Gaming and Leisure Properties Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2024

There are 17 speakers on the call.

Operator

Greetings, and welcome to the Gaming and Leisure Properties, Inc. 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

Joe Trifoni, Investor Relations. Thank you, sir. You may begin.

Speaker 1

Thank you, Maria, and good morning, everyone, and thank you for joining Gaming and Leisure Properties' Q2 20 24 earnings call and webcast. The press release distributed yesterday afternoon is available in the Investor Relations section on our website at www.glpropinc. Com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.

Speaker 1

Forward looking statements may include those related to revenue, operating income and financial guidance as well as non GAAP financial measures such as FFO and AFFO. As a reminder, forward looking statements represent management's current estimates and the company assumes no obligation to update any forward looking statements in the future. We encourage listeners to review the more detailed discussions related to risk factors and forward looking statements contained in the company's filings with the SEC, including its Form 10 Q and in the earnings release as well as the definitions and reconciliations of non GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer at Gaming and Leisure Properties. Also joining today's call are Brandon Moore, Chief Operating Officer, General Counsel and Secretary Desiree Burke, Chief Financial Officer and Treasurer Steve Ladney, Senior Vice President and Chief Development Officer and Matthew Demchak, Senior Vice President and Chief Investment Officer.

Speaker 1

With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Speaker 2

Well, thank you, Joe, and good morning, everyone. Well, we've had a pretty eventful quarter with good performance this quarter from portfolio companies and the actualization of some of the various projects that we've been working on for actually some time. We pretty well locked in the next couple of years of growth before anything else we might succeed in creating. You know that earlier this month, we announced an approximate $1,600,000,000 transaction with Vale's that we believe is a clear win win for our company and for Bally's as well. I'll skip reading through the details of that since it's well documented in my written comments on our press release.

Speaker 2

And I suspect that what we might miss, you'll find a way of asking us anyhow. So I'm going to let Desiree Burke highlight a few financial items. Thanks, Des.

Speaker 3

Sure. Thanks, Peter, and good morning, everyone. I'm going to hit the highlights of what we achieved in our P and L for the quarter as I normally do. So for the Q2 of 2024, our total income from real estate exceeded the Q2 of 2023 by $24,000,000 That growth was driven by the Tioga acquisition, which increased cash income by $3,600,000 the Rockford acquisition, which increased our cash rental income by $3,800,000 including the loan proceeds. The Casino Queen Marquette acquisition and the The cash, the Casino Queen Marquette acquisition and the Baton Rouge Landside Development increased cash income by $2,300,000 The Strategic acquisition increased cash income by $200,000 and then the recognition of escalators and percentage rents adjustments on our leases, which added approximately $4,700,000 of cash income.

Speaker 3

Lastly, we had the combination of non cash revenue growth ups, investment and lease adjustments and straight line rent adjustments, which drove a collective year over year increase of approximately $8,400,000 Our operating expenses decreased by $31,000,000 primarily due to the non cash decrease in the provision for credit losses. Our amended Penn Pinnacle and Boyd master leases had rent resets that occurred on May 1, 2024. These resets increased percentage rent by $5,900,000 annually. In addition, we received full escalation on these contingent leases, which resulted in $6,500,000 of additional rent annually. Finally, the amended Penn master lease is subject to contingent escalation on November 1 this year.

Speaker 3

And if obtained, we would get a full $4,200,000 of additional annual rent. Included in today's release is our full year 2024 AFFO guidance ranging from $3.74 to $3.76 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. The increase in guidance is primarily due to the closing of the strategic transaction. Our 0 coupon treasury bill matures in August of 2024 at an implied yield of 5.32% and our coverage ratios remain strong ranging from 1.94 to 2.66 on our master leases as of the end of the prior quarter.

Speaker 3

With that, I'd like to turn it over to Matthew for comments.

Speaker 2

Thanks, Desiree, and thanks to everyone for joining us this morning. History shows that periods of heightened volatility leads opportunity for those who are prepared. Our thoughtfully constructed portfolio of safe and durable cash flows combined with our continued commitment to balance sheet strength and liquidity along with our track record of capital markets discipline have set the stage for more opportunity. This past quarter, we again demonstrated our team's creativity to uniquely source and structure a multipart win win transaction with the recently announced Bally Chicago, Kansas City and Shreveport Investments along with the improvement of economics related to the Lincoln Call Rate. Our development team's confidence and input in the Chicago project combined with our creativity to open the door to opportunity as we offered another bespoke solution to Bally's.

Speaker 2

Over the course of the last 6 months, we've announced close to $2,000,000,000 of new investments with 4 different counterparties across the gaming world. We have done each of these deals with a healthy yield in an unpredictable macro environment. With the strong market share of all gaming real estate investments that we have demonstrated of late, we have further solidified our position as the go to landlord of choice within the gaming world. The flywheel effect has been to our benefit. Our pipeline remains healthy.

Speaker 2

With each deal, we have new and interesting case studies that encourage more conversations with our pipeline of potential investments. We remain focused on protecting and perfecting our existing cash flows as we continue our efforts to unearth opportunities for the prudent and thoughtful deployment of our shareholders' capital. With that, I'll turn the call back to Peter. Thank you, Matthew. That was a pretty good summary of where we find ourselves today.

Speaker 2

Couple of gratuitous comments, if I may. We at the time of our since the time of our spin,

Speaker 4

I get the question on

Speaker 2

the road all the time, where's your pipeline? What have you guys got coming next? And I always say unapologetically, we don't have a pipeline. It's something we create as we go. This last quarter and this last year, I think underscore the tremendous amount of work that we do.

