VICI Properties Inc (VICI) — Q1 2023 Earnings Call Transcript

Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2023 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 are usually identified by the use of words such as will, believe, expect, should, guidance, intend, outlook, projects, or other similar phrases, and are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial conditions. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and in our first quarter 2023 earnings release and supplementary information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties, 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 Moira McCloskey, Senior Vice President of Capital Markets. Ed and the 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. Let me start today by telling you how I tend to spend my Saturday mornings with an espresso in hand. First, I grab the Financial Times, the old-fashioned print edition, to see what Katie Martin has to say about the state of the equity and credit markets in her Long View column. Katie can be very funny. But the long and short of it is that the market participants she's quoting these days aren't having a lot of fun. Then I might grab my iPad and catch up on any of Rob Armstrong's unhedged Financial Times columns that I fell behind on during the prior week. Rob's response to current and prospective market conditions is rather Hamlet in character: to be or not to be, to be a bull or to be a bear or to be neither. But who is he who is neither bull nor bear? That is the question. In my second espresso, I might see what the two Michaels and one Marko, among others, have had to offer in market commentary and forecasting in the prior few days, Hartnett, Wilson, Kolanovic. I could call them the three archdukes of doom, but that would be unfair. Well, actually, it's not that unfair. And these folks are formulating a rational response to the current state of the macro economy, monetary and fiscal policy, and the markets. Visibility is low. Uncertainty is high. In commercial real estate, asset pricing is murky and/or subject to dispute between would-be sellers and would-be buyers. As a result, there's not a lot of trading going on. Commercial real estate trading was down nearly 70% year-over-year in March 2023. And it's not like March 2022 was a barn burner for real estate assets or portfolio trading. What does all this uncertainty and low visibility mean for how we're thinking and what we're doing at VICI? Our thinking and doing starts with our current state of earnings growth and investment activity. As you saw on last night's VICI earnings release, for Q1 2023, we generated year-over-year AFFO growth of 18.6% per share, a rate that we believe will be among the highest for REITs generally and S&P 500 REITs specifically. And to take a broader view, so far in earnings season, year-over-year Q1 2023 earnings growth for S&P 500 companies of all kinds is running at negative 4% versus VICI's Q1 AFFO growth again at 18.6%. But it's not only about growth in current earnings; it's about growing our future earnings. Along that line, even amidst this murky trading environment, within Q1, we allocated a total of $1.6 billion of incremental capital to compelling and accretive experiential property and lending investments, which John will have more detail on in a moment. And even with that $1.6 billion of capital having been newly allocated in Q1, we have approximately $859 million of equity dry powder, thanks to our unsettled forward equity and approximately $650 million in cash. Combined with $2.4 billion of undrawn revolver capacity, we have the funding in place to seize on further opportunities if they present themselves in this current environment. Most of all, during an uncertain time like this, we keep doing what we've done at VICI from the beginning. We are always working on our future, growing relationships that have the potential to grow our business. These relationships don't have to turn into deals tomorrow, as John has noted in the past. In that vein, think about the fact that the AFFO growth VICI expects to produce in 2023 is in good measure the result of relationship building we did many years ago with those who would end up being our partners in our Venetian and MGP transaction, which we announced in 2021. Thus, it is, to reiterate, that much of the work we are doing at VICI in 2023 is about growth in 2024, 2025, and beyond. And yet I don't mean to suggest that we are not jumping on immediate opportunities when those opportunities are compelling, as evidenced again by the $1.6 billion of capital we newly deployed in Q1 2023. Finally, we are working intensely in the present and for our future with one of the lowest G&A loads in American triple net REIT management as a percentage of revenues or of assets. Think of our G&A as a form of asset management fee. Our asset management fee understood in this way, as measured by VICI corporate G&A, runs at about 0.1% of assets under management. That's a fee load you would expect from a passive manager of an index fund. With VICI for 0.1%, you get very active investment management that has historically produced significant outperformance. I'll now turn the call to John so that he can share with you what kind of activities we have been up to and are up to.

