point that continually happens to be in gaming.
Robert: Two big players that are looking at these opportunities and a lot of these.
Speaker Change: Your first if we're good about it it's the only one.
Speaker Change: Outside of this there's a lot of people competing you've got a lot of smart people. There's a lot of money in the economy and we're bidding against 10 2030 people, we can monetize all of our competitive advantages outside of gaming. Similarly to what we've done inside gave me to date might that change I mean buying our valuation and our cost of capital ships. So much.
Speaker Change: Compared to the other players that maybe it changes the equation sure over long periods of time, but right now we're pretty happy with all of the things in front of US well the good news is.
Speaker Change: So many of our existing tenants are doing more stuff.
Speaker Change: To put it in the vernacular moist stuff that you get more deals go in and we want to be part of that.
Speaker Change: So.
Speaker Change: Yeah, and I think on the travel side I'll, just a moment of caution on the travel side you know we're exploring this to determine if there are if there are viable structures that we can translate into.
Speaker Change: Volume right and so we're still working on that so we are optimistic I don't want to suggest that we're not but I also oh.
Speaker Change: I just want to be careful that you know we don't know how deep that is at the moment so more to come on that.
Speaker Change: And I'm not discrediting, the commercial side or any of that I just want to be careful on the travel side that everybody understands we're still working through that and.
Speaker Change: As we start to put deals on the board I would say I think it will become more evident as to how deep that opportunity is.
Speaker Change: Okay, Great Super helpful. Thanks, and then just.
Speaker Change: One small thing can you and I apologize if I missed if I don't I don't think I heard it could you talk about where you expect that provision for credit loss.
Speaker Change: Could be in 2025.
Speaker Change: So we did not project the provision for credit loss in 'twenty five we projected out of zero and the big change for 2024 was really adding new leases and having to set up.
Speaker Change: For those new leases.
Speaker Change: Look it's a very detailed file that we use a third party to help us estimate those credit losses. It's based off of 100 years of data where does the market see that commercial real estate index going what are the loan to value ratios because those financing leases are looked at as low.
Speaker Change: Owns in this context from an accounting perspective, a lot of macro environmental items that we just can't predict so we we start out with the zero change to our reserve for credit losses on those leases and let's see what happens as the year goes through as again, it's a noncash item that gets added back for <unk>.
Speaker Change: It would have no impact anyway.
Speaker Change: Okay, great. So in other words, not nothing nothing to I think about 25, okay. Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you. Our last question is from Colin Mansfield with CBRE Institutional research. Please proceed with your question.
Colin Mansfield: Hey, everybody. Thanks for taking my question just one more for me going back going back to Chicago.
Speaker Change: I guess, what's the companies.
Colin Mansfield: Sort of willingness to potentially.
Colin Mansfield: Invest more capital or commit more capital to the project I know.
Colin Mansfield: You know, there's a an S. One IPO process out there right now for a minority stake being sold first.
Colin Mansfield: The Chicago subsidiary that maybe you have some legal issues with it.
Colin Mansfield: It'd be unexplored, so I guess, if it came to it whats the companys willingness to commit more capital to the project if needed.
Colin Mansfield: Perfect question for Brandon.
Colin Mansfield: I think the bottom line is it's too early for us to say, whether or not we would commit more capital to this project because it takes shape, we will consider that but right now we've committed what we've committed to the 940 and that's that's what we expect to spend.
Colin Mansfield: The 100 million I don't think that creates a significant hole in the valleys capital structure I think that that IPO process is a very creative way to get a lot of folks in the community involved in the project and give them a piece of that project.
Colin Mansfield: If it fails because of legal reasons, we don't have any reason to believe that that will impact the the project generally or require us to come out of pocket with any additional funds, but if if we're asked we'll evaluate it at the time and we've not been asked.
Colin Mansfield: Great. Thanks, everybody.
Speaker Change: Perfect answer well, thank you to all who have dialed in this morning.
Colin Mansfield: <unk>.
Colin Mansfield: This is a kind of a fun and momentous quarter for us good quarter, and we hope we've got equally good news next quarter. So see you then.
Speaker Change: Operator, thank you.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [music].