Speaker 2

And just because we have a quarter, 2 quarters, even a year with no activity, if you look at what we've collectively done over these last years, it's been terrific. So we're quite proud of what we're accomplishing here. And with that, we'll pass it over to your questions. So, Maria, please open the phones.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Brad Heffern with RBC Capital Markets. Please proceed with your question.

Speaker 5

Yes. Thank you. Good morning, everyone. Obviously, a lot of capital commitments coming up between the bellies transactions, development funding deals and debt maturities. So can you just walk through your expectations for how and when all that will be funded?

Speaker 3

Sure. So the funding needs for the transactions we recently announced with Bally's will be staggered over the next couple of years. As we've done historically, we intend to fund the transactions with both the mix of debt and equity. Our balance sheet gives us a lot of flexibility with our leverage below 4.6 times and our $1,750,000,000 revolver currently undrawn. With our Q2 10 Q filed and the financial results announced, obviously, we'll be actively monitoring the capital markets to take advantage of any opportunities to lock in capital at attractive rates for both of these transactions as well as other upcoming capital needs, including our debt maturities that we have coming due.

Speaker 5

Okay, got it. Thank you. And then Peter, you've historically been somewhat bearish on the Illinois market. Obviously, you're making a very large investment there now. I'm just curious, what is it specifically about this asset, or what changed in your thoughts around that market that make you comfortable with that?

Speaker 2

Well, this is a big time project that is going to be pretty impressive. I mean, obviously, we have some knowledge of what is planned there. And I think we've had some material impact assisting the strong Bally's team in coming up with something that makes a lot of sense. The key to any like this is on budget, on time. I think we've had a pretty good track record over the years of accomplishing that.

Speaker 2

Look, we've looked carefully at the market and the competition and so forth and look despite that and some of the more egregious things that in years past that our former Governor Rod Burgoyneve, that's used to promulgate things of look, it's tax increases are not good. But I think we feel pretty confident in this project. We've spent a lot of time looking at it. We like the sponsorship with Bally's. We'll have a seat at the table in assisting and I hope helpfully creating the project that is going to be successful.

Speaker 2

So we feel pretty good about it. And I think the range of outcomes, I think, in any case for us is very, very strong.

Speaker 5

Okay. Thank you. I mean, we're

Speaker 2

doing business in our tenants are doing business in Illinois now. None of them have died. So I mean, they're surviving. So in any case, business is being done. We're being supportive as you know for Ben with the with the land side move with Joliet and Aurora and pleased to do that.

Speaker 2

So we're not afraid to invest money in the state.

Speaker 5

Okay. Appreciate it.

Operator

Our next question comes from Jay Kornack with Wedbush Securities. Please proceed with your question.

Speaker 5

Hey, good morning. As we think about Bali's as they continue to become a larger tender for you, there's a headline yesterday that they just accepted a buyout offer from Standard General. And I wonder if you see that translating to any changes in plans or strategies you currently have with them or changes how you think about credit underwriting with them, just any comments from that standpoint?

Speaker 2

I'm going to ask Brandon Moore to take that question, but he

Speaker 4

can't wait. Yes, I was excited for this one. Look, I mean, I think first off, we should let you know, we know what you know about the Bally's go private transaction. And we've known what you've known. So we haven't been under the tent in that transaction at all.

Speaker 4

But I will say, look, we look at that transaction, we're looking to understand more about it. But overall, I don't think it changes anything with Vale's today. So we have not just made clear, we've not been approached by Vale's or Standard General to make any changes to our leases, to make any alterations to the existing documents we have in place. I'm not saying that might not happen, but it hasn't happened to date. And so for us, it's business as usual, but we're waiting to carefully take a look at the control transaction structure when it's announced and it comes out.

Speaker 4

And I think we'll try to strike a balance between what's best for our shareholders and what's viable for the tenant as we continue to negotiate the definitive agreements that will ultimately spell out the transaction terms for the term sheet that we've announced. And so I think there'll be a lot more to come on that, but we're optimistic. We work really hard here to get into transactions, not out of them. And we think that this will be a positive transaction and we still think that the path that we've set forth in the term sheet will be the one we'll ultimately take. But obviously there's a lot we have to learn at the same time you do.

Speaker 2

Yes, Jay. And our underwriting was very focused on having a good basis in the assets. I mean, we're aware of the public nature of the potential take private at the time. And if you look at the coverage on the sale leasebacks in Shreveport and Kansas City being at 2.2 where the basis in Chicago being with some margin to safety relative to the construction cost, we're happy with that basis. We didn't rely on any greater support or anything else beyond those things that give us comfort.

Speaker 5

Okay. I appreciate that. And then just maybe one more, I know big picture on the transaction market as the seems poised to lower rates and we've seen the 10 year start coming down recently. Are you already seeing, I guess, increased interest and conversation from casino owners who have been on the sideline in the past year and maybe waiting for cap rates to come down or is it too early for that to start happening?

Speaker 2

I don't think I'll take a shot at that. I don't think anybody sitting on the sidelines. Every transaction has a reason for occurring. Sometimes it's in a state reason, sometimes it's a liquidity reason, sometimes Lord knows what might drive somebody to make that choice. I don't think anybody is sitting in this, I'll go that far, sitting on the sideline waiting for a better day so that they can move their asset.

Speaker 2

These things evolve over time as you've seen. We could never have foreseen the opportunity to own the Kansas City asset or the Shreveport asset or none of these things were foreseeable. They evolved out of other needs of our tenants. Bally's in this case, Bally's is a company on the move. Soo Kim is a creative and innovative guy who is focused on building a great company.

