VICI Properties Inc (VICI) — Q2 2024 Earnings Call Transcript

Thank you, operator, and good morning. Everyone should have access to the company's second quarter 2024 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, believe, expect, should, guidance, intends, 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 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 our second quarter 2024 earnings release or supplemental information and filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and our counterparties discussed on this call, 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 Laurie McCluskey, Senior President of Capital Markets. 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. Good morning, everyone. As you may have figured out by now, I enjoyed putting my thoughts together for VICI's earnings call. I try to share through these opening remarks, not only what we've done, but what we're observing and learning from the marketplace. I may not always succeed in sharing anything genuinely fresh, but at the very least, I don't want my opening remarks to become repetitive. When I began putting these thoughts together in early July, the risk of repetitive remarks was high given that, until a couple of weeks ago, for REITs generally and net lease REIT specifically, not a lot had changed since last quarter's earnings call when I spoke of the big tech investing party that we REITs hadn't been invited to. In Bank of America's most recent fund manager survey, Michael Hartnett showed that fund managers were underweight real estate at a level equal to that not seen since the depths of the great financial crisis. Then came a welcome CPI print and REITs began to come back that we believe can endure. Before you hear from John and David, and before we field your questions, let me say a few words about the principles that guide us in a REIT marketplace like the ones we've been living through for a while now. We start by asking ourselves whether what we're going through, whether for all REITs generally or net lease REIT specifically, is cyclical or secular in nature. There are REIT sectors that have secular issues right now. Office is an obvious example of a sector with negative secular trends. Data centers are the obvious sector with positive secular trends. We strongly believe that experiential real estate is another real estate category with positive secular trends as evidenced by research recently published by McKinsey showing that indexed back to 1959, the share of consumer discretionary income spent on experiences has grown to an index level of nearly 160, while the share of consumer discretionary income spent on things has shrunk to less than 75. Capitalizing on positive secular trends is fun; addressing negative secular trends, not so much. Positive cycles for REITs are fun; negative cycles for our specific REIT sector, not so much. But it's always key to remember that cycles begin and cycles end, almost always driven by factors that are beyond the control of a REIT management team and Board. In a period of lagging stock performance, driven by cyclical factors, it can be tempting for REIT management teams and boards to start deviating from the REIT's long-term goals and strategies in hopes that the deviation can somehow overcome the cycle. At VICI, we strive very hard not to deviate. Here's the strategic principle we strive to stay true to in all cycles. We dedicate ourselves to investing in experiential buildings that meet these three fundamental quality factors: location quality, in other words, well-located in markets that have sound fundamental demographics and economics; asset quality, meaning designed and built to serve the distinct needs of experiential businesses that have high economic dynamism and economic durability; operator quality, meaning occupied by an experiential operator that has high economic energy, ingenuity, expertise, and a strong balance sheet and credit profile. With every investment we make, we, of course, seek accretion as measured in AFFO per share. But that is not the only accretion we seek and measure. With every investment opportunity we evaluate, in addition to AFFO accretion, we ask whether a given investment opportunity is accretive to asset quality, tenant diversity and tenant quality, geographic and potentially categorical diversity and quality, as well as balance sheet quality and potentially our credit ratings. We have not and will not grow for growth's sake if that growth doesn't continuously improve the quality and intrinsic value of our portfolio and balance sheet. We will not, as some of our net lease peers do, tell you we spent x hundreds of millions of dollars and y percentage cap rate to generate z dollars of new rent, but then never tell you into what we invested that amount of money. We will tell you what we invest in so that you can know what you own. The very good news is that our business development team, led by John Payne, is identifying and developing opportunities to meet our broader accretion criteria. And with that, I'll turn the call over to John.

