VICI Properties Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VG properties third quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, November 1, 2019. I will now turn the call over to Samantha Gallagher, General Counsel with VG properties. Go ahead.

Thank you, operator, and good morning. Everyone should have access to the company's third quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the investor section of the VG properties website at .vgproperties.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 identified by the use of words such as will, expect, should, guidance, intends, projects, and 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 condition. During the call, we will discuss certain non-GAP 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 GAP. A reconciliation of these measures to the most directly comparable GAP measure is available in our third quarter 2019 earnings release and our supplemental information. Hosting the call today, we have Ed Petoniak, Chief Executive Officer, John Payne, President and 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 good morning, everyone. This third quarter of 2019 was another quarter in which VG continued to build for our shareholders an institutional quality real estate portfolio and an institutional quality balance sheet. In a moment, John Payne will tell you about our growth initiatives in quarter three and since the end of quarter three and then David Kieske will tell you about our financial results and balance sheet initiatives. But first, I'd like to spend a few moments on recent developments in our marketplace and what they may mean for VG over time. I'm referring in particular to the news two weeks or so ago of Blackstone buying the real estate of Bellagio. When we launched VG a little over two years ago, we were charged with and charged up about the opportunity to tell the equity and credit investing communities that gaming real estate possesses the characteristics that typify institutional grade real estate. These characteristics distill down to the real estate being mission critical and critically difficult to replace for tenants whose end user relationships and economics have endured and will endure for decades. And we said from the beginning two years ago that this time would come when more of America's commercial real estate investors would come to investigate and invest in America's gaming real estate. All along we've said that this growing recognition would be inevitable and it would be welcome given that real estate doesn't achieve its full value until this recognition takes place by institutional capital. Or to repeat the phrase we used on our quarter one 2019 earnings call, validation drives valuation. Blackstone's purchase of the Bellagio real estate is just that sort of validation and thus it's in all respects a good thing for VG, for our shareholders, for our sector. Some have asked why it took so long. Others have asked how fast other institutional investors are likely to move. Well, it took time for Blackstone and will take time for others like Blackstone because learning takes time. Institutional real estate investors make educated investment decisions. Before they invest capital, they invest time. They take the time necessary to study an asset class's cyclical risk, its secular risks, its vulnerability to oversupply, and in B2C real estate, the credit quality and business model sustainability of the tenant. Blackstone obviously benefited from the learning they've obtained through their investment in Cosmopolitan and no doubt they studied gaming rigorously before they made that Cosmo investment decision and reaffirmed their learning before making their Bellagio investment decision. Learning takes time and it takes diligence. An advantage accrues to those institutional real estate investors who learn about previously non-institutionalized asset classes at the highest velocity. If what they learn leads to positive views on the asset class, they can execute highly attractive investments before other market participants are ready to do so. At VG, we call this accelerated asset class learning process cognitive arbitrage. It's arbitrage born of doing the hard work of learning and then acting on that learning. Blackstone is not the first institutional real estate investor to figure out the value of Las Vegas Strip real estate nor would they claim to be. The fact is that retail real estate equity investors have understood for years that the Las Vegas Strip is one of the most valuable real estate markets in America. Just ask David Simon of Simon Properties what kind of capital he has been willing and able to put into Las Vegas Strip real estate. Real estate credit investors have also long understood how valuable Las Vegas Strip real estate is and have lent against it accordingly with the recent refinancing of Las Vegas Sands as Grand Canal shops at an appraised .5% cap rate as evidence of that. But here's a key fact. There are still many institutional real estate investors who have not yet started or are beginning the work of understanding the real estate investment characteristics of our sector. As they learn about our sector, the demand for and value of gaming real estate, including our assets, will grow. We've been asked if we are likely to see increased bidding competition for assets. We believe we will. Will this increase the risk that we may be outbid for assets? We believe it may. But if we get outbid for an asset, it means asset values are rising. And if the values of traded assets rise, history will tell you that the market is pretty effective at marking non-traded assets to market unless a given portfolio suffers from specific idiosyncrasies such as troubled tenants or troubled governance. Vichy suffers from none of those troubles. So we believe that if asset values rise, our cost of capital should further improve correspondingly, enabling us to sustain our competitiveness for gaming assets and for non-gaming asset classes as well. Some of you understandably are asking what this Bellagio transaction means for regional gaming real estate. Simply put, we believe it means good things. The Bellagio trade over time will bring increased focus on and interest in the gaming real estate asset class as a class. Take high flow through logistics real estate as an example. An asset class that I spent time around thanks to my association with the great folks at RealTerm. When the real estate investment market began to appreciate the mission critical nature of distribution real estate to the final miles of e-commerce, the initial focus was on markets proximate to the biggest urban cores such as northern New Jersey and LA's Inland Empire. As understanding of the mission critical nature of this real estate grew, the investment bullseye also grew to include other geographic regions. Take as an example the $177 million suburban Cleveland Amazon distribution center across the street from the thistle down Racino asset we announced the acquisition of earlier this week. Or take the deal ProLogis announced on Monday buying at an estimated $4.5 cap a portfolio of logistics assets concentrated largely in the mid-Atlantic and the upper Midwest. We believe this same ripple out dynamic will play out for regional gaming real estate as the real estate investment market comes to appreciate the mission critical nature of regional gaming real estate to America's great regional operators, especially those for whom regional assets are key spokes in their national hub and spoke network. There will be differences in value between Las Vegas and regional gaming real estate, but these will be differences of degree not kind. We've also been asked if our right of first refusals or ROFRs on two to be determined Caesar's own Las Vegas strip assets are worth as much now that this Bellagio trade has occurred. Our answer is that we believe they are worth more now. Rights of first refusal simply aren't worth a lot in a marketplace where there aren't likely to be many offers. If there is indeed likely to be more institutional real estate investor interest in Las Vegas strip real estate and if Caesar's decides to sell the entirety of one or two Las Vegas strip assets, that is both OPCO and Propco, these ROFRs give us an exclusive window of opportunity and with that an exclusive window of time to find an operator who can partner with us to acquire the asset. Caesar's will and must make the best total value decision for their shareholders, but we believe these ROFRs should enable us to consummate a transaction with Caesar's at a fair price and with quick execution without Caesar's necessarily having to bear the cost and market risk of a prolonged marketing process. All in all, our excitement around Vichy's value creation opportunity grows with every quarter and John will now share with you our recent exciting developments. Over to you, John.

