VICI Properties Inc.

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Vichy Property First Quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, May 2, 2019. I will now turn the call over to Samantha Gallagher, General Counsel with Vichy Property.

Thank you, Operator, and good morning. Everyone should have access to the company's First Quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the Vichy Properties website at .vchproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually used by words such as will, expect, should, guidance, intends, projects, or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial conditions. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our First Quarter 2019 earnings release and our supplemental information. Hosting the call today, we have Ed Petoniak, Chief Executive Officer, John Payne, President Chief Operating Officer, David Kieske, Chief Financial Officer, and Gabe Wasserman, Chief Accounting Officer. Ed and team will provide some opening remarks and then we will open the call to questions. With that, I'll turn the call over to Ed. Thank

you, Samantha. And again, good morning, everyone. We're very excited to be here and appreciate you taking the time to join us for our First Quarter 2019 earnings call. We released our First Quarter results last evening. John and David will walk you through the quarter and recent activity. First, I want to provide some context on how we view the start of 2019 in terms of our progress against our long-term strategic goals and how we continue to build on our foundation to be the next great American REIT. The first quarter of 2019 was the first full quarter in which the rewards from our significant transaction and capital market activity in 2018 were reflected in our financial results. The Q1 2019, net of the effects of the new lease accounting standard, which David will address in a moment, our revenue increased by $13 million and our operating income increased by $13.1 million, meaning we achieved 101% flow through of revenue growth to profit growth. Our ability to turn acquired revenue into new profit and free cash flow is one of the hallmarks of our triple net business model. All told, this resulted in our shareholders' net income growing nearly 35% year over year, while AFFO was up almost 22% on an absolute dollar basis and approximately 3% on an AFFO per share basis. The increase in our AFFO was the result of the lease modifications we completed in the fourth quarter with Caesar's, annual rent increases embedded in our leases, ownership of Harris Philadelphia for an entire quarter and almost a full quarter of rent from Margaritaville, which we closed on January 2nd. Our AFFO per share growth was reduced by the short-term dilutive impact of our very successful first follow-on equity offering we executed in November of 2018. As we have discussed with you, we are focused on building a leading portfolio and corresponding balance sheet that can weather all cycles. As a result, we elected to over-equitize the balance sheet with the November follow-on offering in raising $724.5 million of gross equity proceeds. These additional proceeds have a near-term dilutive impact on our per share results but position us for long-term success. Just to touch on Margaritaville for a moment, we have been very clear in building VG that we are laser focused on providing our shareholders with -in-class income quality, income resilience and income transparency. A key element to achieving this vision is tenant diversity. In January, when we closed on the acquisition of Margaritaville, we bought great real estate. But just as important, we officially launched our partnership with Penn National Gaming, one of the best gaming, leisure and hospitality operators in the business. We have also partnered with Penn to acquire Greectown, which, as Penn noted this morning on their own earnings call, we anticipate closing by the end of May. Continuing on this diversification theme, John will provide additional details, but thanks to his deep industry connections, on April 5th, against a backdrop of decreasing overall commercial real estate transaction activity, we announced the first gaming transaction of the year in which we are partnering with Hard Rock International to acquire the Jack Cincinnati Casino. We are excited to partner with Hard Rock, a global investment-grade leader in gaming, hospitality and leisure and an experienced operator in the Ohio market. We look forward to expanding this relationship over time as both companies continue to execute on their growth strategies. We have achieved tenant diversification faster than any other gaming league through our relationship with Hard Rock, Penn and our foundational tenant Caesars. As it relates to Caesars, we are honored to be Caesars real estate partner at the 21 properties where we currently do business together. As you heard on their call last night, Caesars continues to produce industry-leading results, demonstrating their strength as one of the top leisure and hospitality operators across the globe. As it relates to Caesars' valuation of paths for enhancing shareholder value and the potential impact of each, we would remind you that our leases and our call options are obligations of the entity and transfer with the entity should any transaction occur. In regards to the transaction committee that was formed, our fundamental thesis and our fundamental commitment, which we have expressed to Caesars, is that we are always here to help Caesars grow the performance and value of their business as we are for any partner we will do business with. We feel great about our start to the year and how we continue to progress on our strategy based on the three key drivers of value creation to our business model, namely, number one, our ability to deliver portfolio income of the highest character and quality, number two, a -in-class and fully internalized governance and management structure, and three, one of the best embedded slash internal and external growth profiles across the REIT sector. Through these advantages, we believe we will provide our shareholders with superior returns. With that, I'll turn the call over to John to discuss our recent transactions and what we're seeing in the market. John, over to you.

