VICI Properties Inc (VICI) — Q1 2022 Earnings Call Transcript

Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2022 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 the words such as will, believe, expect, should, guidance, intend, outlook, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial 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 on our website and our first quarter 2022 earnings release and our supplemental information. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties described herein, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Danny Valoy, Vice President of Finance. 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, and good morning, everyone. Happy Cinco de Mayo. When we held our last earnings call in late February, we had just closed on our acquisition of The Venetian, one of the largest scale and highest quality single assets in American commercial real estate. As we speak with you today, we have just closed on our acquisition of MGM Growth Properties, MGP, one of the largest scale and highest quality portfolios of Class A real estate in American real estate investing. VICI's story over the last 14 months since we first announced our acquisition of The Venetian is a story of transformation. We have transformed the scale of our portfolio, our tenant and geographic diversity and very importantly, the character and quality of our balance sheet. We've also become the leading real estate owner on what we believe is the most economically productive street in the world, the Las Vegas Strip. In a moment, John Payne will talk further about the transformation of our portfolio, and David Kieske will talk further about the transformation of our balance sheet. But let me first spend a few moments talking with you about what's been proven about our business model over the last two years and how timely our current transformation may prove to be from both offensive and defensive perspectives over a coming period of economic uncertainty. Over the last two years, COVID-19 proved the resiliency of VICI's business model because COVID proved the resiliency of our tenants' business models. VICI collected 100% of our rent in cash and on time throughout the COVID-19 crisis because of the operating excellence and operating liquidity of our tenants. Our operators have shown their ability to operate through thick and thin. The economic outlook for the next year or two may be murky, but we firmly believe that our operators prepared their operating revenue, cost and liquidity models for whatever may be coming. What about our view on VICI's ability to continue to grow in the coming period? There are five key capabilities as we see it to growing as a net lease REIT in all cycles, including whatever cycle may be about to occur. Number one, same-store NOI growth based on key lease terms regarding escalation and CPI protection; number two, internal funding capability based on cash retention; number three, the capability and opportunity to invest incrementally in existing assets and return for incremental rent; number four, the ability to source acquisitions when the frequency and intensity of asset marketing processes lessen; number five, access to investment-grade credit when high-yield markets may be constricted or costly. Let me say a few words about VICI's growth capabilities in each of these five areas: point number one, same-store NOI growth. Green Street in the September 2021 analysis showed that VICI generates same-store NOI growth more than four times higher than net lease rates on average. And in times of higher inflation, VICI's same-store NOI superiority versus other net lease rates expands when factoring in the CPI clauses built into our leases. Point number two, internal funding capability. Pro forma for the annualization of VICI's net income and debt service, having closed on The Venetian and MGP, if we maintain a dividend payout ratio between 75% and 80%, that would leave between $400 million to $500 million of retained earnings available to us for investment annually, a competitive advantage during periods when the market may be constricted. Point number three, investing incrementally in existing property in return for incremental rent. Our assets measure, on average, over 2.5 million square feet and sit on many acres of land. That scale of building and land enables us to invest incrementally in our existing properties in ways generally not available to net lease REITs whose stores generally average around 25,000 square feet, one-hundredth the size of our assets. Point number four, sourcing acquisitions when asset marketing processes lessen. You've heard us say before that we grow our business at VICI and our portfolio by growing our relationships. As we pursue both gaming and non-gaming investments in the coming years outside of marketing processes, we are confident that our ability to generate new relationships with operators who operate in net lease white space will give us growth advantages. Point number five, in terms of investment-grade credit with high-yield credit markets tightening. Through the great work of David Kieske, Erin Ferreri and other members of our finance team, we achieved investment-grade status with S&P and Fitch about two weeks ago. We may be in the early stages of a challenging period for the high-yield credit markets and CMBS financing. We believe that the relative competitiveness and attractiveness of our capital could increase during the coming period as experiential operators look to refinance their existing businesses and/or fund their growth initiatives. To sum up, VICI has not only gotten bigger, but moreover stronger, and we believe advantages will accrue to those REITs that are bigger and stronger. I'll now turn the call over to John, who will talk about our new portfolio and operating conditions and to David, who will talk about our financial results and balance sheet upgrade.