Speaker 2

We're thrilled to be his partner in these transactions. So it's that term I think somebody here used to use like hanging around the hoop. That's what we have to do. And that's what we do, do. So I don't think there's anything special that has changed.

Speaker 2

These things just happen when they happen and we always have something in the mix. So wish I could be more precise, but that's pretty much the story.

Speaker 5

Okay. Appreciate the thoughts. That's it for me.

Operator

Our next question comes from Barry Jonas with Truist Securities. Please proceed with your question.

Speaker 6

Hey, guys. Can you talk a little bit more about your level of input now in Chicago for construction and design? How important is this for you? And is this a formal or informal role? Thanks.

Speaker 4

Yes. So we're in the process of negotiating the definitive agreements including the development agreement on the Chicago project. But needless to say, we'll be taking an active role as that project continues. So we'll be as we've said in that, we'll be financing or funding the construction of the improvements and owning the improvements. And as part of that process, we'll be keeping a close eye on the budget, the plans and specs, the construction timeline, the construction documents, all those things.

Speaker 4

We expect Vale's to be on the front line of all those. But we'll be very closely behind and I think we're aligned. And I think this is just another example of we provide a resource to them as someone that has done these projects before successfully and we have internal resources that we can bring to bear to help ensure that the project is delivered on time and on budget. And we intend to do that. We would I don't think we ever would have entered into this project if we weren't confident that we could have a front seat and make sure that it gets done along the timelines and budget that we've underwritten.

Speaker 2

And we're providing resources to do just that. So Vale has a great team in place. We're adding to that with some of our skilled players as well. We have a terrific track record. I'm not going to wood when I say that because every project is brand new.

Speaker 2

But we feel pretty good about our ability to provide strong assistance in this case, both design assistance, construction, so on and so forth. We've done it.

Speaker 4

Yes. And I think as you probably saw in the deck that we put out in conjunction with the term sheet, the design of this project has changed dramatically from the project that we first looked at a long time ago to the project that we announced. And we had a pretty significant hand in the redesign and development and structuring and programming of the project that you currently see.

Speaker 2

Yes. I've reassembled some of my old team over across the street at Penn. And you all know that we have built many casinos from ground up. But this is not new territory for us. And we're putting some muscle on the front line here.

Speaker 2

So we feel pretty good about it.

Speaker 6

That's great. And then just for a follow-up, M and A is clearly happening with Valley and Casino Queen and there's more M and A being speculated for some of your other tenants. So can you just remind us what your rights are in the event someone new assumes a lease or else if the lease is broken up for new parties? I believe there's some specific criteria, but it might just be helpful to talk about it here.

Speaker 4

Yes, I can in general terms, our leases, if you want to break them up, will require the consent of GLPI. So if you want to take assets out of the lease or split the lease into multiple leases or push them to new tenants, that will all require a conversation and approval of GLPI. The leases do have in them, generally speaking, some flexibility for tenants to transfer to what may be certain pre established thresholds, then we would not be able to withhold our consent to that. So I think the answer is it depends. If you're not going to change the structure of our leases, the rent, the portfolio and you're going to another large operator, you might not need our consent.

Speaker 4

If you want to do any of those things, you probably do.

Speaker 6

Got it. Okay. Thank you.

Operator

Our next question comes from David Katz with Jefferies. Please proceed with your question.

Speaker 7

Hi, everyone. Good morning. Thanks for taking my questions. I think you answered the first part of what I wanted to ask about is with respect to your seat at the table on Illinois. So I'd like to pivot to Tropicana Las Vegas.

Speaker 7

My impression is that Vale is exploring alternatives as to how to create value out of that property. And just common sense resources is them redeveloping it themselves seems a little reachy. And so I'd love for you to comment on your boundaries, given that you've taken the step now of getting involved in Chicago in a new way. Just help us think through what could happen with Tropicana? Thank you.

Speaker 2

Yes. I think the quick answer is that you really ought to talk to Bally's about that. They have taken a pretty active lead role now in the process. I'll call it the process there in Las Vegas. Pretty clear to us that the stadium will likely be built and that the design will work in conjunction with what planning that Bally's is doing at the site.

Speaker 2

We have provided some input there. We do know a fair amount about what's going on, but I'm reluctant to comment on a project that is essentially theirs. Now look, we've got a big seat at the table since we own the ground and want to see something long term valuable place there. But I think they've assembled a team now. Architects, again, I'm very reluctant to comment, but I am happy with what they're now doing at that site.

Speaker 2

They've got a 1st class team assembled architecture design, land planning and so forth. And I think feeling pretty good that that is going to head in a good direction. Brandon, do you want to add anything to that?

Speaker 4

Yes. I'll just add. I still think despite what people may be reading in some of the press that this project is still largely on schedule. So as Peter said, Vale has developed a strong team of professionals that have a lot of experience in the Las Vegas market, which is crucial and particularly on the Strip. If you're going to build a project that is going to be successful out of the gate, it's tricky.

Speaker 4

This is not the same as regional development. And when you put that in conjunction with a stadium site, this needs to be carefully planned. But I would say we're pretty confident in the team of professionals they put together, but still too soon for us to know what kind of role we might want to play there. And so as you look at Chicago, I think this is several steps behind. And then it's too premature for us to really evaluate the project and determine for our shareholders whether or not it's prudent for us to invest capital into that project.

