VICI Properties Inc (VICI) — Q3 2019 Earnings Call Transcript

Thank you operator and good morning. Everyone should have access to the company's third quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements which are usually identified by the use of words such as will expect should guidance intends projects and 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 certain non-GAAP measures which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third 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'll open the call to questions. With that I'll turn the call over to Ed.

Thank you Samantha and good morning everyone. This third quarter of 2019 was another quarter in which VICI continued to build for our shareholders an institutional quality real estate portfolio and an institutional quality balance sheet. In a moment John Payne will tell you about our growth initiatives in quarter 3 and since the end of quarter 3 and then David Kieske will tell you about our financial results and balance sheet initiatives. But first I'd like to spend a few moments on recent developments in our marketplace and what they may mean for VICI over time. I'm referring in particular to the news two weeks ago of Blackstone buying the real estate of Bellagio. When we launched VICI a little over two years ago we were charged with and charged up about the opportunity to tell the equity and credit investing communities that gaming real estate possesses the characteristics that typify institutional-grade real estate. These characteristics distill down to the real estate being mission-critical and critically difficult to replace for tenants whose end user relationships and economics have endured and will endure for decades. And we said from the beginning two years ago that the time would come when more of America's commercial real estate investors would come to investigate and invest in America's gaming real estate. All along, we said that this growing recognition would be inevitable, and it would be welcome, given that real estate doesn't achieve its full value until this recognition takes place by institutional capital, or to repeat the phrase we use on our quarter one 2019 earnings call, validation drives valuation. Blackstone's purchase of the Bellagio real estate is just that sort of validation and thus gifts in all respects, a good thing for VICI, for our shareholders, for our sector. Some have asked why it took so long. Others have asked how fast other institutional investors are likely to move. Well it took time for Blackstone and it will take time for others like Blackstone. Because learning takes time. Institutional real estate investors make educated investment decisions. Before they invest capital they invest time. They take the time necessary to study an asset class's cyclical risk, its secular risks, its vulnerability to oversupply and in B2C real estate the credit quality and business model sustainability of the tenant. Blackstone obviously benefited from the learning they obtained through their investment in Cosmopolitan and no doubt they studied rigorously before they made that Cosmo investment decision and reaffirmed their learning before making their Bellagio investment decision. Learning takes time and it takes diligence. And advantage accrues to those institutional real estate investors who learn about previously non-institutionalized asset classes at the highest velocity. If what they learn leads to positive views on the asset class they can execute highly attractive investments before other market participants are ready to do so. At VICI we call this accelerated asset class learning process cognitive arbitrage. It's arbitrage borrowing of doing the hard work of learning and then acting on that learning. Blackstone is not the first institutional real estate investor to figure out the value of Las Vegas Strip real estate nor would they claim to be. The fact is that retail real estate equity investors have understood for years that the Las Vegas Strip is one of the most valuable real estate markets in America. Just ask David Simon of Simon Properties what kind of capital he has been willing and able to put into Las Vegas Strip real estate. And real estate credit investors have also long understood how valuable Las Vegas Strip real estate is and have lent against it accordingly with the recent refinancing of Las Vegas Sands' Grand Canal Shoppes at an appraised 4.5% cap rate as evidence of that. But here's a key fact. There are still many institutional real estate investors who have not yet started or are just beginning the work of understanding the real estate investment characteristics of our sector. As they learn about our sector, the demand for and value of gaming real estate, including our assets, will grow. We've been asked if we are likely to see increased bidding competition for assets we believe we will. Will this increase the risk that we may be outbid for assets? We believe it may. But if we get outbid for an asset it means asset values are rising. And if the values of traded assets rise, history will tell you that the market is pretty effective at marking non-traded assets to market. Unless a given portfolio suffers from specific idiosyncrasies such as troubled tenants or troubled governance. VICI suffers from none of those troubles. So we believe that if asset values rise our cost of capital should further improve correspondingly, enabling us to sustain our competitiveness for gaming assets and for non-gaming asset classes as well. Some of you understandably are asking what this Bellagio transaction means for regional gaming real estate. Simply put we believe it means good things. The Bellagio trade over time will bring increased focus on and interest in the gaming real estate asset class as a class. Take high flow-through logistics real estate as an example. An asset class that I spent time around thanks to my association with the great folks at real time. When the real estate investment market began to appreciate the mission-critical nature of distribution real estate to the final miles of e-commerce, the initial focus was on markets proximate to the biggest urban cores such as Northern New Jersey and L.A.'s Inland Empire. As understanding of the mission-critical nature of this real estate grew, the investment bull's eye also grew to include other geographic regions. Take as an example the $177 million suburban Cleveland Amazon distribution center across the street from the Thistledown Racino asset we announced the acquisition of earlier this week or take the deal Prologis announced on Monday by at an estimated 4.5% cap on a portfolio of logistics assets concentrated largely in the mid-Atlantic and the Upper Midwest. We really believe the same ripple-out dynamic will play out for regional gaming real estate. As a real estate investment market comes to appreciate the mission-critical nature of regional gaming real estate to America's great regional operators, especially those for whom regional assets are key spokes in their national hub and spoke network. There will be differences in value between Las Vegas and regional gaming real estate, but these will be differences of degree, not kind. We've also been asked about the right of first refusal on Caesars' own Las Vegas Strip assets. Are they worth more now that this velocity of trade is heard? Our answer is that we believe they're worth more now. Rights of first refusal simply aren't worth a lot in a marketplace where there aren't likely to be many offers. If there is indeed likely to be more institutional real estate investor interest in Las Vegas Strip real estate and if Caesars decides to sell the entirety of one or two Las Vegas Strip assets, that is both opco and propco, these ROFRs give us an exclusive window of opportunity and with that an exclusive window of time to find an operator who can partner with us to acquire the asset. Caesars will and must make the best total value decision for their shareholders, but we believe these ROFRs should enable us to consummate a transaction with Caesars at a fair price and with quick execution without Caesars necessarily having to bear the cost and market risk of a prolonged marketing process. All in all, our excitement around VICI's value creation opportunity grows with every quarter. And John will now share with you on recent exciting developments. Over to you, John.

