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spk17: Greetings. Welcome to the Gaming and Leisure Properties second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Joe Jafone. You may begin.
spk01: Thanks, Kyle, and good morning, everyone, and thank you for joining Gaming and Leisure Properties' second quarter 2022 earnings call and webcast. The press release distributed yesterday afternoon is available in the investor relations section on our website at www.glpropinc.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 risk and uncertainty 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 FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates, and the company assumes no obligation to updating forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to risk factors and forward-looking statements in contained in the company's filings with the SEC, including its 10Q and in the earnings release, as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President, Chief Accounting Officer and Treasurer, Brandon Moore, Executive Vice President, General Counsel and Secretary, Steve Ladney, Senior Vice President, Chief Development Officer, and Matthew Demchek, Senior Vice President, Chief Investment Officer. With that, it's my pleasure to turn the call over to your host, Peter Carlino. Peter, please go ahead.
spk19: Thank you, Joe. And good morning to everyone who has dialed in with us today. Happy to report another excellent and impactful quarter. And I'll highlight, as I always do, that we have outlined all the activities that this quarter pretty thoroughly in our release. And rather than have me go through or read in detail all the stuff that's available there, I think if you look at the bottom of page one right through page four, you'll have a perfect idea of everything that we have accomplished this quarter. Notably, we announced a significant transaction with Bally's. that is in the range of or over a billion dollars, which combined with the Cordis transaction in the last eight months aggregates about $2.7 billion in new business and potentially as much as $3.1 billion, depending upon how the Bally's transaction shakes out. So it's been a pretty successful quarter for us, and I do want to highlight that. Again, lots of detail that we provided, and then we'll turn to your questions. I'm going to ask now Desiree Burke to highlight some financial points that I think will be of value. Des?
spk12: Sure. Thanks, Peter. Good morning. Our total income from real estate outperformed the second quarter of 2021 by over $52 million. That's as a result of the fact that we closed the Cordish Live transactions, which increased cash rental income by approximately $31 million. We closed the Bally's transactions in June of 21 and then added the Rock Island and Blackhall properties to that lease, effective April 22, which resulted in increased cash rental income of $10 million. We completed the sale of the operations of Baton Rouge and Perryville last year and leased the real estate, which increased our rental income by by $4 million. We achieved escalators on our Pinnacle, Boyd, Belterra, and Penn leases, which added $3 million of rent and also had positive percentage rent resets for the Pinnacle, Boyd, and Belterra leases, which were effective May of 2022. We had higher non-cash revenue gross-ups and investment and lease adjustments, partially offset by straight-line rent adjustments, resulting in a net $5.3 million increase. Our operating expenses decreased by about $16 million, and that was primarily due to the decline of $28 million of gaming expense and G&A expense related to the sale of the TRS operations. Offsetting this decline, we incurred non-cash charges of $2.2 million related to the provision for credit losses associated with the Cordish leases and an increase in the lease gross-ups and ground rent from the new acquisitions, as well as amortization of $3.5 million and an impairment charge on land that we intend to sell shortly for $3.3 million. We have included in our release full year 2022 guidance for AFFO per diluted share in OP units, ranging from $3.50 to $3.54, which does not include the impact of pending transactions other than the Tropicana. With that, I'll turn it back to Peter.
spk19: Thank you, Des. One note I'd like to make, we'll introduce Matt Demchik in just a second. As you look at what we've been able to accomplish and the cap rates that we have been paying for these assets, Matt likes to say that we, as a company, compete on capability rather than cost of capital. We're proud of that. I think it is one of our great strengths in tackling some very complex transactions and making them work for our shareholders. So with that, Matt, do you want to? Go ahead.
