VICI Properties Inc (VICI) — Q2 2019 Earnings Call Transcript

Thank you, operator, and good morning. Everyone should have access to the Company’s second quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should, guidance, intend, projects, or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the Company’s SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the Company’s operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2019 earnings release and our supplemental information. Hosting the call today we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; and Gabe Wasserman, Chief Accounting Officer. Ed and team will provide some opening remarks and then we will open the call to questions. With that, I’ll turn the call over to Ed.

Thank you, Samantha. Good morning, everyone, and thanks for joining us on our Q2 2019 earnings call. The second quarter of 2019 has proven to be another extremely busy quarter in VICI's short history. In a moment, John will recap our Q2 growth activities, and David will recap our Q2 financing activities and financial results. But before we get to that, I’d like to spend a moment putting our Q2 activities and results into the context of what we’re striving to achieve over the long term for our shareholders. VICI is now almost two years old and we have accomplished a lot in a short amount of time. In a nutshell, we have announced approximately $6.7 billion of acquisitions and raised approximately $5.6 billion of equity. We reduced our leverage from 8.4 times net debt to adjusted EBITDA at emergence to 3.7 times net debt to EBITDA at quarter end by refinancing nearly $2 billion of debt at lower interest rates and eliminating over $1.3 billion of debt. We also increased the Company’s annual base rent by 181%. If you include the incremental annual rent of the pending transactions announced, but not yet closed, that is a lot of activity over the short term. All of which has been in pursuit of our goal to build an institutional REIT for the long term. Towards that end, we have upheld a relentless focus on the following: improving our portfolio for the long term, enhancing our lead structures and terms for the long run, growing our tenant relationships, and enhancing tenants' strength for the long term. Having the broadest investment spectrum across the gaming real estate landscape. Building a balance sheet for the long term that can successfully weather any economic or credit cycle we may endure. Building and executing at VICI's dividend strategy for the long term. A strategy that delivers a secure and well-covered dividend with sustainable growth funded by achieved income growth, not anticipated income growth. Building an ownership base for the long term that recognizes and values the quality, durability, and irreplaceability of our real estate. And building an unrivaled growth pipeline that gives our shareholders predictable long-term growth. The investment community can trust that this relentless focus on creating long-term value means that we will not sacrifice our prospects for creating lasting shareholder value for the purposes of capturing a short-term gain. So some of the longest duration leases in the industry, we’re able to take an expansive outlook and act accordingly. Take for example the stat I mentioned earlier, that we have announced approximately $6.7 billion of acquisitions and raised approximately $5.6 billion of equity. A REIT focused on immediate short-term accretion would not have relied as heavily on equity funding for the announced acquisitions, especially not far in advance of acquisition closings. If we had not taken the disciplined approach, however, while we may have generated more immediate accretion, we would’ve sacrificed long-term value creation for that kind of short-term gain. Another short-term measure would have been delayed funding until closing, but in doing so, we would have taken significant market and pricing risk. In either case, we would not have stayed true to our relentless focus on building a REIT that can thrive through all cycles... The focus we believe is essential for our investors to be able to trust and rely upon as we act in their best interest in our capital allocation decisions. Looking back on the transactions we announced this quarter and those of you who have completed in our short history, you will see a consistency in how we fund our transactions in a manner designed to provide long-term funding certainty, long-term accretion, long-term security of cash flow, and long-term sustainability and growth of the VICI dividend. We realized that the long-term nature of our acquisition and capital allocation strategies makes it challenging to calculate with precision, the immediate impact of our related funding activities. The benefit greatly from cultivating a base of investors and covering analysts who collectively understand and support the long-term value creation that we believe our strategies will deliver. We especially valued this understanding and backing when our shareholders stepped up with such strong support for the equity raise we launched and currently with the announcement of our transformative transaction with Eldorado. And before I turn things over to John, I’d like to stress the degree to which our transaction with Eldorado was all about long-term value creation. We believe this transaction will enable us to contribute significantly to the long-term success and competitiveness of our largest tenant; significantly improve and extend our Caesars leases for the long term; add significant long-term AFFO accretion; and restock our growth pipeline for the long term. That’s a great introduction to what John has to say about our Q2 2019 growth activity. With that, over to you, John.