Speaker 4

But the As are moving forward on their timeline at the moment. They've had a lot of progress at the Stadium Authority and some very public meetings recently where they're clearly making progress. They're working simultaneously to get into their entitlement process and things. And so while I think the timeline remains tight and the A's will probably say that time is of the essence. I think this is still a project that can get delivered on time and we're still optimistic about the potential there.

Speaker 2

Yes. Look, I think Valley's primary focus was Chicago, period. That is my sense. And it took a little while for them to turn their full attention to Las Vegas. But I know for certain that they've assembled a Class A team of professionals.

Speaker 2

And I know sitting around this table, we feel a whole lot better about what they're working on. So, I'd say stay tuned, talk to Vale's, and I'm sure they'll be happy to tell you kind of where they find themselves.

Speaker 7

Just one quick follow-up, if I may. In there, there was some reference to it being on schedule. Can you remind us what that schedule is or means?

Speaker 4

Well, I think on schedule at the moment, the demolition needed to be completed by I think it was roughly April of 25 or something. I think we're clearly on target for that. If you've been out to Las Vegas, you'll see all the low rise buildings are now gone. They've stripped the towers. So that part of it is in line.

Speaker 4

The part of it that's a little more squishy is the entitlement process. And as you all know, if you've developed that can go fast or that can go slow. You got to get into the meat and potatoes of that to really know where they are. But I think they still believe, where they sit today that the way things are moving, they can still get started when they wanted to get started. So, from our perspective, would they like to moving faster?

Speaker 4

Yes, I'm sure any developer would like to be moving faster. But the progress is being made on the site. And clearly, if you've been out there, you would see that. I get the sense

Speaker 2

too listening to our reports of their team that the city is very supportive of this whole project and anxious to make it happen sooner rather than later. So I think there's a positive vibe out there around what's going on. And if there was any delay in the past, I think frankly that is now over and it's full speed ahead.

Speaker 7

Understood. Thanks a lot.

Operator

Our next question comes from Pandal St. Jude with Mizuho Securities. Please proceed with your question.

Speaker 8

Hey there. So just one for me. My question I guess is on the underwriting of the Bally Chicago project and what gives you, I guess, confidence in your 2 to 2.5 times rent coverage projection for that asset? It looks like the temporary casino there has missed a number with the initial targets. Thanks.

Speaker 9

Yes. Look, this is Steve. Thanks for the question. I think we go through an extensive underwriting process on every transaction, whether it's a traditional sale leaseback transaction, like the other the Kansas City, Shreveport part of this overall deal or a brand new development project. And so with respect to the brand new development project, obviously, we have to get comfortable from a construction standpoint that we can bring the project on time and on budget.

Speaker 9

But more importantly, the budget is somewhat predicated on what's the ultimate profitability and the opportunity that exists in a market. And so every market as you would have guessed is different. In this particular instance, all of our underwriting that we've done plus stuff we've done with 3rd parties, all kind of triangulated to the point that we think this property can be very, very successful. And when we look at this, our takeaway is that rent coverage is going to be probably north of what we put in that presentation. But at the same time, I think we feel very, very comfortable that 2 times is a completely realistic and acceptable outcome here.

Speaker 9

And so that's really how we look at this. That's how we get comfortable. It's somewhat how we dictate how much we're willing to or not willing to spend ultimately on the construction project. We have no desire at the end of the day building a project to see a rent coverage that is not adequate and the coverage that's not adequate. So we want to provide long term security and stability to our cash flows and that's how we've gone about this.

Speaker 2

Yes, let me add that we believe that this will be a landmark and I use that advisedly, a landmark project in the city of Chicago. One of the great hotels, one of the great casinos in the market by far. So we have we see a tremendous opportunity here and that's part of the skill that I think we add to the process that they're undergoing right now. I could tell you lots more about it, but I think that better comes from Vale's. So I underscore that again.

Speaker 2

The goal here is to create nothing less than a landmark project in the city of Chicago. Very helpful. Thank you.

Operator

Our next question comes from Mandeep Rose with Citi. Please proceed with your question.

Speaker 10

Hi, thank you. I just wanted to go back a little bit to one of the first questions talking about the capital commitments and the funding. I know you said it would be staggered over the next couple of years. But could you just say sort of at the end of the day kind of how you would like to see the mix of equity versus debt? And I guess particularly on the equity side, I mean since you will be issuing a lot of equity, presumably to fund over $2,000,000,000 of activity here, how do you think about it relative to at least consensus NAV or your internal NAV estimates?

Speaker 10

You just issued some after the quarter that was below at least consensus NAV. There doesn't seem to be a forward equity program in place. So maybe you could just talk a little bit more besides just seeing that it would be staggered, but kind of how you think about perhaps flexing the balance sheet more in the near term if you're not getting to equity pricing would be like and just some color around that?

Speaker 3

Yes. And I think to answer your question, Smedes, it really depends on the capital markets and what we find attractive in both the debt and equity markets. Our balance sheet is so strong. We have a lot of flexibility on which way we intend to raise capital. And it really depends on the pricing that we're receiving and the transactions that we price.

Speaker 2

Yes, high levels Smedes, our balance sheet philosophy remains the same. Over a long period of time, our goal is to be in the 5 to 5.5 net debt to EBITDA range. We've kind of hugged the bottom of it over time and that might be the sweet spot over the long term. But just expect us to be thoughtful, measured and balanced as we have been historically. To use an old term, the proof is in the pudding.

Speaker 2

I think we've proved kind of what our commitment is to the kind of balance sheet that we want to have.

Speaker 10

So you could expect that

Speaker 2

all the same.