spk02: Yeah, thanks for those thoughts, Peter, and thanks to everyone for tuning in. The current backdrop really serves as a reminder that volatility breeds opportunity. And those of us who have lived through a few cycles have learned that the key, if you want to take advantage of it, is to have staying power. And that means a financial position that enables you to zig while others are forced to zag. As we've watched funding costs for companies diverge, our thoughtfully constructed portfolio, safe, durable cash flows, combined with our commitments to balance sheet strength and liquidity and capital markets discipline have set that stage for opportunity. And to that end, this past quarter, we again demonstrated our team's ability to uniquely source and structure a transaction for the benefit of our shareholders. Our team has again created a bespoke solution for a tenant partner that with our recently announced Bally's transaction. It really illustrates Peter's point that we compete on capability, not just cost capital. At a time when few large-scale transactions have been announced, we were able to use structuring and other levers to achieve a noteworthy 7-6 cap rate. We've again demonstrated discipline with our funding for the transaction, locking in adequate equity key in conjunction with our transaction announcement, to position our balance sheet well within our target leverage range of five to five and a half times. Our recent bank backstop equity raise was over five times subscribed, reflecting very strong support from existing and new shareholders. We've also begun the process for a delayed draw term loan to support the funding and tax structuring of our Bally's transaction. Our actions reemphasize our commitment to balance sheet strength, and our respect for the role it plays in our long-term success. Our core message to potential counterparties is that despite the macro backdrop and recent volatility, we are emphatically open for business. With our leverage at a comfortable level and benefiting from our continually demonstrated match funding discipline, our team continues in its unrelenting efforts to unearth and create opportunities with attractive risk-adjusted returns. Our overarching objective remains the same, increasing long-term intrinsic value per share for all of our shareholders. Thanks for joining today, and I'll turn the call back to Peter.
spk19: Thanks, Matt. I think it says it pretty well. It sort of outlines what the ethos of this company is as we think about creating value for our shareholders. And with that, Kyle, would you open the floor to questions?
spk17: Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Neil Malkin with Capital One Securities. Please proceed with your question.
spk05: Hey, everyone. Good morning. Nice quarter. I'm sure everyone appreciates you reinstating guidance, so thank you for that. First question, you know, Matt, you talked about being thoughtful and making sure the balance sheet was in a position to, you know, be able to perform well in uncertain times but also be in a position to be opportunistic. And along those lines, do you feel like you – have or will see more opportunities with existing or potential new tenants as they look to grow or access the capital markets, but at a time when the high yield debt market is less attractive than a sale-leaseback opportunity, thus providing them with lower cost long-term capital to execute any of their discretionary growth Is that something that you think will start to occur? And have you seen that yet?
spk02: Well, to the first point you made, I'll reemphasize having a balance sheet and liquidity position that makes us open for business is certainly the first step in that process. And having all of our connection points with existing and potential tenants is the next key piece. And then beyond that, I'll comment. I mean, certainly... If you look at our relative all-in cost of capital versus that same metric for the folks we talked to, it would suggest that the backdrop could be right for more opportunity. But there's also more to it. I mean, we're not trying to replicate market risk and returns when you just look at the cost of their debt or where that trades. Because we could do that by just buying a portfolio of unsecured debt and our potential counterparties. Our mandate is really to create a superstructure of lease terms and coverage and credit enhancement and all the other factors that you watch us continually put into our structures that collectively result in our shareholders getting attractive risk-adjusted returns. And if you look at the deal we just did with Allie's, I think it's a great illustrative example where we were able to thread the needle to achieve something important to them that arguably the backdrop helped facilitate. I mean, they had recently a share repurchase out there that I'm sure they got far better returns on in their eyes than we might get on a real estate. But we are looking for a different risk profile. And when you think about the relevance of that for a counterparty, it's kind of win-win. Because to your point, there's certainly a perpetual nature to the capital that we're using. So big picture, watch us continue to have the relationships, to understand when the stars align, to move meaningfully when they do, and to make sure that we're always positioned to move aggressively and quickly when opportunities arise, and continue to use the discipline, again, on the balance sheet to your point to support that?
spk19: This is Peter. I think the answer was yes. Matt highlighted it very well. I stuck my neck out earlier in this year to say for the first time that I think there is an increased likelihood, and that will – be able to get together a project or two with one or more of our tenants. I mean, we're working hard at it this year. We see that window, the windows open. Matt is very attuned to that. And we could probably say more, but we won't. We take that opportunity very seriously.
spk05: Okay. I appreciate that. I won't push that too much. The other one is just, do you have an update in terms of the, uh, the Bally's, uh, transaction with, excuse me, uh, you know, the regulators or approvals, um, and, you know, is that going to be, uh, something where you can actually, you can actually do both Lincoln and Tiverton, or is it going to be, you know, looking more like, you know, a Biloxi, Tiverton, and then potentially Lincoln later? Any, any updates would be great.
spk19: Brandon Morris, of course, is sitting here with us, uh, right now. I think he was hoping that, to stay silent on this call. But with that, Brandon, why don't you take that, please?