Thanks, Ed, and good morning to everyone. As Ed mentioned, we had quite a busy quarter. We closed on one acquisition and announced over $4 billion of new acquisitions. We established three new tenant relationships while adding seven new properties across six regional markets. At the same time, we refreshed our growth pipeline. I’d like to spend a minute on each of these transactions and their strategic benefits for VICI. First, JACK Cincinnati: as we discussed on last quarter’s call on April 5, we kicked off the quarter by announcing the JACK Cincinnati transaction in partnership with Hard Rock International. We’ve agreed to acquire $42.75 million in rent for $558 million, representing an attractive 7.7% cap rate. With this transaction, we will enter the strong urban gaming market of Cincinnati with a world-class gaming operator with a proven track record of success in the Ohio market, and we add another first-class operator to our tenant roster. Next is Greektown: on May 23, we officially closed on the acquisition of the Greektown Casino Hotel for approximately $700 million, simultaneously leasing the asset to Penn National. This high-quality asset located on seven acres in the urban core of Detroit is a great addition to the VICI portfolio and adds $55.6 million in rent at an attractive 7.9% cap rate. We are pleased to expand our partnership with Penn National and further diversify our tenant income while entering a strong and stable regional market. Then on June 17, we announced the acquisition of three regional gaming properties for $278 million in partnership with Century Casinos. Upon closing, this transaction will add an additional $25 million in rent under a master lease at a very attractive 9% cap rate. The transaction provides several strategic benefits. First, we are creating a new tenant partnership with Century Casinos, an expert operator of small to mid-size assets with plans to expand further into U.S. regional gaming. Second, we’ll be entering the State of West Virginia, thereby enhancing geographic diversification while adding value for shareholders in an accretive manner on a long-term basis. Lastly is the Eldorado transaction: one week after we announced the Century transaction, we announced the transformative $3.2 billion deal in conjunction with Eldorado’s proposed combination with Caesars Entertainment. The combination of Eldorado and Caesars will create the largest domestic gaming company with market-leading assets in nearly every regional market benefiting from the most robust and sophisticated customer loyalty database, Caesars Rewards. We are thrilled to partner with Eldorado to provide a portion of the capital they need, to execute their goal of creating the largest and most dynamic gaming company in the country. This transaction is especially attractive for VICI, as we will add $252.5 million of incremental rent, including $98.5 million of rent from our Las Vegas Strip properties and $154 million of rent across our regional master lease, at a blended cap rate of 7.9%. Furthermore, as Ed touched upon, we have also refilled a strong diverse growth pipeline that ensures the company maintains visible long-term growth opportunities. This refreshed pipeline includes two opportunities on Las Vegas Strip assets, a put-call option on two high-quality assets in the growing Indianapolis gaming market, and an additional opportunity on an urban core Casino in Baltimore. We’re excited to work with the Eldorado team and look forward to our continued partnership in the future as we both execute on our strategic goals. In conclusion, with over $4 billion of transactions announced in the second quarter alone, we’ve accomplished an equivalent amount for VICI shareholders. We’re very proud of the progress we’ve made in adding to our tenant roster, further diversifying our geographic distribution, refreshing our growth pipeline, and of course, doing it all in a manner that is long-term accretive to AFFO. As our activity in the quarter indicates, we’ve proven our ability to source, execute, and finance acquisitions of all shapes and sizes. We will continue to be determined, and we believe VICI remains in a great position to capitalize on opportunities that the market presents. With that, I’ll turn the call over to David, who will discuss our balance sheet and financial results. David?