Thanks Ed and good morning to everyone. During the third quarter on September 20, we officially closed on the acquisition of JACK Cincinnati Casino in partnership with Hard Rock International. We were happy to close the first acquisition we announced in 2019 and we are very excited about the future of this property under Hard Rock's leadership. As many of you know earlier this week we announced our fourth transaction of 2019 in which we will acquire JACK Cleveland Casino and JACK Thistledown Racino in a sale-leaseback transaction with Jack Entertainment. We are paying a total of $843 million which represents an attractive 7.8% cap rate for urban real estate and will add $65.9 million of annualized rent to our portfolio. The transaction will expand our footprint in the state of Ohio, one of the healthiest and fastest-growing regional markets across the country, and will add a fifth tenant to our roster. We're very excited about beginning our long-term partnership with the team at Jack Entertainment and we will look for ways to partner with the Rock Ventures family of companies as they further their investment in Cleveland and concentrate on select assets within gaming. The transaction with JACK brings our total announced transactions in 2019 to $4.9 billion and total announced transactions since our company was formed just over two years ago to $7.6 billion. We are often asked how we've announced so many complex transactions in such a short period of time. As I've said since we started the company, the principal keys to our success have been our true independence, our deep understanding of the tenant's underlying business, our focus on executing what we consider fair deals and finally our willingness and ability to structure deals to meet our operators' needs. Over the coming months we will focus on closing our remaining pending transactions as quickly and efficiently as possible. We continue to believe we have the best growth profile amongst our peers heading into 2020 and our significant embedded pipeline allows us to build on this growth consistently in the future. We also continue to invest time, including through engagement with operators, and learning about sectors outside of gaming as we work toward our goal of building a best-in-class REIT with geographic tenant and sector diversification. We have proven the ability to source and execute accretive deals and we will continue to evaluate transactions on their financial and strategic merits as we consider increasing our investment universe. We believe that the acquisitions we've announced to date have demonstrated this discipline not only to our operating partners but also to our shareholders who have entrusted us with their capital. With that I will turn the call over to David who will discuss our balance sheet and financial results.

