VICI Properties Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Vichy Properties Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, August 1st, 2024. During the presentation, you can register to ask questions by pressing star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. I will now hand you over to Samantha Gallagher, General Counsel with Vichy Properties. Samantha, please go ahead.

Thank you, Operator, and good morning. Everyone should have access to the company's second quarter 2024 earnings release and supplemental information. The release and supplemental information can be found in the investor section of the VG Properties website at www.vgproperties.com. Some of our comments today will be forward-looking statements within the meaning of the Federal Securities Law. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects, or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial conditions. During the call, we will discuss certain 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. The reconciliation of these measures, the most directly comparable GAAP measure, is available on our website and our second quarter 2024 earnings release, our supplemental information, and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and our counterparties discussed on this call, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Ed Petoniak, Chief Executive Officer, John Payne, President and Chief Operating Officer, David Kieske, Chief Financial Officer, Gabe Wasserman, Chief Accounting Officer, and Moira McCluskey, Senior Vice President of Capital Markets. Ed and team will provide some opening remarks, and then we'll open the call to questions. With that, I'll turn the call over to Ed.

Thank you, Samantha. Good morning, everyone. As you may have figured out by now, I enjoy putting my thoughts together for VG's earnings calls. I try to share through these opening remarks not only what we've done, but what we're observing and learning from the marketplace. I may not always succeed in sharing anything genuinely fresh, but at the very least, I don't want my opening remarks to become repetitive. When I began putting these thoughts together in early July, the risk of repetitive remarks was high, given that until a couple of weeks ago, for REITs generally and net lease REITs specifically, not a lot had changed since last quarter's earnings call when I spoke of the big tech investing party that we REITs hadn't been invited to. In Bank of America's most recent fund manager survey, Michael Hartnett showed that that fund managers were underweight real estate at a level equal to and not seen since the depths of the great financial crisis. Then came a welcome CPI print, and REITs had begun a comeback that we believe can endure. Before we hear from John and David, and before we field your questions, let me say a few words about the principles that guide us in a REIT marketplace like the one we've been living through for a while now. We start by asking ourselves, is what we're going through, whether for all REITs generally or net lease REITs specifically, cyclical or secular in nature? There are REIT sectors that have secular issues right now. Office is an obvious example of a sector with negative secular trends. Data centers is the obvious sector with positive secular trends. We strongly believe that experiential real estate is another real estate category with positive secular trends, as evidenced by research recently published by McKinsey showing that, indexed back to 1959, the share of consumer discretionary income spent on experiences has grown to an index level of nearly 160, while the share of consumer discretionary income spent on things has shrunk to less than 75. Capitalizing on positive secular trends is fun. Addressing negative secular trends, not so much. Positive cycles for REITs are fun. Negative cycles for REITs or specific REIT sector, not so much. But it's always key to remember that cycles begin and cycles end, almost always driven by factors that are beyond the control of a REIT management team and board. In a period of lagging stock performance driven by cyclical factors, it can be tempting for REIT management teams and boards to start deviating from the REIT's long-term goals and strategies in hopes that the deviation can somehow overcome the cycle. At Vici, we strive very hard not to deviate. Here's the strategic principle we strive to stay true to in all cycles. We dedicate ourselves to investing in experiential buildings that meet these three fundamental quality factors. Location quality, in other words, well located in markets that have sound fundamental demographics and economics. Asset quality, meaning designed and built to serve the distinct needs of experiential businesses that have high economic dynamism and economic durability. operator quality, meaning occupied by an experiential operator that has high economic energy, ingenuity and expertise, and a strong balance sheet and credit profile. With every investment we make, we of course seek accretion as measured in ASFO per share, but that is not the only accretion we seek and measure. With every investment opportunity we evaluate, in addition to ASFO accretion, we ask, Is a given investment opportunity accretive to asset quality? Is a given investment accretive to tenant diversity and tenant quality? Is a given investment accretive to geographic and potentially categorical diversity and quality? Finally, can a given investment be accretive to balance sheet quality and potentially our credit ratings? We have not and will not grow for growth's sake if that growth doesn't continuously improve the quality and intrinsic value of our portfolio and balance sheet. We will not, as some of our net lease peers do, tell you we spent X hundreds of millions of dollars at Y percentage cap rate to generate Z dollars of new rent, but then never tell you into what we invested that amount of money. We will tell you what we invest in so that you can know what you own. The very good news is that our business development team, led by John Payne, is identifying and developing opportunities that meet our broader accretion criteria. And with that, I'll turn the call over to John. John?