Thanks, John. I’ll first cover a few highlights from our quarterly financial results before turning to our balance sheet and specifics surrounding our recent transaction activity. As a reminder, starting on January 1, 2019, under ASC 842, the new lease accounting standard, we are no longer required to present real estate taxes and the related tenant reimbursements on a gross basis since they are paid directly by our tenants to the relevant taxing authority. Therefore, neither of these items appear on our June 30, 2019 statement of operations. The prior period will not be retrospectively adjusted and therefore the historical financial statement presentation remains unchanged and continues to include the gross-up of the real estate taxes and related tenant reimbursements. Our total revenues in Q2 2019 excluding tenant reimbursement of property taxes increased 9.3% over Q2 2018 to $220.7 million. Our G&A was $6.5 million for the quarter, and as a percentage of total revenues, was only 3%, which is in line with our full-year projection and represents one of the lowest ratios in the triple-net sector. We incurred $2.9 million of transaction expenses in the quarter, primarily related to the legal and accounting costs associated with documenting leases for the JACK Cincinnati, the Century Portfolio, and the Eldorado transaction. These costs are required to be expensed under the new leasing guidance. Our AFFO for the second quarter was $156.8 million or $0.38 per share; AFFO increased almost 22% year-over-year, while AFFO per share increased approximately 9% over the prior year, given the equity issuances last November and the most recent offering at quarter end. Our results once again highlight our highly efficient triple net model as flow-through of cash revenue to adjusted EBITDA was approximately 105%, and while the flow-through of cash revenue to AFFO was approximately 95%. As always, for additional transparency, we point you to the quarterly financial supplement, which is located in the Investor section of our website under the menu heading financials. We believe you’ll find this detailed information helpful and welcome any feedback on the materials. Moving onto our balance sheet and capital markets activities, we had an active quarter, further strengthening our balance sheet and positioning the company for continued growth. In connection with the other auto transactions combined with the other transactions that had been announced but not yet closed, we pursued a comprehensive capital funding strategy. Our objective was to immediately derisk the balance sheet by effectively locking in funding certainty for a transformative sequence of deals. With this approach, we will have some near-term dilution, but we believe this capital will ensure that we maintain balance sheet flexibility and an effort to provide our shareholders with long-term growth. This thinking led to activity during the last week of the quarter. On June 28, we completed an upsized follow-on offering of 115 million shares sold at a price of $21.50 per share for net proceeds of approximately $2.4 billion. The offering was comprised of a 50 million share regular common stock offering resulting in immediate net proceeds of approximately $1 billion and the shares being added to our total share account on June 28. We also entered into forward sale agreements for the additional 65 million shares. Upon settlement, the forward component of the offering is anticipated to raise net proceeds of approximately $1.3 billion. We retain the ability to settle the forward transaction in whole or in tranches anytime between now and September 26, 2020. We view the success of this offering as a significant expression of support, confidence, and trust from our shareholders, and we do not take that commitment lightly. We will continue to work to deploy your capital accretively as we execute on our long-term strategic goals. For the remainder of the funding needed to close the Eldorado transaction as well as refinancing the existing secured CMBS loan currently on Caesars Palace, Las Vegas, we intend to act with the debt markets through a combination of term loan and unsecured bonds on a leverage-neutral basis. Related to our debt in May, we amended our revolving credit facility and increased the borrowing capacity by $600 million to a total capacity of $1 billion. We also extended the maturity by two years to May 2024 and we moved our interest rate to a leverage-based grid with a range of 175 to 200 basis points over LIBOR. Our total outstanding debt at quarter end was $4.1 billion with a weighted average interest rate of 4.97%; 98% of our debt is fixed, with the remaining 2% floating, providing clarity to our future interest expense. The weighted average maturity of our debt is approximately 4.5 years, and we have no debt maturing until 2022. We ended the quarter with over $2 billion in liquidity, including approximately $1.3 billion cash and short-term investments and availability of $1 billion under our revolver subject to compliance with the terms of our revolver. As of June 30, our net debt to LTM EBITDA was approximately 3.7 times, well below the low end of our long-term target of 5 to 5.5 times. Regarding our acquisition activity, John touched on most of the specifics, so I won’t repeat it all. We closed on the Greektown transaction on May 23, adding approximately $55.6 million in annual cash rent at a 7.9% cap rate. Then between the three announced pending transactions, JACK Cincinnati, the Century Portfolio, and Eldorado, we will add just over $320 million in annual cash rent, increasing our annualized rental income by approximately 32% in just one quarter. In terms of timing, we expect JACK Cincinnati to close by the end of 2019. For the Century Portfolio, we continue to target closing in early 2020. And the Eldorado Transaction is targeted to close in the first half of 2020. Now with respect to guidance, beginning this quarter, we will be presenting our guidance in absolute dollars as well as on a per-share basis to provide additional transparency. We are updating our full year 2019 guidance to reflect the closing of Greektown on May 23, as well as all capital markets activities completed in the second quarter. We now expect AFFO to be between $635 million and $645 million or $1.45 and $1.47 per share versus our prior guidance of $600 million to $615 million or $1.47 to $1.50 per share. Our underlying AFFO assumptions are consistent with prior guidance adjusted for the closing of Greektown. While the per-share range now accounts for 50 million shares issued in Q2 and the potential dilutive impact resulting from a Forward Sale Agreement we entered into in June, to the extent that our stock trades above the deal price, as we will be required to record treasury stock dilution under GAAP. As always, our guidance does not reflect any of the pending acquisitions. Turning to our dividends, we paid a dividend of $0.2875 based on the annualized dividend of $1.515 per share on July 12 to stockholders of record as of the close of business on June 28. With that, operator, please open the line for questions.

Hey, guys. Thank you and good morning. This question is probably really going to blow your mind. If I can - in the perspectives back in June, you guys did talk about another deal that you were potentially in the later stages of negotiations for. I don’t know if you’re able to comment directly on that specific reference. But if you could talk a little bit about maybe how things have proceeded in terms of the pipeline, that would be helpful.

John, you want to go ahead?

Sure. Well, I can’t specifically talk about that, but I think, as the past 22 months have indicated, I hope to you, Carlo, that we remain busy and active at all times. So we continue to work that deal that we called out, and we continue to be on the road quite a bit in comparison to others and look at other opportunities as well. So it’s busy, even during these summer months right now.

Great. Thank you, John. And then if I could, maybe David you would be best positioned for this one, but in terms of that specific transaction with the financing that you’ve done to date, including the equity as well as the term loan and unsecured that you’re targeting. Are you guys in pretty good shape in your opinion to do the deal with not necessarily maybe cash on hand, but cash on hand and the proceeds of what you’re going to raise later in the year regardless of this transaction?

Yes. That’s right, Carlo. And just to clarify, in terms of what we’ll raise later in the year in terms of reacting to debt markets, we do not need any more equity. We will not go back to the equity markets to fund the acquisitions that we have announced or the potential acquisition referenced in the S-4. Part of the reason that we upsize the offering was to take into account our pipeline. We feel confident about our pipeline and do not foresee any more equity in the near term.

