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spk00: Good day, ladies and gentlemen. Thank you for standing by. At this time, all participants are in the listen mode only. Please note that this conference call has been recorded today, August 4th, 2021. I'll now turn the call over to Danny LaValloy, Vice President of Finance for Avicii Properties. Danny, please go ahead.
spk04: Thank you and good morning, everyone. Welcome to the conference call to discuss the Avicii Properties Strategic Acquisition of MGM Growth Properties, LLC. which was announced earlier today. Some of today's comments may be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements 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. For more information about the factors that could cause actual results to differ from forward-looking statements, please refer to our SEC filing. please note that we have posted a transaction presentation on the company's website at www.VGProperties.com, which our team will be discussing. Additionally, given that the transaction is subject to the approval of VG stockholders, we may not be able to answer all of the questions you might have today. We intend to file a proxy statement covering this transaction in the near future, and we urge all stockholders to carefully read it and any other relevant information that we may file with the SEC. On the call with me today, we have Ed Petoniak, Chief Executive Officer, John Payne, President and Chief Operating Officer, David Kesey, Chief Financial Officer, and Samantha Gallagher, General Counsel. Samantha will provide an overview of the transaction, and then Ed, John, and David will walk through the presentation that was posted on our website, and we will open the call to questions. Please note that we will be observing the two-question limit during the Q&A portion of the call. If you would like to ask additional questions, you may re-enter the queue. With that, I'll turn the call over to Samantha.
spk07: Thanks, Danny. We're pleased to be here today to discuss that, as announced through our press release and transaction presentation furnished earlier this morning, VT Properties has agreed to acquire MGM Growth Properties for total consideration of approximately $17.2 billion, including stock consideration to existing MGP Class A shareholders, cash distributed to MGM Resorts for the redemption of the majority of its MGP operating partnership units, and the assumption of $5.7 billion of debt, including MGP's pro rata portion of the MGM Grand Mandalay Bay JV debt. The MGP Class A shareholders will receive shares of Vici common stock at a fixed exchange ratio of 1.366 times, which represents an agreed-upon price of $43 per share based on Vici's trailing five-day VWAP as of July 30, 2021. The MGP OP units held by MGM Resorts will be redeemed for approximately $4.4 billion in cash consideration at a value of $43 per unit with MGM retaining an interest that will be converted into approximately 12 million BG Operating Partnership units, also an exchange ratio of 1.366 times. The existing MGP Class B share held by MGM Resorts will be canceled and cease to exist upon closing of the transaction. Pro forma for the transaction and the settlement of the company's outstanding forward share transaction existing MGP Class A shareholders will own approximately 215 million shares of Vici common stock, or approximately 25% of outstanding fully diluted Vici shares. And MGM's approximately 12 million Vici OP units will represent approximately 1% of fully diluted Vici shares outstanding. The MGP acquisition is expected to be immediately accretive to Vici's AFFO upon closing, with minimal need to increase our standalone G&A expense as a result of the transaction. Additional financing synergies may also be attainable from our future ability to refinance MGP's outstanding debt, which has a weighted average rate of approximately 4.5%. With respect to approvals, the approval of VT stockholders will be required in connection with the issuance of the stock consideration to MGP Class A shareholders. MGM, as a holder of a majority of the voting power of MGP, has approved this transaction for MGP. The acquisition is expected to close in the first half of 2022, subject to customary closing conditions and regulatory approvals. Following closing, the Vici management team will continue to manage the combined company, and no changes to the composition of the Vici Board of Directors are contemplated in connection with the transaction. With that, I'd like to introduce Ed Petoniak, our Chief Executive Officer, to discuss the merits of this strategic acquisition in more detail. Ed?