Thanks, Ed, and good morning to everyone. We acted on the investment criteria Ed just spoke of when, in the second quarter, we made capital commitments of up to $950 million into highly differentiated experiential buildings that have indispensable value to their occupants, namely the Venetian and a collection of Great Wolf Resorts. These are investments that live up to our quality criteria, and at the same time, the $650 million firmly committed to those investments will generate a blended investment yield of 7.9%. Our conviction that we can continue to identify and invest in experiential properties that are accretive against multiple quality factors is a key reason that we have decided that we will not be exercising our call right to acquire Harrah's Hoosier Park in Horseshoe, Indianapolis. We can and are making this decision because of our confidence and conviction that we are actively identifying pursuing investment opportunities that enable us to generate future AFFO growth and accretion while furthering the strength and diversity of our portfolio and tenant roster. At this time, we believe that we have the opportunity to create greater portfolio value by allocating Vichy's capital to other gaming and non-gaming opportunities the team is actively pursuing. This is an approach that we believe will produce 2024 AFFO highest in our net lease category. And with our newly LPP items, we're going to do 2024 AFFO per share growth at midpoint is nearly three times the 2024 AFFO per growth rate guided into last week by our one gaming week peer. One factor that continues to accrue to our overall portfolio quality and structure of tenant credit is the success of the dynamic city of Las Vegas. where DG collects 45% of our rent from assets that we own. Over the years, I've cited one record-breaking in the first half of 2024. Harry Reid International Airport had back-to-back record months reporting 5.1 million passengers arriving and departing in June. June was the third best month ever, trailing May the second best month ever, And October of 2023 was the best month ever. In May, international visitation to Vegas also jumped 23% year over year. And in June, it was reported that city officials are contemplating adding a second airport to Las Vegas, with executives from Southwest Airlines stating, and I quote, it feels like any flight we add into Vegas gets filled. It's almost this insatiable appetite for people wanting to come and see Vegas. Our Las Vegas tenants continue to benefit from this momentum as evidence fire up to $700 million capital investment to fund extensive reinvestment projects at the Venetian in exchange for increased rent. The size and success of our gaming properties allows us a unique opportunity to put large dollars to work into assets we already own. There continues to be a variety of opportunities on the horizon that we to the growth of our portfolio. Casino gaming assets continue to present the largest opportunity both domestically and internationally, inclusive of investment opportunities into the casino resort properties we already own. The magnitude and consistency of gaming cash flows and the creativity of our gaming tenants continue to drive our conviction in this section. and have set the blueprint we need to extend our CAM in other experiential sectors. I now will turn it over to David, who will discuss our financial results and guidance. David?

Thanks, John. Our balance sheet liquidity results in our updated full-year guidance, which we are very excited about. As we work on the right side of the balance sheet, we are constantly focusing on VG's balance sheet quality, bringing our leverage further down within our target range of five to five and a half times, diligently working with the rating agencies to improve our credit ratings over time and ultimately lowering our cost of capital, balancing the right long-term leverage for the company, all while ensuring we have the dry powder to continue to fund accretive growth for our owners. In terms of dry powder, as of today, we have approximately $3.2 billion in total liquidity. comprised of $347 million in cash and cash equivalents, $566 million of estimated proceeds available under our outstanding forwards, and $2.3 billion of availability under our revolving credit facility. In addition, our revolving credit facility has an accordion option, allowing us to request additional lender commitments of up to $1 billion. Subsequent to quarter end, we settled 4 million shares and received approximately $115 million under our forward sale agreements. These proceeds were used to partially fund the Venetian capital investment John mentioned earlier. In terms of leverage, our total debt is currently $17.1 billion. Our net debt to annualized second quarter adjusted EBITDA, excluding the impact of unsettled forward equity, is approximately 4.4 times, excuse me, 5.4 times. within our target leverage range of five to five and a half times. We have a weighted average interest rate of 4.36, taking into account our hedge portfolio, and a weighted average 6.6 years to maturity. Fetching on the income statement, FFO per share was 57 cents for the quarter, an increase of 5.9% compared to 54 cents for the quarter ended June 30, 2023. We are very proud to deliver this continued, consistent growth to our owners. Our results once again highlight our highly efficient triple net model given the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue. Our margins continue to run strong in a high 90% range when eliminating non-cash items, and we have the highest net income margin in the S&P 500 as noted in an article published by Barron during the month of July. Our G&A was $15.8 million for the quarter, and as a percentage of total revenues was only 1.6%. This continues to be one of the lowest ratios in not only the triple net sector, but across all REITs. Turning to guidance. We are raising our AFFO guidance for 2024 in both absolute dollars as well as on a per share basis. AFFO for the year ending December 31, 2024 is expected to now be between $2.35 billion and $2.37 billion. or between $2.24 and $2.26 per diluted common share. Based on the midpoint of our updated guidance range, BCH expects to deliver year-over-year FFO per share growth of 4.7%. As a reminder, our guidance does not include the impact on operating results from any transactions that have not closed, interest income from any loans that do not yet have final draw schedules, possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions or items. And as we have mentioned in the past, we record a non-cash CISO allowance on a quarterly basis, which due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. When preparing to ask your questions, please ensure your device is unmuted locally. And our first question comes from from Goldman Sachs.