Great. Thank you, guys.

Good morning, everyone. Congratulations on a busy Q2, I think busy might be an understatement, but congratulations nonetheless.

Thank you, John.

Wanted to talk high level for a second. Ed, in your prepared remarks, you’ve discussed the importance of balancing the short-term accretion with long-term value creation. And I think some of the merits of the transactions you’ve done are quite obvious with replenishing the growth pipeline, so on and so forth. But I was wondering if you could talk a little bit more; it might be helpful to kind of talk about some of the strategies for long-term value creation and really where you see VICI going as we get a year out, some of these transactions close and your kind of ultimate goal for the company.

Yes, well, I think, John, our fundamental opportunity continues to be to invest in what we believe is fundamentally great real estate, real estate of high institutional quality. And yet, we’re able to do so at this time, at what we believe are still bargain prices. If you wanted to put it into a private equity real estate framework, typically in private equity real estate you talk about either core yields, core plus yields, value-add, and opportunistic or opportunistic and value-add. And we believe right now, we’re buying core plus to opportunistic yields for what is fundamentally real core real estate. We love this opportunity. We believe – for those who haven’t yet been able to see it, we highly recommend that everybody take a look at the report that Green Street put out on our sector earlier this week. It’s a collaborative effort on the part of VICI, MGP, and GLPI. And we think it further emphasizes the core message, which is this is fundamentally great real estate. And what we fundamentally have is the opportunity to build a great portfolio of real estate with great tenants, whose operating business is what ensures the long-term integrity and durability of our real estate cash flows. So, again we just want to continue to tell the story. We want to continue to ignore the noise in the market. We’re at a point right now, as a country, frankly, where there is so much noise and nervousness whether around politics and policy or the capital markets. And yet we think underneath all of that, the economy continues to be very strong. And as you have seen, John, with the reports out of Penn and Boyd last night and as everybody saw from the June Strip data, gaming continues to go on really well. And we believe it’s got a long runaway ahead of it. And we also like obviously prospects for other experience in sectors if you look at demographic trends and cultural trends that we think are going to continue to put great value on experience in real estate. I realize that’s a 50,000-foot answer, but I hope it serves some purpose.

That’s helpful. That’s all I was looking for. I think good comments. And I think if you can answer my follow-up. So maybe to switch gears slightly. You guys provided some unique financing sources for two very different types of companies. One, very large scale and one much smaller scale. I think historically over the last couple of years we’ve seen some of the gaming partners be a little resistant to partnering with REITs so we’ve certainly seen the change over the last 12 or 18 months. As you provide unique financing opportunities for these companies of all different sizes and positionings, have you seen increased receptivity or inbounds from other potential partners? I guess the short question is, are you seeing an increase in the acceptance and receptivity to refinancing on forward transactions?

Yes. I’m going to turn it over to John in just a second here, but what I just want to say before I turn it over to John is that what we’re seeing is greatly increased receptivity from gaming companies that want to grow. It’s as simple as that. Gaming companies who want to grow are realizing that gaming REITs are a great way to help finance their growth. We represent another source of permanent capital, permanent capital that is frankly more affordable than equity they might raise or other permanent capital they might raise in the public markets. And we continue to believe that gaming growth, gaming-oriented growth companies will continue to look to VICI for help in achieving their growth ambitions, but to give you more color and granularity on that, I’ll turn it over to John.

Yes, John, it’s a great question, and I give a lot of credit to my colleagues on the phone Ed, David, Sam, Gabe, and the whole team that come from a REIT background. And I think in the gaming space, the explanation of how REIT can help a company grow was really based on my colleagues helping me tell that story to potential sellers that hadn’t been done before in our space. So the first year we spent a lot of time doing that and it has led, as you can see, to opportunities with a wide variety of folks in our space and really outside in the experiential space. So to answer your question specifically, we obviously continue to spend a lot of time with outbound calls, but as I’ve said over previous quarters, we’re seeing more inbound calls, and we’re also seeing more inbound calls with folks who understand the model a lot better than they did a few years ago, where it wasn’t just lease on the table and say, take it. It’s an explanation of how a REIT in our space can be a partner, can be a long-term partner, can help the companies grow, and so it’s been a good start for our company.

Thanks, everyone. Appreciate the comments.

Good morning, thanks. First on the intermediate term, you have outlined a lot of the details around the incremental rent from the announced transactions. You’ve already to a degree front-loaded the financing for these. So maybe if you could help investors frame what the AFFO per share kind of power is of the business as we look at all these transactions together maybe a couple of years out. And then maybe a follow-up to John’s question, as you look longer term, I mean what are the guardrails to think about when you start to look outside of gaming or is that still not really something that is top of mind? Thank you.