Thanks, Ed, and good morning to everyone. The first four months of 2022 were very productive for VICI. In February, we completed The Venetian Las Vegas transaction. And just last week, as Ed noted, we closed on the acquisition of MGP, adding 15 Class A market-leading assets with over 33,000 hotel rooms, 3.6 million square feet of convention space and hundreds of food and beverage outlets to our portfolio. As a management team, having the opportunity to acquire the MGP portfolio in a master lease structured where the cash flow is cross-collateralized with inflation protection beginning in lease year 11 and a corporate guarantee from MGM Resorts is something we are very proud to have accomplished on behalf of our shareholders. Our 43-asset portfolio is unmatched in size, scope and quality in the triple net sector, and we plan to continue to grow our asset base with our best-in-class tenant roster as well as new operators. As some of you may know from recent data that has been released, Las Vegas continues to be a top destination choice by consumers, and the Las Vegas Strip remains one of the most economically productive streets in the world. Gaming revenue in Las Vegas in March alone came in at $746 million, approximately 35% above 2019 levels. I'm going to repeat that: approximately 35% above 2019 levels. Additionally, the outlook for room revenue is very strong as midweek business continues to normalize with convention business returning to the city. On their first quarter earnings call, both MGM and Caesars cited 90% hotel occupancy in March, and Las Vegas room rate surveys published by the Sell Side have pointed to second quarter ADRs that are tracking 30% above 2019 levels. The City of Las Vegas, with its diversified entertainment economy that is no longer just about gambling, but centered around business, sports, and entertainment, continues to prove to be the top destination in the U.S. and possibly the world. As a real estate investment trust in the business of owning and leasing integrated entertainment resorts within a triple-net structure, we are big believers in Las Vegas for decades to come and are incredibly excited to now own 10 world-class assets and a total of 660 acres along the Las Vegas Strip. Our regional casino assets with regional markets in general also remain extremely healthy. In case you somehow missed the first four months of 2022, I'll give you the cliff note version. In a nutshell, the casino industry is in amazing shape right now. Several operators, including Boyd Gaming, Churchill Downs, MGM and Caesars have made it quite clear with their quarter 1 earnings releases and conference calls that the reports of the decline of the U.S. regional casino margins have been greatly exaggerated. April results have continued the March strength, and not only is the gaming consumer healthy, wealthy and wise, they are still choosing to spend money on gambling despite having many other entertainment options. As we think about what comes next for VICI, we are fortunate to have executed some of the largest and most complex transactions in the net lease industry, and we will continue working relentlessly to execute compelling opportunities that deliver accretive value for our shareholders. Now I will turn the call over to David, who will discuss our financial results, our balance sheet and our guidance.

