VICI Properties Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Vici Properties Fourth 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, February 20, 2020. I will now turn the call over to Samantha Gallagher, General Counsel with Vici Properties.

Thank you, Operator, and good afternoon. everyone should have access to the company's fourth quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the investor section of the Vici Properties website at www.viciproperties.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, 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 condition. 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 fourth 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 afternoon to everyone on this call. We greatly appreciate you joining us. Over the course of our opening remarks and over the course of the call, we will discuss with you our 2019 Q4 and 2019 full-year key activities and results. John will cover our portfolio and business growth activities and results. David will cover for you our financial results and the continuing institutionalization of our capital structure. I'll begin by sharing our thoughts on 2019 as evidence of what we've been building over the last two years or so since Vici was born. From Vici's earliest days, we focused relentlessly on the methods by which we will manage and grow your REIT. Taking advantage of our collective REIT experience as a management team and as a board, we've attacked the following two questions with as much energy and rigor as we can manage. Question number one, what's the character of the culture that a great REIT grows out of? How do we attract and retain the best people on both our board and our management team so that we can live up to what I believe is axiomatic in real estate investment management And that axiom is simply the best people plus the lowest cost of capital wins. Question number two, what are the partnership principles and methods that build and sustain a great REIT? With our own people, with transaction partners, with advisory partners, with capital partners, both equity and credit, and with long-term operating partners or tenants. We focus relentlessly on these two questions because we believe finding the right answers to these questions is key to instilling and maintaining the right methods for managing, governing, and growing the REIT. And we focus intensely on our methods or our means because we fundamentally believe that the scalability of our REIT management and governance methods ultimately drives the scalability of our REIT results for our ends. Our 2019 achievements were of a magnitude matched by very few other American REITs in 2019. We had one of the most productive and value-creating years of any REIT in recent history. I'm proud of our achievements, but I'm even more proud that these outcomes are the result of the management team and the management method that we've been building since VEACHE Day 1. And that's because the results of 2019 are done. They are history. But what our management team and method can and will achieve in 2020 and beyond represents our future and the value we can continue to create for our stakeholders. Here's the essence of our strategic method, growing relationships. It is absolutely as simple as that. If we grow the right relationships in the right way, we will grow and sustain the value of the REIT in the right way. The right way comes down to growing and constantly bettering our business by growing new relationships with new partners and sustaining and broadening mutually beneficial relationships with existing partners. Let me quickly run you through our key partnerships. Number one, our people. In 2019, in our second full year of operation, VG was one of only eight American REITs to win certification as a great place to work. We are using the Great Places to Work program to ceaselessly monitor and improve the experience of our people because VG's success depends on the unceasing energy and engagement of our people. Number two, gaming partners. In 2019, we grew and bettered our portfolio by growing new relationships with operating partners in Reno, Nevada, El Dorado, Hollywood, Florida, Hard Rock, Vienna, Austria, Century Casinos, Detroit, Michigan, Jack Gaming. In doing so, we added to the relationships we already had with great partners in Las Vegas, Nevada, Caesars, and why I'm missing Pennsylvania, Penn Gaming. Number three, equity partners. In 2019, we grew and bettered our capital structure by growing our relationships with the equity investment community, becoming by the end of Q4 2019, the most owned triple net REIT by America's dedicated REIT investment managers as measured both as a percentage of market cap and in absolute dollars. And when it comes to Europe's top real estate investors, BG was their number one triple net holding at the end of Q4 2019. Number four, credit partners. In late 2019 and early 2020, we bettered our capital structure by initiating and quickly growing a relationship with a fixed income community. raising nearly $5 billion of unsecured debt at some of the best pricing achieved in recent history by our grade of credit. And we achieve that because, in part, we are recognized and given credit for our ambition to become an investment grade credit. Number five, learning partners. It is through our relationships with great operators and knowledgeable advisors that we learn about the gaming marketplaces, those where we already own gaming real estate and where we will potentially acquire more gaming real estate. Finally, number six, potential new sector partners. It is also by growing relationships with operators and asset controllers and advisors and other experiential sectors that we are learning and will learn about these other sectors, learning that will determine if, when, with whom, and how we will invest in other experiential sectors. This fundamental strategic method, growing our REIT and our value by growing our relationships with valuable partners, Sounds simple and basic, and it is. But during my career in real estate, I've been struck over and over by the tendency of real estate investment companies in many different sectors to sacrifice relationships for the sake of maximizing their take in a transaction. They sacrifice potential future growth by leaving the current counterparty saying to themselves and others in the marketplace, I will never do business with that company again if I can help it. That is not who we are at Vici, not today, not tomorrow, not ever. We are relationship builders, not destroyers, and by doing so, we believe we are value creators. Since our very first day, Vici's business development has been led by one of the very best relationship builders in American commercial real estate, John Payne. I will now turn the call over to John, and he will tell you about the relationships and value we built in 2019 and how we're approaching growth in 2020. John, over to you.