spk18: Well, I think as it relates to the regulatory process for this transaction as a whole, as you probably know, these are the only two assets in Rhode Island. So Rhode Island regulatory has not ventured into the REIT world yet. So we're their first foray into that. And I think there's some work that needs to be done to figure out how we're going to be licensed there and how our lease structure and our governance structure and all that plays into licensure. That being said, I don't think it differentiates between Tiverton and Lincoln. I think the regulatory process in Rhode Island will be approving a REIT structure in Rhode Island and what we're offering. And so I think it will be both of those likely to be approved at the same time or neither of them. And so I don't think it's a situation where Tiverton gets approved and Lincoln doesn't or vice versa.
spk14: And this is Steve. If your question was more around the amendment with respect to Bally's, as you may be aware, they pulled the amendment. They were unable to reach a consensus agreement with their lender group. However, Bally's continues to be open to discussions to try to, you know, reengage on that topic if, in fact, circumstances were to change and the parties were to decide to try to pick that back up again. So I think from our perspective, we have, you know, the way the deal works is the pivot, excuse me, to Biloxi doesn't happen until November 1st. And if, in fact, that happens, as you're well aware, we would have then a two-year option on Lincoln. And that's what Peter alluded to in his opening remarks of there's, I guess, an outside chance that we could, in fact, end up with an even larger aggregate transaction if, in fact, we closed Tiverton and Biloxi first and then came back and closed Lincoln.
spk05: Yeah, I guess, not to belabor it, but wouldn't that not make sense based on what you just said? It's either going to be all or nothing if If Lincoln doesn't get approved, would Tiverton also not then get approved?
spk14: I think we're mixing concepts. The concept that Brandon discussed was a regulatory concept, and his commentary around Lincoln and Tiverton was that they're both in the same state of Rhode Island, and therefore an expectation that if you were able to get regulatory approval for one, you likely then can get regulatory for both. The delta that I think you're bringing up now is there's a lender consent required, not a regulatory consent, a lender consent required for Bally's with respect to the Lincoln asset. And that's why the outcome of Tiverton and Lincoln could be disconnected because you don't need the lender consent to get the Tiverton asset. You just need the regulatory approval.
spk05: Okay, it makes sense. Thank you.
spk19: Yeah, look, I'm going to speculate that that's the minimum possible outcome, Tiverton and Biloxi, irrespective of what consents they may need from their lenders. There is the question of approval in Rhode Island structure. Do they license all the management, for example, or is it, as in many states, no licensure required at all? That part's unknown. But we expect that ultimately we will get there.
spk11: Thank you, guys.
spk17: I would now like to introduce Barry Jonas with Truist Securities. Please proceed with your question.
spk06: Thank you for that introduction.
spk19: Where's the drum roll?
spk06: I wanted to start with Tropicana. Any sense within the second half when the deal could close? What are we waiting on? And then any update on redevelopment opportunities there? Is it kind of you guys or Bally really driving those discussions?
spk18: I'll tackle the first part, probably the easier part of your question. The regulatory process is a little bit opaque to us because we're not licensed in Nevada as a region. But from what we understand, that process is coming to a conclusion. So I would think that in the next few months, we hope that that transaction will be in a position to close. I'll let others address the reinvestment in the property.
spk19: Well, it essentially has nothing to do with us necessarily. It might be an opportunity under some circumstances, but there's nothing to find today that I think you're all generally aware of the kind of things that Bally's is looking at for development at that site, but we don't run that process. We have, obviously, a strong interest. We understand it's proceeding apace, but can't really tell you where that stands today.
spk06: Got it, got it. And then just as a follow-up, can you give an update on the construction in Baton Rouge, whether that's timing or budget? Any update there would be great.
spk14: Steve, do you want to take that? Yeah, I think the timing expectation is still first quarter of 23. I think as everyone's aware of the macroeconomic and actual just labor situation nationwide. I think that you would imagine there have been some fits and we've been dealing with a number of different complications. But projects moving along, like I said, our tenants looking forward to moving land side there and we're actively working to make that happen.
spk11: Great. Thank you so much.
spk17: Our next question is from Handel St. Just with Mizuho. Please proceed with your question.
spk09: Hey, guys. Good morning. So I guess first question is a follow-up on Bally's. I guess I was hoping you could help us understand the tax structuring in the Bally's transaction and the implications for GLPI. Thanks.