Thanks, Ed, and good morning to everyone. During the third quarter on September 20th, we officially closed on the acquisition of Jack Cincinnati Casino in partnership with Hard Rock International. We were happy to close the first acquisition we announced in 2019 and we are very excited about the future of this property under Hard Rock's leadership. As many of you know, earlier this week we announced our fourth transaction of 2019 in which we will acquire Jack Cleveland Casino and Jack Thistle Down Racino and a sale leaseback transaction with Jack Entertainment. We are paying a total of $843 million, which represents an attractive .8% cap rate for urban real estate and will add $65.9 million of annualized rent to our portfolio. The transaction will expand our footprint in the state of Ohio, one of the healthiest and fastest growing regional markets across the country, and we'll add a fifth tenant to our roster. We're very excited about beginning our long-term partnership with the team at Jack Entertainment and we will look for ways to partner with the Rock Ventures family of companies as they further their investment in Cleveland and concentrate on select assets within gaming. The transaction with Jack brings our total announced transactions in 2019 to $4.9 billion and total announced transactions since our company was formed just over two years ago to $7.6 billion. We are often asked how we've announced so many complex transactions in such a short period of time. As I've said since we started the company, the principal keys to our success have been our true independence, our deep understanding of the tenant's underlying business, our focus on executing what we consider fair deals, and finally our willingness and ability to structure deals to meet our operator's needs. Over the coming months, we will focus on closing our remaining pending transactions as quickly and efficiently as possible. We continue to believe we have the best growth profile amongst our peers heading into 2020 and our significant embedded pipeline allows us to build on this growth consistently in the future. We also continue to invest time, including through engagement with operators, and learning about sectors outside of gaming as we work toward our goal of building a -in-class with geographic, tenant, and sector diversification. We have proven the ability to source and execute accretive deals, and we will continue to evaluate transactions on their financial and strategic merits as we consider increasing our investment universe. We believe that the acquisitions we've announced to date have demonstrated this discipline not only to our operating partners, but also to our shareholders who have entrusted us with their capital. With that, I will turn the call over to David, who will discuss our balance sheet and financial results.