Hi. Good morning, everyone. Well, thanks for the update on the plans to not execute the options that you have this year. I guess just as you think bigger picture, on deals you might do going forward and the options that you might create. I guess, does the way that this one ended up kind of working out or turning out in your decision-making process have any impact on, I guess, how you structure options in the future, what the details might be, how far in advance they are, anything like that? Thank you.

Yeah, good morning, Caitlin. John or David, do you want to take a first crack at that in terms of how we think about options going forward?

Yes, it's a very good question. I do think it's important. I heard my comments were broken up a little bit, but it is important to understand that this was a strategic decision really based on capital allocation and portfolio management at this time. We have great conviction with opportunities that are in front of us that would further our tenant and geographical and category diversity. And as we continue to look at opportunities and we negotiate put calls or we negotiate votes, we'll think about the length of those and the appropriate times of those. But again, it's important to understand that we have great conviction to continue to grow the business around the world.

Got it. And just as a follow-up on that geographic diversity point, I noticed the prepared remarks also mentioned international potential opportunities. So just wondering if you can comment further on kind of what sort of international opportunities or the size type that you think could come up over the medium term or where?

John? Yeah, another good question. We have been busy traveling, not only domestically, but internationally. And I think on other calls, we've talked about countries that we've been studying. We've spent some time in Australia and New Zealand. We've spent some time in Europe and the UK and other parts of the world where it makes sense and our capital can work. I don't have anything to announce now, obviously, but we see opportunities to continue to diversify not only in location, but with new tenants as well.

Thank you.

And our next question comes from Barry Jonas from True Security.

Hey, guys. You know, as you look at that international opportunity set, just curious how that split between gaming and non-gaming.

John, want to take that once again?

It seems like I am answering the first three questions today, Barry, but it's all good. I'm not sure we'll have the exact percentage of what's going to come in gaming and non-gaming, but I think you can imagine when we travel around the world, we spend time in countries that have legalized gaming and understanding the real estate of those assets, while at the same time meeting with experiential operators. In my remarks, and I've said this for the past seven years, the greatest opportunity we see is still in casino gaming, both domestically and internationally. But we do spend time with operators in both the experiential sectors and gaming when we travel around the world.

And, Barry, I'll just add that pretty much by definition and by logic, the dollar percentage will always tend, whether domestically or internationally, the dollar percentage will very much favor gaining investment, given the magnitude of the assets and the capital required to acquire them.

Got it, got it. And then just as a follow-up, you know, curious how you're thinking about your strip land and just development these days. You obviously own several acres on the strip and off the strip. And then your tenant, Caesars, is now talking about maybe selling some non-core assets, which I presume include land. Thanks.

Yeah. So, Barry, we, as John talked about in his opening remarks, we are just great believers in the Las Vegas ecosystem, which has obviously got gaming at its center. But as we see with really almost each passing quarter, the amount of innovation that's going on in terms of the broadening and deepening of Las Vegas experiences truly makes it like no other place on earth. We obviously have a lot of exposure to Las Vegas right now as a percentage of our annual base rent. But we are and we will be very comfortable in continuing to invest in incremental capital, much the way we did with the Venetian investment in Las Vegas, because it is this truly one-of-a-kind destination in the world. And that has implications, obviously, for putting incremental money into the assets we already own, whether with the Venetian, with our Caesars assets, and especially, obviously, given the magnitude of MGM assets we own, particularly at the south end of the Strip, but seeing more and more demand drivers. And then, in addition to that, as you alluded to, we do have that vacant land that over the coming years and decades obviously represents further potential to invest capital and broaden and deepen our exposure to Las Vegas.

Perfect. Thank you for that.

Our next question comes from Wes from Baird.

Hey, good morning, everyone. I know you target full-cycle investments with, you know, high-quality partners, but there has been some pockets of weakness in the consumer. Has this led you to change how you're looking at the current acquisition pipeline?

Yeah, it's a very good question, Wes. And obviously, you know, whether it's the McDonald's earnings report or other earnings reports, you are starting to hear about weakness, especially in the lower end consumer. And even recently, there's been some talk among gaming operators about seeing some weakness at the lower end in the regionals. I would not say at this point it's yet affected how we are thinking about our investments going forward. We, focusing on the categories of experiences that we do, focusing generally on middle to higher end, it hasn't caused concern for us yet, especially when, of course, you take in the existential fact that we, as a net lease asset owner, are not exposed to the variability quarter by quarter in consumer spending.