Thanks John. I'll first cover a few of the highlights from our quarterly financial results before turning to our balance sheet and capital markets activity. Our total revenues in Q3 '19, excluding the tenant reimbursement of property taxes which are no longer required to be presented on the income statement under ASC 842 as of January 1, 2019, increased 7.4% over Q3 '18 to $222.5 million. Cash rent revenue from our leases was $219.4 million for the quarter and included $1.3 million related to the JACK Cincinnati acquisition which closed on September 20. Our G&A was $6.7 million for the quarter and as a percentage of total revenues was only 3% for the quarter which is in line with our full year projections and represents one of the lowest ratios in the triple-net sector. We incurred approximately $1 million of transaction expenses in the quarter primarily related to the legal and accounting costs associated with documenting the leases for JACK Cincinnati and the Eldorado transaction. These costs are required to be expensed under the new leasing guidance. Our AFFO for the third quarter was $164.6 million or $0.35 per share on a fully diluted basis. AFFO increased 24.5% year-over-year while AFFO per diluted share decreased approximately 3% over the prior year given the increased share count and related dilution from our equity issuances in November of 2018 and in June of 2019. Our results once again highlight our highly efficient triple-net model. Flow-through of cash revenue to adjusted EBITDA was approximately 106% while flow-through of cash revenue to AFFO was approximately 95%. As always for additional transparency including a detailed outline of our cash rent revenue by lease, we point you to our quarterly financial supplement which is located in the Investors section of our website under the menu heading Financials. We welcome any feedback on the materials. Moving on to our balance sheet and funding activities. As a reminder on June 28 we completed an upsized follow-on offering of 115 million shares sold at a price of $21.5 per share for net proceeds of approximately $2.4 billion. The offering was comprised of a 50 million share regular way common stock offering resulting in immediate net proceeds of approximately $1 billion and such shares being added to our total share count 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 at any time between now and September 26, 2020. Our objective with the June offering was to immediately de-risk the balance sheet by effectively locking in funding certainty for the announced and prospective deals. With this approach we continue to have some near-term dilution but we believe this capital ensures that we have the balance sheet flexibility needed to close on the announced transactions and provide our shareholders with very attractive long-term growth. For the remainder of the long-term funding needed to close the Eldorado, Century and Cleveland/Thistledown transactions, as well as the refinancing of the existing secured CMBS loan currently on Caesars Palace Las Vegas, we intend to access the debt markets through a combination of term loan and unsecured bonds on a leverage-neutral basis. Our total outstanding debt at quarter end was $4.1 billion with a weighted average interest rate of 4.96%. Ninety-eight percent 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 4.3 years and we have no debt maturing until 2022. We ended the quarter with approximately $1.8 billion in liquidity including approximately $774 million of cash and short-term investments and availability of $1 billion under our revolver. This $1.8 billion in liquidity does not include the forward equity component of $1.3 billion I referenced above. Finally as of September 30, our net debt to LTM EBITDA was approximately 4.2x well below the low end of our long-term target of 5x to 5.5x. Regarding our acquisition activity, we continue to pursue consistent accretive growth and work to close the transactions we have announced in 2019. As John mentioned, we closed on the JACK Cincinnati transaction on September 20th adding approximately $42.75 million in annual cash rent at a 7.7% cap rate. We funded JACK Cincinnati using cash on our balance sheet. With respect to the JACK Cleveland Thistledown acquisition that we announced on October 28, we will not need any additional equity to fund this transaction on a leverage-neutral basis. As I mentioned, we had prudently raised all the equity funding required in our successful June 2019 follow-on offering. Between the 3 announced pending transactions, the Century portfolio, Eldorado and JACK Cleveland Thistledown, we will add just over $343 million in annual cash rents, increasing our annualized rental income by approximately 37% on a run rate basis. In terms of timing, we expect the Century portfolio to close by year-end and expect JACK Cleveland Thistledown to close in early 2020 and the Eldorado transaction is targeted to close in the first half of 2020. With respect to guidance we will continue to present 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 Cincinnati on September 20 and the acceleration of the deferred financing fees that have been incurred in connection with a $4.7 billion bridge facility for the Eldorado transaction. The pressure estimates reflected the dilutive impact of the additional 50 million shares of common stock issued on June 28, as well as an estimate of the additional shares from the forward sale agreements that are required to be included in the diluted earnings per share calculation under the treasury stock method. We now expect to be between $645 million to $650 million, or $1.47 and $1.48 per share, versus our prior guidance of $635 million to $645 million, or $1.45 to $1.47 per share. As always, our guidance does not reflect any of the pending acquisitions or prospective capital markets activities. On our dividends for the second year in a row we announced an increase in our annual dividend during the third quarter. We paid a dividend of $0.2975 based on an annualized dividend of $1.19 per share representing a 3.5% increase from the prior annualized dividend. The dividend was paid on October 10 to stockholders of record on September 27. With that operator please open the line for questions.