spk12: Sure. So at a very high level, they will be buying into our operating partnerships. And we will be guaranteeing some of their debt to help them delay the payment of any taxation. And the tax structuring is the key to that transaction of how we're pulling that together. But that's at a very high level how the tax structuring will work so that they can, again, it's a deferral of tax by using the structure.
spk11: Okay, that's helpful.
spk09: I guess I'm curious how much of the debt are you guaranteeing? Just a quick follow-up.
spk12: Yeah, we haven't determined that just yet. We have to wait and look at their tax basis and their assets and some other diligence items that we have to do in order to be able to complete that.
spk09: Okay, fair enough. Matt, maybe one for you. I guess thoughts on equity, use of the ATM, and leverage in this environment. and if you feel you're in a position today to execute on more transactions given, I guess, what's a slightly higher cost of capital and your balance sheet objectives.
spk19: Matt, do you want to take that?
spk09: Sure.
spk02: Yeah. So as I stated in the intro, we're happy with their leverage level now. I mean, really staying within our five to five and a half range is the key for us. And to the extent we had an opportunity set that made us feel somewhat confident, You certainly could see us use, in conjunction with that mentality, the ATM as a tool in our tool chest. We don't have a goal of de-levering for the sake of de-levering beyond being within that range. There's a certain efficient frontier of our leverage that we want our shareholders to benefit from. But that said, yes, it's certainly a tool that we have and we'll be thoughtful about its use within the context of those other comments.
spk11: Wonderful. Thank you, guys.
spk17: Our next question is from Jay Kornreich with SMBC. Please proceed with your question.
spk07: Hey, thanks. Good morning. Some new cities have recently legalized or are in the process of legalizing full-scale casinos, such as New York City, Chicago, which led likely to the recent Bali transaction with their development there. Can you maybe give just an update on any other cities or states that you expect to approve full-scale casinos or add licenses in the near future, which could provide additional external growth opportunities for you?
spk14: Sure, sure. This is Steve. Look, I think expansion of the gaming TAM is something we're always focused on. And so we are closely watching expansion. and eager to try to be helpful and participate. We agree that Chicago and New York seem the most near-term. We continue to monitor what's going on in Georgia and some other states such as Alabama. I think as far as near-term goes, I probably would not put Texas in that bucket, but I think we constantly look around the country and realize the opportunity not only for the gaming operators and the gaming REITs, but more importantly, the states and the tax paying public and the benefits that that can prove. So we're actively looking. I think you've named the two that are most near term, but I don't, I would never suggest that there's no others that could pop up in the medium term.
spk19: okay thank you and then to the follow-up within your current portfolio are there any expansion opportunities that your tenants are looking into at this time which could be a development opportunity for you to finance yeah let me let me take that as I suggested before we are in active discussion with a number of our tenants today about some interesting possibilities I mean they're just that it's the tenant who decides when and if they want to pull the trigger But we've talked about, without naming locations, hotel opportunities this year. And I think the stars may be aligning better than they have been almost from the beginning. So we're feeling optimistic. That's the best word I think I can use, that you'll see some significant investment with one or more of our tenants in the next 12 months. I'll just pull that out of the air. But we're hopeful that that will be the case.
spk11: Okay, thanks very much for the time.
spk17: Our next question is from Ronald Camden with Morgan Stanley. Please proceed with your question.
spk15: Just a really quick one on, you know, obviously a lot of talks of a recession and sort of the gaming having very recession-resistant consumers and spending. The question is really when you look at sort of the facilities, today, is there something different, whether it's the diversification of revenues, whether it's marketing, whatever it could be, what are some of the intangible factors that give you guys confidence in those facilities producing if we go into a downturn? Thanks.
spk14: Yeah, look, Ronald, this is Steve. I appreciate the question. I think if you look back at the last recession, and we had a slide, Matt would be able to comment if it's still in the deck. It's been in the deck for years now, and it showed what happened from a rent coverage perspective for the regional properties versus the strip. And this is not me saying that the strip is going to act the same way as it did historically. Obviously, we've seen a nice run-up post COVID on the strip. But if you look back at the slide in history, I guess it would suggest that the regional assets held up better in the recession. And I think we attribute that to the fact that there is not the same level of diversification of revenues. The revenues are majorly focused on the gaming business and therefore our belief that people do focus on the gaming and enjoy that activity remains true. their focus on paying $200 for a stake might wane. And so I think that slide, if it's not out there anymore, we'll make sure we'll get it out there again. And, Matt, do you know if that's in that deck?