Thanks, Ed, and good morning to everyone. While it's only been a couple of months since we last spoke to you all, you can see that we remain very busy. On April 5th, we announced our sixth acquisition with our third operating partner since we started Vichy just a year and a half ago. With the pending purchase of the Jack Casino in Cincinnati, we're extremely excited to enter the Ohio market, which is one of the fastest growing regional markets in the country. We will acquire approximately $43 million of annual rent for a purchase of $558 million, representing an attractive 7.7 cap rate. Similar to the Greectown transaction, the acquisition of Jack Cincinnati will expand our geographic footprint into a strong urban gaming market and further diversify our tenant base. Now, in addition to Caesar's, our foundational tenant, we've built long-term partnerships, as Ed has said, with Penn National through our acquisition of Margaritaville and Greectown and Hard Rock with our announced purchase of Jack Cincinnati. We are proud to partner with Hard Rock as they truly are one of the most recognized experiential operators worldwide, with a very strong track record of success operating in the Ohio market. As you've witnessed, in Vichy's first 18 months, we've announced $3.2 billion of transactions, and we believe there remains an abundance of potential acquisition targets in the gaming space. So we do not see ourselves slowing down anytime soon. We will look to add to our momentum while opportunities for creative transactions of all shapes and sizes remain in the marketplace. Additionally, we have the option to take down any of our three call option properties with a 60-day notice. We retain one of the best internal and external growth profiles in the REIT sector, and we will continue to put your capital to work, growing our portfolio and progressing toward our goals. Those goals include diversifying our tenant base, expanding geographically and attracting urban and regional markets, and growing our Las Vegas exposure, all while creating value for our shareholders. With that, I'll turn the call over to David, who will discuss our balance sheet and financial results. David?

Thanks, John. I will cover a few of the highlights from our quarterly financial results published last night. As you'll see on the income statement, starting on January 1, 2019, under ASC 842, the new lease accounting standard, we are no longer required to present real estate taxes and the related tenant reimbursements on a gross basis, since they are paid directly by our tenants to the relevant taxing authority. Therefore, neither of these items appear on our March 31, 2019 statement of operations. The prior period will not be retrospectively adjusted, and therefore the historical financial statement presentation remains unchanged and continues to include the gross up of the real estate taxes and related tenant reimbursements. Our revenues in Q1 2019, excluding the tenant reimbursement of property taxes, increased .5% over Q1 2018. Our G&A was $6.2 million for the quarter, and as a percentage of total revenues was only .9% for the quarter, which is in line with our full year projection and one of the lowest ratios in the triple net sector. We did incur $889,000 of transaction expenses in the quarter, primarily related to the legal and accounting costs associated with documenting the Jack Cincinnati acquisition. These costs are required to be expensed under the new leasing items. Our AFFO for the quarter was $151.5 million, or 37 cents per share, for the first quarter. As Ed mentioned, total AFFO increased almost 22% year over year, and AFFO per share increased approximately 3% over the prior year. We'd like to draw your attention to our quarterly financial supplement where we strive to provide additional transparency and information. The supplement is located in the Investors section of our website under the menu heading Financials, and we value any feedback you may have on the information presented. Now moving on to our balance sheet and capital markets activities. During the first quarter, we issued 6.1 million shares of common stock through our -the-market equity program at a weighted average price of $21.28, raising net proceeds of $128.1 million. We view the ATM as an extremely efficient tool to shore up our balance sheet outside of transaction-specific capital raises. Our balance sheet continues to be in a phenomenal position to execute. As of March 31, our net debt to LTM EBITDA was approximately 4.3 times, below the low end of our stated range of 5 to 5.5 times. This does include the impact of the excess cash on our balance sheet we raised in our November equity offering, as well as the recent ATM issuance that will be used to fund the Greectown and Jack Cincinnati transactions. Our total outstanding debt at quarter-ends was $4.1 billion, with a weighted average interest rate of 4.97%. This includes the impact of the two interest rate swap transactions we entered into on January 3, having an aggregate notional amount of $500 million. These have an effective date of January 22, 2019, and a termination date of January 22, 2021, and effectively fix the LIBOR portion on $500 million under our Term Loan B facility at a blended rate of 2.38%. Taking into account our swap agreement, 98% of our debt is now fixed-rate debt, providing clarity to our future interest expense. The weighted average maturity of our debt is approximately 4.8 years, and we have no debt maturing until 2022. We ended the quarter with approximately $1 billion of cash in short-term investments and an unfunded $400 million revolver providing us liquidity for future growth. To follow up on the acquisition front that John discussed, on January 2, we closed the acquisition of Margaritaville for $261.1 million, adding approximately $23.2 million in annual cash rent. The transaction was funded using cash on the balance sheet. From Greectown, we will use the proceeds from our November equity offering to fund the transaction, which we anticipate closing by the end of May. Subsequent to quarter end, we announced the acquisition of the real estate of Jackson-Sinatty for a purchase price of $558 million, adding $42.75 million of annual rent. The combined Greectown and Jackson-Sinatty transactions are expected to be funded on a leverage-neutral basis, utilizing debt and existing cash on hand. We are reaffirming our 2019 AFFO per share guidance with a range of $1.47 to $1.50. As a reminder, our guidance does not include the pending acquisitions of Greectown and Jackson-Sinatty that have been announced and not yet closed. We paid a dividend of 28.75 cents based on the annualized dividend rate of $1.15 per share on April 11 to stockholders of record as of the close of business on March 29. In closing, we continue to make tremendous progress as we execute on our strategy and we remain well positioned with significant liquidity and access to capital to keep growing our portfolio, driving shareholder value. With that, operator, please open the line for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Carlo Santarelli from Deutsche Bank. Your line is open.