Good morning, everyone. Ed, I appreciate your insights on the anticipated questions. Considering the new entrants in the market, including the recent Blackstone deal and others potentially entering, how do you think this influences your cost of capital, especially concerning debt? In your conversations with lenders, which I assume have been ongoing in preparation for upcoming deals, has there been any change in tenor as more participants enter this space and as people become more familiar with your operations?

Yes, Carla, that's a great question. I believe we can apply the concept of cognitive arbitrage to the credit markets as well. This is a new real estate asset class, and real estate lenders have had to work to understand it, just like real estate equity investors. It's crucial for them to grasp the key investment characteristics of our assets and the significant aspects of our tenants. Over time, we expect that the credit market will evaluate our real estate in a way that aligns with institutional real estate credit quality underwriting.

Great. David, I’m fairly certain I know the answer to this, but I want to clarify. The guidance you provided – I understand you expect Century to close, but that is not included in your implied fourth quarter guidance, correct?

That's right Carla. And just to be clear everything that has been announced is not included in the guidance. So the guidance has been updated for the Cincinnati closing as well as some changes in some deferred financing fees. But guidance does not include Century, Eldorado or the recently announced Cleveland/Thistledown transaction.

Great. Thank you guys. Appreciate it.

Good morning, guys. Thanks for all the colors. Ed in your prepared remarks you spoke a lot about the Bellagio transaction which was really helpful. There were two other transactions in and around the Strip, Circus Circus and Rio. I think those kind of come with a little bit of a development opportunity and some land. I was wondering if you could give us your thoughts on those? And there's some development on the Strip Resorts World that drew Las Vegas. So I just wanted to get your thoughts on what development and those types of projects look like on the Strip in the context of VICI and additional opportunities that you see for yourself?

Yes, I will begin and then hand it over to my colleague John Payne. Our core belief is in the strength of Las Vegas, encompassing the entire market including the Strip, downtown, and local areas. We are confident in the fundamentals of Las Vegas as a global city equipped with the necessary infrastructure to support a diverse range of visitor activities, which we expect to continue. Regarding Rio and Circus Circus, we view these as opportunities for redevelopment and repositioning. Currently, we do not see a strong need or compelling opportunity to get involved with these assets, but we sincerely wish the new owners the best and believe they have the potential to succeed, as they are clearly knowledgeable investors and operators. Now, I will pass it over to John for further insights.

Yes. Look I think John a great question. And Ed touched on almost all of it. In his opening remarks he did refer to the two ROFRs we have in Las Vegas with Caesars that we're quite excited about for the long-term. And we'll continue to watch how the new development opens up. As you know there has not been new development in Las Vegas for almost a decade. And it will be exciting to add new product into that market and continue as Ed said to be this world-class destination resort market that caters to just a wide variety of demographics and age groups. So we're excited to see those open.

That's helpful. And to stay on Las Vegas Strip for a quick follow-up. John maybe a question for you. With your two ROFRs and you think about your portfolio, is there a thought or any concern about taking too much exposure to a singular market like Las Vegas? Is that something that you would be focused or right now is kind of the whole map still open and kind of agnostic to location at this point?

No. I mean we think about that obviously. And what we like about our portfolio today is how diverse it is and we do have Las Vegas exposure and we have large regional exposure and we're also continuing to grow our pie. And so we see this opportunity to continue to be diverse in many different markets. And we realized we've said from the start of the company we really like Las Vegas, we like the Strip, we like the locals market, and we like downtown as well. And so we'll continue to evaluate opportunities there. But we don't think there's overexposure because we also plan to continue to grow our company in other ways outside of Las Vegas.