Okay, and then you do have a highly predictable business model, but you have the Caesars lease coming up in November. It does have a variable component that's a little bit harder to model. Could you maybe put some goalposts on that, how we should think of that?

David?

Yeah, thanks, Wes. It is a good question. We are entering lease year eight with Caesars. Hard to believe we're getting the lease year eight. It just seems like yesterday we started this company. But November 1st will be the start of that lease year, and it does become a variable component and a base component. And we are – the way that the calculation runs for the Vegas lease, 80% is base, 20% is variable. For the regional lease, it's 70% base and 30% variable. It's based on a comparison of net revenues for years 5 through 7 versus years 0 through 1. We are still – collecting the data from CSERs because the calculation period actually runs through September of 2024. But based on what we're seeing, it should be a relatively neutral to no impact to our escalation in November 1st of 2024. Okay.

Thanks, everyone.

Our next question comes from John DeCree from CBRE.

Hi, everyone. Thanks for taking my questions. Maybe one on your decision today to say you're not going to move forward with Centaur. So I thought you may have had until the end of the year to make a decision. And so we certainly can appreciate, you know, being decisive and looking at your pipeline. But curious if you could talk a little bit about, you know, why make that announcement today with still maybe several months ahead to, you know, to consider that.

Yeah, no, it's a very, very good question, John. The reason we decided to announce this today is that the strategic factors that went into making our decision are of a nature that they were not going to change over the ensuing whatever it is now left in the year, you know, five months of the year. And so in fairness, obviously, to our partners at Caesars, but also recognizing our need to always be as ruthlessly efficient as we can be with return on management time. We decided, again, because the strategic decision factors will not change in the next five months, decided to announce it today so that everyone can understand, our team can understand, CSERs can understand, you all can understand that we will not be calling it and none of us have to spend time wondering if and when we might between now and the very end of the year.

Wow, that's helpful, Ed. Thanks. And that's probably the last question you'll get from us on Centaur, although there's been many over the last eight months or so, so I appreciate that. Maybe bigger picture, In terms of underwriting gaming assets today, so, you know, a lot has happened. We've talked about some of the consumer trends. You know, we've looked at where some recent deals have gone out. And just kind of curious if there's any kind of updated thoughts on how you think about, you know, full four-wall coverage, kind of cap rates in the gaming space now, you know, if there's be a little bit more strict in how you think about floor wall coverage and kind of where you think cap rates are going. And I know kind of every asset and transaction is a little different, but just high level. It would be good to kind of get into Karen's thinking on broad strokes.

Yeah. Yeah, so I think our starting point, John, is that, you know, we always want our capital investments to pass the test of if this was our last dollar of capital, would this be the highest and best use of that capital? And as we have engaged in the continuous learning that has been at the heart of our creation of VGA as both a company and a culture, I think very much to the point of the question you're asking, you know, we continue to refine our thinking on what will drive the strongest continuous improvement in our access to and our cost of capital. And that really guides our decision-making in many different forms, including, obviously, tenant diversity, geographic diversity, tenant credit quality, strength of tenant balance sheet, and very much to your point, rent coverage. So as we look at that mosaic of factors, we, again, we feel very good about the discipline we've developed around capital allocation and the degree to which it can again, just to stress the point, lead ultimately to strongest comparative cost of capital advantage over the long term.

Perfect. Thanks so much, Ed. I really appreciate that. Thank you, John.

Our next question comes from Nick Joseph from CT.

Thanks. I'm just following up on the Indiana casino question. Is this deal fully dead, and I guess is there any chance that the assets are put to you, or is that all put to bed as well? John?

The way the contract reads, you are correct that the assets could be put to us, but Tom Rigg at Caesars I think has been very vocal about this, at least over the past year, that they had no plans to to put these two assets to us, but the contract does last until the end of the year, as we spoke about earlier today.

Thanks, that's helpful. And then just as we look to November, I'm just curious if there's any legislative issues on any ballots that you're watching that could be important for regional gaming?

John? We all take that, Ed. Yeah, I'll take that, Ed. We continue to look not only in, I think you mentioned regional gaming, but I think we're looking all over the world where there are changes happening to the good, and I guess it could be to the bad, but where there are going to be opportunities to deploy capital with new tenants and new locations, possibly in new categories. There are some places around the world that are going through quite a bit of change that we're better understanding. We'll continue to watch opportunities in the United States as well. Every year I think you know the state of Texas and the state of Georgia, the state of Kentucky often come out with some form of gaming. And then obviously with online sports betting, which is spread across the United States, there will be other states that think about that. And usually in some bills they talk about the bricks and mortar, because who knows. So not specifically, but we stay in touch to see if there ultimately will be some opportunities for us to invest. And then I'll finally say, we continue to monitor New York, where that process continues to proceed into 2025. And we'll have a better understanding when the three licenses will be awarded and to whom they are awarded.