Thank you very much and thanks everybody for the comments thus far. Ed, in your prepared remarks, you made the statement that you guys were able to execute on some transactions in a commercial real estate market that has seemingly gotten a little bit more challenging. When you think about the nuance of the gaming business and model relative to the backdrop of broader activity in commercial real estate, do you view it as a net positive, maybe for valuation as investors seek areas where there could potentially be more growth? From the standpoint of maybe thinking about it just from a stock level as opposed to a slowdown in the environment where you guys are operating in an environment where we're not really seeing any slowdown in transaction activity?

Yes. I think you've picked up on something very important, Carlo. If you look across and again, we approach this as the real estate people that we are. As we look across all of the other American commercial real estate sectors, whether it be industrial, multi-res office, medical office, single family housing, in so many of the sectors, the prevailing wisdom and it remains to be seen whether that prevailing wisdom is correct is that most American commercial real estate sectors are in the late innings of the cycle that they are in. We believe the gaming real estate is still a very early innings story. It is a story that has really developed, we believe, over the last 12 to 18 months in terms of especially the dedicated REIT community understanding the alpha that they can obtain by investing in publicly traded gaming real estate. We believe that this will continue to be a sector that gets a lot of attention, growing attention because of that, if you will, off-cycle characteristic. This is a place that the active manager, we believe, will continue to find value, especially when compared to so many of those other late innings commercial real estate sectors.

That's very helpful. Thank you for that. Then, John, you mentioned in your comments that you guys did want to remain focused on growing your Las Vegas exposure, unless I misheard that. Let's assume I heard that properly. Clearly, there is one large asset out there. I'm not going to ask you to comment on that specifically. I will ask a bigger picture question as it pertains to Las Vegas. Clearly, a market where real estate has been valued at a little bit more of a premium. Would you guys in any way, I don't want to say jeopardize, but maybe sacrifice some of the discipline you've shown to date to do an acquisition such as a large, let's call it third-party type of deal that might be a little bit more expensive and might not be out of the gates accretive if it meant potentially opening up new avenues for deals down the road with a new partner or something along those lines?