Very helpful. I appreciate it. And congratulations again on all the successful activity. Thanks, Edward Pitoniak.

Hey, guys, good morning. Just maybe two questions. First can we talk about golf operations for the quarter? It came in a little bit lower than what we were thinking especially on the margin. Just any color there? And maybe what's the right way to think about that business going forward.

John do you want to take that?

Sure. It was a little off. Again remember the third quarter is the quarter where we see in Las Vegas in particular where the courses do out to close for reseeding. But we've been quite excited about the team we put in place and it's now going on almost two years of running it. Remember these courses were run particularly in Las Vegas as casino courses; they were amenities to the casino operations and now they're run by us as stand-alone. And we've seen nice growth in a variety of areas, not only in the golf business but also in weddings and other areas where we see ways we can use the facility differently. So a little off in the quarter but we feel quite good about the consistency of the business that we're going to see in 2020.

I wanted to mention that the golf courses have experienced significant revenue growth this year, both in terms of the number of rounds played and overall revenue, outperforming their markets considerably.

Great. And then look I think the deal with Rock gaming is really interesting and some of the comments about the potential to work together in the future. Just asking sort of the standard non-gaming question is moving to non-gaming something that could happen sooner than later at this point? Or just any color there would be great.

I'll start, and John can chime in. Barry, it will happen. We're witnessing compelling opportunities in several non-gaming sectors. Regarding the Gilbert Group, we are excited to partner with JACK Cleveland and Thistle, and we are also thrilled to be connected with the Bedrock Group through JACK, which has numerous projects in both Detroit and Cleveland. Their developments near our asset in downtown Cleveland are particularly exciting. John and I were in Detroit about a week ago, and what Bedrock is developing there is impressive. Recently, they announced a significant project in Detroit, right next to our Greektown Casino, related to Steve Ross. While it isn't an experiential asset that we would be involved with, it contributes to their ability to enhance urban landscapes. If they ever develop experiential assets where we could play a valuable role, we would certainly be interested. John, do you want to add anything?

No I think you nailed it. I think being associated and partners with very successful merchant developers over the next decade will open up opportunities for us. We think whether we decide to do it or not but this team is incredibly creative in what they do and what they've done in Detroit. The land they have in Cleveland around the assets that we just acquired so more to come on that but it's exciting. We're excited to be partners with them.

Hey, guys. Good morning. Thanks for taking my questions. So first off congratulations on announcing yet another large and accretive deal in the quarter which actually leads me to my first question which is how big does VICI want to be ultimately? And related to that do you think a horizontal merger with one of the other gaming REITs makes sense maybe to accelerate your scale and exploit the cap rate arbitrage opportunity that exists within gaming while you still can?

Yes Daniel, good to talk to you. In terms of how big can or should VICI be I mean it should be as big as it can be while continuing to truly grow shareholder value in a risk-adjusted way that does not put shareholder value at risk which is to say getting bigger simply for the sake of getting bigger is not a strategy we would ever pursue. And in terms of how we look at opportunities across the full spectrum of opportunities we've got a team that has been demonstrated in these two years that has a tremendous amount of energy and a tremendous amount of capacity. We will always be looking at every option we have to increase shareholder value. And right now we think we've got a really nice full plate pursuing exactly the kind of strategy we've been pursuing these last 24 months.

Okay. That's great and I totally agree for what it's worth. And then my second question is related to MGM's increasingly vocal strategic focus on becoming asset-light. I'm wondering to what extent you think the MGM strategy shift will lead to other owner-operators who maybe previously wouldn't consider sale leasebacks to reconsider.

Yes Daniel. I apologize if this sounds like a standard response, but I believe time will reveal the outcomes. There are clearly many highly skilled individuals contributing to the development and execution of the MGM strategy. They demonstrated this with their compelling transaction with Blackstone, and we genuinely wish them the best. We feel they did us a favor with that deal, and we appreciate and congratulate them for it. As time progresses, I believe they will have the chance to show that an asset-light strategy can create value. Once again, we wish them all the best.