Thank you, John. I’ll begin by discussing our balance sheet. Since VICI was established in October 2017, we have dedicated ourselves to transforming our balance sheet. We have consistently highlighted our focus on this issue over the past four and a half years. It is crucial for us to maintain a capital structure that can withstand different cycles and provide the necessary safety and security for our equity and credit partners. While I won’t dwell on 2021, it serves as a reminder of our long-term strategy to protect our company. We raised $5.4 billion of equity during the announcement of The Venetian acquisition and shortly after the MGP transaction. These equity offerings mitigated risks associated with equity funding before finalizing our $21 billion acquisitions and enabled us to pay off all secured debt by last September. These steps have positioned us well for early 2022 and the years ahead. On February 8, we closed on a new $2.5 billion unsecured revolving credit facility and a $1 billion delayed draw term loan, enhancing our liquidity with efficient bank capital. On February 23, we finalized the $4 billion acquisition of Venetian by settling two outstanding forwards, bringing in 119 million shares with total proceeds of around $3.2 billion. Additionally, we drew $600 million from our revolver and used cash reserves to fund The Venetian acquisition. On April 18, S&P and Fitch upgraded VICI's debt rating to BBB-, significantly expanding our access to permanent debt capital. On April 20, we priced $5 billion in investment-grade senior unsecured notes, marking the largest REIT investment-grade bond offering ever. The blended cash interest rate for these senior unsecured notes stands at 5%, and the effective interest rate, considering our hedging portfolio, is 4.51%. On April 29, we closed the acquisition of MGP along with a $5 billion bond offering, using $4.404 billion from this offering to redeem most of MGM's MGP OP units. After the acquisition, we have around 963 million shares of common stock outstanding, and VICI OP has 12.2 million additional OP units held by MGM as part of the merger. Remaining funds from the bond offering and available cash were utilized to settle the $600 million under VICI's revolving credit facility. Regarding leverage, we concluded Q1 2022 with a net debt to adjusted EBITDA ratio of 3.6x. This illustrates our considerable effort to strengthen the balance sheet prior to MGP's completion while positioning ourselves to raise additional debt for funding and income associated with that transaction. Presently, pro forma for the MGP acquisition, our total debt is $15.5 billion, including our share of the BREIT JV debt, which gives us a run rate net debt to adjusted EBITDA ratio of approximately 5.8x. Our weighted average interest rate is 4.38%, factoring in our hedging portfolio, and we have an average maturity period of 8.4 years. Briefly discussing the income statement, our AFFO for the first quarter was $305.5 million, or $0.44 per share. Total AFFO in Q1 2022 rose by 19.8% year-over-year, while AFFO per share saw a 5.1% increase from the previous year. The difference in growth rates between overall AFFO and per share figures results from a higher share count. Our fully diluted share count increased by about 26.3%, mainly due to the standard weight portion of the September 2021 equity offering that added 65 million shares, the settlement of a June 2020 forward sale agreement last September which added 26.9 million shares, and the settlement of multiple sale agreements in February 2022 that accounted for the addition of 119 million shares. Our results once again emphasize our efficient triple net model, as evidenced by a significant increase in adjusted EBITDA relative to revenue growth, with margins remaining strong in the high 90% range once non-cash items are excluded. Our general and administrative costs were $9.5 million for the quarter, representing just 2.3% of total revenue, which is in line with our annual expectations and one of the lowest ratios seen in the triple net sector. Moving to guidance, we are revising our AFFO guidance for 2022, both in total amounts and on a per-share basis. Please remember that our guidance does not factor in possible future acquisitions or dispositions, capital markets activities, or other one-time transactions. Additionally, as previously stated, we recognize a noncash CECL charge quarterly, which is inherently unpredictable, making precise forecasting of net income and FFO challenging. Thus, our guidance focuses on AFFO, which we believe is the best metric for measuring the productivity of our equity investments and assessing our financial performance and ability to distribute dividends. Our guidance includes the recently finalized MGP acquisition and the issuance of 214.5 million common shares to former MGP stockholders, along with the $5 billion bond offering completed post-quarter. We anticipate that AFFO for the year ending December 31, 2022, will fall between $1.66 billion and $1.69 billion, translating to between $1.89 and $1.92 per diluted share. With that, operator, we now invite you to open the line for questions.

Congratulations on everything you guys have gotten done recently. My first question is just given everything that you've all done and getting past all that, what has it done to just the conversations you're having on future growth and opportunities? Has it expanded sort of your discussions and just increased the profile and stuff that you're looking at? And how are you organizing all those thoughts?

John, you want to start?

Sure. Well, Tony, thanks for the comments, and it's always nice to hear from you. There's no doubt, Tony, that we've changed quite a bit as a company from when we started back in 2017 just due to size, scale, scope, magnitude of assets, and it has got the attention of folks that I think when we started the company, did not know exactly who we were and what we were doing. So the funnel is definitely as wide as it's ever been for us. There are numerous opportunities. You've heard us talk about gaming opportunities, we'll continue to pursue in markets where we want to own more real estate or we don't own real estate. And then there are a lot of companies that have noticed what we've done in the experiential space. You've heard Ed, David, myself, Danny, and others talk about making real estate investments outside of gaming and in experiential, and we've been in contact with them. And so as Ed in his comments, we build relationships, and we build relationships that we hope turn into real estate ownership. And so we are organizing, we're meeting, we're traveling. We're doing all that right now, Tony. And we'll see how it plays into our growth, but we feel really good about the magnitude of opportunities that we see in front of us.

Tony, I'll just add to that. I think a truism across every real estate asset class is that there are benefits in owning marquee assets that are well known to whatever category or well known within whatever category you're in because it increases your visibility. And we were fairly invisible when we got going four and a half years ago. And there is no question that owning assets like Caesars Palace Las Vegas, like The Venetian, like MGM Grand, Mandalay Bay, like National Harbor, like Caesars New Orleans, gives us a visibility that is very, very helpful, as John points out, and greater top-of-mind status when people think about who they'll call.