Yeah, Carl, I'll jump in there and add or David. Well, I don't think we'd ever sacrifice the way we think about underwriting and ensuring that it's accretive at the beginning. As you know, the way we're structured, it's imperative that it's accretive to us as we do the deal. You didn't mishear me at all and I think we've been clear on this. We would love to have more Las Vegas real estate, whether that's on the strip where we continue to believe there's limited amount of supply of invaluable real estate on the strip. We've also said that there's some great assets and some great real estate in downtown and also in the locals' market that if they should ever come for sale and there's an opportunity to do a transaction, we'd look at that as well. It doesn't mean that that is our sole focus as we continue to look at opportunities outside Las Vegas where we, as you've seen us, we love the urban real estate that many of these casinos have. David, Ed, do you want to add to that answer that Carl asked?

Carl, it's David and John. I think you did it. As everybody knows, we're triple net reads, so the accretion that we underwrite day one, we live with, we don't have the ability to asset manage, property manage, or improve operations in our model. It's part of the reason we're able to achieve such high revenue flow through, but we will be very disciplined in the way we approach any asset and any acquisition, regardless of how large it is and where it sits.

I will just add one more thing, Carl, because you touched on an important element, an element that's strategically important to us when you did cite the fact that we will put value in our underwriting on developing strategic relationships that can grow over time. It would not become a factor that causes us to accept dilution going in, but to your point, it is a very important point in how we evaluate any given transaction.

Great. Thank you. That's very thorough. And then John, if I could, you mentioned obviously the local's market and the downtown market. To the extent that you've thought about certain transactions within either of those markets, I'm going to assume that there's unlikely to be any gating issues that would make transactions in those markets any more difficult necessarily than transactions on the strip or in any regional markets. Is that fair?

Based on what I know, I think that what you said is accurate, but it's hard to give a general comment on that when you've got to look at the specifics of a current transaction.

Understood. Thank you very much, guys. You're welcome. Thank you.

Your next question comes from the line of R.J. Milligan from Baird. Your line is open.

Hey, good morning, guys. Given the fact that the stock is sort of pushing up at near all-time highs, I was curious, how do you think about using your more attractive cost of equity to possibly expedite pulling in the call option properties?

Hey, R.J., it's David. Thanks for joining us. Look, we love the call properties because it gives us that embedded growth, as we talked about, that ability to drive consistency to the sector that I don't think has been demonstrated in the past. And so we still layer in the call properties one in each year, a base case scenario, one in 20, one in 21, and one in 22. And each one of those delivers $40-odd million of rent to Vichy, and that is at our discretion. There's a lot, as John mentioned, there's a lot going on out there. So we haven't deviated from that kind of base case today, but it is something that we are always mindful of. And you do highlight where the stock is, and we have to balance our cost of capital and the accretion that we can achieve on each of those. And

I would just add, R.J., that obviously that improving cost of capital that you're referring to also gives us the ability to make whatever else we may be working on other than the call properties even more creative as time goes by.

Okay, that's helpful. And I guess, David, can you talk about sort of your expectations for additional ATM issuance throughout the year to fund, I don't know if you need additional capital to fund Greectown or want to bring down leverage, but can you talk about what you expect the cadence of ATM issuance to be for the rest of the year?

Yeah, R.J., that's a good question. As we sit here today, we do not need any additional equity for Greectown or Jack Cincinnati, so we're fortunate to have executed a very successful follow-on offering in November. And then as we view the ATM, like it's one of the most efficient tools, equity tools that we have available to us, that any REIT has available to it, and we will evaluate numerous considerations, including the trading environment of our stock, investor demand around our stock, and kind of what the long-term outlook of our pipeline is. Obviously with the timing that it takes to close these deals and making sure that we have pre-funded the balance sheet, we put the balance sheet in the best position as possible to drive as much optionality for us is very important to us. So we'll assess the ATM kind of opportunistically as we have with all of the equity offerings that we've done.

And I'm not sure that if you can disclose, but the ATM issuance in the first quarter, was that just general way or was that an incoming inquiry for a position?

We opened it up in the first quarter and it was a general way issuance throughout the quarter. Okay, great. Thanks, Jess.

Your next question comes from a line of Danielle Adams from Nomura. Your line is open.