Hi, thank you. Ed, I wanted to ask you to elaborate on your comments regarding valuation, especially in regional markets compared to Las Vegas. It seems to me that regional value is more closely tied to the licenses for gambling than to the real estate value for other uses. This value is linked to the scarcity of those licenses, which tend to increase as states seek to raise tax revenues. I'm trying to consider the situation without Las Vegas. How do you approach assessing risk related to state regulations on expanding gambling or increasing taxes on operators?

Yes. Well Smedes, it's a very good question. And I would absolutely agree that there is value in the license. And in terms of the degree to which the value of the license can be subject to risk through a license expansion, that is indeed a risk. But I think it's interesting to see what has unfolded in Pennsylvania and appears to be unfolding in Illinois. When a jurisdiction will put incremental licenses up for auction and the market participants acting very rationally tell the jurisdictions, well we don't actually want to buy those because we think the market is adequately supplied. So right now, I think you have at least for the time being a rational market when it comes to supply-demand balance even when a given jurisdiction might want to increase supply. And then in terms of the intrinsic value of the real estate while it may or may not have alternative uses, it is truly bespoke real estate. It is mission-critical real estate; it is very difficult to reproduce; it is very expensive to reproduce and it's absolutely mission-critical to operators whose economics are so compelling. They're going to want to continue to occupy it. So I would just reiterate that while there may be differences of degree in value, I would say that there will not be differences of kind, especially for good solid regional assets in good regions where the tenant is a very solid occupant. And I'm going to say something I probably shouldn't say. But I believe I could make a rational argument that MGM National Harbor, which is one of the great regional assets in America, could be valued at a cap rate even south of Bellagio. It's a 24-hour city. It's an incomparable piece of real estate in an incomparable location. I think there's a very very healthy and exciting and energetic debate that can be had around how to underwrite good regional gaming assets. And the degree to which people think they deserve a substantial discount to assets on the Strip is potentially losing sight of real value.

Okay, thank you. I appreciate that.

As a follow-up to that last question, I realize we're still in the early stages of the Bellagio transaction announcement. Are you observing whether your perspective that regional gaming might achieve similar valuation as Vegas Strip gaming is coming to fruition in terms of demand? Are you noticing possibly increased interest in Vegas gaming from other institutional capital sources, considering it’s a more familiar market? It seems like a market where more capital can be deployed quickly. How is the competition shaping up between Vegas and what you're encountering when you search for assets in a regional market?

Yes. First of all, John, I want to clarify that I did not mean to suggest that regional assets should be valued the same as Vegas assets. I apologize for that. For certain select regional assets, I believe I could argue that some of these assets might be considered equally valuable or potentially more valuable than some prime Strip assets. Generally speaking, I think regional assets will likely trade at a slight discount compared to Las Vegas real estate. As for how the market is perceiving regional real estate in light of the Bellagio transaction, it's still a bit early to assess since that happened only about three weeks ago. However, I did receive a call shortly after the Blackstone announcement indicating that our valuation hadn’t yet adjusted just three days later. It may take some time, but we've seen interest from other firms like EPR, which is a strong REIT, in regional gaming. I believe there will be an increased focus on the value inherent in this real estate, highlighting that properties outside Las Vegas hold value too.

Okay understood. And then specifically with regards to the loan that was announced as part of the Jack Cleveland and Thistledown transaction can you maybe describe what types of properties are collateralizing the loan? Just a color there.

Yes, it's a secured first lien on the Higbee Building and the May Company Garage, which are part of Rock Ohio Ventures as our ultimate guarantor.

Okay, understood. Lastly, is there anything structurally that would prevent you from implementing another forward equity transaction if you experienced a new influx of deal volume? I realize you can fund the current pipeline with the existing capital raised in equity today. However, if you needed to establish another one, is it accurate to say there’s nothing structural that would stop you from doing so before taking down the previous one?

No, other companies do have multiple forwards outstanding at the same time. There is nothing structurally preventing us from doing the same. It’s just an equity offering with a derivative component. So, if there were something out there, we could move forward as needed.

Oh, that's it for me. Thank you very much.

Hi, good morning, everyone. Question for John. I want to make sure that I heard some of the commentary appropriately about the prospects for growing into contiguous or alternative or non-gaming forms of real estate. I think you may have said opportunities over the next decade which leaves quite a bit of latitude there. I just wanted to go a little further and ask do you think that this is something that could occur or evolve over the next say two or three years or is it a much longer-term evolution that we should be thinking about?