Yes, Stephen, it is a good question. I mean just on the announced acquisition, the $4 billion that we announced in the second quarter that adds about $320 million of rent. Obviously we need to leverage that and based on our share count that’s $0.60 a share part of rent, and obviously we need to put that in our leverage neutral basis. So the way we set up the REIT is that the year-in, year-out growth of 10% to 12% on the total return, and part of the issue that we face in this sector is this front-loading that growth, right. We have announced Greektown in November; we closed this year, so you get three quarters of rent and AFFO in 2019, and now Century as well as Eldorado will close next year. So we continue to build growth in AFFO for years to come. We will get about half of the Eldorado transactions just assuming an immediate close in 2020 and a full year of rent in 2021. So we continue to ladder the growth of the company by working day in and day out to add the acquisitions and sequence it into the FFO growth over time. And for the second part of your question, Stephen, in terms of outside of gaming, what would we see as guard rails. Most fundamentally, the real estate has to be home to an experience that we believe has great durability to it. That it is an experience that is greatly valued today by the end user and is an experience that will be greatly valued by the end user 25, 35 years from now. And that experience probably has to have within it what we call experience complexity. It’s what we love about gaming. It is an experientially complex business in which the operator has the opportunity every day to refine the experience, add new elements to it, and replace what has become obsolete with what is new and fresh. And we will look, when we do look outside of gaming, we will look for that same experience of complexity and that same fundamental durability of experience.

But so it doesn’t sound like you’re currently feeling the need or compelled to look outside of gaming.

And we’re certainly doing all we can to learn about sectors outside of gaming, identify sectors outside of gaming that would have the characteristics that would lend themselves to a compelling investment thesis. But needless to say, with $4 billion of gaming acquisitions in one quarter, we are very, very excited about continuing to help gaming companies grow. And that includes big companies like Eldorado and Caesars and obviously smaller companies like Century, for which there are great growth opportunities.

Hi, this is Cameron Hughes on behalf of Smedes. I just wanted to get your take on the range of deal sizes you might look at going forward, whether that would be larger like the Eldorado transaction more complex or smaller like the Century deal.

John?

Well, I think you described the range for us. As we started the company, we didn’t put brackets around what we’re going to look at and not look at. We thought that would restrict us. It would not allow us to meet all gaming operators and even non-gaming operators at this time. And so we really do take any meeting; it doesn’t mean we’ll do any deal, obviously. But we don’t put parameters around the size. If it’s accretive for us, if it’s with a strategic partner like Century that many would describe as a small deal, not many $300 million deals are called small, but they seem to be in this space. But that, as an example, was with an operator that we believe is growing a U.S. platform. So the simple answer is we’re looking at a lot of different things of all magnitude, and we’ll continue to do that, because we think it will lead to quarters like we just ended.

Cameron, I’d just like to add to what John said that, the fundamental value proposition of a REIT is to be able to distribute cash through all cycles. And given that reason for being a REIT should inherently have some element of hedging in its portfolio strategy. A REIT should not be overexposed to any one geography or customer segment. So that one can again ensure that the cash is there to distribute through all cycles. And that’s why we like having the biggest investment spectrum in the gaming REIT space. That again enables us to do the kind of deal we did with Eldorado while also doing the kind of deal we did with Century. Because by having that diversity of tenant, diversity of geography, we again put the REIT in a place where we’re not overexposing to any particular aspect of the business that could lead to higher risk in terms of the sustainment of distributions.

Good morning.

Good morning, John.

So just kind of roughly speaking, what do you think your capacity is today to do larger deals given, maybe assuming you closed in the more tangible acquisitions in the pipeline that you mentioned at the time of the equity offering? Essentially is there enough kind of on your plate today that maybe there needs to be a pause or you think you can continue to do some larger transactions going forward in the near-term?

John, it’s David. I’ll start and John Payne can add onto that. I mean right now, obviously we’ve announced a lot and we have a lot to digest and to close. So right now we’re focused on ensuring that we lay out a disciplined financing plan on the long-term debt and continue their path towards lowering our cost of capital to ultimately pursuing a path towards investment grade. But in terms of acquisitions, like we’ve got the capacity to, as John said, we meet with a lot of people and look at a lot of things. Some larger transactions probably right now are off the table for us. As we think about ensuring the closing of Cincinnati, the closing of the Century and then ultimately working with Eldorado to ensure the seamless closing of the broader transaction early next year.

Okay. And then you kind of mentioned the debt markets and investment grade. If you think about the cadence of the type of debt you plan to issue, is there any thought about potentially taking out the CMBS – the Caesars CMBS with term debt in order to position yourself for the rating agencies and the unsecured market? Or is the timing of all that going to be dictated more by the security of getting that kind of cash on hand?

We will take out the CMBS as part of the broader Eldorado transaction. As we announced back in June, Eldorado has agreed to split the transaction costs, the breakage costs with us. And as part of the overall transaction, we will either take that out with a term loan or high yield debt, depending on the markets where they are in terms of cost of capital. And that cleans up our capital structure too, which has been a very positive feedback for the rating agencies. And then that begins to remove the big hang up in the rating agencies right now is just the amount of secured debt that we have in our cap structure. So to start to move towards an unsecured borrower, ultimately through the high yield markets and then long-term through the investment grade markets is our plan over the course of the next several months.