spk02: I'm sure it's part of the deck. And to just flesh out the answer, simply drive-to is better than fly-to if you have a recession. Lower fixed operating costs are better than high fixed operating costs. And higher state tax rates are better than lower state tax rates when you think about how it impacts the bottom line. And to Steve's point, the regional assets check all those right boxes. And, you know, it's also very important for us to be thoughtful about coverage in this environment. And you'll see in the last few transactions we've done, whether it's this last deal with a blended coverage at two times, the deal before that with Cordish, Pennsylvania at two, and then Maryland as a single asset 2.7 times. We certainly look to build in a margin of safety in our underwriting to ensure that we can sleep at night knowing our rent will be collected now and well into the future.
spk19: Yeah, that slide, which I think many have seen, Matt, you'll recall, indicated that the low point, 08, and that whole collapse coverage in Vegas dropped to 1 to 1 or even slightly below at the nadir. The coverage in the regional market, never below 1.4 to 1.5, about 1.5. So it never got to disaster range, even in the worst of times, which is something that I think we've been pretty firm and I've been clear about in many, many presentations that the regional revenues are essentially bulletproof.
spk15: Helpful. And then my quick follow-up is the valleys. Is that still expected to close next? end of this year, or could that slip into next year?
spk18: Yeah, is it Tropicana you're interested in, or is this the Tropicana Las Vegas, or the Rhode Island Mississippi? The Rhode Island. The Rhode Island. I don't think we have enough visibility to know. We're still targeting year-end. I think in the coming weeks and months, we're going to have a much better idea. As you probably can imagine, the regulatory process is usually the long pole in the tent for our transactions. This one is no different. So, As we continue to work with Rhode Island, I think we'll have better visibility into whether or not year-end is possible, but we're certainly targeting it from the business side.
spk19: Well, and maybe a little bit slower or unpredictable simply because they don't have any REIT experience. I think they get it and will understand it, but it does add a layer of complexity that they've got to get their arms around.
spk18: Yeah, certainly a layer of uncertainty in the timing. States that already have REITs, we usually have better visibility into how long that process might take, and I think this one We expect to work cooperatively and together with the regulators. And in fact, we have already started that, but we just don't have enough visibility at the moment to really accurately, prudently predict whether that'll happen by the end of the year. But that's the goal. Thank you.
spk17: Our next question is from John Massica with Lattenberg-Bellman. Please proceed with your question.
spk10: Good morning.
spk19: Good morning.
spk10: Maybe just turning to the new guidance, I'm just kind of wondering, You know, I understand there's some seasonality to the rent and you're going to have dilute impact from the share issuance in July. That's not going to be deployed till later this year, even potentially next year, but kind of, I mean, what are kind of the pushes and pulls that got you to the guidance range on a per share basis, just given, you know, obviously the annualized QQ would be way above it. I understand you can't do that, but just, you know, maybe any other kind of factors that are going into that guidance that kind of created the 350 to 354 rate for AFFO per share.
spk12: Sure. So what's driving the range are different assumptions on SOFR, the interest rates on our variability debt, the assumptions that you make on percentage rent and how the Ohio properties for Penn perform as well as we have a reset coming later this year for the Meadows property. assumptions on the timing of the Tropicana transaction, when that occurs, assumptions on escalators, and there's a few left remaining to happen this year. So those are the key assumptions and drivers. And I agree, you can't just take the quarter, but you can take, you know, year-to-date numbers and almost double them and get close to within the range. But it's really hard to do that because of, as you said, there is some seasonality on the in the Ohio properties, as well as the fact the timing of when Blackhawk and Rock Island closed, and that wasn't until April, and when the Cordish transactions closed in January and March. So those are the big drivers, really four things. What's happening with our interest rate? What's happening? What are your assumptions on the percentage rent? What's your timing of the closing of the Tropicana? And what are your assumptions on escalators?
spk10: And I guess maybe just quickly, there's no other capital markets assumptions besides the July closing of the equity offering, correct?
spk12: That's correct.
spk10: Okay. And then maybe, you know, as you kind of look out at, you know, future deal volume, assuming we still are in a rising interest rate environment, how do you think about timing of deals? It seems like... and kind of net lease broadly speaking, there's been this idea that, you know, cap rates are going to kind of expand in the back half of the year and maybe kind of prudence on deploying capital makes sense because of that. I mean, is that something you're seeing? Is that something that makes sense strategically or just because of the bespoke nature and the kind of limited nature of kind of assets you can buy that you kind of take what you can get when you can get it?