spk06: Thanks. Thanks very much, Samantha and Danny, and thanks to all of you for dialing in this morning. It is a transaction we are extremely excited to talk about. um you should have seen i hope you've seen that we've loaded up a transaction debt to our website at www.vgproperties.com this morning and throughout the next few minutes uh i and john and david of the bt team will be progressing slide by slide through that deck and we'll reference the slide numbers we're covering as we go along. So I will be starting on slide four of the deck that, again, we released this morning at 7 a.m. So starting on slide four, this really crystallizes the key themes that John, David, and I will talk about over the next few minutes. This is a very compelling transaction for Vici. As Samantha's already referred to, it is expected to be immediately accretive to earnings upon closing. And perhaps most importantly and most fundamentally, this is merging MGP's best-in-class portfolio into VG's best-in-class management and governance platform. This diversifies our tenant concentration markedly and, along with that, our geographic scope with this new MGM master lease while providing long-term inflation protection and growth through escalation. This is large-scale, and high-quality real estate, and you're going to hear a lot from us this morning about quality. It is large-scale and high-quality real estate within the triple net rate sector, acquired at a significant discount or replacement cost, and at an attractive cap rate. This transaction, this combination, gives both active and index equity market investors full access to ownership of a leading experiential real estate portfolio, creating a very compelling investment opportunity for both active and index investors. And this positions Vici for enhanced cost of debt and equity capital, widening Vici's growth funnel into the future. I'll now turn to slide five, and these are five key points of strategic emphasis for this transaction. Through this transaction, we are creating, I think unquestionably, America's leading experiential real estate company. Pro forma for this transaction, we will be, among other things, the largest private owner of meeting and convention center space in the U.S. We will be the largest owner, hotel owner in the U.S., buy rooms. We will be owner of three of the five largest hotels in the U.S., again, on a triple net basis. We will be owner of 730 leading restaurants, bars, and nightclubs. We'll be the owner of a portfolio of the most widely attended entertainment venues in the world, live theater, sport events, and other kinds of entertainment that will take place in the theaters and arenas that our owners will own. And the diversified revenue streams will be spread amongst the sectors leading operators. There also we have lease and asset quality. We will have a weighted average lease term for this transaction of 43.5 years. I will repeat that, 43.5 years. This is 43.5 years of income growth and value appreciation at a time like this with a 30-year U.S. bond yielding 1.85%. I like that one. We will enjoy through this lease, leases, and particularly through MGI lease, contractual annual rent escalation and TCI protection. This triple mint lease structure does create predictability because we can't protect 84% of our rent roll will be with S&P 500 tenants. This is, in column three, an opportunity to invest in a transformational business at what we believe is a fundamental inflection point for our category. Ours is a category where each one of us, MGP and VT, collected 100% of our rent so far through COVID on time and in cash. And we're collecting this through tenants who have proven themselves through this crisis, but are also doing so with an energy and providing results, as you saw yesterday with seizures results for Q2. They're really not masked by anybody else in global leisure, hospitality, and entertainment. And this, of course, buttresses the fact that our investors will continue to benefit from a COVID-proven dividend stream. 100% cash rent collected again, just to emphasize the point. And this being also an income stream that is likely to be supported by increasing consumer demand as consumers continually look for post-COVID away-from-home experiences. And David will tell you more about this. Does Division B cheat to improve our cost of capital over the long term? And I'll leave it to him to give you more detail around that. And again, just to emphasize the point, This is merging what we believe is a best-in-class portfolio into what we believe is one of the most dynamically managed and best governed REIT platforms in America, with Vichy having been recognized last year by Green Street as ranked number three among U.S. REITs for quality of governance. And we certainly believe it solidifies Vichy as an industry leader and a real estate partner of choice, which we believe is critical to our growth going forward. Turning to slide six, this is over the next few slides, first I and then John are going to talk to you about the portfolio that we are buying. Before I get into the specific assets we're buying both in Las Vegas and in the region, I want to spend a moment talking about the fundamentals of real estate investment management and the criteria that should be associated with high quality real estate investment management. And the word you're going to hear over and over, as I've already alluded to, is the word quality. Because our fundamental belief is that quality investment requires investment in quality real estate. And when we talk about quality within the context of real estate investment management, we have to talk about quality in a number of dimensions. And it starts actually with the quality of the market. Are we investing in a market of quality? What is the size of the catchment area that the market serves? What are the demographic, economic, and cultural trends impacting that market? Are they positive, neutral, or negative? Once we've identified a market we want to invest in, what is the quality of the location of the asset that we're investing in, or in this case, the quality of the location that we are buying with the asset that we're buying. Then next, what's the quality of the asset? Is it a commodity asset or a non-commodity asset? Is it highly differentiated? The next quality consideration is the quality of the occupant. What is their competitiveness in their market? What's their operating and their credit excellence? And then finally, what's the quality and security of the income that we will realize? Out of this operator, out of this asset, in this location, in this market and just to spend a bit more another moment on this one of the one of the dimensions of triple net real estate is that very often not always but very often we are talking about locations that by their nature are not necessarily main street locations