Thanks, Ed. Good afternoon to everyone. As Ed highlighted, 2019 was a transformative year for Vici, our investors, and our team. Over the course of the year, we were by far the most active and led the gaming REIT sector in acquisition activity. Indeed, we were the only gaming REIT to announce arm length transactions in 2019. In total, we announced $4.9 billion of transactions across regional and Las Vegas assets at a blended 7.9% cap rate. Including the pending Eldorado transaction, we increased our annualized rent by approximately 45%, doubled our roster of best-in-class tenants, and demonstrated consistent accretive acquisition activity for the third consecutive year. We believe our independence focus on relationships, and ability to structure creative transactions that work for Vici and our partners over the long term will only add to our momentum for years to come. During the fourth quarter on December 6th, we closed the acquisition of three regional properties with Century Casinos. This $278 million transaction adds $25 million of annual rent under a master lease, representing an attractive 9% cap rate. This transaction has important strategic significance in that it creates a partnership with Century Casino, an expert operator of small to midsize assets with ambitions to grow their U.S. platform, and demonstrates that we can partner with operators of all sizes. Just a few weeks ago, on January 24th, we closed on the acquisition of Jack Cleveland Casino and Jack Thistledown Racino in a sale-leaseback transaction with Jack Entertainment. We paid a total of $843 million and added $65.9 million of annual rent to our portfolio through a master lease, which represents an attractive 7.8% cap rate for urban core real estate in Ohio, one of the fastest growing regional markets in the country. Additionally, on January 15th, we announced the disposition of Harrah's Reno for $50 million. Not only will we receive $37.5 million of gross proceeds for the sale, we will also have no change to the existing annual rent under the master lease with Caesars. This is a great example of how Vici works constructively with our tenants while redeploying the sale of proceeds towards other attractive growth opportunities. As we head further into 2020, the transaction environment remains active, and we see plenty of opportunity both within and outside the gaming industry. We also remind you that we have worked diligently to secure an embedded growth pipeline that ensures the company maintains visible long-term growth. Upon the closing of the Eldorado transaction, this embedded pipeline includes two ROFR opportunities on Las Vegas Strip assets, a put-call option on two high-quality assets in the growing Indianapolis gaming market, a rofer on the world-class Caesars Forum Convention Center in Las Vegas, and an additional rofer on an urban core casino in Baltimore. We believe Vici remains in a great position to capitalize on opportunities that the market presents, and we will continue to put your capital to work, growing our portfolio creatively, building a world-class REIT, and driving superior shareholder values. With that, I'll turn the call over to David, who will discuss our balance sheet and guidance. Thanks, John.