Thanks, Ed. Good morning to everyone. Ed quoted Shakespeare's Hamlet when describing current market conditions, so I thought it would be appropriate to quote another great, Ted Lasso, when describing how the VICI team has functioned through the last 5 years of a rather volatile market. Coach Lasso said, 'The harder you work, the luckier you get.' We saw the results of that work come together in 2022, which was a transformational year for VICI, in which we doubled our size and scale, becoming one of the largest triple net REITs. 2023, as Ed just noted, is the year in which we are laying the groundwork for VICI's next phase of expansion domestically and globally across gaming and many other experiential sectors. In the first quarter, VICI closed on its first international transaction with PURE Canadian Gaming in Alberta, Canada, one of Canada's top gaming markets. We are thrilled that our first international transaction was in Canada as we believe the Canadian gaming industry presents a great opportunity for VICI as it is an established industry with many similarities to the U.S. gaming industry. This transaction will be the first of many international investments that the VICI team continues to explore across the globe. We also completed the acquisition of the remaining 49.9% stake in our Mandalay Bay/MGM Grand joint venture with Blackstone. This real estate consolidation was a great example of our high-functioning partnership with Blackstone as we both accomplished important goals with this transaction, and VICI now owns 100% of 2 additional Class A resorts on the Las Vegas Strip. To spend a moment on Las Vegas. In February, over 4 million people traveled through Harry Reid Airport for the first time ever, which is 25% above February of 2022. Our operating partners continue to set all-time records, and volumes in all segments continue to remain strong. Our operating partners continue to see very strong hotel occupancy and are also experiencing a nice recovery in the group and convention business. These strong operating numbers are the result of tremendous innovation and capital deployment by our tenants, and their work is making Las Vegas the gaming, sports, and entertainment capital of the world. We're also proud to expand our relationship with tribal nations, adding Cherokee Nation businesses of Oklahoma to our tenant roster as they enter into the lease agreement related to the Gold Strike Casino and Resort in Tunica, Mississippi. We are also supporting our partners at Hard Rock in the redevelopment of Hard Rock Ottawa in Canada by purchasing a portion of the senior secured notes funding this exciting new project. The American tribal nations are some of the best gaming operators, and we look forward to continuing to find ways to help support their growth as they expand in commercial gaming across the country. Within non-gaming experiential industries, the team is intensely studying sectors we believe fit well with our VICI Properties investment criteria. We continue to meet and build relationships with owners and operators in many sectors, including health and wellness, youth, collegiate and professional sports, various forms of family entertainment, theme parks, holiday parks, and other destination-based experiences. The team is forging foundational relationships with the market leaders who have ambitions to grow and see VICI as a preferred capital partner for their businesses, similar to those we helped, Cabot Golf and Canyon Ranch. For this quarter, we expanded our indoor water park presence with our fourth loan to Great Wolf Lodge to fund the development of their location in Connecticut in partnership with the Foxwoods Resort. The VICI team will make the most of this year by continuing to build a pipeline of partnerships that we believe will help us achieve our future growth goals while at the same time expecting to deliver at least 10% of AFFO per share growth in 2023. As you've observed over the past 5 years, our team does not rest very often, as we're laser-focused on building the highest quality experiential REIT in the world. Now I will turn the call over to David, who will discuss our financial results.