Speaker 10

Okay. And then I just wanted to ask you too on the land purchase in Chicago, do you have a sense of what the timing is on that? Or are there any particular hurdles that you need to overcome to finalize that transaction?

Speaker 4

I'd say SMEs customary hurdles. So by that I mean typical due diligence, title survey, Phase 1, all that kind of stuff. So we have an agreement in place to acquire that land and we're running through the hoops that we need to take ownership and title to that property. The Blue Owl team has been a good team to work with. I will say very professional and helpful and we appreciate the partnership we had with them and reaching an agreement to acquire the land.

Speaker 4

And as soon as we're able to do it, we'll do it. But there's obviously a few hurdles you got to jump through to acquire real estate of that nature and we're working on that now.

Speaker 10

Okay. Thank you.

Operator

Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Speaker 11

Hey, good morning. So we recognize rent coverage is still healthy at most of the casinos. But what are your thoughts on cash flow and profitability at Bally's, especially after going through transactions adds a bit more stress to that company's cash flows, plus you got to take private stand in general, which might be adding even more debt. So what are you thinking about cash flows there and potential options if the parent runs into a problem?

Speaker 9

Yes. Look, I think we can't comment on the go private transaction. As we've stated, have the same public information as everyone else. With respect to general commentary around Bally's or any of our tenants, you can see in our press release where the rent coverage is of our existing Bally's master lease, it's significantly covering. It's in excess of the two times.

Speaker 9

So I think our, I guess, position, belief, underwriting thought and process historically has always been that we have comfort when we have assets underwritten in such a way that they're covering like that, that someone else if not that tenant, would willingly step in and operate those assets and take that profitable position, if in fact there was any issue. And I think that's not a Bally's answer, that's an answer for any of our tenants in any of our leases. If our lease is underwritten and covering north of two times, we're very confident that someone will be happy to clip half of the cash flow and operate those assets. So that's the way we look at it. I think that's the way we continue to look at Vale's.

Speaker 9

And as Matt mentioned earlier, with respect to this broader transaction, we had the same information as everyone else that there was a go private offer in the market when we underwrote this. And we decided that based on the rent coverage and the profitability, we were very comfortable moving forward with the transactions that lied ahead.

Speaker 2

It's one of the reasons, Matt, I know you've always wanted to emphasize 4 wall coverage, Because again, these things in the end standalone, they're not going anywhere, they're not going to close irrespective of what could happen at a parent level. So it's nice to feel good about what that individual property is doing. It will always have a home.

Speaker 11

Right. And I guess in regards to the rent coverage, those numbers have generally declined over the last several quarters. Is that representative of some natural give back of margin gain during the pandemic? Or are we seeing some broader shift from customers away from regional gaming where we've seen kind of some pressure on GGR lately?

Speaker 3

Yes. I mean, they've declined by a few basis points, nothing significant. We're not seeing a major issue in any market whatsoever. And I do think there's a little bit of give back still from the highs after the COVID pandemic. But I look, we are operating at stronger margins than we had even before that, so in 2019.

Speaker 3

So the coverage ratios, we feel very confident in. And yes, they're going to move a few basis points here and there. Some actually went up, most went down a few, but there were a few that went up.

Speaker 11

All right. Thank you. Last one for me is just on Lincoln. That still requires debt holders to approve that transaction, correct? And has there been any progress on that front?

Speaker 4

You'd have to ask Vale's that. I think the answer to your first question is yes. The answer to your second question, you'd have to ask Vale's that. My guess is that the go private transaction that they just announced and what they've been working on could have some bearing on that. I don't know.

Speaker 4

But for us, we look at the timeline for the acquisition of that property and the renegotiated purchase price for that property. We're pretty happy where we sit. And we're confident by the end of 2026 that that valleys will have that sorted out in a manner that will permit us to own that property.

Speaker 11

Okay. Thank you.

Operator

Our next question comes from Daniel Guglielmo with Capital One Securities. Please proceed with your question.

Speaker 12

Hello, everyone. Thank you for taking my questions. The team always seems focused on risk adjusted returns. And I was just curious, what are some of the main risks that you all think through when doing these high capital and longer term deals?

Speaker 2

I'll start. First of all, you brought up timing. So what's the cost of money over time? Number 2, when you're related to development, what's the timeline? What's the risk of that timeline shifting?

Speaker 2

What's the risk of the cost shifting? What's the risk in the market. I mean, hopefully you get the combination of our master leases with the Dowleys deal in Chicago, our involvement on the development side and then having support from our superstructure of our leases help mitigate these risks. I mean, the vast majority of all of our assets are in master leases with strong coverage. And it really comes back to the point Peter made.

Speaker 2

I mean, these are mission critical assets for state budgets, especially in limited license states. So at the end of the day, if you get the right basis, which is incredibly important to us and the right rent level based on the long term productivity of the assets, you've solved for the vast majority of the pieces that are important. And that's not an easy thing to do. I mean, you look at Chicago effectively, instead of being a takeout, we moved up the value chain and got involved early and we're able to lock in through this transaction a very favorable basis. And given the population, the density and the opportunities for that asset in that market, we're very comfortable with our basis there, regardless of how the world plays out over the next many decades.

Speaker 2

That's the thought process. But it really comes down to having a margin of safety in each piece of our structure to make sure it makes sense. And then making sure we've got the right spread to your point to our cost of capital and then ultimately locking that in, in a prudent thoughtful and balanced way over time.

Speaker 4

I think in addition to that, we do and Matt touched on it, we do a pretty in-depth look at the markets. So these are this is a game of chess now in gaming, it's not checkers. You have to think about what's going to be happening in adjacent jurisdictions. And not only in adjacent jurisdictions, but the jurisdiction you're in. Limited license states have shown a propensity to increase licenses.