I want to start with our balance sheet. Since our emergence just a little over two years ago, we've brought relentless focus to ensuring that we have a capital structure that will weather all cycles and provide the safety and protection our equity and credit partners deserve. During 2019 and into the first part of 2020, we continued to transform our balance sheet through extremely disciplined capital allocation. To summarize, In June 2019, we raised $2.4 billion of equity through the largest REIT primary share offering ever to fully fund all the equity required for the Eldorado transaction, as well as the Jack Cleveland Thistledown transaction. As a reminder, we upsized the offering to 115 million shares, comprised of a 50 million share regular weight common stock offering, resulting in immediate net proceeds of approximately $1 billion, with 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 remaining net proceeds of approximately $1.3 billion. In addition, in March 2019, we officially raised $128 million of net proceeds through our ATM program. This efficiency was demonstrated again earlier this month where we sold $200 million of equity via the ATM to ensure funding for our active transaction pipelines. We upsized our line of credit by $600 million in May 2019, increasing the total capacity to $1 billion, enhancing our liquidity profile and extending the maturity from 2022 out to 2024. We continued on our mission of strengthening our balance sheet with the ultimate goal of achieving an investment-grade rating. In November 2019, we executed our very successful inaugural unsecured notes offering with an upsized offering of $2.25 billion, which was 3.6 times oversubscribed. comprised of $1.25 billion of 7-year notes at 4.25% and $1 billion of 10-year notes at 4.58%. The proceeds from this offering were used to retire the secured CPLV CMBS debt, where we replaced a standalone secured mortgage that carried a rate of 4.36% with a blended rate of 4.32% on the new unsecured notes that were used to retire the secured debt. We incurred total breakage costs of $110.8 million, but as part of the Eldorado transaction, we will be reimbursed for half of these costs upon the closing of the ERI transaction. We took advantage of this partnership from the credit markets, and on February 5, 2020, we closed on a subsequent $2.5 billion unsecured notes offering, which was 4.9 times oversubscribed, comprised of $750 million of five-year notes at 3.5%, $750 million of seven-year notes at 3.78%, and a billion of 10.5-year notes at 4.8%. $2 billion of the proceeds from the February notes offering were put into escrow, and along with the proceeds from the equity forward agreements from the June equity offering, we now have $3.2 billion of capital earmarked for the Eldorado transaction. The remaining $500 million of proceeds from the February notes offering were used to retire the 8% second lien notes which were redeemed earlier today. All of this debt financing significantly improves our composition and weighted cost of debt. At Emergence, we added 100 percent secured debt with a weighted average interest rate of 5.49 percent and a weighted average maturity of 2.9 years. As we sit here today, post the activity in early 2020, we have $6.85 billion of total debt outstanding, 69 percent of our debt is unsecured, with a weighted average interest rate of 4.2%, a weighted average years to maturity of 7.1, and we have no maturities until 2024, a significant improvement providing Vici with the ability to continue to finance highly accretive transactions. Overall, 2019 highlighted our guiding principles on how we approach our balance sheet. Maintain a very disciplined composition and laddering of debt whereby in any one year we strive to have less than 20% of our total debt coming due, safeguarding the company's balance sheet against future market volatility. Opportunistically access the capital markets to lock in funding certainty for all real estate transactions and develop continued access and partnership from the equity and credit markets to finance accretive acquisitions. Maintain a long-term target leverage goals a five to five and a half on a net debt to EBITDA basis, which we will be well within pro forma for all the transactions we have announced and migrate the balance sheet to an unsecured issuer and ultimately achieve an investment grade rating. In terms of our financial results, this afternoon we reported that total revenue in Q4-19, excluding the tenant reimbursement for property taxes, increased 15.2% over Q4-18 to $237.5 million. FOR THE FULL YEAR 2019, REVENUES INCREASED 9.6% OVER 2018, EXCLUDING THE TENANT REIMBURSEMENT OF PROPERTY TAXES. THESE INCREASES WERE THE RESULT OF ADDING 146.6 MILLION OF ANNUAL RENT DURING THE YEAR FROM THE MARGARITAVILLE, GREETOWN, HARD ROCK CINCINNATI, AND THE CENTURY ACQUISITIONS, WHICH ALL CLOSED IN 2019. AFFO WAS 176.6 MILLION, OR 37 CENTS PER SHARE, FOR THE FOURTH QUARTER, BRINGING FULL YEAR 2019 AFFO TO 649.6 MILLION, or $1.48 per share, in line with our 2019 guidance. AFFO increased 23.6% year-over-year, while AFFO per share increased approximately 3.5% over the prior year, which is due to the increased share count and resulting temporary dilution from the June 2019 equity offering. Our GNA was $5.1 million for the quarter, and as a percentage of total revenues, it was only 2.2% for the quarter. which is in line with our full-year projections and represents one of the lowest ratios in the triple net sector. Our results once again highlight our highly efficient triple net model, as flow-through of cash revenue to adjusted EBITDA was approximately 100%. As always, for additional transparency, we point you to our financial supplement for a detailed breakdown of our cash rent by lease, which is located in the investor section of our website under the menu heading financials. And as always, we welcome any feedback on the materials. As John mentioned on acquisitions, we closed on the Century portfolio on December 6th, adding $25 million in annual cash rent at a 9% cap rate. We funded the Century acquisition using cash on our balance sheet. We closed the Jack Cleveland Thistle Down acquisition subsequent to year end on January 24th, adding $65.9 million in annual cash rent at a 7.8% capitalization rate. We funded this transaction using cash on our balance sheet. We continue to expect the Eldorado transaction to close by the end of the second quarter, we will add $253 million of annual rent, increasing our total annual rent by approximately 25%. As for guidance, we are continuing to present our guidance in absolute dollars as well as on a per share basis. The per share estimates reflect the dilutive impact of the additional 50 million shares of common stock issued on June 28, 2019, as well as an estimate of the additional shares from the unsettled forward sale agreements that are required to be included in the fully diluted earnings per share calculation under the Treasury stock method. We estimate AFFO for the year ending December 31, 2020 will be between $728 million and $748 million or between $1.50 and $1.54 per diluted share. As always, our guidance does not reflect the pending Eldorado acquisition nor any other potential acquisition activity. Finally, during the fourth quarter, we paid a dividend of 29.75 cents based on the annualized dividend of $1.19 per share. The dividend was paid on January 9th to stockholders of record as of the close of business on December 27th. With that, operator, please open the line for questions.

Certainly at this time. If you would like to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Steven Grambling from Goldman Sachs. Your line is open.

Good afternoon. Thanks for all the color on the guidance. Perhaps, David, to simplify, you filed an 8K along with one of the recent financing transactions outlining, I believe it was $1.85 in pro forma FFO per share for all the transactions you have in process. Can you just talk to the puts and takes of this pro forma number as we think about what has changed since that filing, what's included, excluded, and also compare and contrast it to the guidance for $1.50 to $1.54? Thanks.