the typical locations for so much triple net real estate happens to be in the main state and county highways these are generally not experiential locations And then in terms of asset quality, we're typically talking about commodity boxes, slab on grade. There's no denying that the conventional triple net box does produce a strong magnitude of income. In fact, when these assets trade, they're often trading at a premium to replacement cost because of the quantity of income they provide. And of course, when assets trade at a premium to replacement cost, it is a pretty much surefire way to guarantee that new supply will be built. And thus, we're so excited to talk about the assets that we're buying in both Las Vegas and the region, because we are buying, first of all, a high-quality market in Las Vegas, as well as high-quality markets in the region. Our fundamental belief is that Las Vegas, along with Orlando, is one of the two major global experiential destinations in America. Now, what we believe Las Vegas has as an advantage over Orlando, and don't get me wrong, there will come a day when we would love to own experiential real estate on a triple-deck basis in Orlando. But when it comes to Las Vegas, what Las Vegas is, is the world's premier, if you will, adult experiential theme park, okay? And one of the realities is that adulthood lasts a lot longer than childhood. So you're serving a population that is much more expansive in terms of the age range that it serves. And as much as parents like to spend money on their kids, whether in Orlando or other locations, I don't think anybody's ever spent $10,000 on a bottle of apple juice. Las Vegas is a place where people do $10,000 on a bottle of Vyto or whatever else they may be buying. And it's all part and parcel of the energy that consumers bring to this market. And thus, again, we could not be more excited to be giving our investors more exposure to Las Vegas. We believe, fundamentally believe, that the Las Vegas Strip is the most dynamic experiential strip in America. The most dynamic experiential street in America. I also believe, and if it's not the case, I need somebody to tell me, but we also believe that this may be the most economically productive single street in America. And thus we're very, very proud and excited through this transaction to be giving our investors the opportunity to participate in the ownership of these seven magnificent assets being blocked again at a significant discount to replacement costs. And in the case of Las Vegas, we do have a very current reference point for replacement costs. A magnificent asset is open to the north end of the strip, Resorts World, built by Genting. The reported cost of that build was $4.3 billion. It contains 3,500 rooms, and that simply pencils out to $1.23 million per key. And again, the last thing I want to emphasize on this slide is the quality of these assets that John will talk about more in a moment. Moving to slide seven, as excited as we are about buying the seven assets in Las Vegas and partnering with MGM for decades to come on these assets, the quality of MGM's regional assets is unsurpassed. These assets are market leaders. They are magnificent buildings. MGM National Harbor is arguably one of the most compelling hospitality entertainment locations in the greater Washington, D.C. area. Forgotten is the recognized leader in the Atlantic City market. Beaurevage was built by Steve Wynn, and we all know what kind of quality he built into this building. Empire City gives us exposure to the New York City market. So again, these assets together with the Las Vegas assets give us what we think is a portfolio of unquestionably high quality. Moving to slide eight, this quality is really brought through in these images. These buildings were built to high quality when they were built. And perhaps as importantly, MGM has been very consistent in the magnitude and the quality of their reinvestment in these buildings, in the hotel room product, in the convention center, conference and trade show space. These, again, are very, very high quality buildings. And then moving to slide nine, you can get further evidence of this quality as we look across the experiential assets that are built within these assets, if you will, whether they be restaurants, gaming floors, nightclubs, dayclubs, Topgolf at MGM Grand. These, again, are experiences and places that really can't be found hardly anywhere else in the world, certainly anywhere else in the world outside of Macau. So, again, a quality message coming through over and over. One thing we're very proud and excited about moving to slide 10 is that in partnering with MGM, we're also partnering with a global leader in ESG practices in global hospitality. On the left side of this slide, you can see MGM Resorts 2025 ESG goals, protecting the planet, fostering diversity and inclusion, and investing in their communities and caring for one another. You can also see in the lower right corner, MGM's commitments to the highest standards of corporate governance. You can see in the middle of the right-hand column what they've been able to achieve in terms of lead certification on a number of their buildings. And then finally, and very excitingly, MGM just recently announced their opening, their development of their 100 megawatt solar array 30 miles from the strip. It is the hospitality industry's largest directly sourced renewable and electricity project. and it contains 323,000 solar panels that can now produce up to 90% of MGM's Las Vegas daytime power needs and forecast to generate approximately 300,000 megawatt hours annually. Moving to slide 11, this is a slide that you know we've been working on since the fall of 2017 when we first bought Paris Las Vegas. This is a slide that captures the trading of mainly single assets across American commercial real estate that have traded in the last five years or so for NOI, at the single property level of $70 million or higher. You can see that almost all of this is Class A office, and you can see that most all of this Class A office has traded at cap rates with a three or four handle. You can also see that the Grand Canal shops traded a couple of years ago at, I believe, a high four handle cap rate right around five. Then we've also added in recent major portfolio trades, Monmouth and Bay Area. In order to put into context, not only the magnitude of what we're acquiring here with MGP, but the price to value ratio that we are capturing here. This is quality that is equal to anything you see on this chart, and you can see that it is being acquired at a cap rate that represents a significant discount than nearly all the other trades on this chart. And with that, I'll turn this over to John, who will tell you more about our new partner, MGM, and how excited and proud we are to be partnering with them around these assets. John?