Do you think you’d be able to raise in the kind of investment grade markets before, I guess the closing of ERI and it’s a bit of some of that’s out of your hands?

Investment grade is probably 18 to 24 months, maybe 36 months off. We’ll meet with the agencies in the fall here. But a lot of it will be, again, they remove the secured debt that’s in our cap stack. And that’s both the CMBS and the second liens that we can call next year in October of 2020, and I would say the term loans we have today are secured debt. So we got a little bit of work to do, but taking out that CMBS was a significant first step, and we’re excited about that.

Okay. And then can you provide any color on potential timing for taking out the CMBS?

Its November 10 is when we can repay it. That’s the first call window. And then sometime late fourth quarter, early first quarter 2020.

Okay. That’s it for me. Thank you very much.

Thanks, John.

Hey guys, good morning. So earlier in the week, Boyd had made some comments about the current M&A market. And I think their exact quote was that it feels a little quiet right now. Obviously, Boyd is an operator and you guys are a real estate company, but why do you think they’re seeing the current M&A landscape differently than you are?

Yes, I think it varies by geography, by market segment, by operator size. You’ve obviously seen, Dan, in recent weeks, you obviously saw our announcement with Century. You saw the announcement of the transactions Twin River did with Eldorado. There is activity going on, and again, it’s going on maybe at segments or at asset level. Asset size levels that Boyd does not operate at and again Boyd is a really good company. And again, I think it’s part of the fact that this is a sector that we – those of us who moved to gaming like myself and David are realizing it has more diversity to it than we initially understood. And these smaller assets need to be understood as smaller assets in the larger context of hospitality and entertainment or recreation, because while they may be relatively small assets within the gaming universe in terms of EBITDA per asset versus hotels or other recreational assets, these things make a lot of money. So there is activity going on. And again, we like the fact that we’ve got an investment spectrum that enables us to do the kind of deal we did with Eldorado, the strip assets, at the same time that we can do the deal we did with Century.

And let me just add a little bit to that, because I think sometimes Daniel, at this perspective, I mean we just finished announcing a quarter of $3 billion worth of acquisitions, just three years ago...

$4 billion. Just in this perspective, just in this space three years ago, that would have lasted 18 months before someone would do anything else. And so I think that it’s just perspective change a little bit to say, well, there’s not a lot of activity in this space. And we’re sitting here in August and we’re just one company that last quarter announced $4 billion of acquisition. So I’d say it’s very active. Again, I’m not contradicting my friends at Boyd at all; it’s just – I think perspective – it depends on where your perspective is.

Okay. That’s helpful. And then my follow-up is a bit more nuanced, but with respect to the Las Vegas Strip, would your reference on those assets still apply if they transacted prior to the closing of the Eldorado, Caesars deal?

I’m sorry, who would that they be in that case?

So would be Caesars in the inter-sell between now and closing?

Caesars really would be essentially precluded under their merger agreement with Eldorado likely to do a deal without having Eldorado’s approval. So it would be more complicated than that, given the size of that.

Okay, that’s great. Awesome. Thanks guys. Appreciate it.

Thanks, Dan.

Hi, good morning, everyone.

Hey, David.

You’ve covered a lot of ground, but I wanted to follow up on some of the earlier commentary from Ed. From the beginning, the discourse has been around establishing your independence from Caesars. And I think it’s fair to say that you’ve walked a lot of that talk or maybe flown or driven. But this – the Eldorado deal does sort of tether you in some way to a single tenant. And I recognize concentration is not the same as overall independence. But as we think about going forward and deals that you may be considering, how much does that notion of independence and concentration factor into the decisions relative to accretion or the other evaluative criteria?

Yes. I think I’ll start David, and I’ll turn it over to John. I think that what this transaction most represents is our ability to creatively transact with independent operators. In other words, what I’m trying to say, and I’m not saying it very elegantly, David, is that we did the transaction with Eldorado; we didn’t do it with Caesars, right. And I think it’s a great testimony, especially to John’s leadership in our business development activities that we were able to initiate a relationship with Eldorado, an independent arm’s length relationship that led to a transformative transaction that does happen to involve our existing larger tenant. So I think the greatest message to take out of this transaction is not an issue of are we independent or not from Caesars, it is our ability to create relationships that yield deal flow. And I think we work relentlessly hard every single day on the development of relationships, because it is those relationships that generate deal flow. In this case, this particular deal does intensify our tenant concentration to a degree, but we take great confidence in the relationships built with Penn and Hard Rock and Century that we will continue to generate tenant diversity, which will ultimately lead to some lessening of that concentration, though that concentration in and of itself does not scare us. John, if you want to add to that?

No. I think you described it well. I mean, our independence is a huge competitive advantage for us. We don’t have a parent company that gives us deals or hands us deals. We have to work every day to get out there to build relationships with others and prove that we can close deals with a wide variety of operators, and we’re going to continue to do that. A simple way of putting it makes me work hard every day to get out there to get more deals, and it will continue to be, the independence as you mentioned is going to continue to be a big factor of it.