Got it. Okay. And then with regards to the opportunities to reinvest in the asset base, including things like the Mirage. Can you talk about timing and around maybe hearing more about a project like that? And also, just does anything in the rate environment or macro volatility change the thinking or prospects for some of those investments? Or do the trends on the ground there kind of win the day right now?

David, do you want to start with answering the second half of Tony's question and then John can add.

Sure. We are very aware of the macro trends. We were fortunate to complete our bond offering a couple of weeks ago and successfully execute our plans. Each day brings new volatility, especially with recent comments from the Fed. We will focus on ensuring that our partner property growth loan achieves the accretive returns we expect. This involves investing in these outstanding assets of size, scale, and complexity that are unparalleled. We will ensure that the capital we deploy yields incremental returns that benefit us.

As it pertains to the Mirage, Tony, the Hard Rock team is going through the licensing process in the state of Nevada. They're amazing developers and operators. And we obviously are already partners with them in our Cincinnati asset. And so we're excited with what they are going to have planned for the redevelopment of the Mirage and the Hard Rock Las Vegas. But no timing yet as they need to go through that process.

Tony, I want to add one more point. Often in the early years, prospective partners tell us that they can borrow money at a lower rate than what we offer. We acknowledge that we are continuously learning how to communicate our value better. Recently, we've been focusing on helping people realize that our capital and its cost should not be compared solely to their debt costs, but rather to their overall cost of capital, which includes both debt and equity. Even before recent increases in credit spreads and declines in multiples for various operators in both gaming and non-gaming sectors, our cost of capital was already very favorable compared to their overall cost, and it has become even more advantageous over the past few months.

Okay. And then just last one very quick, I guess, somewhat related to that. Like what is your preference or thinking right now as you think about yields and contractual growth? Like do you want more inflation protection or more upfront yield? Or how do you think about the balance of that? Or are you solving for an IRR? What's the thought process there?

David, do you want to take that?

Yes. Tony, I mean, ultimately, we're solving for a spread to our cost of capital. And like every deal is different. Obviously, inflation and CPI discussions are more relevant today than they were when we started VICI. But ultimately, as a net lease company delivering an attractive 100 basis points, 150 basis points, sometimes less, sometimes more spread to our cost of capital is what we strive for. We also look at our underwriting in terms of cash-on-cash returns and the IRR over time to ensure that we are delivering incremental accretive deals to our shareholders.

Maybe just going back to external growth for a minute. Just in regards to the ROFRs and other put-call agreements you have in place with operators, has there been any discussion on those eligible for execution? And how do you think about the relative attractiveness of these?

John?

Yes, Spenser. Regarding the ROFRs, I believe you're asking about the Las Vegas ROFR. I would direct you to the CEO of Caesars, Tom Reeg, who was very clear during his earnings call about the situation. He mentioned that Caesars began the process in early '22 and anticipates another update around the middle of summer. The sales process is governed by the VICI agreement documents, and that process is underway. We are aware of our agreements with them. As I mentioned in my opening remarks, we currently own 10 excellent assets on The Strip in Las Vegas, which account for about 660 acres, including some vacant land. This market is truly remarkable. As I noted, with business up 35%, gaming revenues are outstanding, and as their new ad campaign suggests, it really is the greatest arena on earth. We are strong supporters of this market and will continue to evaluate whether we want to acquire more real estate. If we choose to do so, it must come to us in a highly beneficial manner, and we will adhere to our established process in that regard.

Okay. That's great color. And I know you just mentioned, obviously, Vegas revenue has been strong, but just curious if in conversations with the operators, have you guys gained a sense of how regional and/or Vegas operating margins have held up with the inflation pressure?

Yes, that's a great question. Many companies have reported their earnings recently. I want to remind everyone that for us, rent is determined by margin dollars rather than margin percentage points. If you look at one of our tenants, Penn, they generated nearly $50 million more in margin dollars compared to last year based on their latest earnings report. The businesses remain very strong, especially when compared to others across the United States. We are quite pleased. As Ed mentioned in his comments about our tenants and their adjusted business strategies, their margins have improved significantly, particularly in terms of margin dollars. Many are achieving record EBITDA figures. For instance, Caesars reported that 18 properties reached all-time high run EBITDA in Q1. Spenser, I could elaborate on our tenants at length. It’s encouraging to witness their robust performance despite broader macroeconomic challenges.