Yeah, Stephen, this is Ed. I'll start off and turn it over to David. Yeah, what you've cited is a number that represents an annualized run rate once the Eldorado transaction closes. And That, again, I must emphasize, does not constitute our 2020 guidance. Our 2020 guidance, which David just shared with you, obviously does not include the impact of the Eldorado closing. We obviously do not yet know with precision exactly when our Eldorado transaction will close and when the new rent will start coming in. But once the new rent starts coming in, If you annualize that over the forward 12 months, you get to a number very much like the number that you picked up on in the offering memorandum in the high yield document. And as to how that might or might not have changed any since then, I'll turn it over to David, and he can address any other technicalities.

Yeah, the only thing I'd add, Stephen, is obviously it's an annualized run rate for El Dorado, but for all the other transactions that we have announced, obviously we've done a lot in 2019, so it's the annualized run rate for Century for Cleveland, Jack Cleveland, Thistle Downs. You know, the $1.85 is based on the pro forma share count that's in there. Obviously, there's some slight changes to our share count with the ATM, 7.5 million shares that we issued under the ATM just recently. But the run rate number is a good number based on a full year impact of all the transactions that are pro forma in that number.

Got it. That's helpful. And then maybe an unrelated follow-up. So now that you've had a little bit more news and action in the space, from private equity and MGM, but also one of your peers. Are you seeing any change in the opportunity set for gaming deals? In other words, are owners changing their view of real estate value and their willingness to think about monetizing that? Thanks.

Yeah, I'll start off and turn it over to John and Stephen. Yeah, absolutely. You know, we're seeing increased interest in the sector, which we have always hoped for and wished for. We cannot claim that this is a sector deserving of institutionalization and potential cap rate compression if there's not increased bidder interest in it. That is fundamental to any institutionalization or cap rate compression story, and as the operators or asset controllers have seen this level of activity and have seen the valuations. They're understanding the role that REITs can play in helping them grow their store count or crystallize value. And I'll turn it over to John for more.

I know. I think Ed described it very well. I mean, we can't be a company that started three years ago and talked about what great real estate these gaming assets are and not expect there to be others who notice that. And so it's a great time in this space and Operators are understanding how a REIT can help them grow their business. So it's great.

Great. I'll jump back in the queue. Thanks so much.

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

Hi. Just kind of just along those lines, I'm just wondering, do you think that at some point – You would be willing to or may need to partner with some of these larger private equity firms as they now start to maybe focus more in on this. As you know, it's kind of one of the last sectors to be kind of institutionalized. I think they have sort of an inherently more competitive cost of capital. And do you need to kind of buddy up or how do you think about that?

I mean, we'll certainly be open-minded about its needs. If in a given situation, we could get the best outcome for our shareholders by partnering with another capital provider, we absolutely would. I would just maybe, this is maybe a bit of a nuance, but what you have seen is the entrance technically of not private equity, you've seen the entrance of a non-traded REIT. And there is a difference there insofar as A non-traded REIT like high-quality non-traded REIT like the Blackstone REIT is unlike a private equity player, unlikely to say, okay, five, seven years from now, we're getting out. The B-REIT, as it's known, is really a permanent capital vehicle, and we think that it is permanent institutional real estate capital that has come in as opposed to private equity per se.

Okay. That's a fair distinction. Thank you for that. And I guess my other question is just be in general, you know, are you waiting for Eldorado to close and then you have a pipeline, you know, that would be in place along with that transaction? So do you feel, I mean, would you expect to be looking continually at other things as well? Or would you maybe take a pause while you consider, you know, what comes to you through the Eldorado transaction?

I didn't know I was allowed to take a pause. But, no, I think we are operating the same way that we've been operating since we started the company. We're out, as Ed started this call, about relationship building and making sure people understand how we would structure a deal or look at a deal. So, yes, we've got this great transaction that we hope to close by the middle of September. this year with El Dorado, and we obviously have spent a long time developing in our embedded pipeline, but that doesn't stop us from continuing to grow the company where we see unique opportunities with great real estate.

Thanks, guys. Your next question is coming from Rich Hightower from Evercore. Your line is open.

Hey, good afternoon, guys. Hey, Rich. I want to go, I think, you maybe glossed over this quickly in the prepared comments, but the ATM issuance, is that related to an unannounced deal or is that related to something that's already been announced? Just to clarify that.

Kind of neither. It's just taking advantage of an attractive stock price and a very efficient tool to access the equity markets to make sure that we've got funding for the or our future pipeline or any future needs that do arise.

Okay, so it was just totally opportunistic in that sense and just maybe safer to have a little extra equity on the balance sheet, basically?

Exactly, yep.

Okay, fair enough. And then maybe a bigger picture on the topic of non-gaming assets. Can you maybe help us define the landscape of non-gaming hospitality assets opportunities out there? How do you think about it? How do you think about operators in the space? And are you discovering any hospitality-focused operators that might be interested in a net lease structure along the lines of the way that casino companies have done it?