Hey guys, thanks for taking my question. So I guess a follow-up related to the call option properties. The more I think about it, my question is why doesn't it make sense to call them in now? I mean, wouldn't calling them in sooner rather than later enable you to maximize the net present value that you see from the accretion?

Yeah, Dan, it's a fair question and look, it's one that we've gotten since day one. I mean, we know they're always there. We're not going to let them go. And the stock continues to work in the right direction with, as Ed alluded to, the understanding of the merits. And you've been a big proponent of helping people understand the merits of the sector. And so I think there can remain a lot of activity out there, third-party acquisitions, and they will always be accretive and they could potentially be more accretive tomorrow as the stock continues to head in the right direction. It's not something that we want to engineer our financial growth, so to speak, financial AFFO growth. But again, we look at them layering one in 2020, one in 2021, and one in 2022.

Yeah, and again, I would just reemphasize, Daniel, that, I mean, here we are. We're basically, we're in our seventh quarter as a company, if I'm doing my math right. And in those first six quarters, we did, as John's already spoken of in the prepared remarks, 3.2 billion of acquisitions. So that averages out to about $500 million a quarter. Obviously, it hasn't layered in exactly like that. But you get a sense for the velocity at which we've been able to grow the business. And as we look forward, we continue to see an opportunity to continue to grow the business, you know, at or close to that velocity. And thus, we're not faced with a situation where we really need to bring down the call properties in order to continue that kind of velocity. And thus, given the opportunity to choose when and how we do it, we will continue to prioritize those opportunities that are right in front of us.

Okay, great. That makes sense. And then just one follow-up. So yesterday, DPR acknowledged that they're now more open to exploring deals in the gaming space. I'm just wondering what your thoughts are of this pluses and minuses. Thanks.

I think NetDaniel is very much a plus. The guys at EPR are very smart real estate investors. And in their recognition that gaming real estate can represent real value and truly institutional quality real estate, we see it as an important step in the validation that any commercial real estate sector needs to ultimately realize its full institutional value, right? In other words, as we've become fond of saying, validation drives valuation. And any new entrant into the sector is another step in that validation process, which is to say another step in the revaluation or re-rating process.

Thanks so much,

guys. Your next question comes from the line of David Katz with Jeffery. Your line is open.

Hi. Good morning, everyone. And thanks for your insights and colors so far. I just wanted to ask, and Ed, in your opening remarks, you made some commentary about CSRS, about your largest tenant. And the degree to which there may be actions or strategies that you can take, whether it's stepping up on any optionality that you have ahead of any change of control or any specific outcomes. And I don't expect that you may have detail to share with us specifically, but are there strategies that you can consider to protect or add value in that context given where CSRS sits today?

Yeah, maybe this is a starting point, David, though you didn't ask about it per se. I think everyone on this call saw the CSRS results yesterday. And we do not, we must emphasize, we do not rely on CSRS quarterly performance to solidify the security of our rent, but we were very happy to see for the sake of the CSRS team that those results were as strong as they were. So that's, sorry, I wanted that to be a preamble. In terms of how we approach any sort of engagement with CSRS, you know, we are very mindful of the rights we have. We're very mindful of the obligations that we have. And we will be looking at anything that arises in a relationship with CSRS through the filter of how does it make CSRS even stronger, which thus further securitizes the quality of our rent, and then how do we make sure that obviously the interests of our shareholders are being carefully preserved as well. Above and beyond that, you know, we take a lot of confidence in the fact there's a lot of very smart people involved at CSRS. There's a lot of energy and a lot of urgency to create value. And we're actually excited about the opportunity we have to work with them to increase the value and the strength of both of our businesses.

Thank you for that. And just one follow-up on another matter. We're going to the prior question, you know, around other real estate funds looking within gaming. And I know it's been somewhat of an early stage discussion about looking outside of the gaming realm. I suppose the fair question is has anything changed in that regard? There certainly has been some news about contiguous businesses coming up for sale and so forth. Any updates there?