Thanks. Good morning guys. Maybe just another angle on Eldorado, they’ve said they’re going to come out of the Caesars deal at around a 50:50 mix of lease versus wholly owned. How do you kind of weigh the opportunity to further penetrate that ratio versus the strong rent coverage ratio you have now? Thanks.

Yes, it’s a great question. It was obviously a guiding principle to the deal we ended up constructing with Tom Reeg and Bret and the Eldorado team. We see great merit in them having that balance. To your point, it is the substance, the key substance of our rent coverage, and it obviously is a key element in their cost of capital and how it is they’re valued. So, we would be very happy if they continued to maintain that kind of ratio. The ROFRs don’t necessarily mean sale-leasebacks, and we again think that Tom is approaching this with a philosophy that puts both companies, the New Caesars and VICI in very strong positions.

Great. And then just a follow up, last quarter we talked about other REITs potentially exploring the gaming asset class. Just curious, are you seeing anything out there? And given the unique nature of gaming, what’s the likelihood we see another entrant? Thanks.

I’ll start and then I’ll turn it over to John. I think it is high; I mean, speaking of this again I go back to this thing fundamentally really good real estate that is available at very, very attractive prices. And there are certain bidders that could show up for regional assets. There’s perhaps another set of bidders who would show up for Las Vegas assets. I think we should all keep in mind the Las Vegas Strip, gaming real estate does not require the real estate owner to be licensed, which could make it very comfortable for certain kinds of real estate, institutional investors to very quickly move into the ownership of Las Vegas Strip real estate. And again, we’re seeing the degree to which institutional capital applies very high value to the Las Vegas Strip real estate. If you happen to notice the latest print on the refinancing of the Grand Canal Shoppes recognition, which got valued for the purposes of the loan made on those assets of, I think it was an implied cap rate of 4.5%. So again, I think there will be a lot of hunger for this real estate given how fundamentally good it is in a commercial real estate environment where you’re looking at sectors that are either undergoing secular challenges or otherwise really fully baked in terms of how they are valued today.

And I’ll just add onto that. I mean I think as people see that the number of transactions that we’ve done as a company at 7%, 8%, 9% cap rates when they’re in other industries and they are buying things at 3%, 4%, 5%, I think there’s no question that people are taking a look at this space. Obviously, EPR has put one of the best gaming executives I’ve worked with on their board. And I don’t think they do that if they weren’t looking at about this space. And as I’m out talking to potential sellers, there’s no doubt that there are other REITs that are beginning to try to understand this space, and that’s why we’ve built our model on partnerships and winning the ties and being the firm that understands the growth plans and those things. So, anyway I agree that over time there’s going to be others entering this.

Hey, good morning. Just a question on the reloaded captive pipeline. Obviously you guys don’t have control in terms of the timing with those assets like you do with the call option properties, but curious if you could give some color on, if you did have that optionality when you would like to bring those assets on and maybe what you think the timing looks like based on your conversations with Eldorado.

Yes, again, I’ll start and John will add. We obviously are going to generate tremendous rent growth in 2020, by virtue of the closing of Cincinnati, the closing of Century, and eventually the closing of the Eldorado transaction, which will probably also generate 2021 AFFO growth based on the timing of a mid-year close. So, to be honest with you, if the pipeline starts in 2021, 2022, that’s perfect in terms of growth cadence. And, yet we will be very responsive if Eldorado wishes to proceed on any of these opportunities at an earlier date. They’re fundamentally great opportunities. We want to be a great partner. If they’re ready, we’re ready. John, want to add?

No, I think you described it well. That’s how we thought about negotiating as having multiple opportunities in the future and not just one. So, whether it’s when they want to execute in Indianapolis or on the Strip or in Baltimore or other opportunities, you can see that “embedded” pipeline opportunities are multiple and will allow us to again, have that metronomic growth, that historically has not been seen in the gaming REIT space. But I think you’re seeing it in our two years of just continuing to knock out growth for our shareholders.

RJ, previously we had a growth pipeline that lasted until 2022 given the original call agreements. And we used those call properties to effectively extend our growth pipeline to what we believe is probably around 2025, especially if you then incorporate the put-call we already possessed on the Las Vegas Forum Convention Center, which opens next spring by hosting the NFL Draft. So again, we’ve got a pipeline now that visibly goes to about 2025 and includes hundreds of millions of dollars of incremental rent. And I don’t think there are many other American REITs out there with that kind of pipeline.

That’s helpful. Thanks. My second question is maybe you could comment on the board strategy in terms of the dividend, just in terms of expectations for growth going forward. Can we expect it to move in line with AFFO growth, slightly lower as you look to maybe retain some free cash flow or is there any taxable issues where it might actually increase more than earnings growth?