Yeah, Rich, I mean, the way we may have talked with you previously about this, but we look at other sectors through the lens by which we evaluate and value gaming. We're looking at sectors or we're working hard to identify sectors that have low cyclicality, i.e. lower than average consumer discretionary cyclicality, much as gaming does. We obviously want to be looking at sectors that are not under secular threat, that are fundamentally sectors built around People sharing and experiences, same time, same place, which inherently Amazon can't put in a box and ship to your house. Number three, we're looking for healthy supply-demand balance, given that overinvestment tends to be the surest way to destroy capital value. And then finally, number four, and this is probably the key filter, making sure that at the heart of the real estate is an end-user experience to which the end user has demonstrated decades of loyalty, going backward and likely going forward. So we're certainly seeing sectors that have some of those characteristics. We're meeting operators who have great operating platforms, very strong relationships with the end user, CRM systems and network effect. I think we've mentioned a number of those sectors in the past. We believe the demographic trends, whether it be the aging of the baby boom or millennials going through family formation, are going to mean very strong tailwinds for these sectors. And certainly, we are looking for sectors that either have an established triple net model, which you've referred to, or are capable of supporting a triple net model. And so much of that comes down to The operator's business being a business where the operator is highly incentivized and highly rewarded at owning the operating leverage of the business. I mean, you and I talk about hotels a lot. And one of the struggles in the hotel business right now is the misalignment as to where the ownership of operating leverage resides, which is usually with a real estate owner, almost always with a real estate owner, and where operating responsibility, if you will, tends to reside, which is, i.e., not with a real estate owner. That's a model we'd rather stay away from, and so we're going to prioritize sectors where the operator's economics can support our kind of structure.

Got it. I appreciate that, Colorado. Thanks.

Your next question comes from Sean Kelly from Bank of America. Your line is open.

Thank you all. I think most of our questions were already answered. I appreciate it. Thanks a lot.

Your next question comes from David Katz from Jefferies. Your line is open.

Hi, this is Cassandra asking on behalf of David. Given the ATM issuance and upsized debt issuance, you have some excess cash on your balance sheet. Do you anticipate going to the market again soon for other acquisitions in the pipeline?

Yeah, it's As we think about future acquisitions, obviously, you know, our playbook to date and we'll continue this playbook is, you know, upon announcement of a transaction, you know, if there's a requirement for equity, we would go to the markets that day and, you know, raise equity, match fund the equity side. But just to clarify, you know, the debt proceeds or the debt offerings that we've done to date, you know, all that's been earmarked either for the Eldorado transaction or the refinancing, the second liens that happened today. And so the ATM, again, was just an efficient use an efficient way to access the equity markets and raise a little additional capital for the active transaction pipeline we have.

Okay, thank you.

Your next question is from Carlo Santorelli from Deutsche Bank. Your line is open.

Hey, it's Steve Pizzella on for Carlo. Thanks for taking our questions. First, we just wanted to clarify one thing. With respect to the $58 million debt extinguished when charged, Does that relate to the CMBS, and will there be a reimbursement from ERI at the conclusion of the transaction, as I believe you are splitting the cost of the breakage?

Yes, Steve, it's David. And just as I mentioned in my remarks, the total charge is $110.8 million. We split that 50-50 with Eldorado. So the $58 million that shows up on our income statement is $55.4 of that plus some transaction legal fees related to the retirement of that debt.

Okay, thanks. That's helpful. And then given one of your competitors has some circumstances at present that one can imagine puts them potentially at a bit of a pause, do you believe there to be opportunities at present with less potential competition presenting themselves to you?

We really never look at these deals that there's less competition, especially back to our opening remarks about how attractive this real estate is and how we've been communicating that since we started the company. So at least from our philosophy, how we go into looking at a deal, especially one that we know is on the market, I don't think we approach it to say there's less competition today than there has been in the past.

Okay, great. Thank you. Your next question comes from Daniel Adam from Nomura Instanet. Your line is open.

Hey, guys. Thanks for taking my questions. Given your cap rate compression and the recent lift that we've seen in publicly traded opcos in recent months, i.e. Penn, I'm wondering if you're noticing an increased willingness at all of would-be sellers to transact.

I don't know if it's because of the last activity that you're talking about and they're seeing that their opco multiples are going up. I think it's just a matter of, as we've said before, as more people are educated on this space, they're understanding how a REIT can fit into their portfolio, how we can help them grow their businesses. So I think you may be seeing some of that. I'm not sure it necessarily has to do with the stock price moving on the opcos or the propcos right now. I think it's just a matter of there's been years now of helping folks understand that.

And I think there's increasing understanding through the work we're doing, as well as our colleagues in the sector, a better understanding, Dan, around how to think about the capital we provide, whether in a sale-leaseback or by partnering with someone when it comes to helping them increase their store count by by partnering with them on their purchase of the opco and our purchase of the propco and i think there's a greater and greater understanding that we are a permanent capital provider the capital we provide does not have a maturity date it does not need to be paid back and i think as everyone thinks over the long term about how they're managing their own capital structures and the risks associated with their capital structures they realize the value of not having large bullet maturities to the extent that doing either a sale-leaseback with a gaming REIT or partnering with a gaming REIT to acquire an OPCO accretively enables them to reduce their risk profile over time when it comes to, again, the laddering of their liabilities.