spk19: Yeah, let me stick my nose. I'm going to have Matt answer that question. But essentially, you use the right work, the bespoke nature of the transaction that we've done. Many have been driven by some other thing that one of our tenants or a new prospect might want to achieve. And that's been the driver. So, Matt, why don't you take that?
spk02: Well, I mean, broadly, John, there's clearly a bid-ask gap in a lot of the real estate world. And the structuring and all the things we talked about throughout this call with Valley has enabled us effectively to get to our economic ask, which was the 7.6 cap rate that you saw. There's a few fees beyond that, too. If you include those, it's even slightly better return all in. So we wouldn't have done that if it didn't get over our return threshold. And we calculate that based on our cost of capital at the time. So we plug the actual numbers in. And the key next piece, which we've now delivered on multiple times, is to lock that in. I've watched a lot of folks get off sides by getting along a transaction and not locking in the cost of capital and the world changing. As long as we follow that discipline, again, we're open for business. There's absolutely no reason for us to say, we're just not going to do deals. As long as we get a spread and lock it in, we can do that deal and the better one later in the year. They come up to your point, as long as we're in the position to keep doing it. And that's what we've positioned ourself to do. Remember we did Peter's comments at the beginning of the call. close to $2 billion towards the end of last year, and then another billion dollars in the last few weeks. If you asked this 12 months ago, I think the quantum of transaction volume you might expect could have been much lower. I mean, the visibility is not there. But you also, I mean, there's errors of omission, too. You can't pass on an opportunity just because of the macro. If you can make the math work and you can lock in the return, it's our job to do that. So we're When the stars align, we know what it looks like, and we're happy to push the button at the right time for our shareholders' benefit.
spk10: That makes sense. And then one last quick detail one. I guess the timing for the close of the Bally's transaction, how can that roughly be impacted by a switch to the Hard Rock Biloxi deal versus having – if you do somehow get Lincoln and Tiverton together? What's kind of the timing differential there? if you switch to the smaller transaction?
spk18: I don't think the timing is materially different from a regulatory perspective. As you know, we have several facilities in Mississippi. We're fairly confident that a sale lease back in Mississippi will be a fairly streamlined process. I think the issue is if Rhode Island approves our entering into a lease for properties in their state and a sale lease back, The only question will be whether or not the Lincoln lender consent has been obtained, and so it won't be a regulatory issue. So I think that will be the real dictator is when Rhode Island approves our entering into a lease for properties there, we'll either be buying Tiverton and Lincoln or we'll be buying Tiverton and Biloxi because Lincoln is impossible because of the lender consent. I think that's the real decision tree.
spk10: Okay. Thank you very much. That's it for me.
spk19: Thank you.
spk17: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. Our next question is from Smedes Rose with Citi. Please proceed with your question.
spk03: Hi, thanks. I just wanted to understand a little more about how you might be thinking about financing the balance of the Bally's transaction. I mean, you'll generate a lot of cash through year-end. But, I mean, are you sort of leaning more towards debt issuance to OP issuance to Bally's? And is the timing really just related to the regulatory process you mentioned going through, or is it more – sort of opportunistic around where your cost of capital is. Just trying to sort of think about how those things might kind of match up as we move towards that closure.
spk14: Yeah, it's Steve. I'll give that one a shot. I think the timing, as you're hearing from us, is related to regulatory. I think with respect to the funding of the transaction, we obviously issued the equity. We issued equity already. We do have the proceeds coming from the Tropicana sale. We expect to have those. Then that sales $150 million to remind you. And then the remaining portion of the financing need will come from debt. And we expect that form of the debt to be predominantly in the form of bank debt. So we are, as Matt mentioned, we're in market with that now and should have obviously an update for everyone by next quarter for certain.
spk04: It's Michael Bellarmine here with Smedes. Just had a quick question just going back to the guidance and appreciate you putting out both the gross AFFO as well as the per share numbers, you know, given the equity raise and those proceeds are obviously diluted until they can be put to work. And maybe just focusing on the gross AFFO guidance because I think that may help sort of bridge some of the gap between street expectations. um and you know you had about 453 million of affo in the first half and based on that 900 to 920 sort of implies about 460 um in the second half of the year um and that's where you called out interest expense percentage rents the tropican sale and the escalators can you sort of goal post each of those items in effectively what you've embedded into that second half midpoint range of 460 so that we really understand the puts and takes of those items that are already known.