Hey, Nick, I will just add that Nick, I'll just add that, you know, we obviously do monitor, you know, continuing legislative change and in many cases the associated emergence of new supply across American regional gaming. And I do think, you know, we obviously need to take care as capital allocators that as we allocate capital into regional gaming assets, which we will continue to do, they were doing so aware of the supply-demand trends on a market-by-market basis. Because in regional gaming, the catchment areas for regional gaming obviously tend to be more confined than we would find in Las Vegas, because the catchment area for Las Vegas is global. As John said in his opening remarks, International travel to Vegas has rebounded stronger than any place else in the U.S. and probably one of the strongest international travel rebounds around the world. And so while new supply will come to Las Vegas, it will come into a market whose catchment area, again, is global. And we obviously need to be mindful in regional areas that the catchment areas are somewhat finite and we need to weigh our capital allocation decisions to based upon supply-demand trends on a highly localized basis.

Makes sense. Thanks. I'd appreciate it. Thank you, Nick.

And the next question comes from Hondo Sanchez from Misoho.

Hi. Good morning. This is Ravi Vaidya on the line for Hondo. I hope you guys are doing well. had a quick couple quick follow-ups here on the indiana assets was the cap rate not attractive enough in the current rate environment and did the emergence of valley chicago coming up the next five years play a role as it could possibly impact um casino operations throughout the midwest yeah hey i'll let john take the second part of that on on the first part uh the the cap rate is a perfectly fine cap rate um

As we look across our array of investment opportunities, and as we contemplated, you know, potentially investing more than $2 billion of capital, or close to 5% of our total capital, we, again, wanted to be relentless in our scrutiny as to would this be the highest and best use of our capital, both on a cap rate basis and the associated accretion, but also on the key if you will, non-financial accretion factors of tenant diversity, geographic diversity, and those secondary factors. So the cap rate by itself was not the gating issue. And then I will turn it over to John for his thoughts on Midwestern gating.

Yeah, the question about will the facility that ultimately is built in downtown Chicago will impact the Indianapolis two casinos, the answer is no on that. To Ed's comments earlier about where consumers go to regional gaming and how far do they drive, the Indianapolis market is considerably far away from downtown Chicago. In fact, there's many other casinos between Indianapolis and Chicago that consumers can choose from as well. So that would not factor in our decision to not call the two Indianapolis assets.

Thank you. That's helpful. Just one more here. How large do you forecast the experiential credit solution strategy to become? And, you know, we noticed you have a couple of deals with Great Wolf here over the years. How important is that as a defensive entertainment option in this recessionary environment?

Dave, do you want to take the first part of that?

Yeah, thanks, Robbie. You know, roughly our credit book today is $2.2 billion. It's, you know, 4% to 5% of total assets, and, you know, we feel good in and around that area. We developed the credit book as a way to – broaden our learnings and to expand our relationships. And you've heard us talk about, you know, at the end of the day, our capital is relationship capital. And the credit book allows us to develop new partnerships, develop new relationships. Ultimately, you know, through some of the deals have call options that are at our discretion and But along the way, we learn about new segments and new businesses. And if we learn things that ultimately we may not like, our loan gets repaid and we move on. But if we learn things we like, we continue to want to grow in those areas through either real estate ownership or deepening the existing relationship. So it's been a very, very effective tool, and it's been something we're excited about and something that we continue to use in our toolkit as we expand both domestically and internationally.

Robbie, could you repeat the second half of that question?

Sure. You know, we've had a couple deals with the Great Wolf over the years. I just wanted to hear your comments on how this is a particularly defensive and important entertainment source as we go into a recessionary environment here where the consumers stretch.

Yeah, David, do you want to talk about what we have seen historically on – on Great Wolf's durability through all cycles?

Yeah, in the broader indoor water park sector or broadly, you know, Dave Wasserman is in the room here, and he did our first white paper back in 18 where we started looking at indoor water parks and the economic vitality of these businesses. You know, when the original Great Wolf went public back in 2004, 2005, it was a Thursday through Sunday, Thursday through Monday business. Now it's a seven-day-a-week business. And, you know, we call them casinos without gaming because of the economic leverage they have and the multiple cash registers they have, both with the water park, the family entertainment center, the food and beverage, the lodging. And, you know, as an example, Perryville opened just earlier this year, last year, and within three months it was exceeding its initial underwriting and ultimately went into the broader refi package. So these things open, they open quick, and they open fast. producing a lot of cash flow, so we're excited about that. And hopefully, there's an opportunity someday to own the real estate of some of these indoor water park businesses.