Great. That's great. That color is very helpful. And, Ed, I know that you alluded to this both in the prepared remarks, well, I think John and Ed in the prepared remarks, and Ed in another question. But it's interesting that this morning the question of monetizing real estate actually came up on Six Flags earnings call. And I'm just wondering what opportunities, specifically what experiential markets in particular, Do you see the biggest opportunity outside of the gaming space for you guys? Thanks.

Yeah, again, Dan, I think it would be in the context of that, if you will, that four lens framework I spoke of regarding cyclicality, secular threat, supply-demand balance, and durability of the experience. Certainly the theme park business looked at broadly is a business that has certainly proven its durability over time. The supply-demand balance tends to be pretty healthy insofar as these are very expensive assets to build. I don't know when we last had a greenfield asset in the theme park, American theme park sector. It is, again, not something Amazon can ship to your house. And generally speaking, especially drive-to theme parks, have tended to weather economic downturns quite well. So it would be representative of the kind of experiential center sector, sorry, that ticks those boxes.

Okay, great. Thank you.

Your next question comes from RJ Milligan from Baird. Your line is open.

Hey, good evening, guys. A question on the 185 run rate for all post-announced transactions. That does include all financing for those transactions. Is that correct?

That's right. Yeah, the pro forma is in there to reflect all the recent high yields and obviously the June 2019 equity offering. But, again, that's not our guidance. That's a pro forma 8K number.

Fair enough, fair enough. And I guess is it fair to assume that you will continue to pursue deals, only deals that are accretive?

Absolutely, RJ. I think we've shared with you, look, REIT has an opportunity to do one bad deal because after that, you know, we won't have access to capital or the support of the credit markets or the equity markets to continue on. So, no, anything we do will be accretive.

And we don't plan to do that one bad deal.

Yeah. So I guess it's fair to assume then if you take the $1.85 run rate for the – once the transactions are closed on a pro forma basis, if you were to assume any additional transactions or acquisitions that it would therefore be higher than that $1.85 run rate?

That's a fair assumption.

Yeah. Our board certainly wouldn't let us get very far if we came along and said, yeah, you know that $1.85, well, it's actually now $1.83 because we just did a bad deal. Not that we would bring anything like that to the board in the first place, but I can tell you they wouldn't certainly say pass, go. Yeah, no, we're always going to be really determined to generate accretion. It is what our investors deserve. It is how value gets created. And frankly, RJ, it's how we get paid. We get paid on total return. And needless to say, total return is likely to suffer whenever we do a deal that causes our AFFO per share to decline on a per share basis.

Thanks, that's helpful. Yeah, I'm just looking at 2021 consensus. is below that $1.85 run rate. So it seems like numbers might need to change.

Yeah, and I think in fairness, RJ, you know, we feel for everybody in the work they have to do out there like you do, because VG has been a case of many moving parts and a lot of complexity over the last, especially whatever it is now, nine, 10 months since we announced our transformative deal with Eldorado. So in fairness to everybody, it's been hard to piece things together. But what we did achieve with the January financing, I guess it closed in early February, was cost of funding clarity for every dollar that ends up paying for the Eldorado deal. Is that a good way to put it, David? Absolutely.

That's helpful. My last question is just, and I think maybe you mentioned this, but I may have missed it. Any thoughts on timing on looking at the roper assets?

Well, it depends on which ropers you're talking about. I assume you're talking about the Las Vegas ones, and I think that this is one where we're going to be prepared should Tom, and it's really up to Caesars and Tom Rigg running that business, if they would like to transact on one of those, we're going to be prepared to do that. whether that's in later 2020 or on the further years.

Okay. Thanks, guys.

Your next question comes from Ricardo Chinchilla from Deutsche Bank. Your line is open.

Hi, guys. Thanks for taking the question. Earlier today, Bloomberg cited that Las Vegas Sands had interest or had inquired about the New Caesars forum. I know that you guys have a contractual right on the real estate for that asset. Hypothetically, if a Las Vegas fence or any other operator wanted to acquire that asset, how would that work out given that you guys have a contractual right on that asset? Thank you.

Yeah, well, Ricardo, I'll start, and John can add in. First of all, we obviously don't, as a practice, we do not comment on rumors, and we don't really speculate on hypotheticals. I think what we'll just emphasize to you is that Caesars has built a magnificent new convention center in back of Harris Las Vegas, which we obviously own. and we encourage everybody to try to be there in April, John, because the NFL draft will be hosted there this year. Yes, it will. Yes, it will. Sorry we can't help you out on the rumors or any kind of hypotheticals, Ricardo, but we will just leave it at it. It is a beautiful structure upon which we do have what you refer to, which is a put-call arrangement with Caesars.

Perfect. Thank you so much.

Your next question comes from John Masoka from Leidenberg Salmon. Your line is open.