spk04: John Wiesman Thanks, Ed, and good morning, everyone. I'm calling you from the Mandalay Bay Resort in Las Vegas. It is early out here, but excited to get a few minutes with you. I'm going to turn your attention to slide 12. And as Ed said, there's no other portfolio with this combination of quality and magnitude in the U.S. across all real estate classes. If you look at the MGP portfolio, it consists of 32,000 hotel rooms, 30,000 slot machines, over 3.5 million square feet of mice space, four four-diamond AAA award resorts. I could go on and on. And when you consider the magnitude of income we're acquiring with over $1 billion of rent from 100% Class A properties with geographic diversification and a marquee tenant, this is a very compelling corporate real estate transaction. I'm going to turn your attention to slide 13. Ed talked a little bit about MGM, but I'm going to talk a little bit more about them. MGM is clearly one of the most iconic and well-operated entertainment companies in the world, bar none. It's an S&P 500 company run by high-quality veteran operators who bring a new energy and strategy to the company. Through many economic cycles, MGM has remained loyal to their employees, and they're relentless in their pursuit to improve and enhance profitability. They also have a great reputation and great history of maintaining the quality of their assets through large capital improvements and enhancements. The leaders of MGM today have a vision of becoming the leader in the premier segment of gaming and are clearly developing best-in-class omni-channel marketing capabilities by connecting their world-class brick-and-mortar assets to their fast-growing BetMGM platform. And you all know this connectivity and accessibility will be incredibly powerful over the coming decade to drive loyalty to their ecosystem. I'll turn your attention to slide 14. Following the acquisition of MGP, Vici's 43-asset portfolio will span 15 states. This transaction will add three new large northeast states to Vici's existing portfolio, where we have not previously owned real estate. That'd be the state of Maryland, Massachusetts, and New York. The diversity of assets is simply unparalleled. Vici will own world-class destination resorts, best-in-class regional facilities, drive-to local casinos, racetracks, and riverboats, all different resorts that cater to a wide variety of consumers. Additionally, if you look at our portfolio, we'll be comprised of the most iconic brands in gaming and entertainment. MGM, Caesars, Mirage, Horseshoe, Harrah's, Venetian, you name it, all of these are synonymous with top-quality consumer entertainment, and all these brands have been around for decades and have loyal following that spans hundreds of millions of customers across the globe. I'll turn your attention to slide 15 and talk a little bit more about Las Vegas. When focusing on the Las Vegas portfolio, as Ed said, we'll own 10 of the most financially productive assets on the strip. The 10 assets sit on 660 acres of land. And as I've said on numerous earnings calls before, we're very bullish on the future of Las Vegas. And the city is clearly one of the fastest growing destination cities in the world and positioned incredibly well for future growth with their expanding infrastructure, strong consumer and economic tailwind, and their two new professional sports teams. We will own assets that cater to all consumer segments that span the nearly 40 million visitors per year that come to Las Vegas. We'll own assets in the premium asset segment, such as Venetian, Caesars Palace, and MGM Grand. We'll have upscale assets like Park, MGM, and Mirage. And we'll have mid-tier assets like Harrah's and New York, New York, and Luxor. Beachy also owns several dozen acres of land on and near the Las Vegas Strip that can be used for future development with our partners, positioning our company to participate in the next generation of development when the time is appropriate. Slide 16, I'll bring your attention to that. The combination of our portfolios significantly diversify our tenant base. Our largest tenant will be 41% of our rent, and that's down from 84% of our rent. At the same time, 84% of VT's rent will be derived from S&P 500 tenants. So our mission of creating a diversified portfolio remains intact. 45% of our rent will be coming from Las Vegas resorts. and 55% of our rent will be coming from regional assets. These percentages give us ample room to continue to acquire real estate in all areas of the U.S., and we hope to supplement that growth with new international opportunities over time. As I've said before, we've come a long way having started Vici with just one tenant in October of 2017. With the completion of this announced transaction, Vici will have a well-balanced portfolio with eight high-quality tenants led by the two most powerful and well-respected names in gaming in MGM and Caesars. With that said, we will continue to target deals of all shapes and sizes, and we believe there is ample opportunity for Vici to partner with all types of gaming operators in the future who are looking for growth. Slide 17, this acquisition clearly enhances our portfolio's quality, size, and scale. As Ed mentioned earlier, we will become the owner of world-class portfolio of 43 large-scale entertainment venues. We'll become the largest private owner of meeting and convention space in the U.S., the largest hotel owner in the U.S. as measured by rooms, and not to mention the real estate owner of over 700 restaurants and bars within the facilities it owns, larger than almost all restaurant companies in the U.S., While we are very proud of the portfolio we've assembled and the value we've delivered to our shareholders to date, we remain ambitious and are eager to continue to execute on our plan. Turning to slide 18, I like to describe slide 18 as the change the narrative slide. After the completion of MGP acquisition, the scale and diversity of Vici's real estate portfolio places us firmly alongside the world-class operators and real estate owners you see on this slide, while remaining within a triple net structure that provides income clarity and transparency for our shareholders. As we look at some of the statistics on this slide side by side against some of the most iconic names in all of entertainment, Disney theme parks, Vail, Ryman, Universal Parks, all of these great companies have achieved success for decades. Both MGP and VG have historically been described as gaming REITs and compared often to other triple net REITs. This acquisition starts to change the narrative as we become a diversified, entertainment, leisure, experiential real estate company. With that said, I'll now turn it over to David, who will give you some more information.