Thanks, John. 2023 started off with several very exciting transactions. Our ability to move quickly and close these acquisitions at the start of the year is a result of the liquidity we have maintained and the balance sheet that we have built over the years in an effort to be nimble and act on attractive opportunities as they come before us. We will continue to focus on the balance sheet as it is important to ensure that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. As John mentioned, we closed on the acquisition of the four PURE Canadian gaming assets in Alberta, Canada, the 49.9% interest we previously did not own in the MGM Grand/Mandalay Bay joint venture. And we purchased $85 million of senior secured notes issued by Hard Rock Ottawa LP. This is an exciting transaction for VICI as we partnered with a large financial institution to provide Hard Rock with a complete financing solution for the redevelopment of what will become the Hard Rock Ottawa in Canada. In addition, we announced a $287.9 million construction loan for the development of a Great Wolf Lodge, which sits on land owned by the Mashantucket Pequot Tribal Nation next to the Foxwoods Resort Casino. This transaction represents our fourth loan with Great Wolf for a total capital commitment of approximately $550 million to support Great Wolf's development pipeline. In January, we re-bolstered our liquidity raising approximately $965 million of available net equity proceeds through the sale of 30.3 million shares via forward sale agreements. On April 4, we physically settled 3.2 million of these shares for net proceeds of approximately $101.5 million. As we sit here today, we have approximately $3.9 billion in total liquidity. As Ed mentioned, this is comprised of approximately $650 million in cash, $859 million of net proceeds available from the January forward sale agreements, and $2.4 billion of availability under the revolving credit facility. In terms of leverage, our total debt is currently $17.1 billion, which reflects the consolidation of the full $3 billion of CMBS debt that encumbers the MGM Grand/Mandalay Bay joint venture. Our net debt to adjusted EBITDA is approximately 5.7 times today. We have a weighted average interest rate of 4.34%, taking into account our hedge portfolio, and a weighted average of 6.6 years to maturity. Turning to the income statement. AFFO was $528.6 million for the quarter, an increase of 73% over Q1 2022. AFFO per share was $0.53 for the quarter, an increase of 18.6% compared to the $0.44 for the quarter ended March 31, 2022. As a reminder, the disparity between our overall AFFO growth and AFFO per share growth is due to an increase in our share count, which increased primarily from the equity raise and shares issued to fund our acquisition of the MGM Grand and Mandalay Bay joint venture this quarter and to consummate our acquisitions of MGP during Q2 and the Venetian Resort during Q1 of last year. Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue, and our margins continue to run strong in the high 90% range when eliminating non-cash items. Our G&A was $15 million for the quarter and as a percentage of total revenues was only 1.7%, in line with our full-year expectations and one of the lowest ratios in the triple-net sector. Turning to guidance. We are reaffirming AFFO guidance for 2023 in both absolute dollars as well as on a per share basis. AFFO for the year ending December 31, 2023, is expected to be between $2.115 billion and $2.155 billion or between $2.10 and $2.13 per diluted common share. Our guidance does not include the impact on operating results from any announced but unclosed transactions, interest income from any loans that do not yet have final draw schedules, possible future acquisitions or dispositions, capital markets activity or other nonrecurring transactions. As a reminder, we recorded a non-cash CECL charge on a quarterly basis, which due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. With that, please open the line for questions.

My first question relates to your discussion around building relationships for the future pipeline. And so I was wondering if you can comment on whether or not there's a certain type of deal size that's emerging as a sweet spot for the different things you're looking at, or even a region perhaps in the world where the deal flow seems to be pointing.

My first question relates to your discussion around building relationships for the future pipeline. I was wondering if you can comment on whether or not there's a certain type of deal size that's emerging as a sweet spot for the different things you're looking at, or even a region perhaps in the world where the deal flow seems to be pointing.

Do you want me to take that?

Well, John, I just want to know if you can hear me now. If not, go ahead, John.

We can hear you, Ed.

Yes, I was just going to say, Tony, I apologize for that. When we work on relationships, we're obviously working on new ones all the time. But we also work very hard to make sure our existing relationships are strong and as productive as they can be. Thus, we were rather honored that Jonathan Halkyard, the CFO at MGM, referenced in his earnings call last night to VICI being a fantastic partner of ours. So that's a very big focus in terms of where future growth can come from, which is to say with our existing tenants. But in terms of the other relationships we're building, I'll turn it over to John. John?

Yes, Tony, I won't get into the details of the relationships we're developing. We are analyzing the industry and various countries worldwide. We've been asked since the inception of our company about the scale of our projects. For example, with Century Gaming, we completed one deal and then announced another in Maryland with them. We hope to strengthen that relationship over time. Often, a smaller deal may seem insignificant on its own, but over the course of a partnership, it can grow substantially. We are proactively engaging, meeting people face-to-face, and exploring opportunities globally that benefit our company and shareholders.

Okay. And John, just as a follow-up maybe. Capital markets have been volatile over the last few months or quarters. Like can you maybe give us a sense as to what the brackets are on yields for the things you're considering right now?

Well, that would have been an easier question back 5 years ago, I think, Tony, when we were just looking at gaming opportunities domestically. We could probably take the rest of the call as we look at different sectors. But I'll let David talk about how thoughtful we are in understanding our cost of capital and getting spreads when we're making investments or creating term sheets. But we're looking at a wide variety of sectors, countries in gaming and non-gaming. So David, do you want to touch a little bit on that as well?