One point I'd like to add, Spenser, is that with all the focus on inflation, I think it's important to note that VICI enjoys superior CPI protection in our leases compared to other triple nets. But I also want to make sure everyone understands that our tenants are in the business of nightly leases, and in some cases, even hourly leases, and that pertains to their ability to constantly reprice concerning demand and inflation. And I think that, going back to John's point, is a key factor in ensuring they continue to produce all the margin dollars they can possibly produce given their ability based on nightly lease business to constantly reprice.

I wanted to ask just a little bit as you look at potential opportunities, are you seeing any change at this point in potential transaction cap rates just with the rising cost of capital, but kind of weighing that against the continued kind of institutionalization of this real estate space and improving operating trends that you pointed out? Or is it too soon to sort of see any meaningful changes?

It's a very good and timely question, Smedes. In my experience, it often takes sellers longer to realize changes in the market than it does for buyers when entering a period of tightening, with rising costs of credit or equity. Currently, there seems to be a hesitancy among both sellers and buyers regarding the market. We are fortunate to have several discussions in progress that have the momentum to help us and our potential partners navigate this uncertainty about future capital costs. Historically, it takes time for buyers and sellers to adjust and find a new equilibrium. Generally, when the cost of capital increases and availability decreases, cap rates tend to rise as well. In gaming, however, we might experience a period of stasis in cap rates, as this category has been experiencing cap rate compression. It’s possible that the pace of compression slows or even stops, but due to the heightened interest in this category over the past few years, we may not see cap rates expand.

Great. That's interesting. I just wanted to switch gears, John, again, switch and go through the transcript of operators. But I'm just wondering, it sounds like the leisure customer is still very strong in Las Vegas. Do you have any thoughts on how the convention business is lining up over the next year or so, I guess, or however you think about it?

Yes. I mean based on what we've heard, we now have Caesars, MGM and The Venetian running assets in Las Vegas that run the largest convention business there. They are seeing that business planning to return later this year and very strong, as you've heard them say in their earnings in 2023. Smedes, I was quoting the gaming revenue, but what I haven't quoted yet is another thing Caesars said in their earnings, their Las Vegas properties in the month of April had record room revenue. So that's pretty amazing in a place where they're also getting strong gaming revenue. So you can see the consumer, I mean, most importantly for our tenants, the consumer simply has not found a substitute for their entertainment dollars, that Vegas continues to be, again, the #1 destination in America. I've argued with my colleagues that it's the number one destination in the world right now. And not only is the customer coming who wants to gamble, but we're seeing that they diversified these resorts, and they're getting business travel. They're getting room revenue, they're getting food and beverage revenues, spa revenue, pool revenue. And it's the beauty of these integrated resorts. And all the credit goes to our operators and how they're running these facilities.

Given the scale and size of VICI to date, how many strategy or perhaps your minimum requirements change at all?

I would say generally not. And if I guess at what might underlie your question, given that VICI has gotten so big, will VICI sort of establish a red line below which we do not go in terms of asset size or NOI. And I think the answer is no. Again, as a triple net REIT, we enjoy rent per asset that's up over $50 million. The average triple net store produces about $250,000 a year in rent. We will always evaluate the materiality of a given asset not unto itself, but really as part of a larger relationship with whomever may either currently own and want a sale leaseback that asset or an operator with whom we partner in the acquisition of that asset. So we will be much more focused on the long-term growth potential of a given category or opportunity or partnership than we would on individual assets. And that's how we believe over time we will develop a more sustained and sustainable business model of deal flow.

Great. Great. That's really helpful. And then just as a follow-up question, are you seeing a wider group of REITs out there now looking at gaming deals? And maybe to what extent are you competing with operators looking to do holdco deals?

David, you want to take that?

I'll go ahead and jump in. I mean, obviously, we've seen with the Wind transaction in Boston Realty Income getting into the casino space. But for us, ever since we started the company, we always knew there was going to be competition in this space. Clearly, people have seen the resiliency of the model. They've seen the high quality of the assets. They've seen how it's performed in the toughest time ever, which was COVID with the business shutdown and rebounding with all the records that I've been talking about today. So that obviously has attracted more potential owners of the real estate or of the holdco as you mentioned. So we go into every transaction, expecting that there's going to be competition. And we are not surprised at all that there are more folks that are interested in this just incredible real estate space.