Speaker 4

And so you have to be cognizant of those things. And we're underwriting not for the 5 year timeframe or a 7 year timeframe, but we're trying to do it for a 30 year timeframe or a 40 year timeframe. And so we're trying to take in all information we can get about all those different things in the market and trying to underwrite a prudent transaction. And clearly, if you can do it as part of a master lease or something like that, you've increased the level of safety you have over time. But it is an in-depth research we do and we do use outside vendors to look at those markets and things before we do any transaction.

Speaker 2

Yes. And part of it too, we bring our own skill and experience over many years of just understanding what the risks are, what the adjacencies that threaten us might be on and on. And we bring in, as Brandon says, outside resources to further give us kind of data that helps us in that analysis. I think in addition, what you see in our transactions is,

Speaker 4

I think in addition, what you see in our transactions is, as Matt touched on, there's a margin of safety. We try to do healthy rent coverages because we understand over time, tenants need the flexibility and the ability to grow and to build their business. And we try not to put too much pressure on that with the rent right out of the gate.

Speaker 12

Great. Yes, I really appreciate all that detail. And just as a quick follow-up, in general, did the return hurdles for other potential deals go higher when you do have a full plate of capital commitments or do you try and make the funding work if a deal meets your standards?

Speaker 2

The latter. We try to make the funding work if the deal meets their standards. We spend a lot of time. Some of these deals are many, many years of effort put in, so we wouldn't be able to walk into gum.

Speaker 12

Great. Thank you. Appreciate it.

Operator

Our next question comes from Ronald Caintic with Morgan Stanley. Please proceed with your question.

Speaker 8

Hey, just two quick ones. So going back to Lincoln and being able to sort of reduce the purchase price, is that was that just a unique situation for this deal? Is that something that you guys have thought about before or could look to do in the future and in other situations? Just trying to get a sense of how much is just the idiosyncratic to this transaction versus could we see this happen in other parts of this market?

Speaker 4

I think with respect to Lincoln, look, it was part of a broader negotiation that related to Chicago. And I think over the course of time since we first entered into that transaction agreement, obviously, cap rates in the world have moved. And so we're still very interested in acquiring that property. That's a marquee asset in that market. But we were more comfortable doing it at an cap rate at this point than we were at 7.6%.

Speaker 4

And so as part of the total package of the Chicago negotiations, that was just part of it. We were in a unique circumstance there to better our position. If we have circumstances and chances like that in the future with tenants, sure, we might do that. But I don't think there's anything necessarily on the horizon that we'd be seeking to renegotiate with any tenants. That was just unique to this transaction.

Speaker 2

Yes. And I don't want it to appear predatory or taking advantage of the situation. These relationships are holistic and I think establishing a relationship with a tenant that is good for them and good for you And having a tenant by the way who is mindful of what is good for our company at the same time and open minded about a balanced transaction is hugely important, terrific. And we're very thankful that we're dealing with a partner like that in Bally's.

Speaker 8

Helpful. I guess my second one was just on the guidance range. Any chance any color on just the pieces of the raise? Is it all the transaction? Anything changed on the financing side?

Speaker 8

Just any broad strokes on just de compacting that guidance raise would be helpful. Thanks.

Speaker 3

Sure. I'm going to mostly talk about the high end of the range, but it's all due to the strategic transaction. Clearly, we raised the ATM proceeds and we'll invest that in cash and have some interest income, but that gets a little bit offset by the share count increase obviously. So it's really on the high end related to those proceeds going up as well as mainly the strategic transaction. And then on the low end, it's the exact same thing.

Speaker 3

It's the strategic transaction as well as the proceeds being vested. And then also we had different assumptions for the percentage rent adjustments on the low end than we did on the high end as well as some different assumptions on interest expense.

Speaker 8

Great. Thanks so much.

Operator

Our next question comes from Shaun Kelley with Bank of America. Please proceed with your question.

Speaker 13

Hey, good morning, everyone. Peter, I wanted to build off of, I think, comment you just made and it goes back to, I think, Barry's question much earlier in the call. But a lot of the conversation here has been about M and A as it relates to Bally and the privatization offer. I'm curious about kind of the rest of the tenant base and obviously really your major tenant where there's been a lot of M and A speculation too. So big picture question is sort of how favorable or amenable are you to let's call it, larger scale consolidation, especially when it impacts GLPI?

Speaker 13

And then if one of these transactions would require particularly meaningful divestitures, how are you kind of trying to protect GLPI's interest in a case like that?

Speaker 2

Well, let me say at the outset, it wouldn't surprise anybody that I like it the way it is today. They are tenants. They are reliable. Their business is highly profitable. Their operating business is highly profitable and everything works.

Speaker 2

So I would look with a jaundice dive towards anything that could upset the apple cart of what we have here. We like our cross collateralized leases, would be very reluctant to see anything change. And so I am not well disposed to, but we'll do what we must. Look, in the end, it will be what's good for our company here, period, period, period, period. So, we'll have to see.

Speaker 2

I'm not going to speculate on what might or might not happen, but we would look, speaking just for me, not particularly favorably and anything would break up our beautiful arrangement.

Speaker 4

Yes. Look, I mean, I think what we don't know and we haven't been approached by is anybody presenting anything to us and what it is. And I think if and when we see that, as Peter said, we'll do what's in the best interest of our shareholders and our company and we will have some opportunities if people want to break up leases. Could we transition that into something that's good for our shareholders? Absolutely.