Got it. Thanks so much, guys.

The next question comes from David Katz from Jefferies.

Hi. Morning, everyone. Hello, David. Thanks for taking my question. How are you? So a little bit of a different, great, a little bit of a different kind of question for John, which is, you know, through our window past, you know, a couple of days, you know, we've seen a pretty consistent, you know, outlook shift, you know, to something more moderate or even down, specifically around, you know, leisure transient activities across hospitality. And Not that it will impact your earnings stream, you know, imminently. But, you know, John, I assume in your travels, you know, you have a finger on that pulse as well. And I just would love a little bit of insight from, you know, what you're seeing and hearing, you know, through your window, please.

Yeah, David, nice to talk to you. And hopefully I'll see you on the road while I'm traveling. Look, you are correct. We're hearing in some businesses some softness and hearing about the consumer. And Ed touched on this earlier in his comments, particularly around the lower-end consumer. I was telling my colleagues, David, a story about though I was in Scotland recently, and every person I met talked about visiting the United States. And guess what city, if they were only going to two or three cities, they said they had to go to? It was Las Vegas. And what's become so interesting traveling the world is that 10 years ago, that wouldn't have been the answer, right? Everyone has said, I fly into New York. I'm going to hit Chicago. I'm going to go on to San Francisco and the West Coast. And you probably wouldn't hear about Las Vegas. The beauty about what our tenants have done is diversified the reasons to come to Las Vegas. And no matter what sector, whether you're the high-end sector that comes by private jet or whether you're the sector that, like myself, travels by Southwest Airlines, they continue to attract different folks to that city. So I'm not giving you a macro answer about the whole world of the United States. I'm giving you an answer about where we look to put our money and where our money is right now, and that's why we're so bullish on Las Vegas. As we study other sectors, as we study other parts of the world, we will definitely make sure we understand what the consumer is doing all up and down the spending tree. But I will tell you, my travels, I'm excited about where we have our money and continue to put money in because I hear that people are traveling to that destination of Las Vegas.

I agree. Thanks very much.

And operating before we go to the next question, I'd just like to add to David Katz's question that in a time like this where we could be potentially looking at a period of economic volatility as measured in consumer spending, it really highlights the value of dividend-paying stocks when it comes to reducing the volatility of the equity market. versus the volatility of the consumer economy. And that is why, again, we are so careful in what we invest in, because we want to make sure we're investing in assets and partner relationships that we believe very strongly can endure up and down cycles in consumer spending. We do not go seeking cigar butt real estate, to use the old Benjamin Graham term. we are seeking real estate that we know can endure cycle in, cycle out, and has positive secular trends, such that we can feel very confident in our ability to continually pay a dividend and steadily grow the dividend, ideally at a rate that is equal to or exceeds inflation.

Thank you very much, Eric.

Our next question comes from Michael Harris from Green Street.

Hi, thanks. Good morning. Hey, Michael. VG has roughly $2 billion in notes coming due in the first half of next year. How did that factor into the decision to not exercise those call rights, particularly as you look to potentially reduce your leverage and earn a better investment grade rating.

Yeah, I'll turn it over to David in a moment, Michael. But I would say it really factored in virtually not at all. And not that we're not mindful of the obligation we have to refinance as effectively as we can in the coming year. But we, again, made the decision we made on those call rights because of how compelling our other investment opportunities are. which you should be hearing about, you know, in due course. And so that was not a constraining factor. And, David, I don't know if you want to add anything in terms of how we're thinking about leverage and the ratings curve.

Yeah, no, you did touch on it. It's portfolio management, or I'm not exercising the book call. Michael, in terms of the balance sheet, we've got three maturities next year, February, May, and June, and As you saw us actively and very successfully refi our 2024 maturity with a well, well, well, well, well oversubscribed refinancing that we did back in March. We're working and planning towards refiing those maturities that, again, come due first part in the first quarter and then later in the second quarter of 25, and then you saw our Here at JLP, I had a very successful debt offering two days ago, and being investment-grade rated, having a very deep, liquid investment-grade credit profile is accrues to our benefit, and we feel very good about our ability to refi those maturities and continue to extend and ladder our maturity profile, and ultimately, over time, migrate up the BBB curve, lowering our cost of capital, being able to continue to compete for asset acquisitions across the globe.

John, I think that's all very helpful. Maybe just one more, switching gears a little bit. As there's been some M&A chatter on the operator side, can you just speak broadly, maybe this is more for John, on just the practical protections that Vici has on its master leases in the event there is a change of control on the operator side?

John?