spk01: Great. Thanks, John. Good morning, everybody. Thanks for joining us. Just looking at 19, since Vici's IPO in 2018 and year to date in 2021, Vici has generated market leading returns for investors, outpacing all the great companies on this page. And this acquisition should position Vici to continue its track record of generating attractive returns for shareholders. Turning your attention to 20, this represents not only where we have been, but more importantly, the next chapter of Vici. Many of you have been with us since our formation in 2017 when we collected just under $700 million of rent from one tenant and had leverage of 8.4 times at emergence. Along the way, we have not only gotten bigger, we've gotten better. We've improved the portfolio quality. We've delevered by both growing EBITDA and over-equitizing the balance sheet with $8 billion of equity raised for the $12 billion of previously announced acquisitions to date. We've modified our leases to produce consistent results for our shareholders, but to also better align with our tenants. And we've diversified our tenant base faster than any other gaming REIT. And as John mentioned, going from one tenant in 2017 to eight gaming tenants once this transaction closes. And then we're the first to expand outside of gaming and have added two non-gaming partners through Chelsea Piers and Great Wolf. And today, we're very excited to announce the strategic acquisition, which, as we talked about, will increase our scale, tenant diversity, access to capital, and generate run rate adjusted EBITDA of approximately $2.6 billion, creating the largest gaming and experiential real estate owner in America. 21 highlights what the increase in scale from this acquisition does for VGEE. We will become the largest triple net lease REIT, larger than any other triple net REIT in terms of adjusted EBITDA. We will be one of the largest four-wall REITs. And by four-wall, we've excluded the tower and timber REITs. And yes, they are REITs, but they do not own occupiable buildings in the same sense as we do. And most exciting, we'll become the fourth largest REIT in the RMZ, but not yet included in the S&P 500 index. The increase in scale after the transaction closes should significantly increase the potential for Vici's inclusion in the S&P 500 index and enhance liquidity for the combined entity. Taking you to 22, by combining Vici's and MGP's balance sheets, again, the added scale, diversity, and tenant quality strengthens the overall credit profile, and we believe accelerates the migration to investment grade with an unsecured capital structure and an unencumbered asset pool. We've always been extremely disciplined in terms of our capital allocation policy, and that does not change with this transaction. We will target financial metrics consistent with the investment grade ratings over time, which includes achieving 100% unencumbered asset pool. There are no maturities until 2024. and we will strive to achieve an optimal cost of capital to fund future growth opportunities. And we believe we will benefit from potential future accretion as debt maturities are refinanced at potentially lower interest rates. Looking at 23 and in terms of the rent we'll collect for this transaction, we'll enter into a master lease with a corporate guarantee from MGM. The year one rent will be $860 million, and that rent will be 100 percent fixed. There will be no variable rent component in the lease. Escalation is fixed at 2% for the first 10 years. In the beginning of year 11, it is the greater of 2% or CPI, which is capped at 3%. The term will be a 25-year base term with three 10-year extension options. We will also step into MGP's shoes in terms of the JV lease, which we could not be more thrilled about. Those lease terms remain unchanged. All this will generate combined year one rental payments of approximately $1 billion to VG. And looking at 24, obviously along with the incredible real estate we're acquiring, we're also very excited about the opportunity to unlock index eligibility for MGP shareholders. Under the current structure, MGP is currently not eligible for a number of indices in which Vici is included, as can be seen on the top half of 24. With the closing of the transaction, the combined company will benefit from index rebalancing and, again, the significantly larger scale that should position Vici for S&P 500 inclusion and enhanced trading liquidity. Just on 25, to wrap up and reiterate the points made, the transaction is expected to be immediately accretive to earnings upon closing. We are merging a best-in-class portfolio into a best-in-class management and governance platform. We are diversifying Vici's tenants and geographies with a new master lease while providing long-term inflation protection and growth. We are adding a large-scale and high-quality real estate to our portfolio at a significant discount to replacement cost and a very attractive cap rate. All of this gives investors full access to ownership of a leading experiential real estate portfolio and positions Vici for enhanced cost of debt and equity capital, ultimately widening our growth funnel into the future. With that, operator, I'll turn the call back to you and open the line for questions.
spk00: Thank you. If you'd like to ask the management team a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, please press star followed by two. Please kindly limit your questions to two only. And should you wish to ask a follow-up question, please repeat the process. When preparing to ask a question, please ensure your line is unmuted locally. Please also note there will be a short pause while questions are being registered. Our first question comes from Anthony Pallone from JP Morgan. Anthony, your line is open. Please go ahead.
spk03: Great, thanks, and congrats, everyone. My first question is with regards to the new master lease. You noted in the deck the 1% CapEx item. Can you just talk about any other features to the lease, such as just reporting requirements, what would happen in change control, substitution rights, things of that nature?
spk00: David, you want to take that?
spk01: Yeah, Anthony, good to talk to you this morning. No material changes. The leafs will be filed as an exhibit to the 8K after filing today. So there'll be more details in there. But the highlights are touched on on page 23. OK.
spk03: And then just second one, staying with you, David, can you just talk about leverage goals, how to think about the path to investment grade, and just sort of the equity piece of the deal?
spk01: Yeah, Tony, as you've gotten to know us, we've always been very disciplined in our approach to capital allocation. And the... The added scale, the added diversity, the quality of the real estate, which was noted by one of the agencies, will enhance our path to investment grade. And as we work over the near term and working towards closing, we'll anticipate financing the acquisition with a combination of debt, equity. We've got other tools in the tool shed in terms of joint ventures, asset sales. And this will always be in accordance with our long-term balance sheet objectives. we'll work relentlessly to get to investment grade, and I think this significantly enhances our timing around the track record that we've always been on.
spk03: Okay. Thank you.
spk00: Thank you. Our next question comes from RJ Milligan from Raymond James. Please go ahead.
spk05: Hey, good morning, guys, and congratulations on the transaction. Thanks, RJ. First question for you, David. Can you maybe quantify or put some parameters around the expectation for the immediate accretion for the transaction and then potentially, you know, the expectations for the longer-term accretion given the refinancing opportunities?