spk11: So can you break that out a little bit more for us, please?
spk12: Yeah, we don't have any other detail that we put into the release, so I can't break that out for you. But again, it's just assumptions on those four items, how to get to the guidance.
spk04: Are those positive? Are they negative drags? I recognize those are the items. We knew those items last night, but we actually need the numbers, right? So are the percentage rents? Are you assuming it's, you know, how much within there? When are you assuming the Tropicana sale? What are you assuming for SOFR, right? I mean, that's the detail that we really need to really understand how the numbers are going to shake out.
spk12: You know, obviously for the Tropicana, it could either be closed this year in June We always say, we said the second half, so there's six months of range where it could be closed this year or it could not close at all, right? If it closes on December 31st, there would be no impact to that one. So that's how that swings. The percentage rent, it's pretty much an all or nothing when you're looking at the ones, whether or not they hit their adjusted revenue to rent ratios. And as you can see in the tables on page 14 and 15, you can see that most of the leases look like they're going to hit their percentage rent. Well, they're going to hit their escalation provisions. Other than that, the SOFA rate, you know, you pull a forward yield curve and it's changed significantly. The SOFA rate has changed significantly over the last month even. So it's anybody's guess as to what that will look like when we get to the end of the year.
spk04: I know, but you provided guidance. So I'm just trying to get, you provided the 900 to 920 for the full year, 460 midpoint. I'm just trying to understand what assumptions you have used. I know it's a lot of volatility uncertainty. I'm just trying to better understand what you've actually put into those numbers so we can make sense of the guidance. I don't know why you... I'm in a Tropicana, so what's at the low end of the range and what's at the high end? It's not like... This shouldn't be rocket science.
spk12: Obviously, it's nothing or it's all of the rent. Like, it's all or nothing.
spk04: Well, that's what I'm trying to get at. Really, what's embedded... Right, I'm just trying to understand what's embedded in the numbers you put out. So if you can... put the goalposts for each of those line items that impact the 900 because you really have a simple strategy. Most of your rent should be earned. That's what makes this company very easy to understand. But when there's variables that can swing, understanding the impacts to your numbers is obviously important, especially if you are going to provide the bottom line guidance. Actually understanding the assumptions that drive it is more important than the bottom line number.
spk19: Matt, I'm not sure if you have anything you want to add to this, but Frankly, we're just not prepared to go any further with that question now. We didn't want to deal with guidance in the first place.
spk04: Well, then don't give guidance. I mean, like you can't, I know you didn't want to do it, but you've done it. And we're just trying to understand the impacts to these variables that's embedded in those numbers. And so that's, that's it. Like the fact that you said, okay, Tropicana zero, probably at the low end and at the high end, it's the full rent assuming close. I don't know. I don't know if that's closing and that's understanding what's embedded is much more important than the bottom line number.
spk08: um so that's you know it is what it is okay okay we have that message okay okay thank you our next question is from david ballagher with green street please proceed with your question good morning sorry if this has been clarified but i just want to ask a clarifying question on this valley steel so if those two rhode island properties are closed Is there anything that would preclude you from still being able to pursue the Biloxi property later?
spk18: The Biloxi will not be part of the transaction if those two close. It doesn't preclude us from participating in a sale lease back on the Biloxi property down the road should Valleys elect to do that.
spk19: Yeah, I think the real question is do they feel they have a need or a desire to do that at that time. But clearly Brandon answered it precisely right. that it's not part of the transaction if we get the other two properties, which really were our first goal.
spk08: Got it. So we can take that as a signal that this is a property that you would be potentially interested in if values decided later on that, hey, another sale leaseback makes sense.
spk19: Absolutely. We're in the business of leasing properties, so you bet.
spk08: Got it. And just wanted to touch on the Meadows lease, just looking at coverage levels. I know with the escalator coming this October and these coverage levels, I recognize that those are trailing. And, you know, the casino business has been pretty strong this year. We don't know where that could go. But can you remind us that end date when that reset would occur, that sort of last date where you would look at coverage to decide if it qualifies for that reset?