Good afternoon. Hey, John. Touching on Ricardo's question, it may be kind of a different angle. If there was a transaction that occurred, because it's a put call, your right would survive any transaction, correct?

Yes, that is correct.

That is correct. All right. Then I guess shifting over to the balance sheet, when I think about the pricing on the private placement debt you closed in February, how do you think that would have compared from a rate perspective to what you could have gotten had you been an investment grade issuer?

I mean, John, you've seen just earlier this week, I think national retail properties went out and looked at a 30-year bond at low threes. So there's 75 to 100 basis points that you know, depending on the conditions of the market that, you know, over time we can look to take off, uh, our price of debt capital.

It's significant, John. Okay.

Yeah. Um, and I guess outside of that, are there any other kinds of levers you think you can pull, uh, with regards to the balance sheet today? Um, particularly given, you know, you know, with the, with the, um, prepayment of the second lean notes, um, Does the balance sheet kind of look like how you want it to look long-term, or are there some other levers that you could potentially pull?

I mean, the gaining item now, John, is just to get rid of that term loan. It's swapped. We've got to swap the rolls off early next year and swap the rolls off in 2023. But the term loan encumbers every one of our assets, so all of our assets are secured by the term loan. And so that's the gating item for the agencies and what would, you know, trigger us to become ultimately allow us to become investment grade rated. So we want to work on, you know, repaying that efficiently and minimizing the breakage costs on those swaps over time.

Understood. And then one last detail question. Is the ATM issuance in 1Q20, is that baked into the guidance number you put out?

It is, yes.

Okay. That's it for me. Thank you very much. Thanks, John.

Your next question comes from John D'Cree from Union Gaming. Your line is open.

Hi, guys. Thanks for all the color. I think you've answered just about all the questions, but just, I guess, to get your thoughts, there's at least a handful of casino properties around the U.S. that have received a lot of capital dollars lately, whether new or renovations. that seemingly have pretty substantial real estate or replacement value but have not yet ramped cash flows. I just wanted to get your thoughts on how you kind of look at maybe some of those opportunities and how you kind of think about the value of acquisition targets between the actual value of the real estate and maybe cash flows that might take a little longer to get to where they should be. Is there an opportunity to do something or is it kind of just wait and see from your perspective?

Well, I think as a guiding principle, John, if you're going to be the real estate owner of an asset, the thing you most want is for the operator or the tenant, the occupant, to be as successful as possible and as absolutely comfortable and confident with their own economics as possible because it's just simply never all that good to have a tenant operating really on a tight margin literally or figuratively. So we would always obviously talk to anyone and everybody about how to be helpful to them as a capital partner, as a real estate partner. But I think as you've maybe heard us say in the past, we kind of live by an adage taught to us by our board member, Craig McNabb, which is that the rent should be as low as possible as a percentage of the operator's economics. And so obviously the greater the degree to which the asset has stabilized, and revealed what is likely to be its run rate economics, the more confident both the operator and the real estate owner can be in their underwritings, such that the resulting opco-propco arrangement, the resulting lease, is highly sustainable.

Thanks, Ed. That definitely answers my question. Thank you.

And your last question comes from Jay Kornreich from SMBC. Your line is open.

Okay, saving the best for last. Thanks, guys. As we think about diversification, pro forma to Eldorado merger, you'll have about 83% rent exposure to Eldorado Caesars. So considering your robust in-place pipeline and your comments to form new relationships, how should we think about both growth and diversification going forward?

Well, you can see from when we started the company a couple years ago that we've been on a mission to diversify our tenant base, and I think we've done a good job in a short period of time, but we're not done yet. So we, as Ed started his comments, this is about building relationships, understanding the operators and how we may help them continue to grow. So I don't know if that exactly answers your question, but we are still looking for opportunities, not only with our growth pipeline, as you talked about, but outside that with new operators in gaming and outside gaming, as Ed mentioned.

You know, just to maybe put it into context, as we've revealed or disclosed in our investor decks, you know, our run rate rent once everything closes is, I think, around $1.2 billion. $1.25, yeah. $1.25 billion. So obviously a point of that is $12.5 million, right? And so, you know, with every deal we can do that might involve, say, we're going to take $50 million of rent, right, we – we can take that down potentially four points, right? So, you know, it's something we work relentlessly on, not simply to diversify for the sake of diversifying. We wouldn't do a bad deal just for the sake of creating any kind of further diversity of the rent roll. But certainly in adding the relationships that we've added through John's leadership with Penn, with Hard Rock, with Century, with Jack, we've made for a better portfolio and obviously better risk-adjusted returns.

Got it. That makes sense. Thanks. And then just one follow-up, as we have seen Blackstone come in and take a further entrance into the space, as you guys talk to operators, have you seen any cap rate compression in either Las Vegas or regional casinos?