spk01: Yeah, RJ. I mean, with the rent that we're bringing into the portfolio and, you Our cost of capital, there is near term, as we mentioned in the deck, there is, you know, it will be immediately accretive upon closing. Longer term, you know, you can see on page, I believe it was 22, where, you know, our cost of debt versus MGP's cost of debt. If you just look at kind of where our bonds trade today, where we trade inside of MGP's bonds. And then as we migrate the balance sheet to investment grade, there will be a significant pickup in savings just across the board going from high yield to investment grade. So we see very, very attractive benefits of combining these balance sheets and what the added scale brings to the organization.
spk05: And so is the bulk of the accretion expected through over the longer term through the refinancing and not really the immediate accretion?
spk01: Well, as we've always talked about with you, RJ, and everybody, right, we We have to underwrite our transaction to be accretive day one, because here we're very excited to enter into a 55-year master lease with MGM. And so it will be accretive day one. And then as we grow, as we continue to refi, the shareholders will achieve incremental benefits from the lowering of the cost of capital over time.
spk05: Okay. Second question is, are there any state restrictions that's going to require you guys to dispose of any assets?
spk07: Hi, this is Samantha. We're not currently anticipating that.
spk05: Okay. And then my last bigger picture question, maybe for Ed and John. When Realty Income announced the merger, they talked about how their larger size might open the doors to do larger transactions. I'm just curious if you guys think that Given the larger size now, does this potentially open doors to do other non-gaming opportunities that maybe would have created a concentration issue before where it now opens the door? And if so, what might some of those industries be?
spk06: Yeah, RJ, it is a very valid and logical question. notion. It absolutely does open the window. And it widens the funnel in two fundamental ways. We fundamentally believe, for the reasons David elucidated, we fundamentally believe this will improve our cost of capital. And as one's cost of capital improves, the funnel of growth opportunities widens. And then to the point you made, and then the point that Realty Income made with great validity, is that the larger size does enable larger transactions going forward. Having said that, and I'll turn it over to John now, by no means does our much larger size prevent us or preclude us or discourage us from also opportunistically doing smaller deals. John?
spk04: Yeah, I think that's exactly right. Ed just touched on it. I think this gives us the opportunity to do, as you mentioned, larger deals, but we still have opportunities to help different shapes and sizes of companies that are trying to grow their platform, again, whether that's in markets that we're not in, RJ, in gaming like Reno or Las Vegas locals or, you know, Indianapolis and Pittsburgh or internationally, you know, where there's opportunities that we've We have started that work to study other countries that we possibly could be in, as Ed talked about, also outside gaming. So we'll continue the path, and good question.
spk05: Thanks, guys. Congratulations.
spk06: Thanks, RJ.
spk00: Thank you. Our next question comes from Carlo Santorelli from Deutsche Bank. Carlo, please go ahead.
spk04: Hey, guys. Good morning. And thank you. Congratulations. I just had one question as it kind of pertains to something that's in the deck where you guys talk a little bit about the financing strategy and the cash portion of the acquisition. You do reference kind of asset sales and JVs.
spk02: Could you comment a little bit on the mindset around that, given the interest rate environment, given the cost of equity and debt, and how you kind of balance those things, as well as, you know, where you would anticipate being comfortable taking kind of pro forma leverage to on closing? David?
spk01: Yeah, Carlos. Good morning. Morning. We highlight, yes, the sales and joint ventures approach, As you've seen, as we've, again, I hate to repeat myself, but we've been very disciplined and we're going to remain disciplined. And those are just additional tools that we have in our toolbox if and when needed. So when we get to the point of raising capital, we'll be able to give a firmer picture on what we're doing. But we have time. As we saw in the press release, we've got a $9.25 billion bridge and we've got various options in front of us to ensure that that we maintain the right side of the balance sheet as we have done since day one.
spk04: Okay, great. That's helpful. Thank you, David.
spk00: Thank you. Our next question comes from Steven Grambling from Golden Flags. Steven, please go ahead.
spk04: Thank you, Morning. Maybe I missed this, but is there anything you can share about the deal process itself, whether other suitors are involved? And also, I guess, how has just the environment for acquisitions and the types of people who are interested in these assets maybe been evolving as you kind of credentialize the space?
spk06: Samantha, why don't you take the first half of that, and I'll take the second half.
spk07: Sure. Thanks, Ed. The details around the process of the transaction will be set forth in detail in the proxy statement that will get filed in the future.
spk06: And then, Jake, the second half of your question, Stephen, you know, as you've heard us talk about, perhaps ad nauseum, you know, gaming real estate, well, It's not so much gaming real estate. The gaming operators have proved the resiliency of their business models through COVID, unlike anyone else in global leisure, entertainment, and hospitality. And that durability, that resilience, that resourcefulness has obviously accrued to our benefit in terms of the way that gaming real estate is looked at as a real estate investment asset class. And that has, needless to say, attracted more attention. And there's evidence of that, obviously, in the fact that Blackstone has further committed to investment in gaming real estate with the recent city center trade. And as David alluded to, and I just want to mention it myself, we're obviously very proud and excited to become partners with Blackstone and its B-REIT in the ownership of Mandalay Bay and MGM Grand. This is all part and parcel of our being very confident that this is real estate that is proving itself to be truly worthy of institutional investment. And as I talked about on earnings call last week, that it truly is Class A real estate that deserves to be seen in the same strategic and valuation light as categories like Class A office and Class A malls, without necessarily having to also bear some of the secular questions around those two asset classes at this time.