Yes David, good question and I'm glad to clarify my comments. The referring to decade was to the partnership with the Rock venture family of companies and working with them to develop. As it pertains to my comments about hospitality and experiential, I think more in the near-term than that. So to your point about two or three years opportunities there, I think we've been quite clear that we are spending time better understanding certain sectors, spending time understanding great operators in those sectors and are there opportunities for us to continue to diversify our portfolio with the goal to continue to be geographic and have tenants and sector diversification. That clarifies my comments.

Got it. And if I can just follow that up is it a necessary bridge or link that involves an owner or developer of gaming assets who also does other things or just using as an example a project like Pompano which has a casino as a hub but is intended to have a variety of other asset classes within the entirety of the project. Should we think about gaming owners and gaming properties as really the bridge or a link?

No, we appreciate the connection, but it doesn't necessarily need to be that specific link. If there are opportunities near the facilities we own or others that are developing experiential hospitality assets we find appealing and can participate in, we certainly will. We will evaluate what aligns with our interests. However, it does not need to be associated with a gaming operator or facility. In fact, we are focusing more on areas that are not connected to gaming. So that's essentially our position.

Thank you. So in your initial remarks you made the point that private and public market values converge eventually. I don't think that always happens. And so if it doesn't what do you do?

Yes. No you're absolutely right Thomas. There can be situations in which they don't. And you would know even better than me. But I mean hotels may be a case in point right now where private market values are in excess of public market values. And when that disparity of value exists it does tend to correct over time. If nothing else the private market starts to scoop up underpriced public market assets. It does not tend to be a permanent condition unless there's something inherently wrong with the assets or the portfolios as a collection. And I suppose one of the options for public players in any real estate sector when the public market continues to undervalue them is again see if the private market will pay you more than the public market is willing to pay you today.

And do you ever have conversations with people about selling single assets?

Yes we do occasionally but it's not because we feel they're undervalued it's because somebody else is interested in them for various strategic reasons on their own part. And after two years obviously we're still very excited about what we own. And we're also very excited about the progress we've made in two years such that we are not in any sort of state of frustration or impatience at this point as to how the market is valuing us. We believe the market's understanding of our value proposition continues to grow quarter-by-quarter. While there is occasional noise in the equity market overall and in the RMZ, we like the progress being made and we're certainly not impatient at this point. Thank you, Thomas.

Thanks for taking the question. We obviously covered a lot of ground here. But Ed I want to maybe this is a hard question to answer given a lot of the differences in addition to the similarities. But I wonder if you care to gander on what a cap rate spread between Bellagio and its current structure and your CPLV at least on the other side of the Strip as we think again about that sort of ripple effect in cap rates that you mentioned and have referred to at other times.

It's a very good and fair question that I've thought about quite a bit. I can't give you a highly confident answer right now. However, it's important to evaluate each opportunity within its own context. For Bellagio, we would take a close look at the trading cap rate of 5.75% and assess it not only based on the property's quality, location, and tenant credit but also considering the lease terms associated with that cap rate. Similarly, for any other asset like CPLV or a high-end strip property, one should consider what the appropriate cap rate should be based on the specifics of that asset, its lease, and the tenant's credit. We genuinely appreciate Caesars Palace as an asset and are excited about its potential under the new management. We also value the 7 acres of land in front, which we believe are among the most underutilized in American commercial real estate, located at the intersection of Flamingo and Las Vegas Boulevard. In short, we have a strong positive feeling about that asset.

No that's good. It's interesting to hear your perspective on that, and I'll follow up with another question that combines a couple of others that have been asked. As you consider VICI over time and how many REITs operate as they grow, looking at asset recycling as a potential source of equity, what do you see as the opportunities in the coming years for selling assets as a means of equity for new deals and getting that process moving? Is that a possibility on the horizon?

It definitely should be Rich. I don't think we would be very good real estate portfolio managers if we weren't always asking if a given asset in the portfolio might be worth more to someone else than it is to us. So we would not be doing our jobs if we did not over time engage in that kind of rigorous portfolio management asset by asset. And so I think to your point Rich it will be evidence of the further maturation of the asset class as an asset class and it will give further confidence to market participants that there is a liquid market in the assets and that values can be established with confidence.