Speaker 4

Yes, absolutely. We might be able to do that and we'll look to do that if we're presented with that kind of situation.

Speaker 9

And we did that. If you go back, look historically at what that. It didn't require our consent and we did extract some value for that for our shareholders.

Speaker 13

Thank you all for entertaining that one and giving some detail. My follow-up would be going back to Chicago and appreciate a lot of angles have been approached, but mine's pretty simple, which is obviously, I think part and parcel of this transaction is making sure that the project as you structured it is now fully funded as it relates to the overall stated budget. Oftentimes, these urban developments in particular have a bit of a history of struggling with budget overages and there's a lot more complicating factors when you're vertical and you're dealing with I think urban landscape. So the question here is pretty simple. If we were to run into bigger overages on a budget that maybe you've experienced in other regional projects, What's kind of the make hole for that?

Speaker 13

Where does that extra funding come from? And how protected are you if we kind of get to the latter stages of this? And again, there's material dollars here that still need to be found to get a project like this over the finish line and cash flowing?

Speaker 2

Well, let me say at the asset, we're not obliged to provide it. We're not obliged to provide it. And look, I spent a lot of years in the construction business and I like to say that if a project doesn't make sense on paper, it certainly isn't going to make sense when you actually put it in the field. So that having your advanced work done thoroughly, completely and with as much certainty as possible is how you best protect yourself. We're involved right now and Jim Baum who's with us not on this call, but I suspect is listening The Head of Construction at Penn and he and I did a lot of projects together over time, all of which were on time and on budget.

Speaker 2

Jim is spending a fair amount of time, I haven't seen him around the office much because he's out in Chicago, working on this project to make sure we get it right upfront. So there is no certainty. We recognize the difficulties and the challenges, but we're putting a lot of advance work in to make sure that we know what we got.

Speaker 9

Look, I think that to maybe add to it, as Peter mentioned, we in part of our transaction negotiated that we were not responsible for any expansion of the budget. I will say there's obviously a $735,000,000 solution that's available, if there was in fact a budget problem and Bally's was responsible for it. So, if you're not following what I'm saying, Lincoln can be acquired. That's negotiated $735,000,000 So we feel comfortable that there are adequate safety nets if in fact there was an issue. But I will also mention this unlike some of the other urban projects which have been retrofits into an existing building, which is always fraught with unknowns.

Speaker 9

This is going to be a scrape site. So we do feel that that provides some additional comfort to us that we know what we're starting with, which is nothing.

Speaker 8

Thank you very much.

Speaker 2

And part of our job right now is to help Vale's make sure that they don't run into that problem. And that's why we're spending a lot of time right now in the design phase and the planning phase to make sure that we know exactly what this is going to cost and what the product is going to look like.

Speaker 4

Yes. And finally, I'll just add in underwriting this, there's quite a bit of contingency built into the numbers that we've underwritten. And so while that may not solve all hills, we have not been we've been cognizant of the fact that this will be a tricky Thank you very much.

Speaker 13

Thanks very much.

Operator

Our next question comes from Robin Farley with UBS. Please proceed with your question.

Speaker 14

Great. Thank you. One of my questions have been asked already. I guess just taking a step back and after, as mentioned earlier, a lot of periods where you had to explain the lumpiness of transactions and that investors had to sometimes be a little more patient. Would you say that your plate is pretty full now in terms of do you have bandwidth or would you be looking to do additional transactions at this point or would you really be sort of mostly focused on digesting a lot of the opportunities that are some of which may not be announced yet, right?

Speaker 14

But maybe some of the things that are more obviously happening for you in this next sort of 2 year period?

Speaker 10

If we need

Speaker 2

a bigger plate, Robin, we'll get a bigger plate. It's not remotely filled, not remotely filled. Look, each transaction stands on its own. We have announced a couple that we're more actively involved in as opposed to a straight up acquisition. But, no, I don't think so.

Speaker 2

We haven't seen the horizon yet. I don't know if anybody else have a

Speaker 9

comment about that. The market remains strong and we continue to look at and have lots of conversations. So while opportunity presents itself, we are inclined to grab the opportunity when we can in a thoughtful risk adjusted way and look to continue to climb forward for our shareholders and increase our dividend as we go. So we're looking to continue to grow accretively.

Speaker 2

But emphasize we're kind of where you started Robin. There's no rush. There's no transaction we have to do. We feel no pressure to at least I don't. And I've said that time and again to do anything.

Speaker 2

There's no deal we have to do. We'll do it if it makes sense. I think it makes sense for our shareholders. It's as simple as that. As I uncharmingly have said, any moron can do a bad deal.

Speaker 2

It's not hard. We don't want to be on that group.

Speaker 14

Great. Thank you for the color.

Operator

Our next question comes from Chad Vanan with Macquarie. Please proceed with your question.

Speaker 15

Good morning. Thanks for taking my question. Peter, has anything changed in terms of non gaming opportunities? As you just mentioned, your plate has certainly been full and you've had some great announcements year to date. But wondering kind of where the conversation scale lies between gaming conversations with current and potential partners versus non gaming?

Speaker 15

Thanks.

Speaker 2

Well, my answer hasn't really changed. We would look at other things if anything matched kind of the value and the certainty and all the things we have in the gaming world. We're not close to that. We just haven't seen anything that grabs us and that hasn't changed one way. And so long as we can keep doing the kind of transactions that we've announced, and the kind of yields that we're talking about, we'll continue down that road.