Yeah, you know, from day one, we've positioned Vichy as an experiential read. And from day one, we've always been engaged both as a board and a management team in learning all we can about experiential sectors that share what we believe are the key characteristics of what we love so much about gaming. And as we've talked with you, David, we love about gaming that it's fundamentally a business in which great operators offer diverse experiences to a diverse clientele across diverse geographies. And as we look at adjacent sectors, we are seeing in some of those sectors those same characteristics. And it's that diversity of experience, clientele and geography that we think greatly improves the risk profile of any experiential sector. And to your point, there are certainly some names coming up in adjacent sectors that have characteristics we're very interested in. We obviously have to – we're obligated to learn all we can. We're obligated to invest very carefully. And we're obligated to make sure we never lose sight of the fundamental opportunity right in front of us right now, which is to continue to grow our gaming real estate asset portfolio very creatively.

Got it. Thank you very much. Appreciate you taking my question.

Thank you, David.

Your next question comes from the line of Barry Johnness with SunTrust. Your line is open.

Hey, good morning, guys. I guess just following up on the non-gaming question, I mean, do you analyze those deals the same as gaming or different? Do you think diversification away from gaming ultimately helps your valuation, maybe your cost of capital?

Barry, I'll take the first crack at this, and then I'll let John and David pitch in. It will improve our business and our cost of capital, and this is obviously belaboring the obvious, if we make fundamentally good real estate investment decisions. And

if

we're going to do this, we need to make sure that we understand not only the general but the highly specific characteristics of any sector, such that we understand, among other things, is it supplied man characteristics not only now but going forward? Is it a sector that's going to be favored or disfavored by demographic, cultural, and social trends over the next 10, 20, 30 years? Again, we're investing basically in multigenerational assets, and we need to have confidence that there will be a durability to the experience that then yields a durability to the rent. And again, the factors that come into play in those sectors may be different than the factors that come into play in gaming, especially given the highly regulated nature of gaming, which you generally don't find in these other experiential sectors, and thus don't have, if you will, the built-in, if you will, supply growth constraints that the intense regulatory regime of gaming does provide.

Got it. And then, you know, look, I think early on investors were very focused on you having a single tenant. You've addressed that twice now. At this point, are you somewhat agnostic about adding an additional tenant relative to those initial concerns, or, you know, you're happy just working with the ones you have?

John? No, Barry. I'm very active in continuing to build relationships across all the platforms, and it's been great to finalize deals with Hard Rock and Penn and, of course, Caesar. But we continue to meet other companies, understand their growth strategies. What are they trying to achieve over the coming years, and is there a place where we can be a part of that? So I think you'll see, Barry, over the coming months or years that we continue to add more tenants to our portfolio.

Got it. All right. Thanks, guys.

Your next question comes from the line of Mike Tape from JP Morgan. Your line is open.

Hey, guys. Calling on from Mike. Our funding questionnaire, you gotta ask. Thank you very much.

Your next question comes from the line of John Dikri from Union Gaming. Your line is open. John from Union Gaming. Your line is open.

Good morning, guys. Sorry, I had the mute button clicked there. I just wanted to get high-level thoughts, maybe Ed or John, on the behavior that we've seen in some of the corporate companies and potential partners early on. I think there was reluctancy and probably still to some extent for some of the operators to partner with a REIT, but we've certainly seen just across your portfolio more folks willing to work with you guys and even your peers. I was wondering what you thought has changed or is it just education, people getting more comfortable, and how do you kind of see that going from here? Is it just, are your conversations with potential operators getting easier about partnering?

John? Yeah, I'll take that and then Ed can jump in if I don't completely answer. I think you've described it well. I mean, when we started, I think at times there was a misunderstanding of how a REIT like us could help many companies to grow. So again, it's a relatively new sector, probably only five or six years old compared to many others in the REIT business that are decades old. So I think we've been on, and you know this, John, we've talked to you about this. We've gone on a mission to make sure, at least in our first 18 months, that everyone knew who Vichy was, how we could help them with their growth plans, how we do fair deals, that we're an independent company, and how we can, again, be there available to them should they want to do a sale, lease, stack, or a sale of their company. And I just think it's a little bit of an education process where folks better understand how we can be part of their team, so to speak. And you are correct, more and more folks are starting to understand. It doesn't mean they'll necessarily have this structure, but I think they understand how we can be a part. And I think Vichy's played a big part in helping to educate and get out there and tell people about our company and the REIT space in general. Ed, David, anything on that?