spk04: That's helpful. I guess one quick follow-up to another question. I guess on the CapEx requirement, the 1%, which is a little bit different than the B REIT, JD REITs, I guess philosophically, how are you thinking about that and, you know, the relative difference there? John? Well, I think, Ed, and I talked about the assets. One of the things that's been incredibly impressive as we've looked at this portfolio since really we started the company is what a great job the operators or MGM does in keeping the assets in great shape, not only with maintenance capital but with capital enhancement. So we feel really good about them as a partner and understanding the importance of MGM keeping the assets at this high quality. Thanks so much.
spk00: Thank you. Our next question comes from Barry Jonas from Trust Securities. Barry, please go ahead.
spk02: Great, thanks. David, just to follow up from an earlier question, can you remind us what your optimal leverage ratio range is and if you'd expect to go outside that level for any period of time?
spk01: Yeah, Barry, I didn't know you changed to trust security. Good to talk to you. We've been always very disciplined on the right side of the balance sheet. And over the longer term, we will continue to target the five to five and a half range we've been very vocal about.
spk02: Got it. And then maybe this is for Ed, you know, with MGM sort of moving to this full asset light model, do you sense other operators could be willing to go down the same path within gaming?
spk06: You know, Barry, that's really a question for the operators at the end of the day. I will simply say how excited and confident we are to be entering into a long-term partnership. with MGM. The approach they bring to the business really gives us great confidence in the enduring relevance of this real estate based on their ability to constantly refresh, reimagine, reinvigorate the guest experience. It's reflected in the capital spending that John alluded to, but it's also reflected in their high commitment to employee engagement. and guest satisfaction. As we did our due diligence, we were impressed, very impressed, among other things, by the very high guest satisfaction scores they run throughout their system, both in Las Vegas and, again, in the region. These regional assets are really remarkable. And so we are very confident in MGM's ability to make their model work. It's not for us to say whether this is the right model for others or not. That's ultimately a decision that they must make.
spk04: Barry, if I can just add one thing. I have to with the results that are coming out. Obviously, today we're talking about MGM and this deal, and we're excited to have them in attendance. But I do have to have a little bit of a shout out for our other tenants who have released earnings and shown results that are absolutely spectacular. And it's just a great indication of how great the operators are in this casino business and how they've reinvented their business during a very tough time of 2020 and have had explosive growth in 2021. So I did want to touch on that as well.
spk06: Yeah, John, you do bring up a great point. And I, you know, I've been thinking a lot as we prepared for this today about June 2019, when we announced, I think, Samantha, was it June 24th, 2019, we announced our transaction with Eldorado. But, you know, what I think you're saying, yeah, what you're starting to, what I hope you're seeing, Barry, is our willingness to to bet, our willingness to invest in great operators. And here we are two years later and Caesars has just announced a $1 billion EBITDA quarter, right? I mean, that's why we have the conviction we do in this real estate. And so much of the conviction is based not only in the fact that this is incredibly high quality real estate in terms of fit and finish, But, and moreover bought at a significant discount replacement cost, but how good the operators are at being highly relevant to their consumers and bringing great energy and vitality to their real estate. So, again, we're so excited to be investing behind MGM in very much the same way. We were so excited to remain so excited and proud to have invested behind Tom Rigg and the Caesars team.
spk02: Perfect. Thanks so much, guys, and congrats. Quite an accomplishment.
spk06: Thank you, Barry.
spk00: Thank you. Our next question comes from Greg McGinnis from Scottsdale Bank. Please go ahead.
spk05: Hey, good morning. I'm just curious what drove the decision to amend the structure of the MGM master lease and how do you arrive at the lower total rent with no percent rent component?
spk06: David, you want to start?
spk01: Yeah, sorry. Hey, Greg. Every transaction, there's a myriad of levers and negotiation points with rent, the escalators, CPI kickers, removing the variable component. So we ultimately got very comfortable with the $860 million of rent and the extension of term that we're able to achieve in the lease.
spk05: Okay, thanks. And then the sub 6% cap rate, the lowest you paid to date for anything.
spk04: So, you know, I know we just went over what you like about the MGP portfolio, but is there anything in particular that makes you think it deserves this premium valuation relative to what you've paid for other individual assets today?
spk06: Yeah, Greg, I'll start and then John and David can jump in. I think one of the key points to to keep in mind is we didn't buy a single asset. We bought a portfolio. And if ever there was a portfolio that deserved premium valuation, it is this, right? This is an incomparable group of assets that we believe, again, that we bought at a significant discount to replacement cost with a very strong tenant operating a very strong strategy. And we fundamentally believe that this real estate, as its value and quality is increasingly recognized, will grow in value over time. David, John, if you want to add to that.