Yeah, it's a very good question, Michael. It's a hard one to answer, simply because we used to be a company when we started that had one or two leases. Now we've got over double digits. But in all our leases, we do have protections. Samantha Gallagher, our general counsel, is on the line that could add to that. But we feel good. We're staying in touch with our operators to better understand what's going on in the market. I think you used the word chatter. I think that's probably the best word out there right now, but we do have protections in our many leases that we have. Sam, I don't know if you would like to add anything to the question.

Yeah, John, you did a great job. I think just to John's point, while we do have a number of different leases, all of our leases are mindful of what happens in a change of control and have strong protections to ensure, and just as a reminder, we have gone through a change of control with one of our tenants already, where you see the Caesars Eldorado merger. So we feel very comfortable with how our leases are structured to address any change of control.

Got it, thanks.

Our next question comes from J.M. Comet from Evercore.

Good morning, thank you. David, was there anything in particular that led you to bump the guidance at this point. I mean, the acquisition investing activity has been well disclosed, and you don't include prospective activity in guidance. So I was just curious if there were one or two factors that motivated you to do it at this time.

David?

I mean, Jim, you touched on it. You know, I think when we laughed at our first quarter earnings call, the funding timing and how we were going to fund some of the The announcements that we had previously made weren't finalized, and so as we talk about in our guidance, you know, we don't project any unknown capital markets activities or any unidentified or unknown activities. So those announcements plus the continued funding through our loan book has led us to – feel very confident about the increase in guidance and feel very good about achieving that guidance. And a lot of it came from the Great Wolf Impact, which closed slightly after our earnings.

Okay. And then the second question, please. Ed, you're almost getting, obviously, enthused about, you said, your alternatives to invest capital other than the Caesar Option properties. Obviously, you're not going to give us a whole lot of color, but are they, these future opportunities, is this a ramp in the total sort of bucket or opportunity set in dollar value in your mind? And what would the split maybe be between further credit book or more fee interest? Thanks.

Yeah, it will very much predominantly be fee interest, Jim. And I think one thing you can expect is that, you know, as we continue to allocate capital, it will be on a cadence that is not necessarily a as heavily weighted to one single investment as would have been the case with the Indiana assets. Again, just to reiterate, that would have been almost 5% of our capital into one deal. And I do think from both a return and a risk management point of view, we will always be very happy to achieve a sustained and sustainable capital allocation cadence which again, will be principally in gaming and principally in fee over time.

Thank you.

Our next question comes from John from Wells Fargo.

Hi, thank you. Kind of going back to the embedded growth pipeline, maybe if we can jump down to the experiential side, you know, following the comments of Harrow's and Caesar's. I'm just curious, you know, and I know that these are a little less pressing in terms of timeline, but how are you thinking about the call options for Canyon Ranch and Cabot and Home Field and Margaritaville?

Yeah, John, I'm happy to start with that. And before I do, I just wanted to add one last comment to – the last question that Jim Kamert asked, and that has to do with not only a sustained and sustainable capital allocation cadence, that lends itself to a more sustained and sustainable funding cadence as opposed to the need to draw a whole lot of funding at one time for one deal. Anyway, to go on to your question about Cabot Canyon Ranch and the others, we – We obviously, we're talking here about assets that are either under development or otherwise ramping, so we will obviously take the time we need and the time the operator needs to get the assets to where they can best sustain the OPCO-PROPCO model, none of which at this point are immediately imminent. We're very excited about, obviously, what Cabot is doing at Cabot Citrus Farms. They have really created a sensation there, and I think, Samantha, we're pretty confident in saying that We look forward to the day when we can exercise our call right at Cabot Citrus Farms. But in the meantime, Samantha, you want to add any color to what we're seeing in terms of mine share and market share?

Yeah, no, thanks, Ed. As some of you may know, when we talk about the Cabot relationship, they continue to expand their global portfolio. We're excited about that relationship, and we're excited about our opportunities in the future to exercise our call rights. no changes in our commitment there.

Got it. Thank you. And then maybe just jumping quickly to your guidance, and there is a sentence there that reflects the dilutive effect of the roughly 19 million shares pending under your Ford sale agreements. Just wondering what the, like, the impact of that dilutive effect for the rest of the year.

David?

Yeah, John, it's David. Yeah, it's very minimal. We've got to account for the forwards under the treasury stock solution method, and it's a very, very minimal impact to the share count that shows up in our guidance range.

Okay. Thank you.

Our next question comes from RJ Milligan from Raymond James.

Hey, good morning, guys. I think John was probably a little early calling the last question on Centaur. I just have one follow-up. But there was some overhang on the stock given the uncertainty of the Centaur assets. And I'm curious how much of an impact that had on your decision to announce today that you wouldn't be calling the assets. I'm just curious if we can interpret that as you having other opportunities between now and the end of the year that you may pursue and don't want this overhang on your cost of equity.