Yeah, I'll just add one more thought, John, and I add it as an open question that we would not pretend to have the answer to. And I think that open question, John, is to what degree will a gaming asset that comes to market to be sold here in the future, to what degree will a whole co be able to win the bidding if a REIT is interested in the real estate of that asset that has come to market and an operator is interested as well? In other words, to put the question in the most succinct terms, will there be circumstances when a whole co can outbid the combination of an op co and a prop co? Right? That, I think, is the question going forward that fundamentally ends up tying to the degree to which gaming REITs can continue to grow.

Ed, I think that was my follow-up question that I was going to present to you on just competitiveness as the REITs stay involved. So perhaps a slightly different question for you guys as a follow-up. How do you think about when you're underwriting an acquisition, particularly some of the single asset stuff that you're looking at or have done, on a four-wall coverage basis? I know there's been a clear preference for some corporate guarantee or credit support from your op co partner, but do you think about just kind of the four-wall coverage even if there's some type of credit enhancement involved, kind of as you underwrite at this point in the cycle? Or how do you think about that going forward? And that's it for me. Thanks, guys.

Yeah, John, it's David. I can start and John chime in. Look, I mean, as Ed and I have appreciated and John's realized over the long term, there's such a resiliency to the gaming revenues and cash flows that come out of these assets. So as we underwrite assets, ultimately over the long term, we want to try to get to kind of a 2-0 coverage. But as you've seen us do with the six deals that we've announced to date, the coverage ratio is going in at a range from a 1-7, 1-8. We did much lower in Harris, Las Vegas, knowing that there was significant capital going into that asset. But the Margaritaville, as you heard this morning, we did that at a 1-9 and Penn made the comment this morning that they're having the best quarter ever in that asset. So it's a combination of knowing what the operator can do, what they can do with synergies and the conviction that we have in the partnership with that operator and their ability to continue to drive revenues. Obviously, EBITDA for rent coverage in there. So it's a little bit of a long winded kind of rambling answer, but I think it depends. But ultimately, if we, you know, 1-7, 1-8, getting up to a 2-0 over the long term is where we'd like to be.

Thanks, guys. Your next question comes from the line of Stephen Grambling from Goldman Sachs. Your line is open.

Good morning. This is Bill on for Stephen. Thanks for taking my question. So following up on Daniel's question earlier, do you expect as the gaming REIT space becomes more appealing to diversified REITs, there will be a pickup in industry consolidation? And are there any barriers to entry associated with gaming licenses?

Bill, yeah, good to hear from you. In terms of what you're talking about in terms of industry consolidation, could you just clarify what you meant by that?

Yeah, just like maybe a higher propensity for diversified REITs or even gaming REITs to acquire and consolidate within the industry.

Yeah, yeah. So again, you know, we would look at the increasing interest in gaming real estate as a sign of validation. And as to what the impact of that will be on bidding, as to what the impact of that will be on the incumbent gaming REITs in terms of their growth, their consolidation, again, an open question at this point. It would stand to reason that the arrival of new entrants, the validation that they bring should lead to a rising tide that should raise all boats when it comes to improving their cost of capital. And needless to say, as cost of capital improves to a point that was raised earlier, it does make the available suite of investment opportunities, gaming and non-gaming, more abundant.

That's helpful. Thank you. And there was recently announced closing of a lease gaming property. Do you expect this to have any ripple effect on regional casino underwriting?

John, you want to take that?

I don't think so. I assume you're talking about the small asset that Penn and GLPI have in Tunica? Yeah. Yeah, I don't see that affecting regional underwriting.

Great. That's it for me. Thank you.

Next question comes from John from Vladenberg. Your line is open.

Morning.

Hey, John.

So is there any thought process on your guys' end to maybe keeping the leverage below target levels over the next couple of years, particularly because the call option properties are so accessible to you guys that it just gives you more flexibility of not being reliant on your position in the capital markets to take down those deals in the most creative manner?