Hey, It's Michael Bilerman here with Smedes. Ed sort of wanted to talk a little bit about some of your opening comments as well. And certainly Blackstone coming in and paying what they did with the cap rate justifies sort of value of real estate. But it also leads to cap rate compression that if you don't have a commensurate decline in your own cost of capital, your investment spreads are going to narrow and you won't be able to create the same level of accretion. And I guess how do you sort of think about that aspect?

Yes, we think about it a lot, Michael, and we're glad to have you on the call. I'll return to my earlier comments which highlight the importance of the market valuing our assets and the associated cost of capital improvements. If this doesn’t happen, we'll need to focus on assets that we can afford and that offer some strategic advantages in bidding. I want to emphasize that we place great value on John Payne's relationships within the gaming sector and our ability to build connections with operators who can sometimes provide a competitive edge in bidding, as we've seen recently. However, only time will tell how this will unfold. You've raised an important question that could have implications. We are optimistic and trust that it won't be an issue if we can continue to show that we are savvy, energetic investors acquiring assets at favorable prices.

When I think about the net lease model when you look at the traditional net lease REITs. Their competitive advantages are their cost of money and then the ones that have been able to distinguish themselves as the relationship-based investing that we have been able to have right? And so you mentioned John Payne and his relationships for you that's what gives you an added bonus relative just to the cost of your money. But those companies trade at big premiums to the underlying value. And I guess that's eventually where you want to get to?

Yes you are absolutely right. You are absolutely right. And I do think that it is this iterative process where the demonstration of competitive advantage tends to improve the cost of capital which in turn increases competitive advantage. So what we want to achieve I guess Michael is virtuous cycle dynamics or flywheel dynamics choose whichever metaphor you want. And again we will be patient. We will not get out over our skis in terms of paying what we should not be paying in order to somehow try to demonstrate to the world we should be valued higher than the market is valuing us at that time.

You mentioned skis. Where are you right now in terms of other verticals outside of gaming?

We are diligently and thoroughly investigating various sectors outside of gaming. When we analyze these sectors, we focus on four key criteria: First, we assess if the sector is highly cyclical; if it is, it becomes less appealing. Second, we consider whether the sector faces long-term threats, such as whether a place-based business can be replaced by online services like Amazon. This is a significant risk many sectors are currently contending with. Third, we examine the supply-demand dynamics to ensure the sector is not prone to overinvestment, which can lead to oversupply, poor economics, and subsequently poor returns. Finally, we look into whether there is an operator providing an end-user experience that has shown resilience over decades and is expected to continue performing well for years to come. We are excited that we are identifying several sectors that meet these characteristics. Some of these sectors may lack strong macro trends, like skiing, which you mentioned has not shown significant macro trends in the past three decades. However, there are a few players in this space that have proven they can be highly successful and generate substantial value even in a sluggish macro environment, thanks to their competitive advantages, including network effects.

You don't see online gaming and its potential for growth as a long-term threat to the gaming business? It seems like that's a significant point.

Yes, yes exactly. At this point it does not appear to be online gaming it's been active now in the U.S. since 2011. And there's really very little evidence that it has cost brick-and-mortar visitation. You do have examples like New Jersey sports betting where there is an awful lot of mobile activity including those who take the path train to Hoboken and surface in Hoboken so they can place a bet. But at least in that case the revenue is funneling back through the brick-and-mortar facility. But by and large the reason people go to casinos is to get out of the house. And we think the human urge to get out of the house is a pretty enduring one.

Well those people should just get a private VPN and rather than taking the train to Hoboken but that's a separate issue. I appreciate your time. Thanks.

Thanks, Michael.

Thank you very much operator. In closing we at VICI are more excited than ever about the institutionalization of this real estate asset class. We continue to make significant strides in executing our strategy as evidenced by our activity in the year-to-date and we have no, I repeat no plans of slowing down. Our growth pipeline continues to be robust and we believe we are well positioned to continue growing our portfolio and driving superior shareholder value. Thanks again for your time today. We look forward to providing an update on our continued progress when we report our fourth quarter and year-end results. Thank you all.