Thanks again for getting MGP done and everything else. Just going back to interest rates, but in a different question that as the rising interest rates are putting pressure on what was previously expressing cap rates, can you kind of walk us through how you think about the puts and takes in structuring new leads of such items like cap rate, rent coverage, inflation, CPI kickers and what opportunities there may be for you to potentially get more aggressive?

David, do you want to take that?

Yes, thank you for the question. As I mentioned earlier, each deal is unique, and there's no one-size-fits-all approach. It's crucial for us that any transaction we underwrite, announce, and finalize is accretive from day one. Recently, some hotel REITs announced a 4 cap, aiming to increase it to an 8 or 9 yield, but that's not feasible for our structure. If we were to do something like that, it would likely be our last deal. While CPI is a significant topic currently, we need to have escalators that are reasonable for the specific market we're in, whether it's regional, super regional, or a destination like Las Vegas, along with annual bumps that benefit both us and the operator. We aim for no CPI caps, although operators are somewhat resistant to that. The negotiation process involves factors like value, duration of the lease, and the cap rate we can offer. We have multiple criteria we assess to ensure that we're working with strong credit and operators who are confident in the market. Our primary goal is to ensure that what we agree to is accretive from day one since we will be carrying that for over 30 years.

Jay, I will just add that a bit of wisdom that one of our most important and valuable board members, who many of you know, Craig Macnab, one of the first adages he shared with us is that, gentlemen, the rent should be as low as possible. And we absolutely believe in that. We want our rent to be as low as possible in regard to the economics of the tenant's business because the lower the rent as a percentage of their economics, the more successful they will be, the better credit they will be, and the more willing and able they will be to occupy the building for a very, very long time to come.

Yes, absolutely. I mean certainly, the portions of the tenant accrued to the landlord. That makes a lot of sense. And then I guess just as a follow-up, we previously spoke about the benefits of becoming investment-grade and the lower cost of capital that comes with it, which may open up the door for more non-gaming opportunities. So just curious about how you're thinking about that at this time now that you've achieved the investment-grade status.

David?

Yes, Jay. We are excited to be here and will continue to move toward the BBB credit rating over time, as we discussed during the debt roadshow and marketing process. We aim to diversify our tenants while bringing our leverage back to the 5x to 5.5x range that we have focused on since the beginning. Thanks to Erin Ferreri and her team's efforts, we received a rating upgrade on April 18, which broadens our opportunities. Ultimately, we are investing strategically. By lowering our cost of capital through the debt markets and advancing up the credit curve, we can reduce our capital costs. Additionally, with the MGP Class A shareholders converting to VICI shareholders and the potential for S&P 500 inclusion, we can further decrease our equity capital costs, as you mentioned, Jay, allowing us to diversify further in and outside of gaming.

I want to discuss the next phase, where some of the acquisitions you might consider could be funded by internal capital or cash flow, along with the benefits that arise from this. How significant is this trend, and is it something we should be focusing on this year?

David, do you want to start? And…

As Ed mentioned, we've discussed our free cash flow after dividends, which is approximately $400 million to $500 million on an annual basis. This gives us the ability to leverage that 1:1, providing up to $1 billion in buying power. For example, smaller gaming deals like the Century deal we announced in June 2019, worth $278 million, can be financed with cash on hand. This all contributes directly to our bottom line. The non-gaming deals we undertake are typically smaller due to the opportunities available at the time. That is our free cash flow, allowing us to avoid raising $5.4 billion in equity like we did last year for our transformations. We are pleased with those initiatives and don't regret the decisions we made. As we continue to grow, as Ed indicated, we expect this to be a sustained and sustainable business model, and you will see more of this in the future. I hope that addresses your question, David.

David Katz, I would just...

Just a follow, please go ahead.

Yes, David Katz, I was just going to add that when we look at retained cash as a capital source. We are very cognizant that it is the shareholders' money, and our obligation to produce a superior return and investment spread on the use of that cash is every bit as strong as it would be if we're going out into the market raising equity.

Right. And if I can just follow up. I think the last part of my question is whether there is a landscape where you see some of these kinds of opportunities occurring in the next 12 months or so.

Yes, I'd say, John, we're very confident of that. Are we not?

We are definitely busy, and while I can't specify when our next transaction will occur, I can assure you that our opportunities are broader than ever for a variety of reasons we discussed earlier regarding our size and scope. I believe it is quite realistic to expect something within the next year or so.