Yes, RJ it’s David, good question. As you saw last year, we announced the dividend increase in Q3. I think one of the things that we wanted to set this company up to be ultimately a dividend aristocrat. So, year in and year out consistent dividend announcements in terms of timing and ultimate dividend growth, we discuss the dividend with the board on a quarterly basis. So any future increase is bound to subject to board approval. But we’ve always targeted an AFFO payout ratio in the mid-70%, 75% area. That’s as we talked about with you to give us like an internal self-funding. So, I think you’ll see the dividend in and around that payout ratio, and start to implement a consistent annual sequencing of increasing that dividend on an annual basis and not in line just with the announcement of acquisitions, but again to keep this year in and year out consistent timing for our increase.

Okay, that’s helpful. And then last question, just sort of a modeling question, David, can you talk about or quantify the impact you’re assuming at AFFO from the forward or the dilution of the forward in the back half of the year?

Yes, RJ, if you layer in the 50 million shares starting January 28, and take that out to whatever that is 183, 182 days, that gives you about 435 million, weighted average share of about 435 million and you can see in our release, we’re about 438 million. So, it is a 3 million share impact from the forward.

And you expect that to continue through the end of the year?

That’s right, yes.

Great. Thanks guys.

Thank you, RJ.

Good morning. Can you comment on how the investor education initiatives are progressing? Do you guys think we’re any closer to closing the gap between gaming and net lease REITs or do you think that it may take a downturn for this to actually play out?

Yes, that’s a great question. We think that all three companies, MGP, GLPI, and ourselves have done a very good job of showing the degree to which on a back-testing basis, the gaming REIT rents would have been well covered even during the great financial crisis. So we have a lot of faith in a garden-variety recession, if you will, should absolutely have no harmful impacts on our cash flows or those of our colleagues at MGP and GLPI. So we don’t think that is in and of itself a necessity. We think that there is a growing awareness again of the quality of the real estate. And that’s what should be the ultimate valuation of our sector. It takes time. Every cap rate compression story that’s ever played out takes time. And frankly, the entrance of new bidders is a validating step that could be a key element in that re-rating. But at the end of the day, what we most have faith in is the fundamental intrinsic quality of our real estate and its ability to produce sustained free cash flow for our investors cycle in and cycle out. That’s the ultimate base case comfort that everyone should have. But above and beyond that, there is this opportunity for our real estate to be revalued accordingly.

Thank you. That’s helpful. And I guess on a similar note, can you provide any detail on how you think about tenant quality, what factors are most important, are there any red flags when a new tenant is under consideration?

Yes, I think there are two key factors: their operating strengths, do they operate well, do they know their customers, do they have a strong enduring relationship with the end users who are the ultimate determinant of the value of the property? And then do they have a good strong balance sheet that’s going to enable them to weather every cycle, credit and economic. And so far, needless to say, we’re very happy with the tenant roster we have and we will continue to use those two key criteria, operating strength and balance sheet, to evaluate any other tenant we’ll do business with.

Hey, good morning Brad on for Thomas Allen. Just wanted to see if you could help us think about the balance sheet vis-à-vis the put call options out there. I know in the past you’ve talked about some long-term leverage targets, but do you plan to keep extra capacity in there is a speed bump in the economy and maybe there could be a put rather than a call? Thank you.

Yes. Bradford, it’s a good question, because obviously part of the Eldorado overall strategy is de-levering, and I think Tom and Bret have been pretty vocal that the put could be a potential mechanism for Eldorado to de-lever their balance sheets. So look, part of the way we think about it is we are, once we settle the forward we’ll have $11 billion of equity market cap and be somewhere in sort of $16 billion to $17 billion total enterprise value company. We increased our line of credit this year to a billion. You’ll probably see that increase over time as well. So as we approach the period between 2021 and 2024 when that asset could be potentially put through us, we feel we’ll have sufficient liquidity on our balance sheet, and access to liquidity to be able to execute that put if Eldorado doesn’t in fact do that during that time period.

Yes, I would just add to that, Brad, that when the day comes that all the puts or calls have been exercised, I would say as a general management principle, we will still want to have that capacity to take advantage of opportunities. As Warren Buffet says, you want to be fearful when everybody else is greedy and greedy when everybody else is fearful. So, we always want the REIT to be in a position to be opportunistic when others may not have the capacity to be opportunistic.

Thank you. That was extremely helpful.

Thank you, operator. Thank you to everybody who’s been on the call. To sum up in short, Q2 2019 has been an inflection point in our brief history. We announced new partnerships, great new tenants, Hard Rock and Century. We entered into a transaction to help facilitate the transformation of our largest tenant, Caesars. We further fortified our balance sheet with the largest primary REIT follow-on in history. We restocked our growth pipeline such that through embedded growth, we could potentially add hundreds of millions of dollars of new rent to our rent roll over the next five to seven years. None of this would have happened without our shareholders for whom we are honored to work, and for whom we’ll stay relentlessly focused on long-term value creation. Thanks again to all of you for joining us today.