Thanks, John. I'll first cover a few of the highlights from our quarterly financial results before turning to our balance sheet and capital markets activity. Our total revenues in Q3-19, excluding the tenant reimbursement of property taxes, which are no longer required to be presented on the income statement under AFC 842 as of January 1, 2019, increased 7.4 percent over Q3-18 to $222.5 million. Cash rent revenue from our leases was $219.4 million for the quarter and included $1.3 million related to the Jack Cincinnati acquisition, which closed on September 20. Our GNA was $6.7 million for the quarter, and as a percentage of total revenues was only 3 percent for the quarter, which is in line with our full-year projections and represents one of the lowest ratios in the triple net sector. We incurred approximately $1 million of transaction expenses in the quarter, primarily related to the legal and accounting costs associated with documenting the leases for Jack Cincinnati and the El Dorado transaction. These costs are required to be expensed under the new leasing guidance. Our AFFO for the third quarter was $164.6 million, or 35 cents per share on a fully diluted basis. AFFO increased 24.5 percent year over year, while AFFO per diluted share decreased approximately 3 percent over the prior year, given the increased share count and related dilution from our equity issuances in November of 2018 and in June of 2019. Our results once again highlight our highly efficient triple net model. Flow through of cash revenue to adjusted EBITDA was approximately 106 percent, while flow of cash revenue to AFFO was approximately 95 percent. As always, for additional transparency, including a detailed outline of our cash rent revenue by lease, we point you to our quarterly financial supplement, which is located in the Investors section of our website under the menu heading Financials. We welcome any feedback on the materials. Moving on to our balance sheet and funding activities. As a reminder, on June 28th, we completed an up-sized follow-on offering of 115 million shares sold at a price of $21.50 per share for net proceeds of approximately $2.4 billion. The offering was comprised of a 50 million share regular-away common stock offering, resulting in immediate net proceeds of approximately $1 billion and such shares being added to our total share count on June 28th. We also entered into forward sale agreements for the additional 65 million shares. Upon settlement, the forward component of the offering is anticipated to raise net proceeds of approximately $1.3 billion. We retained the ability to settle the forward transaction in whole or in tranches at any time between now and September 26, 2020. Our objective with the June offering was to immediately de-risk the balance sheet by effectively locking in funding certainty for the announced and prospective deals. With this approach, we continue to have some near-term dilution, but we believe this capital ensures that we have the balance sheet flexibility needed to close on the announced transactions and provide our shareholders with very attractive long-term growth. For the remainder of the long-term funding needed to close the El Dorado, Century, and Cleveland Thistle Down transactions, as well as the refinancing of the existing secured CNBS loan currently on Caesar's Palace Las Vegas, we intend to access the debt markets through a combination of term loan and unsecured bonds on a leverage-neutral basis. Our total outstanding debt at quarter-end was $4.1 billion, with a weighted average interest rate of 4.96%. 98% of our debt is fixed, with the remaining 2% floating, providing clarity to our future interest expense. The weighted average maturity of our debt is approximately 4.3 years, and we have no debt maturing until 2022. We ended the quarter with approximately $1.8 billion in liquidity, including approximately $774 million of cash and short-term investments and availability of $1 billion under our revolver. This $1.8 billion in liquidity does not include the forward equity component of $1.3 billion I referenced above. Finally, as of September 30, our net debt to LTM EBITDA was approximately 4.2 times, well below the low end of our long-term target of 5 to 5.5 times. Regarding our acquisition activity, we continue to pursue consistent and creative growth and work to close the transactions we have announced in 2019. As John mentioned, we closed on the Jack Cincinnati transaction on September 20, adding approximately $42.75 million in annual cash rent at a $7.7 cap rate. We funded Jack Cincinnati using cash on our balance sheet. With respect to the Jack Cleveland Thistle Down acquisition that we announced on October 28, we will not need any additional equity to fund this transaction on a leverage-neutral basis. As I mentioned, we have prudently raised all of the equity funding required in our successful June 2019 following offering. Between the three announced pending transactions, the Century Portfolio, El Dorado, and Jack Cleveland Thistle Down, we will add just over $343 million in annual cash rent, increasing our annualized rental income by approximately 37% on a run rate basis. In terms of timing, we expect the Century Portfolio to close by year end and expect Jack Cleveland Thistle Down to close in early 2020 and the El Dorado transaction is targeted to close in the first half of 2020. With respect to guidance, we will continue to present our guidance in absolute dollars as well as on a per share basis to provide additional transparency. We are updating our full-year 2019 guidance to reflect the closing of Jack Cincinnati on September 20 and the acceleration of the deferred financing fees that have been incurred in connection with a $4.7 billion bridge facility for the El Dorado transaction. The per share estimates reflect the dilutive impact of the additional 50 million shares of common stock issued on June 28 as well as an estimate of the additional shares from the forward sale agreements that are required to be included in the dilutive earnings per share calculation under the Treasury stock method. We now expect AFFO to be between $645 million and $650 million or $1.47 and $1.48 per share versus our prior guidance of $635 million to $645 million or $1.45 to $1.47 per share. As always, our guidance does not reflect any of the pending acquisitions or prospective capital markets activities. On our dividends, for the second year in a row, we announced an increase in our annual dividend during the third quarter. We paid a dividend of $0.2975 based on an annualized dividend of $1.19 per share representing a .5% increase from the prior annualized dividend. The dividend was paid on October 10 to stockholders' record on September 27. With that, operator, please open the line for questions.

Thank you. If you would like to ask a question, you will need to press star 1 on your telephone keypad. To withdraw your question, please press the pound or the hash key. Your first question comes from Carlo Santorelli from Deutsche Bank. Your line is open.