spk01: The only thing I'd add, Ed, is obviously you talked about the left side of the balance sheet, but what it does for the right side of the balance sheet in terms of tenant diversity, scale, quality of the real estate, in terms of our ultimate funding costs and cost of capital is important to us. There's long-term strategic benefits to the portfolio and what it does for our overall company.
spk07: Thank you, Bill.
spk00: Thank you. Our next question comes from David Katz from Jefferies. David, please go ahead.
spk04: Hi. Good morning and congratulations, everyone. Covered a lot. I just want to double back and at the risk of asking you to repeat yourself, there's a little cross noise.
spk05: With respect to the regulatory or the prospective regulatory in terms of owning Las Vegas assets, I think Samantha said you do not anticipate having to sell any or anything like that.
spk04: Would you mind repeating yourself?
spk07: Sure. Yeah, Samantha, again, that's correct. You heard me correctly. We do not anticipate having to sell assets out of markets.
spk05: Okay, I'm all set. Thank you very much and congrats.
spk07: Thanks, David.
spk06: Thank you.
spk00: Thank you. Our next question comes from John Decree from CBRE. Please go ahead.
spk04: Good morning, everyone. Thanks for taking my questions and congratulations on the exciting news today. Ed, maybe two questions about the competitive landscape for you and then maybe for your tenants. So first, you know, three kind of dedicated REITs in the casino space. You're obviously putting two together here. What do you think that does for you going forward in terms of acquiring competitors? Do you think it creates higher barriers for entry? I mean, we've seen some other REITs talk about dabbling in the space, the casino real estate has become more interesting to to other REITs because this puts you in a in a superior position obviously your cost of capital will improve but it was talked in the past about the the relationships um that have been valuable curious to get your thoughts on what the competitive landscape could look like after uh the consolidation yeah john um you know we would expect the competitive landscape to to grow even more competitive
spk06: We want it to grow more competitive. We believe it will grow more competitive because, again, what we believe will be the increasing recognition that this is Class A real estate that is still trading at a significant discount on a cap rate basis. to other Class A real estate and is still trading at a very, very significant discount or a placement cost. Again, I would cite the example of Resorts World, a really wonderful new asset. built very, very well at a cost of $1.23 million per key, right? And we've given you all the math, right? And again, I fundamentally believe it's going to be more competitive as it should be because more capital in a world where 60-something percent of sovereign yield is negative, where you can have this kind of lease length where you can have escalation and, in our case, CPI protection. You know, for decades to come, there will be increasing recognition in a yield-hungry world that this is one of the best places right now, not only in commercial real estate, but in the larger macro environment of yield-seeking to find superior yields.
spk04: Helpful, Ed. Thanks. And maybe flipping the question, two of your large tenants are direct competitors and could potentially be competitors for new opportunities. New York, Texas, Florida, if those opportunities come along, how would you think about evaluating opportunities to participate or partner with your tenants where they may have a competitive bidding process or look to you for for financing or partnership? John? Good morning. So look, we hope our tenants all continue to grow. We see that as an opportunity for us. We don't see it as being competitive. I mean, that's the model that we have. We don't operate their businesses. We don't communicate with their customers. They make their capital improvements. So, John, I think that that is a goal of ours with all our tenants is how can we work with them understanding their growth plans and how we may fit in that. And so if we've got tenants that are looking at opportunities, we'll obviously go in there and, you know, work with them along the way. I don't think it's going to be a concern at all. And that's how we've built the company. And you can see We've gone from one tenant already to eight and we'll continue to grow that. Fantastic. Thanks, John. Thanks, Ed. Congratulations, everyone. Thanks, John.
spk00: Thank you. Our next question is from Rich Hightower at Evercore. Please go ahead.
spk04: Hey, good morning, guys, and congrats. Hey, Rich. Hey, Ed. A lot of good questions have been asked so far, but I wanted to maybe get your thoughts on, you know, we can do the arithmetic as well, but, you know, just your thoughts on incremental demand from index investors due to the greater market cap, and then, you know, what would an eventual S&P 500 inclusion add to that as well? Thanks.
spk02: David, do you want to take that?
spk01: Yeah. Hey, Rich, how you doing? It's a combination of things, right? We've obviously got $2.4 billion of forward equity out there. So when those shares come into the mix, when we, you know, as Samantha mentioned, there'll be a stock component to this transaction when the additional demand for the existing MGP shares are eligible for index inclusion. All that adds up to, you know, people can do their own math, but it adds up to a significant number. And then just as you see, and we're on the list, but the elevation up in the ranks in terms of size of the REIT that is not in the S&P 500, then that in and of itself adds incremental demand. So it's a very exciting kind of path and something we're very, very thrilled to be on. And it'll obviously happen once everything closes, but I think it's a great, Great opportunity for everybody.
spk05: Okay, great. Yeah, thanks for the comments.
spk00: Thank you. We've come to the end of the Q&A portion. Thank you, listeners, for submitting your questions. I'll hand back over to the management team for any closing remarks.
spk06: Yeah, on behalf of everybody on the management team, we're very grateful for your time this morning and could not again be more excited about this transaction and the value we believe it will create for MGP and BG shareholders. Thanks again for your time.
spk00: Thank you all for joining the call today. Have another rest of your day. You may now disconnect your lines.
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