Yeah, John and David, the leverage is something that we're very mindful of. Obviously, this entity started at 10 and a half times and we've worked really, really hard to take a lot of leverage out of the system. And then with the size of the deals and the timing of the close, we never want to be in a position where there's funding uncertainty around our acquisition. So, you know, specifically with the call properties, we've got internal funding capabilities out of having a lower AFFO payout ratio, you know, around 75% of our AFFO. You know, that in itself provides a nice funding capability for the call properties. You know, we will keep the balance sheet at five to five and a half times. And so that does provide us some optionality with the call properties. So we don't specifically keep the balance sheet under leverage for those call properties. We want to make sure that we are funding certainty around anything that we've announced or anything that we potentially may acquire here in the future.

Okay. And then shifting gears to the two kind of pending transactions, how should we think about timing and maybe size of a potential debt raise to help kind of fund those without putting too much of a burden on the line? I know you talked about doing some debt around Greectown. I mean, is that just going to grow kind of pro rata for the additional acquisition in Cincinnati or was kind of the original contemplated issuance around Greectown sufficient for both acquisitions?

Yeah, Jonathan, good question. As Penn said this morning and we're reiterating, obviously subject to final regulatory approval, Greectown should close by the end of May. The plan would be to use cash on the balance sheet to close that asset and then assess the debt markets later in the year to acquire both Greectown and Jackson Cincinnati on a leverage neutral basis. So, you know, Greectown 700 million, Cincinnati 558 million. So, you know, billion two billion three of total value for assets that we're adding to the portfolio this year. So rough numbers, you know, five, six hundred million dollars of additional debt that we will need to fund those on a leverage neutral basis. And again, the markets are there today. And as we get through the Ohio regulatory process, we'll make sure we have certainty around closing. We'll look to add incremental leverage onto the balance sheet.

OK, and then touching maybe on the regulatory side, I know it's kind of a broad question, but are there any markets or states where you think you guys may have destructural difficulties pursuing additional acquisitions because of regulatory concerns around competition or given kind of the diversity of your portfolio? Is it pretty wide open right now?

John, you want to take first crack at that?

Yeah, it's hard to say, but I don't think there is any any regulatory restrictions that I see in front of us of deals that we're looking at and where we may be. So the answer right now is I don't see any impediments for us to be able to grow from the regulatory.

All right, understood. That's it for me. Thank you guys very much. Thanks, John.

Your next question comes from the line of Brad Ford Delinka from Morgan Stanley. Your line is open.

Good morning, Brad on for Thomas Allen.

Hey, Brad.

One day, I asked you guys yet another one on the call options. Some articles indicate Caesar's is looking to renew its license in New Orleans and potentially put some capital into that property. Could that situation impact the timing or the structure of the economics on that call? That's it for me. Appreciate the question.

Thanks, Brad. John, you want to take that?

Yeah, Brad. Yeah, Brad, this is John. So you are right that Caesar's continues to look at extending their operating agreement, which expires in 2024. They're going through a state process right now, and we continue to monitor and work with them on that that option. We'll have to see how it ultimately plays out and how it gets finished and what the capital commitments are. So we're in contact with them, as Ed said earlier, and we'll see how it plays out, and then we'll be able to give some clear direction on where that's going. I don't know, Ed, David, do you have anything to add to that?

I mean, I would just add that obviously, you know, as we talked about in the announcement of the Jackson Cincinnati acquisition and as we talked about in the announcement of the Greetown acquisition, there are relatively few downtown regional casinos across the U.S. landscape. New Orleans represents yet another one and obviously we believe is a really wonderful place to own a property. So we're obviously supporting Caesar's in every way we can to ensure success in this process.

Thank

you. Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Smedes Rose from Citi. Your line is open.

Hi, thanks. This is Abshak on for Smedes. I just want to ask, can you comment on how the current transaction pipeline looks and how it's changed over the past six or 12 months?

Yeah, I'll take that. Yeah, I'll take that. Someone asked me yesterday on a plane how things are going. I said I'm busier than I ever have been, but we've been saying since we started 18 months ago that we've been busy. So the activity is good. I think that the work we did in 2018 to build relationships and let folks know who we are hopefully will continue to pay off in 19 and being able to do some work with those companies. So I'd say it is quite busy. We're quite active and it's a pretty exciting time in the space.

Great, thank

you.

There are no further questions at this time. I will turn the call back over to the presenters.

Thank you, operator. Thanks to everybody again for your time today. We look forward to providing an update.