Hey, guys. Good morning. And thank you very much for all the commentary on questions you were obviously going to get. When you think about kind of the incremental entrance into the space and not just referring to the recent Blackstone deal but others that are suspected to be milling around and potentially doing some work, how do you think it affects, we could all kind of debate, I guess, your cost of equity and how it affects your trading multiple, but how do you think it affects your cost of capital on the debt side, meaning in your discussions with lenders, which presumably you've been mired in for quite some time now as you get ready for the upcoming deals, has the tenor changed as more kind of entrants come into this space and people get more comfortable with what exactly it is you guys are doing?

Yeah, Carlo, it's a great question. And I think we can apply that term I used in my opening comments, cognitive arbitrage, to the credit markets as well. This is a new real estate asset class, and real estate lenders have had to work to understand it in much the way that real estate equity investors have had to work to understand it. Obviously, they need to understand the key investment characteristics of our assets and the key characteristics of our tenants and their credit quality. And I think you could presume that over time, we believe at least, that the credit market will underwrite our real estate in such a way that it will start to more resemble true institutional real estate credit quality underwriting.

Great. Thank you very much. And then, David, just I'm fairly sure I know the answer to this, but I want to make sure I'm 100% clear. The guidance you guys provided, I know you said you expect Sentry to close, but certainly not included in your implied fourth quarter guidance, correct?

That's right, Carlo. Just so everybody's clear, everything that has been announced is not included in the guidance. So the guidance has been updated for the Cincinnati closing as well as some changes in some deferred financing fees, but guidance does not include Sentry, El Dorado, or the recently announced Cleveland Tistle Down transaction.

Great. Thank you,

guys. Appreciate the support,

Carlo. Your next question comes from John Decree from Union Gaming. Your line is open.

Good morning, guys. Thanks for all the color so far. Appreciate the questions. Ed, you're prepared to mark that you spoke a lot about the Bellagio transaction, which was really helpful. There were two other transactions in and around the Strip, Circus Circus and Rio. I think those kind of come with a little bit of a development opportunity and some land. I was wondering if you could give us your thoughts on those. There's some development on the Strip, Resorts World, the Drew Las Vegas. So just wanted to get your thoughts on what development and those types of projects look like on the Strip in the context of Vichy and additional opportunities that you see for yourself.

Yeah, John, I'll start this and then I'll turn it over to my colleague, John Payne. I think the starting point for us is we are tremendous believers in Las Vegas, the market as a whole, the Strip, downtown, locals. And we just think that the fundamentals of Las Vegas are so strong when it comes to truly being a global city with the infrastructure to support the volume of activity that does take place there and will continue to take place there from so many different visitor segments. In the particular case of Rio and Circus Circus, I think we see those as both redevelopment, repositioning opportunities. And at this point, we didn't see a compelling need or opportunity to participate in those. We absolutely wish the new owners of both of those new assets the very best and we believe they can succeed. They're obviously very smart investors and operators in both instances. And beyond that, I'll turn it over to John for his further color.

Yeah, look, I think, John, great question and Ed touched on almost all of it. In his opening remarks, he did refer to the two rovers we have in Las Vegas with Caesars that we're quite excited about for the long term. And we'll continue to watch out the new development opens up. As you know, there has not been new development in Las Vegas for almost a decade and it'll be exciting to add new product into that market and continue, as Ed said, to be this world class destination resort market that caters to just a wide variety of demographics and age groups. So we're excited to see those open.

Thanks. That's helpful. And to stay on Las Vegas Strip for a quick follow up, John, maybe a question for you. With your two rovers, anything about your portfolio, is there thought or any concern about taking too much exposure to a singular market like Las Vegas? Is that something that you would be focused on or right now is kind of the whole map still open and kind of agnostic to location at this point?

No, I mean, we think about that obviously. And what we like about our portfolio today is how diverse it is. And where we do have Las Vegas exposure and we have large regional exposure and we're also continuing to grow our pie. And so we see this opportunity to continue to be diverse in many different markets. And we realize, as we said from the start of the company, we really like Las Vegas. We like the Strip. We like the locals market. We like downtown as well. And so we'll continue to evaluate opportunities there. But we don't think there's overexposure because we also plan to continue to grow our company in other ways outside of Las Vegas.

Very helpful. I appreciate it and congratulations again on all the successful activity. Thank you, John.

Your next question comes from Barry Jonas from SunTrust. Your line is open.

Hey guys, good morning. Just maybe two questions. Can we talk about golf operations for the quarter? It came in a little bit lower than what we were thinking, especially on the margin. Just any color there and maybe what's the right way to think about that business going forward.

John, you want to take that?

Sure, it was a little off. Again, remember the third quarter is the quarter where we see in Las Vegas in particular where the courses do have to close for reseeding. But we've been quite excited about the team we've put in place. It's now going on almost two years of run it. Remember these courses were run particularly in Las Vegas as casino courses. They were amenities to the casino operations and now they're run by us as standalone. We've seen nice growth in a variety of areas, not only in the golf business, but also in weddings and other areas where we see ways we can use the facility differently. A little off in the quarter, but we feel quite good about the consistency of the business that we're going to see in 2020.