Yes, I'm happy to, John. It's great to talk to you, Tony. During the quarter, we partnered with a major financial institution and issued some capital at an 11% rate. I want to clarify that not every deal we pursue will have an 11% rate. Our focus is on achieving a blended spread over our cost of capital, and our share price has remained stable. Currently, our financing costs for a 10-year note are around 6%. We are very mindful of deploying capital based on risk-adjusted returns that generate spreads over time while acquiring excellent real estate, building valuable relationships, and partnering for growth as we've done previously with Cabot and Canyon. We believe there are more opportunities ahead.

It's actually Nick Joseph up here with Smedes. Maybe following up on that last comment. How do you think about the competitiveness of your cost of capital relative to more traditional sources of capital as you look to deploy it?

And Nick, good to hear from you. By traditional sources of capital, are you referring to the debt and equity financing available to the asset controller?

Exactly.

Yes. So clearly, a lot of the experiential landscape is made up of operators who tend to be high-yield credits. And as you well know, the high-yield market has been really quite dormant for quite a while now, going well back into last year and continuing into this year. So the access to credit is somewhat limited, and the cost of it obviously has widened. And the cost of equity for many of them has, at best, remained sideways. So as we look at the maturity walls that many debtors are facing in 2024, 2025, and onward, we do think, as we talked about in the past, that we can be a virtuous source of funding through sale-leaseback structures when it comes to either refinancing debt or perhaps even more compellingly financing expansion for good operators who may have expansion opportunities or roll-up opportunities in the next few years should other operators come under any kind of refinancing pressure.

And then just on international expansion. Obviously, Canada is generally pretty similar to the U.S. But as you think about other further expansion, how do you think about pricing, regulatory, and political risk from different geographies or countries?

David?

Yes. Thanks, Ed. Nick, good to talk to you. We're spending time across the globe looking where others have gone and where there are REIT-friendly jurisdictions, favorable tax regimes, favorable political regimes, and favorable currency, and funding markets. So you're absolutely right. I mean as we spent time in Canada and got our training wheels on, so to speak, with Canada, the team developed a lot of institutional learning and a lot of institutional knowledge around how to set up structures, how to minimize tax leakage, and ensure that we have the right protection for our income that we will potentially generate abroad. And so it goes into the black box, so to speak, and we would need to make sure that we generate significant spreads to the cost of capital because there is tax leakage, and there is some risk. And so not every deal is the same. But we'll make sure that we are partnering with the right folks and underwriting the credit and the real estate quality and the future earnings growth of these potential opportunities that may come abroad.

Look, I think we've talked to a bunch of our companies so far. All of them over the past several months looking for some perspective that may indicate some kind of a turn in the consumer economy or in the business economy. And I think you may have a unique perspective because you stay close to your tenants. And I just wonder what you're hearing and seeing. I know John travels around quite a bit. He was engaged on the gaming side. But if there's anything outside of gaming that we can talk about, what is your sort of economic view?

Yes. Well, we'll turn it over to John just to reiterate the strength we're seeing in gaming. But we can say, for example, that our partners' businesses like Cabot, like Canyon Ranch, and like Great Wolf are continuing to see very, very strong demand. Some of it, David, is obviously the COVID pent-up demand factor still exercising itself. But as you've heard us talk about in the past, we also believe we're seeing the evidence of the secular trends we've talked about at VICI, which is aging baby boomers moving into years in which they have more leisure time and millennials moving into family formation, which is obviously benefiting a business like Great Wolf. So I think, David and John, it's fair to say that our non-gaming operators are feeling very confident in their outlook, as we are hearing and seeing in gaming. Correct, John and David?

Yes, absolutely. And I couldn't agree more with that. I did want to take the opportunity because David asked about our Las Vegas operators and are staying in touch with them as well as our regional operators. David, we're very blessed now to have 11 tenants, right? And so we get a really good view of the entire industry. Our tenants are willing to do what we would call informal reviews with us on a quarterly basis to share their views on how things are going. It's not in our leases. They do this because we form these partnerships, and it helps us better our discussions about how we can help them grow. But across the gaming sector, I mean, it's really amazing to hear the results MGM released yesterday or earlier today, 36% growth in same-store adjusted EBITDAR, right, in Las Vegas. And that's an incredible number. So when I do these meetings with our team, we ask the question, where are you seeing slowness in your business, in your operating business? And there's very little slowness in any of the sectors. In fact, there's still growth in almost all of them. So it's a really interesting business, and forward bookings are still robust in Las Vegas. The regional markets continue to show steadiness across many of their sectors. And so it's exciting to have these partners who continue to innovate and continue to deploy capital. Many of them have seen a really nice return on the capital that they're deploying, whether it's new restaurants, mixing hotel rooms that needed upgrades, etc.