spk12: Yep. And it's noted for you on page 14 of the lease. But it is the lease commencement date is that's the date in which you look at them each year. So depending on which one you're looking at, it's out there on page 42. I think Meadows is September, if I recall correctly.
spk11: Got it. Thank you.
spk17: Our next question is from John DeCree with CBRE. Please proceed with your question.
spk13: Hey, everyone. Thank you for taking my questions. I think we We covered a lot of ground, so just two. One is just a kind of forward-looking, clarifying question, but in the event the alternative transaction is the one that works with Bally's this time and Biloxi is included, between now and when the option expires, is there a mechanism that would require Bally's to to get lender consent ahead of time, or would that just be addressed at the time that you'd prefer to exercise that option? Just curious if Bally's has to kind of actively work towards that amendment.
spk18: Yeah, so we're in the process of negotiating the definitive documents. The standard by which Bally's has to act hasn't been fully fleshed out. I think you can assume that we will expect them to pursue that consent, whether or not they should be actively doing that at all times, I think is a business judgment on their part as to how to work with their banks and how best to get it. The option doesn't necessarily require them to be actively pursuing that consent at all times, and I think that's why it has the length that you see. Stretching out two years gives them quite a bit of runway to deal with their banks in whatever fashion they believe is best for their business and their relationships.
spk13: Yep, that's kind of what I figured. Appreciate that clarity. And then just maybe one big picture on kind of perspective deal volume. I think a little bit earlier in the call, we've touched on it. But given where interest rates have gone and the market's starting to adjust to the new normal, perhaps, at higher cost of capital than what we've been used to, have you Has the phone started to ring more than it has? I imagine it's always a pretty steady flow of conversations, but curious if you've seen maybe some of your partners start to think a little bit more about doing something or maybe folks that you haven't heard from in a long time that are now kind of reassessing their kind of cost of capital relative to what you can offer. So just curious if you've seen any change yet in kind of inbound flow.
spk14: Yeah, go ahead, Steve. Yeah, sure. So I think deal flow has been consistent for a few years now, to be totally honest. I think the conversations have changed. So what you're alluding to is two years ago, if I called someone out of the blue and said, hey, you have a bond maturing, and why don't we consider a sale-leaseback, chances are my sale-leaseback rate was higher than whatever their borrowing rate was. That dynamic has shifted. So it's still the same conversation. It's still the same phone calls that we're having. The discussion is changing slightly because now my cost of capital may be advantageous for them. Or even just the fact that I'm open to transact might be better than where they find themselves in the current high-yield market environment. So the dialogue's changed. I don't know that the volume of calls has necessarily changed, but the discussions have taken a different angle. And the second point I would make is I do think though with current tenants and with properties they own in particular already leased, the discussions around reinvestment in those properties has picked up. So That I know was part of your question, and I know Peter's made some commentary earlier today suggesting in the next 12 months you would expect to see us doing an investment with a tenant. I think that dialogue will continue to trend and be more active going forward.
spk13: Thanks. I appreciate the additional color. Thanks, everyone. Thank you.
spk17: Our next question is from Robin Farley with UBS. Please proceed with your questions.
spk16: Hi, great. Actually, that last question was what I was going to ask as well, so maybe just the other thing I'd ask about is I don't know if you can kind of give us any color on how you think about the upside for GLPI from what ultimately gets developed at the TROP.
spk19: Oh, do you mean in participating, Robin, in something that... Yeah, I mean, I think the value of the land improves depending upon what they actually do with it. We're still in early stages. Again, we get paid, we get our lease payments, but what actually is going to happen at the site is still an unknown. I mean, you can bet we've looked at some of the concepts that they're dealing with right now, but until they actually nail it down, we can't quite answer it. You could ask this question, and, you know, are we about to do something crazy with our company's capital? The answer is no, we're not. So we ourselves will wait and see what's proposed. Maybe there's an opportunity for us. Maybe there's not. Look, we want to do as much business with Bally's as we responsibly can.
spk11: Okay. All right. Thank you. Thank you.
spk17: We have reached the end of the question and answer session, and I will now turn the call over to Peter Carlino for closing remarks.
spk19: Thank you, Kyle. Thank you all who have dialed in today. We feel we've had a great and, as I said at the outset, impactful quarter. We're excited about it. Balance of the year is looking good as well, so we're pleased to share this information. We're always available to your calls if you like. Thanks again. Have a great day, everyone.
spk17: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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