On the revenue side, Barry is going to add on the revenue side, the golf courses have actually grown their revenues quite strongly in terms of both rounds and revenues have outperformed their market substantially this year.

Great. Then, look, I think the deal with Rock Gaming is really interesting and some of the comments about the potential to work together in the future. Just asking sort of the standard non-gaming question, is moving to non-gaming something that could happen sooner than later at this point or just any color that would be great?

Yeah, I'll start and again John can jump in. Barry, it will happen. We're seeing very compelling opportunities across a number of non-gaming sectors. When it comes to the Gilbert Group, we're obviously very excited to be partnering with Jack Cleveland and Thistle. We're also very excited to be affiliated through Jack with the Bedrock Group of Companies, who have so much going on in both Detroit and Cleveland. We're very excited about their developments in and around our assets in downtown Cleveland. John and I were in Detroit about a week ago and what Bedrock has on the go there is so exciting. You might have seen they just announced a big project in Detroit right next to our Greectown Casino with Steve Ross, a related, that is not an experiential asset that we would have anything to do with, but is part and parcel of their ability to remake urban landscapes. To the extent that they ever build experiential assets that we could potentially be a valuable partner in, we would obviously love to do so. John, you want to add some color on top of that?

No, I think you nailed it. I think being associated in partners with very successful merchant developers over the next decade will open up opportunities for us, we think, whether we decide to do it or not. This team is incredibly creative in what they do and what they've done in Detroit, the land they have in Cleveland around the assets that we just acquired. So more to come on that, but it's exciting. We're excited to be partners with them.

Great. Thanks so much,

guys. Your next question comes from Daniel Adams from Nomura InstaNet. Your line is open.

Hey, guys. Good morning. Thanks for taking my questions. First off, congratulations on announcing yet another large and creative deal in the quarter, which actually leads me to my first question, which is how big does Vichy want to be ultimately? And related to that, do you think a horizontal merger with one of the other gaming reaps make sense maybe to accelerate your scale and exploit the cap rate arbitrage opportunity that exists within gaming while you still can?

Yeah, Daniel, good to talk to you. In terms of how big can or should Vichy be, I mean, it should be as big as it can be while continuing to truly grow shareholder value in a risk-adjusted way that does not put shareholder value at risk, which is to say getting bigger simply for the sake of getting bigger is not the kind of strategy we would ever pursue. And in terms of how we look at opportunities across the full spectrum of opportunities, we've got a team, as has been demonstrated in these two years, that has a tremendous amount of energy and a tremendous amount of capacity. We will always be looking at every option we have to increase shareholder value, and right now we think we've got a really nice full plate pursuing exactly the kind of strategy we've been pursuing these last 24 months.

Okay, that's great. I totally agree for what it's worth. And then my second question is related to MGM's increasingly vocal strategic focus on becoming asset light. I'm wondering to what extent you think MGM's strategy shift will lead to other owner operators who maybe previously wouldn't consider sale leasebacks to reconsider. Thanks.

Yeah, Daniel, I think, I apologize, this is going to sound like a bad answer, but I think time will tell. There are obviously a tremendous number of really smart people involved in the development and execution of the MGM strategy. And they obviously give evidence of that with the very compelling transaction they did with Blackstone. And we wish them, we sincerely wish them the very best. We believe they did us a favor with that deal. We thank and congratulate them for that. And as time goes on, I think they have the opportunity to demonstrate that an asset light strategy can be value creating. And again, I will only say we wish them the very best.

Great. Thanks, guys. Thank you.

Your next question comes from Smitty Rose from Citi. Your line is open.

Hi, thank you. And I just wanted to ask you a little bit more about some of your comments around valuation, particularly in regional markets versus Las Vegas. And it just seems like to me that the value regionally is more related to the license to conduct gambling versus the underlying value of real estate for some sort of alternate purpose. And the value would be connected to the scarcity of those licenses, which often become more available when states are interested in raising more tax revenues. And just trying to think about, you know, maybe putting Las Vegas aside, how do you underwrite risk around, well, I guess regulations on a state basis, either expanding gambling or raising taxes on the operators, et cetera?