Understood. Appreciate it. And as my follow-up, just reading this morning and following very closely, some of the more regional lenders out there that account for, according to some of the press, 80% of commercial real estate mortgages. Is there any strategy or a way for you to approach and position yourselves to participate productively in pools of smaller deals or anything like that, given the circumstances? Is there some opportunity for you to get in there and become an alternative lender?

It's a really good question, David, and we are digging into it and need to dig into it deeper. I would say that based on what we've seen so far, regional banks in their commercial real estate lending are generally lending to asset categories like office, like multi-res, and other categories like retail, that we won't invest in. So I'm not sure that there's a direct opportunity to get involved in categories that regional banking lenders have tended to focus on. But I do think there's an indirect opportunity in that we are seeing evidence, as is everyone, of further tightening of credit. So I do believe there is going to be enhanced opportunity for us. I'm not sure it's going to be directly from the tightening of credit by regional lenders to the conventional real estate asset classes, but I do think, David, we're very confident that we are already seeing, as evidenced by the work David and the team have done in Hard Rock Ottawa, Fontainebleau, and other credit opportunities, that we're going to continue to see both enhanced credit opportunity and enhanced real estate acquisition opportunities because of the tightening of credit. David Kieske, anything to add?

No, I think you touched on it perfectly. I echo that we are seeing opportunities to potentially lend capital. But when we think about our strategic lending book, we want to ensure it's with the right partners where it could lead to future growth opportunities. I think at the regional level, there's less opportunity for us. But look, that will trickle up to the bigger banks, right? That will have an impact on JPMorgan's and the BofA's and the Citi's lending across the board, and so that could create opportunities for us around the experiential categories.

First question, David. You mentioned that the company's incremental cost of debt today, I think, is around 6%. You said your cost of equity capital continues to improve and is in that range, depending on how you look at it, and the stock is up nearly 6% year-to-date, so that's improving. Does that change the way that you think about capitalizing new investments, vis-a-vis rising debt costs in the near term?

Yes, Todd. Good to talk to you. And just to be clear, that 6% is for a ten-year piece of paper. So obviously, different tenors have different rates. Post the MGP acquisition, we've been highly, highly focused on continuing to deleverage the balance sheet. We obviously elevated leverage a little bit to bring in that phenomenal portfolio that we added to our company and to transform our company. But as you've seen us do throughout 2022 and into 2023 is going to over-equitize transactions. And as we sit here today in May 2nd, we have a maturity coming up in roughly one year. It's due May 1, 2024. And so we'll continue to use equity, use our free cash flow to fund transactions and then for potentially larger transactions look to add those to the balance sheet on a leverage-neutral basis.

Okay. And then as you look ahead at all of the various investment opportunities and different categories and industries that you're underwriting relative to your cost of capital, do you expect that the spread that you're investing at will improve as you look out at the pipeline over the next few quarters relative to the spread that you've locked in on more recent investments here over the last couple of quarters?

I can start, and others can join in. Todd, every deal is unique, and we often discuss this internally. We would love to claim that we can achieve a 300 basis point or 400 basis point spread over our cost of capital. However, the intrinsic value of certain real estate properties might lead to trading at lower cap rates, while lending opportunities could present slightly higher yields. As we strive to balance the overall yield from our capital in the long term, we aim to ensure a spread of 100 to 150 basis points on a blended basis from the capital we invest quarterly and annually. While we hope to deploy capital at higher spreads, sometimes it's necessary in real estate to accept a tighter spread to establish the partnerships, relationships, and growth pipeline we aspire to develop over time.

When you think about leaning more into new international markets, how do you think about supporting greenfield developments through, say, construction loans versus sale leaseback of existing assets?

Yes. Barry, I'll take that at the start, and then David can add in. I would say that our confidence around funding development internationally, it needs to be basically in line with the confidence that we need to have to fund development domestically. We've added caveats that if it is international, we need to have even more compensating factors in place to compensate for the risks associated with currency and tax. But at the end of the day, we are really underwriting the credibility and the credit of the developer and operating partner. So again, whether we're talking about Europe, Japan, or other jurisdictions, we won't, by any means, rule it out. But the underwriting will have to be even that much more rigorous. David, I don't know if you want to add to that?