Speaker 2

But it's really Iacocca thing, if you can find a better car, buy it. If I could find a better deal, we'll take it. But so far, we're going to stick to our knitting. And that's really the same answer that I've been providing for the last decade.

Speaker 15

Okay, thanks. And then another kind of high level follow-up last night on one of your partners' earnings calls. They talked about doing some projects at some properties, maybe these would have been done during the COVID time period, so they're slightly deferred. And that got us thinking that maybe there's a lot more out there just in terms of building additional hotels, convention centers, something adjacent to these properties. Do you think that this could be another wave of growth in the gaming space?

Speaker 15

When you talk to your partners, is this something that maybe you could help finance in the future? Just kind of thinking out loud after hearing that comment last night. Thank you.

Speaker 2

It's a good question. And the answer is we're already doing that. As you're seeing with Bally's and we're doing it with Penn. We're always ready, willing and able to put money to work for a quality project. And there's a number of those that we're looking at and will undoubtedly do right now.

Speaker 2

So, yes, no, I think it's terrific. Existing tenants are a good source of future business. And I know, for example, Penn has a number of announced projects, some pretty sizable projects in Las Vegas and Ohio and so forth and Illinois, 2 big projects in Illinois, land side as we've done very effectively in Louisiana. Look, so I think it's terrific opportunity for us.

Speaker 15

That's great. Thank you very much, guys.

Speaker 10

Thank you.

Operator

Our next question comes from John DeCree with CBRE. Please proceed with your question.

Speaker 16

Good morning, everyone. Thanks for taking all the questions. Maybe just one, thinking a little further out about the New York City casino licensing process that's underway and seems like it's taking its time. But if we look at Chicago and the template for financing that you've provided there, Peter or anyone curious on your views on how you look at New York, if you would look at it similarly, obviously, I think Bally's is in the mix. And so every market is different and I think we're still waiting for some cards to turn over.

Speaker 16

But curious your views on the New York process and potential appetite to participate in financing if an opportunity were to come up and maybe how active or aggressive you might be in that market?

Speaker 2

The appetite is huge. I'm going to turn the answer over to Steve.

Speaker 9

Yes. We've had conversations with more than a handful of parties that are actively looking to potentially pursue licensing there. I think we continue to find the marketplace to be extremely interesting and intriguing and expect it to be very profitable for those that ultimately win the Golden Ticket. So with that said, with respect to Bally's, which I think you had brought up early in that question, we do have a roafer in the state of New York. We've not had any intimate conversations around their project, just higher level.

Speaker 9

But I think at we like I said, we've talked to a number of the people involved and I think everyone's interestingly awaiting the green light to move forward and we are happy to continue to have conversations with folks around it because we do think there's a huge opportunity in the state of New York. Thanks.

Speaker 16

Maybe a follow-up, I didn't realize it's probably tough to answer, but timing context to the extent you can or would care to qualify shovels in the ground pretty much ready at the facility in Chicago at this point. I mean, how soon in a process would in New York might you be asked or be willing to kind of provide something a little bit more substantial other than conversations in terms of financing. I'd assume you'd have to probably wait for economics to be released. But just curious if we look at Chicago as wait until project is almost ready before you were involved in or could you get involved quite a bit earlier?

Speaker 9

I don't think I'll speak for myself. I don't think we have a good enough sense of timing in New York. It continues to move and bob and weave. And so I think I personally don't have a good understanding of kind of where that process will actually land, not where it's currently contemplated, but where it will actually land and what the ultimate licensing and permitting and zoning and all that fun stuff will curtail and what the timing will ultimately be. So I couldn't possibly even try to guesstimate when all those things would come together and nor would I or any other institution probably be able to with specificity know what pricing on any type of thing would be.

Speaker 2

Yes, the gating factor for us is can we find a risk adjusted return that's attractive. And the one thing that rhymes with Chicago is oftentimes that comes from being the known entity and quantity and having dialogue earlier in the process versus showing up at the end. That's one of the ways we've been able to monetize some of the the we're going to have to cut the call now at this hour. We have another obligation. I would say to any who may have missed out on the question, please contact us here.

Speaker 2

Any one of us is available to speak with you and we look forward to it. So if we've cut this off at a time and left some people waiting, I apologize that we're going to have to move on to another scheduled call. So, Maria, would you please affect that?

Operator

Of course. This now concludes our question and answer session. I would now like to turn the floor back over to Peter Carlino for closing comments.

Speaker 2

Well, that was it. And we thank you all for being here. And from our point of view, we've got a lot of exciting stuff happened and I hope we've shared a little bit of that, our feeling about that. Thank you. See you next quarter.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Gaming and Leisure Properties completed an approximate $1.6 billion strategic transaction with Bally’s, acquiring interests in Chicago, Kansas City and Shreveport and entering a development agreement for Bally’s Chicago casino.
  • Total income from real estate in Q2 2024 rose by $24 million year-over-year, driven by acquisitions (Tioga, Rockford, Casino Queen Marquette, Baton Rouge landside) plus lease escalators and percentage rent adjustments.
  • Operating expenses declined by $31 million in the quarter due to a non-cash reduction in credit loss provisions, and amended master leases with Penn, Pinnacle and Boyd added over $12 million of annual rent from resets and escalations.
  • Full-year 2024 AFFO guidance was raised to $3.74–$3.76 per diluted share and OP unit, before the impact of future transactions, reflecting the strategic investment with Bally’s.
  • Balance-sheet strength remains intact with net leverage below 4.6x, an undrawn $1.75 billion revolver and coverage ratios of 1.94x to 2.66x on master leases as of Q1 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Gaming and Leisure Properties Q2 2024
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