Yeah. Well, it's a very good question. And I would absolutely agree that there is value in the license. And in terms of the degree to which the value of the license can be subject to risk through license expansion, that is indeed a risk. But I think it's interesting to see what has unfolded in Pennsylvania and appears to be unfolding in Illinois when a jurisdiction will put incremental licenses up for auction and the market participants acting very rationally tell the jurisdictions, well, we don't actually want to buy those because we think the market is adequately supplied. So right now I think you have at least for the time being a rational market when it comes to supply demand balance, even when a given jurisdiction might want to increase supply. And then in terms of the intrinsic value of the real estate, while it may or may not have alternative uses, it is truly bespoke real estate. It is mission critical real estate that is very difficult to reproduce. It is very expensive to reproduce and is absolutely mission critical to operators whose economics are so compelling, they're going to want to continue to occupy it. So I would just reiterate that while there may be differences of degree in value, I would say that they will not be differences of kind, especially for good solid regional assets in good regions where the tenant is a very solid occupant. And I'm going to say something I probably shouldn't say, but I believe I could make a rational argument that MGM National Harbor, which is one of the great regional assets in America, could be valued at a cap rate even south of Bellagio. It's a 24-hour city. It's an incomparable piece of real estate and an incomparable location. I think there's a very, very healthy and exciting and energetic debate that can be had around how to underwrite good regional gaming assets. And the degree to which people think they deserve a substantial discount to assets on the strip is potentially losing sight of real value.

Okay, thank you. I appreciate that.

Your next question comes from John Misoka from Leidenberg-Selman. Your line is open.

Good morning. Good morning, John. So as kind of a follow-up to that last question, I know we're early days here with the Bellagio transaction having just been announced, but are you seeing... I understand your view is that regional gaming could potentially have the same valuation as Vegas strip gaming. Has that played out though in terms of demand? I mean, are you guys seeing maybe more demand for Vegas gaming from other...for Vegas real estate from other institutional capital sources just given it's a more familiar market, it's probably a market you could put more money to work in quickly? Or how is kind of the competition shaping up between Vegas and what you're seeing when you're going out and looking at assets in a regional market?

Yes. First of all, John, I want to clarify that if I seem to suggest that regional assets should be valued equally or the same as Vegas assets, I'm sorry, I didn't mean to say that. For select regional assets, I believe I could make an argument and I could be defeated in the argument that there are select regional assets that could be considered even as valuable or even potentially more valuable than good strip assets. I think generally speaking, again, regional assets will probably trade at some slight or discount to be determined to Las Vegas real estate. In terms of how the market is looking at regional real estate in light of the Bellagio transaction, I think I should highlight that it is only about three weeks ago. So it's a little too soon to tell, although I will tell you that we had a call from somebody on the...I think the Blackstone announcement was made on a Tuesday and on a Friday somebody called and said, you guys haven't rerated yet three days later. So it will take a little bit of time, but I think you've seen indications from other parties like EPR, a very, very good read of their interest in gaming, regional and otherwise. And I think you will see increased focus because, again, as people realize that there is value in the very intrinsic nature of this real estate, they will realize that real estate outside of Las Vegas has value as well.

Okay, understood. And then specifically with regards to the loan that was announced as part of the Jack Cleveland and Thistle Down transaction, can you maybe describe what types of properties are collateralizing the loan? Just make color there, it would be helpful.

Yeah, it's a secured first lien on the Higbee building and the May Company garage, which is all part of the Rock Ohio Ventures is our ultimate guarantor.

Okay, understood. And then lastly, is there anything maybe structurally that would prevent you from putting in place another forward, like a forward equity transaction? If say you saw a new influx of deal volume, I understand you can fund the current pipeline with the existing kind of capital raised in equity that you could...equity on the forward today. But if you needed to put another one in place, there's nothing structural that would prevent you from putting a new one in place before you take the old one down. Is that a correct way to think about it?

No, you've seen Agri, others do have multiple forwards outstanding at the same time. So no, there's nothing structurally out there. It's just an equity offering with a derivative component. So we could, to your point, if there was something out there, sure.

Okay, that's it for me. Thank you very much.

Thanks, John. Your next question comes from David Katz from Jeffries. Your line is open.

Hi, good morning, everyone. Hi, David. Hi, David. I...I...A question for John. I want to make sure that I heard, you know, some of the commentary appropriately about the prospects for, you know, growing into contiguous or, you know, alternative or non-gaming forms of real estate. I think you may have said, you know, opportunities over the next decade, you know, which leaves, you know, quite a bit of latitude there. I just wanted to go a little farther and, you know, ask, do you think that this is something that could occur or evolve over the next, you know, say, two or three years, or is it a much longer term evolution that we should be thinking about?

Yeah, David, good question. And I'm glad to clarify my comments. Referring to the decade was to the partnership with the Rock Venture family of companies and working with them to develop. As it pertains to my comments about hospitality and experiential, I think more in the near term than that. So to your point about two or three years' opportunities there, I think we've been quite clear that we are spending time better understanding certain sectors, spending time understanding great operators in those sectors, and are there opportunities for us to continue to diversify our portfolio with the, you know, the goal to continue to, you know, be geographic and have tenants and sector diversification. That clarifies my comment.