So last night, The Flamingo is currently being marketed by Caesars. There is also information that some investors have not been interested at the marketed valuation of over $1 billion, which leads us to two questions. The first is that the property is being more widely marketed, although you also passed on the initial price. The second question is, what kind of cap rate would you target for an investment of that size, considering the cost of capital they imposed, leverage limits, and your desire for immediate accretion?

Well, Greg, it's always a pleasure to speak with you, and you certainly deserve recognition for asking questions that we cannot address on this call. I believe John did a good job explaining what Tom Reeg mentioned recently, and I think we will just leave it at that.

Couldn't agree more.

Well, I figured, I had to shoot my shot there. But maybe as a second follow-up.

You absolutely do. Full marks for asking.

Based on the current inflation numbers, could you provide us with some guidance on the escalators for the rest of the year?

David?

Hey, Greg, it’s David. Similar to but not including unannounced acquisitions or dispositions or capital markets activities, guidance includes the base case escalators.

So does that mean where it could be greater of 2% in CPI or assuming 2%? Or how should we think about that?

It doesn't include any CPI, estimates around CPI because that's a guessing game, and so we can't predict the future. If we could, we'd probably be doing something else. So the base rate in the leases that's in the guidance number.

I was just going to say, Greg, the key period for CPI measurement for us comes in the early second half of the year, isn't that the right way to think about it, David?

Yes. For the bump in November, we look at September, August, and July numbers and compare that to the prior year, and then that's what gets factored into the increase on November 1. For the two Caesars leases, the Caesars master lease and the Caesars Las Vegas lease.

So given some of the kind of news stories or prints we've seen on Las Vegas land prices or even assets that maybe have more of a redevelopment component to them. How are you thinking about your landholdings in Las Vegas? And maybe can you kind of remind us what the process would be for either monetizing those or kind of turning them into development, if opportunities arose on that front?

John and perhaps Samantha, you want to take that?

Yes, I want to remind you that we have 34 acres in Las Vegas that are not yet developed, with 7 acres located in front of Caesars Palace. This land is part of the Las Vegas master lease, and we own an additional 27 acres. Caesars also has some land adjacent to our 27 acres. Regarding development, as you've indicated, there have been significant sales of real estate on or near the Las Vegas Strip, which enhances the value of our land. If we decide to develop, we would collaborate with Caesars, particularly on the land in front of Caesars Palace and the areas behind The Flamingo, Paris, and Bally's. We are optimistic about the current market prices, which, if accurate, reflect strong demand; I heard of a recent small piece of land selling for over $30 million per acre. We're excited to see these trends continue, especially given the impressive performance statistics I've mentioned about this city and the success of its resorts in generating EBITDA.

Okay. And then in terms of the competitive set, you talked a little bit about public REITs in the marketplace. Have you seen any change in either private investors in casino real estate or maybe some of the kind of not publicly traded players that are out there, given some of the moves in cost of debt capital? I mean, has that competitive set changed at all? Any color there would be helpful.

Yes, John, there are actually two noteworthy trends. First, there is a growing interest from institutional investors in the net lease sector. Recent publications have highlighted how firms like KKR, Aries, and Carlyle are entering the net lease market, alongside other private equity and credit firms. Secondly, as you pointed out, there is heightened interest from both publicly non-traded REITs and private equity firms focused on net lease, particularly in what we see as one of the most appealing segments of triple net real estate: gaming real estate. It's also essential to recognize that this interest stems from the advantages of the net lease model as well as the significant appeal of gaming real estate.

But I guess maybe over the short term, given what we've seen in interest rate moves since the beginning of the year, has that demand changed at all? I understand long term, you've seen kind of institutional capital gravitate towards this. Has some of that had to fade away because, frankly, their cost of debt financing has gone up?

Yes. Again, I think it goes back to the answer I gave to Smedes, John, and that is the degree to which there may be a bit of a slack tide right now because, to your point, as an example, the CMBS market has tightened up quite a bit. And there is probably not quite the gold rush fever as there might have been 6 months ago, but it has not gone away because these people are sitting on an awful lot of dry powder.

Thank you, operator. In closing, we thank you for your time with us this morning, especially given how busy all of you are. It is insane how much earnings reporting is going on this week in the REIT sector. With your support, VICI has become one of America's leading REITs in portfolio scale and quality and in economic magnitude. We will continue to work hard for you every day. We look forward to connecting again when we report our second quarter results. Bye for now.