Yeah, RJ, always good to hear from you. That was not a deciding factor by any means. Obviously, we are aware, were aware of the perception of overhang in the stock, and that was obviously felt like a more significant factor through much of Q2 and even into their first couple weeks of Q3, given the general state of the REIT equity market. But, no, that wasn't a deciding factor in our deciding to announce it now. Again, the real driving factor was just to make sure everybody understood we'd made a decision, we're very comfortable announcing the decision, very comfortable that we have very compelling other opportunities to allocate capital. And, again, I would just go back to the point of, you know, our desire, and we won't achieve it every time, but our desire is, capital allocation and capital funding strategies are based on being sustained and sustainable. We obviously spent a good number of our early years doing very big deals that had very big funding requirements that generally needed to happen all in one day. And as VG matures and as we achieve a sustained and sustainable cadence in AFFO growth, we want that to be driven by a sustained and sustainable cadence in both capital allocation activity, i.e. acquisitions, and funding.

Should we interpret that funding comment as you're likely to be a bigger user of the ATM going forward versus overnight?

I'll turn that over to David, but before I do, we obviously want to take care that the market never develops VGATM fatigue. And with that, I'll turn it over to David for any further call that he wants to add.

You stole my line. That's exactly right. As you heard us say, under Moira's leadership, we have a balanced approach to raising equity, whether that be in an ATM, blocks, overnights, marketed deals in connection with larger transactions. So we want to ensure that we – raise capital the most efficiently, but also ensure that we are not developing or becoming stale in our style and developing fatigue out there with our owners.

Appreciate it. Thanks, guys.

Thanks, RJ.

The next question comes from Dan Gugliemont from Capital One Securities.

Hello, everyone. Thank you for taking my question. Just one for me on the credit solution investments. Most of the recent growth has been in the MES and preferred investments, which do historically carry more risk. How are you all monitoring those investments, and could you pull future funding commitments if the macroeconomy does get choppy?

David?

Yeah. But again, Dave is the MD of VT Experiential Credit Solutions. He's here in the room and also our chief accounting officer. So put his credit solutions head on and answer that, Dan.

Yeah, Dan, thanks for the question. So we're very careful and thoughtful with our underwriting. Even though those certain investments are structured as MES and preferred equity, we're very thoughtful about where our attachment point is and our last dollar looking at the operating history of the property, kind of future underwriting projections and strength and sophistication of the sponsor. So that all goes into our underwriting. We have quarterly investment loan reviews where we're looking at the property performance and discuss it as a management team. And then in terms of contractual rights, if there's something that went sideways in the macro economy, generally that wouldn't allow us to stop funding, but we certainly have protections under all of our loan agreements that the borrowers have to meet certain conditions precedent in order for us to fund.

And Dan, this is Ed, I would just add that we are always lending against experiential assets that in a worst-case scenario would meet our strategic investment criteria if, again, in the worst case, the asset ever came into our hands. We would want We always want these to be assets that, in the worst case, we would be willing to own. Thanks.

Makes sense. Our next question comes from Chad Bain and from .

Morning. Thanks for taking my question. You guys a few times have highlighted the strength in Las Vegas, some of the stats in terms of visitation, which is obviously being driven by the casino assets, but also the growth in sports and entertainment that we've seen out there that gets a lot of people who don't visit the casino to still come to the city. So with that in mind, you obviously benefit from the visitation, but has anything changed in terms of you looking to do deals with some of those live entertainment, you know, concert, event, stadium types of businesses? And how do you think about the durability and pricing of that sector? Thanks.

John?

Yeah, it's a great question, Chad. And I think you've heard us over the years talk about the sectors that we're looking at. And obviously, we've made investments in pilgrimage golf, indoor water parks, wellness, youth sports. I think you're asking us a question about would we make an investment in the live entertainment, real estate and facilities? I know you're asking that question about Las Vegas, but would we also, I think it filters out into the rest of the United States. It is a sector that we have been spending some time and better understanding. We love what has happened in the city of Las Vegas with the growth of sports and entertainment. we're better understanding the economics of what happens inside those big buildings. They're absolutely beautiful and the shows are great, but 10 days support our model and we're continuing to study that. And could there be an investment over time? There could be, but we want to make sure that the cash flows are durable and that the operator is a tenant that we want to be partners with for a long time. But it sure is exciting how Las Vegas has diversified its revenue stream and attracting new consumers by adding sports and entertainment, not just gambling and food and nightlife.

Appreciate it. Thank you very much.

And this concludes today's question and answer session. I would now like to hand over to Edward Petoniak for any final remarks.

Thank you, Carla. And we'll just thank all of you for your time on today's call and wish you one turning season over and enjoyable rest of the summer. Bye for now.

And this concludes today's conference call. Thank you for joining Human Outs. Connect your line.