And if I can just follow that up, it is, you know, is it a necessary, you know, bridge or link that involves, you know, an owner or developer of gaming assets who also does other things or, you know, just using as an example a project like Pompano, you know, which has a casino as a hub, but, you know, is intended to have a variety of other, you know, asset classes within the entirety of the project. Should we think about gaming owners and gaming properties as really the bridge or a link?

No, we like that link, but it doesn't have to be that link, I guess is the way I would put it. So if there are opportunities that are adjacent to facilities we own or others that are, and they're developing experiential hospitality assets that we like and we can be involved, we sure do. We'll study and understand that's right for us. But by no means does it have to be linked to a gaming operator or a gaming facility. In fact, we're spending more of our time on areas that are not linked, but so that's really kind of where we are. Perfect. Thank you very much. Thank you, David. Thank you.

Your next question comes from Thomas Allen from Morgan Stanley. Your line is open.

Thank you. So in your initial remarks, you made the point that private and public market values convert and emerge eventually. I don't think that always happens. And so if it doesn't, what do you do?

Yeah, no, you're absolutely right, Thomas. There can be situations in which they don't. And you would know even better than me, but I mean, hotels may be a case in point right now where private market values are in excess of public market values. And when that disparity of value exists, it does tend to correct over time. If nothing else, the private market starts to scoop up underpriced public market assets. It does not tend to be a permanent condition unless there's something inherently wrong with the assets or the portfolios as a collection. And I suppose one of the options for public players in any real estate sector when the public market continues to undervalue them is again, see if the private market will pay you more than the public market is willing to pay you today.

And do you ever have conversations with people about selling single assets?

Oh, yes, we do occasionally, but it's not because we feel they're undervalued. It's because somebody else is interested in them for various strategic reasons on their own part. And after two years, obviously, we're still very excited about what we own. And we're also very excited about the progress we've made in two years such that we are not in any sort of state of frustration or impatience at this point as to how the market is valuing us. We believe the market's understanding of our value proposition continues to grow quarter by quarter. While there is occasional noise in the equity market overall and in the RMZ, we like the progress being made and we're certainly not impatient at this point.

Perfect. Thank you.

Thank you, Thomas.

Your next question comes from Rich Hightower from Evercore. Your line is open.

All right. Good morning, guys.

Hey, Rich. Hey, Rich.

Yeah, thanks for taking the question. We've obviously covered a lot of ground here. But Ed, I want to, you know, maybe this is a hard question to answer, you know, given a lot of the differences in addition to the similarities. But I wonder if you care to gander on what a cap rate spread between Bellagio and its, you know, current structure and, you know, your CPLV leads on the other side of the strip, you know, as we think again about that sort of ripple effect in cap rates that you mentioned and have referred to at other times.

Rich, it's a very good question. It's a very fair question. It's a question I've definitely mulled over in my mind. And I'd be a fool to tell you that I have a highly confident answer right now. But I would say that, and this I think, true, Rich, you know real estate very well. In any asset class, you look at each opportunity on its own merits and with its own particularities. So, in the case of Bellagio, you would look at the trading cap rate of five and three quarters. And you would evaluate that cap rate not only in relation to the property, its quality, its location, the credit quality, the tenant, but you would also look at what were the lease terms associated with that five and three quarter cap, right? And then any other asset you look at, whether it be CPLV or any other really higher end strip asset, you would ask, okay, what should the cap rate be in relation to the particularities of the asset, its lease, the tenant and its credit? And I would simply say that we absolutely love Caesars Palace as an asset. We're very excited about what Caesars has been doing with it. We're very excited about what the new Caesars management team will be doing with it. We love the fact that it's got land out front, the seven acres that we talk about in our we believe are the most underutilized seven great acres in American commercial real estate, those being the seven acres at the intersection of Flamingo and Las Vegas Boulevard. Otherwise, no one is a strip. So yeah, I'm just going to leave it at we love the hell out of that asset.

No, that's good. I mean, as you said, there's a lot of moving parts, but it's interesting to hear your perspective on that.

I'll follow up on

another question here, too. Maybe actually combining a couple of other questions that have been asked, but as you think about Vichy over time and what a lot of REITs do as they get to a certain size and they look at asset recycling as a potential source of equity, as you think about additional private market players getting into the space that Vichy resides in, what do you think the opportunities are? Maybe not today, but over the next two, three, four or five years to think about selling assets as a source of equity for new deals and kind of get that machine working in that direction. Is that a possibility that is on the horizon at some point?

It definitely should be, Rich. I don't think we would be very good real estate portfolio managers if we weren't always asking if a given asset in the portfolio might be worth more to someone else than it is to us. We would not be doing our jobs if we did not over time engage in that kind of rigorous portfolio management asset by asset. I think to your point, Rich, it will be evidence of the further maturation of the asset class as an asset class and it will give further confidence to market participants that there is a liquid market in the assets and that values can be established with confidence.