I would... Go ahead. No, I mean, I think you've seen the transactions that have been out there. Obviously, you're talking about the Blackstone transaction with Bellagio where they paid a 5.75% cap rate. When it comes to – you have to really take this one asset at a time, one location at a time, one region at a time. But we've had – again, as we've talked a lot on this call, we've had good conversations with potential sellers, and we'll continue to do that.

Yeah, and I know on the 3Q call we talked about Bellagio, but just seeing that Blackstone is now involved with JV behind Mandalay Bay and the MGM Grant at the 6.35 cap rate, just seeing them coming further, wondering if that's changing the conversations between you and potential operators.

I mean, they're obviously paying attention. They're also obviously paying attention to the fact that our cost of capital, along with the cost of capital of JV, you know, our peers is improving as well. And this will be a fluid marketplace. There will be a lot of data points people look at when it comes to estimating or negotiating for value. But again, this is something as real estate people we're very comfortable with because it is in the nature of institutionalizing markets that there will be this fluidity. And as long as we can maintain a positive investment spread based on our cost of capital and the income yield that we're buying, we believe we're creating value for our shareholders through a creative addition, say, of VoperShare.

Your next question comes from Stephen Grambling from Goldman Sachs. Your line is open.

Thank you for sneaking me back in. One quick one. You mentioned being effectively partners in capital allocation with your Tenant, I guess a broader question around the right CapEx requirements for any of the properties that you own or otherwise. Is there any kind of rules of thumb, given your background in the industry, that you would point to as really being the right level of maintenance CapEx for your properties? Thank you.

Yeah, it's a very good question, and it really depends on the asset that we're talking about. As you can see with the deals that we've done, Starting with Harrah's Las Vegas, we negotiated $171 million of capital to come in because we thought it was critically important for that business to grow and the numbers that we were underwriting to add that capital. You really need to take it property by property, age by age, what a new property like a Jack Cleveland or Jack Thistle Down, which are brand new properties and what they need in maintenance capital is very different than an asset that had, you know, is 30 years old and has capital. So it's hard to give the range. But as we look at deals that we do, that's the type of stuff that we spend time with on the property with the operator, understanding not only their maintenance, but their growth capital.

Steven, I'll just add, and, you know, given your other coverage areas, this should resonate with you. In my case, if somebody has run two hotel wreaths, I've got to say I like this business model a whole lot better because the capex belongs to the operator who owns the operating leverage. And it is the operator who will suffer first and suffer most consequentially. if they fail to invest in their property and keep it competitive, because again, they own the operating results. But looked at in a more positive way, the operator gets the reward they deserve to get when they invest in the property and they improve the performance of the property, whether through CapEx or improved operations. So we think that this is a much better model for incentivizing and rewarding proper stewardship of the asset by the operator, both again in terms of the continuing investment in the property and continuing to improve its performance.

Maybe without pegging you down too much, would you generally think the capital intensity is higher like for like for Las Vegas or destination assets relative to regional assets? and would you generally think that the capital intensity of a casino is higher or lower than a hotel?

Well, the largest capital expense for maintenance for casinos is the hotel.

Yeah.

So if you're in a destination resort, you're most likely going to have a hotel.

The way I look at it as a non-gaming guy, Stephen, is that if you look, for instance, at Las Vegas, is the capital intensity of a Las Vegas asset higher than than the capital intensity of a regional asset? Absolutely, yes. The thing you, though, have to ask at the same time is, is the revenue intensity of a Las Vegas asset higher than the revenue intensity of a regional asset? And I'm going to put Danny on the spot because, Danny, you shared with me a statistic, for instance, as to the revenue productivity per gaming position in Las Vegas versus the regions.

Yeah, it's a multiple depending on the market. And, you know, I think certainly in Las Vegas, you also have to take the tax rate into account because you're only operating with a tax rate that's up 7%.

Yeah, but there is a multiplier effect in terms of the revenue intensity per position. For instance, slot machines, I think it was a multiple that was well into the whole numbers as to the revenue intensity per position. So you can support higher CapEx when the asset has a much higher revenue productivity character to it, or to put it another way, One of the things I don't think that gets paid enough attention to in gaming and, frankly, other sectors is the revenue-to-asset ratio. You know, how many pennies of revenue are you producing per dollars of capital deployed? And once you get to Vegas, the revenue intensity and thus the revenue-to-asset ratio, I think, is very positive.

That's great, Kelly. Thanks so much.

And your last question comes from John Masoka from Leidenberg Salmon. Your line is open.

Just a quick follow-up on guidance. Generally speaking, what is the isolated impact of the Treasury stock dilution on guidance?

Yeah, John, it's 16 million shares. That reflects the dilutive impact from the forward sale agreements under the Treasury stock method that we can walk you through, but that's the number. That's perfect. Thank you very much.

There are no further questions at this time. I turn the call back over to Ed Petoniak, CEO, for closing remarks.

Thank you, Operator, and thanks again to everybody for your time today. We look forward to providing you an update on our continued progress when we report our first quarter results. And, again, thank you for making time this late in your day.

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