No, I think you hit it perfectly.

That's great. And then just as a follow-up. John, I appreciate the comments on the consumer and your tenants. But MGM did talk last night about seeing maybe more growth at its luxury properties. I'm just curious if you're seeing consistent trends from a coverage perspective across your portfolio? And then maybe to what extent does this or any other dynamic influence your M&A strategy?

It's a very good question, Barry. I want to reiterate that we have 11 different tenants, which gives us a variety of perspectives. We've built a portfolio that includes the luxury segment as well as the middle sector, and properties catering to both are performing well. If a high-end property becomes available and the seller is ready to proceed, we are prepared to pursue it thanks to David and his team's efforts. Similarly, if there's a regional asset that complements our portfolio where we currently lack exposure, we will go for that too. Regarding our operating business, we continue to inquire about areas of weakness but are mostly receiving feedback where we see strength. We will keep monitoring the situation. We've discussed non-gaming, experiential, and self-directed sectors extensively, and Kellan Florio, our Chief Investment Officer who joined us a year ago, is actively exploring these different areas. However, it's essential to emphasize that we remain enthusiastic about the casino business. We are consistently impressed by the quarterly results delivered by our partners and look forward to potential future partnerships as well.

Barry, I'll just add on to that. Yes, Barry, I was just going to add. Clearly, you're seeing across so many consumer sectors the strength of luxury. Based where we are in Midtown Manhattan, our neighborhood effectively feels like it's being taken over by LVMH. And that's simply because there is so much spending happening globally in these luxury categories, and it's one of the reasons our partners like Cabot and Canyon Ranch are doing so well right now as luxury brands within their respective categories of destination golf and wellness.

When you think about looking into these other experiential real estate sectors, is it fair to say that there might be fewer providers of capital in the debt equity side such as VICI compared to other mainstream real estate? I'm just curious if that gives you a little bit of an advantage in terms of risk adjustment and how you structure the lease, etc., for the benefit of VICI.

Yes. Well, first of all, Jim, welcome to Evercore. Good to be talking to you. Yes, I'll turn it over to John in just a moment. But yes, you're absolutely right. What we're really undertaking is to prove out our hypothesis that there's a significant landscape of what we'll call experiential white space across the globe of really dynamic experiential operating businesses that have never been visited by a REIT before and have never considered before a REIT as a source of growth capital. And with that, I'll turn it over to John because he's having so many of these conversations in which he has told pretty much at the outset, 'Wow, we've never talked to a REIT before.' John?

Yes. You nailed it, Jim. That's exactly right. In many of these areas, whether it's in health and wellness, youth, collegiate, professional sports, or certain forms of family entertainment, we're the first ones that have come to them with a thoughtful approach about how our capital could help them grow in many different ways. And so we literally spend two, three, or four different meetings a day explaining who we are, what we've done, and how we can help them. And again, to our opening remarks, it doesn't mean a transaction has to happen at the first meal we have together. It's about building a depth of incredible operators and real estate that over a period of time, we can hopefully transact and build a partnership. But you've hit on it, where there haven't been a lot of others that have taken on this task because it's not easy work, and it takes a lot of time and effort and calls and emails and all of that. But we're happy to do it because we see the incredible amount of white space, as Ed noted.

Interesting. And where were they getting their capital before? Or do you just think this is as they visit their growth and future plans, they're just thinking more constructively about how they can monetize real estate? I'm just curious how that plays in.

Yes. Well, maybe I can offer Canyon Ranch as an example, Jim, whereby when we began talking with John Goff and the Canyon Ranch team back in early 2022, the conversations they principally had been having when it came to growth capital were with private equity partners. What they were concerned about with those private equity partners was, number one, the cost of the capital, given the cost that PE funding partners tend to assign to their own capital; and number two, the investment horizon of perhaps only 5 to 7 years. When Canyon Ranch looked at our offering and looked at both our cost of capital and the fact that we want to be their capital partner forever, it was a pretty compelling alternative to conventional private equity.

I just got a quick question about the VICI Property Fund. Do you expect more of those projects to kick off in a recessionary environment, being that Vegas is so strong? More specifically, my focus is on The Mirage project that was recently approved with the guitar on the Strip?