Perfect. Thank you,

Ed. And your last question comes from Smithy Rose from Citi. Your line is open.

Hey, it's Michael Borman here with Smithy. Ed, I sort of wanted to talk a little bit about some of your opening comments as well. And certainly Blackstone coming in and paying what they did at the cap rate justify sort of value of real estate, but it also leads to cap rate compression that if you don't have commensurate decline in your own cost of capital, your investment spreads are going to narrow and you won't be able to create the same level of accretion. And so on one hand, it's justifying the institutional quality of the real estate, but it also makes it perhaps more difficult to generate the same level of accretion if you're not going to get the same lift in your own cost of capital. How do you sort of think about that aspect?

Yeah, no, we think about it a lot, Michael, and we're glad to have you on the call. It'll go back to the remarks. I'll go back to the scripted remarks I made, which is that we have to count on the market, if you will, marking our assets to market and are getting the cost of capital improvements that would go with that. If that were not to happen, we would have to be looking at assets we can afford and may have some strategic advantage in bidding for. I will say, Michael, that in this case, we really put tremendous value on especially John Payne's relationships across the gaming sector and our ability to forge relationships with operators that in some cases, as you've just seen this week, give us a competitive bidding advantage. But again, only time will tell. You've raised a question that could play out. We're hopeful and confident that it won't. If we can continue to demonstrate on our part that we're very shrewd, energetic, acquires of assets at the right prices.

I think about the net lease model and you look at the traditional net lease rates, their competitive advantage is their cost of money. Then the ones that have been able to distinguish themselves is the relationship-based investing that they've been able to have. You mentioned John Payne and his relationships for you. That's what gives you an added bonus relative just to the cost of your money. Those companies trade at big premiums to the underlying value. I guess that's eventually where you want to get to.

You are absolutely right. You're absolutely right. I do think that it is this iterative process where the demonstration of competitive advantage tends to improve the cost of capital, which in turn increases competitive advantage. What we want to achieve, I guess, Michael, is virtuous cycle dynamics or flywheel dynamics to choose whichever metaphor you want. Again, we will be patient. We will not get out over our skis in terms of paying what we should not be paying in order to somehow try to demonstrate to the world we should be valued higher than the market is valuing us at that time.

You mentioned skis. Where are you right now in terms of other verticals outside of gaming?

Relentlessly and energetically investigating. Again, I think when we look at every sector that we look at outside of gaming, Michael, we really look through four key filters. Is it a highly cyclical sector? If it is, it's frankly not as interesting. Is it a sector that is vulnerable to secular threat, which in, if you will, the place-based business means can Amazon put what is experienced in that place in a box and ship it to your house? That's one of the principal secular risks so many sectors are facing right now. The third one is the supply-demand dynamics. Is it a sector that is vulnerable to overinvestment, which would lead to oversupply, which would lead obviously to poorer economics and thus poorer returns? And then finally, at the heart of the real estate, is there an operator offering an end-user experience that is proven to be durable for decades going backward and is likely to be durable for decades going forward? What we're excited about is we're identifying a number of sectors that have those characteristics. Some of them may or may not have tremendous macro trends. Ski, you mentioned it, does not have tremendous macro trends over the past three decades, but you've got a couple of players, surely, who are demonstrating they can be very, very successful and create an awful lot of value against an otherwise sluggish macro backdrop because of the competitive advantages they're achieving through, among other things, network effect.

You don't feel that online gaming and the potential for increases in that avenue, and I recognize that there's more to it, but you don't feel like that's a longer-term secular threat to the gaming business?

The hard-advance business, right? Yeah, yeah, exactly. At this point, it does not appear to be. Online gaming has been active now in the US since 2011, and there's really very little evidence that it has cost -and-mortar visitation. You do have examples like New Jersey sports betting where there is an awful lot of mobile activity, including those who take the path drain to Hoboken and surface in Hoboken so they can place a bet. But at least in that case, the revenue is funneling back through the -and-mortar facility. But by and large, the reason people go to casinos is to get out of the house, and we think the human urge to get out of the house is a pretty enduring one.

Well, most people should just get a private VPN rather than taking the train to Hoboken, but that's a separate issue. I appreciate your time. Thanks. Thanks, Michael.

If there are no further questions, I'll turn the call back over to the presenters.

Thank you very much, operator. In closing, we at Vichy are more excited than ever about the institutionalization of this real estate asset class. We continue to make significant strides in executing our strategy as evidenced by our activity in the year to date, and we have no, I repeat, no plans of slowing down. Our growth pipeline continues to be robust, and we believe we are well positioned to continue growing our portfolio and driving superior shareholder value. Thanks again for your time today. We look forward to providing an update on our continued progress when we report our quarter and year end results. Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.