John?

Yes. Good to talk to you, Wes. The Mirage project that the Hard Rock team is taking on is spectacular. I think we've seen the footage of it, not only the guitar tower but the refurbishment of the whole property. You'd have to talk directly with the Hard Rock team, but I think you hear from them, they're thinking through different ways that they can finance the project which organizes sits on our land and to our building, and we'd love to be a source of financing for that project long term as they think through the details of it. And the fund in general, we've talked to many operators throughout our 11 tenants about how we can help them grow with larger projects on our existing assets, or how we can help monetize certain assets and help them buy someone else. So we continue to have those conversations as well.

Okay. If I could just get a follow-up. I guess the A's are going to move a little bit down the street from your land parcel, at least that's what the reports are. Do you have any, I guess, updated plans for potential monetization of the land parcel on the Strip?

John?

It's exciting to see where the A's are considering placing the stadium. There are two interesting companies involved, MGM and VICI, with the location being right across from several of the resorts we own and operate. We will monitor how this develops, as it certainly contributes to Las Vegas becoming the sports capital of the world with the addition of another team. The Super Bowl is happening next year, and F1 will be here later in the year, which adds to our enthusiasm. This situation is likely to enhance the value of our land and resorts, providing opportunities related to both the current properties adjacent to the new stadium and the undeveloped land we have around the city.

Good morning, everyone. Maybe just one for me. We've covered quite a bit of ground. David, probably for you. I think I read a footnote in the presentation that the Caesars Forum loan was repaid in May. I was wondering if you could confirm that? And does that impact the footfall on that property at all? And then I guess part 3 is, can you let us know how much in commitments that you have unfunded outstanding for various loans?

Yes, John, good to talk to you. Caesars repaid that loan actually yesterday, $400 million principal. It doesn't change the footfall. We actually extended the outside date to 2028 when we could call the Caesars Forum Convention Center. This is all part of Caesars deleveraging. That continues to make our tenants stronger, and we're happy to get that capital back. The total commitments, I don't have that right in front of me, but I'm happy to follow up with you or Gabe if you have that handy. Otherwise, John, we can follow up with you.

Yes, future funding commitments are about $970 million as of March 31.

First one is, I guess, I'd like to know what the current house view on further investing in tribal today is and how you get comfortable if you can't own the land? And perhaps how much more meaningful could you get involved there?

Yes, I'll take that question. It's important to understand that today, our relationships with the three tribal nations are on commercial gaming properties, whether that's in Cincinnati, in Tunica, or in Southern Indiana. I think your question is around whether there's ultimately going to be an opportunity with these partners or with another partner on their tribal land for us to make investments. It's something we've talked to partners about before, and it potentially could be. But at this time, we've not made any of those investments. We really have enjoyed and will continue to build our relationships with tribal nations because they're amazing casino operators, and they're looking to deploy the capital that they've earned in their tribal nation casinos onto commercial gaming, and we're here to help them think through that if they're interested.

That's helpful. And yes, I should have made that distinction there. One more. You read that MGM recently was approved to build Japan's first casino in Osaka. I guess, given the relationship there, what's the likelihood of your interest in getting involved? And what sort of risk premium perhaps would you require?

Yes. We will manage the project, which is quite significant and involves many parties. They are obviously funding this in the credit market, and Japan offers low costs. We are here to support them, and if we can assist, we will. However, I would say we are still quite far from determining if and how we can help them.

Two quick ones. Just one on the guidance. Can you just remind us what's the organic growth implied to get to that FFO growth number? And then on the balance sheet, I see the 5.9% debt to EBITDA. Where is that going to trend to by the end of the year or assuming no more deals?

Hey, Ron. It's Dave. Ron, it's David. Good to talk to you. In terms of guidance, we just have our base escalation: 2% for Caesars, 1.5% for some of the other tenants. We do not make any assumptions around CPI bumps or other potential economic changes, if that's what you're asking. And in terms of the balance sheet, we're actually 5.7% today since the cash that came in from Caesars yesterday. So we were at 5.9% at quarter end. That was just due to a little bit of a lower cash balance at quarter end. And then that's trending to about 5.6x, 5.5x by year-end based on where we see the business trending.

Great. And then just the last one, just a lot more questions on theme parks and as I sort of talked about being open to all experiential. Is there a way to sort of dig in deeper and just sort of highlight what is attractive, what is not attractive, what markets, geographies, deal structure? Anything would be helpful.

Yes. So I think when it comes to theme parks generically, Ron, what's appealing about them is what's, frankly, appealing about our large Las Vegas assets and frankly a lot of our large regional assets as well, which are big complex physical plants with big complex P&Ls that have high economic productivity in relation to the capital value of the asset. We believe that theme parks tick the four boxes that we look at in any investment category we're considering, which is lower than average cyclicality for consumer discretionary at large. Theme parks are often an affordable luxury in times of recession, not unlike ski resorts, which I used to work in. There is generally an absence of secular threats, as people aren't generally building roller coasters in their backyards or having Amazon deliver them to them. There's a healthy supply-demand balance since people are generally not building a theme park. And lastly, number four, they've obviously proven their durability over more than a century, going back to the big exhibitions and fairs of the late 1800s. So a lot to recommend the category. John, Kellan, and the team continue to work on getting to know the players, their needs, and their capital needs and opportunities, and we'll hopefully someday be able to invest in that category.

I recognize that VICI is focused really on growing accretively. But I'd like to better understand how you evaluate the long-term profile of some of your existing assets. So can you talk a little bit about how you think about that aspect? And then when you look across your regional gaming portfolio, are there any markets or assets that maybe you're less comfortable owning for the long term?

Yes, Chris. So I'll have John answer the back half of that question because we have, since our beginning, even though our beginning is only 5.5 years ago, we have actually engaged in portfolio optimization in terms of disposals. But it's a really good question to ask because we've contended for a while now that we are the first REIT to bring the net lease structure to what is genuinely Class A real estate in terms of scale, quality of fit, and efficient fit and finish and economic magnitude and durability. When we look at our Las Vegas assets just over 60 years old, and as John will tell you in a moment, it had its best year ever last year. We've got a weighted average lease term of around 40 years. When we look at our Las Vegas assets and the great regional assets like the #1 regional asset in America, MGM National Harbor, we have very high confidence that these assets will be economically productive and grow in value, in part because of our same-store NOI growth, which Green Street has written about better than anybody. These assets will continue to appreciate and value for decades to come. But John, do you want to talk about the approach we take to making sure neither we nor our tenants are in assets we don't want to be in anymore?

Yes, Chris, that's a great question. As Ed mentioned, we routinely engage with our tenants and operating partners to optimize their portfolios. For instance, we had a tenant at our Reno track in Louisiana who expressed that the property no longer suited their needs, and we collaborated to sell the asset. There have also been instances where a tenant wanted to exit, but we preferred to retain the real estate and buildings, so we found another high-quality tenant. We will continue this practice as we manage our business. If a tenant is looking to leave, we should assist them, whether it's by selling the asset through a holding company or finding a new tenant to take over. We're also actively exploring new markets to diversify our portfolio. In the gaming sector, for example, we currently own 50 properties, but there are numerous markets across the United States where we have not established a presence. There is significant potential in these untapped markets. This is an important consideration we constantly have with our tenants, and we will keep optimizing our portfolio in the years ahead.

Got it. That's very helpful. And maybe a second question for me. Just curious if you've had any recent conversations with Caesars regarding the ground-up development, I believe, in Danville, Virginia. Just given that that project, I think, has broken ground now.

Yes, they have received approval. They will be opening a temporary facility at that location operated by Caesars. This is also in collaboration with our other partners, the Eastern Band and the Cherokee Nation, who are involved as well. We are in discussions with Caesars about various matters. If the ownership decides to sell the real estate and buildings, we would definitely be interested. Our initial focus is on getting the facility up and running successfully, and when the timing is right, we will consider that opportunity.

Yes. Well, thanks for your time today, everybody. I'll go back to what I stressed on our last earnings call back at the end of February, and that is when you take the midpoint of our guidance for AFFO growth for 2023, which is 10%, combined with our dividend yield, which is currently around 4.5%, a little higher than that, you get 14.5 points of potential total return. I would just compare that again to what you're seeing in REITs generally and even more generally, the S&P 500, which is certainly not shaping up to be a year combining 10% earnings growth and a 4.5% dividend yield. So with that, we'll thank you for your time today and look forward to seeing you again in late July. Bye for now.