Thanks, Ed, and good morning to everyone. We acted on the investment criteria Ed just spoke of when, in the second quarter, we made capital commitments of up to $950 million in the highly differentiated experiential buildings that have indispensable value to their occupants, namely the Venetian and a collection of Great Wolf Resorts. These are investments that live up to our quality criteria, and at the same time, the $650 million firmly committed to those investments will generate a blended investment yield of 7.9%. Our conviction that we can continue to identify and invest in experiential properties that are accretive against multiple quality factors is a key reason that we have decided we will not be exercising our call right to acquire Harrah’s Hoosier Park in Horseshoe, Indianapolis. We can and are making this decision because of our confidence and conviction that we are actively identifying and pursuing investment opportunities that enable us to generate future AFFO growth and accretion while furthering the strength and diversity of our portfolio and tenant roster. At this time, we believe that we have the opportunity to create greater portfolio value by allocating VICI's capital to other gaming and non-gaming opportunities the team is actively pursuing. This is an approach that we believe will produce 2024 AFFO growth much higher in our net lease category. And with our newly projected growth for 2024 at the midpoint is nearly three times the 2024 AFFO per growth rate guided into last week by our one gaming REIT peer. The factor that continues to accrue to our overall portfolio quality and structured tenant credit is the success of the dynamic city of Las Vegas, where VICI collects 45% of our rent from assets that we own. Over the years, I've cited record-breaking statistics in the first half of 2024. Harry Reid International Airport had back-to-back record months reporting 5.1 million passengers arriving and departing in June. June was the third-best month ever, trailing May, which was the second-best month ever. And October of 2023 was the best month ever. In May, international visitation to Vegas also jumped 23% year-over-year. And in June, it was reported that city officials are contemplating adding a second airport to Las Vegas, with executives from Southwest Airlines stating, and I quote, "It feels like any flight we add in Vegas gets filled. It's almost this insatiable appetite for people wanting to come and see Vegas." Our Las Vegas tenants continue to benefit from this momentum as evidenced by our up to $700 million capital investment to fund extensive reinvestment projects at the Venetian in exchange for increased rent. The size and success of our gaming properties allow us a unique opportunity to put large dollars to work into assets we already own. There continues to be a variety of opportunities on the horizon driven by the growth of our portfolio. Casino gaming assets continue to present the largest opportunity, both domestically and internationally, inclusive of investment opportunities into the casino resort properties we already own. The magnitude and consistency of gaming cash flows and the creativity of our gaming tenants continue to drive conviction in this sector, and have set the blueprint for VICI to extend our total addressable market and other experiential sectors. I now will turn the call over to David, who will discuss our financial results and guidance.

Thanks, John. Based on balance sheet, liquidity, results, and our updated full year guidance, which we are very excited about. As we work on the right side of the balance sheet, we are constantly focusing on VICI's balance sheet quality, bringing our leverage further down within our range of 5 times to 5.5 times, diligently working with the rating agencies to improve our credit ratings over time and ultimately lowering our cost of capital. In terms of dry powder, as of today, we have approximately $3.2 billion in total liquidity, comprised of $347 million in cash and cash equivalents, $566 million of estimated proceeds available under our outstanding cohorts, and $2.3 billion of availability under our revolving credit facility. In addition, our revolving credit facility has an accordion option, allowing us to request additional lender commitments of up to $1 billion. Subsequent to quarter end, we sold 4 million shares and received approximately $115 million under our forward sale agreements. These proceeds were used to partially fund the Venetian capital investment John mentioned earlier. In terms of leverage, our total debt is currently $17.1 billion. Our net debt to annualized second quarter adjusted EBITDA, excluding the impact of unsettled foreign equity, is approximately 5.4 times, within our target leverage range of 5 times to 5.5 times. We have a weighted average interest rate of 4.36%, taking into account our hedge portfolio at a weighted average of 6.6 years to maturity. Touching on the income statement, AFFO per share was $0.57 for the quarter, an increase of 5.9% compared to $0.54 for the quarter ended June 30, 2023. We are very proud to deliver this continued consistent growth to our owners. Our results once again highlight our highly efficient triple-net model given the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue. Our margins continue to run strong in the high 90% range when eliminating non-cash items, and we have the highest net income margin in the S&P 500 as noted in an article published during the month of July. Our G&A was $15.8 million for the quarter, and as a percentage of total revenues, it was only 1.6%. This continues to be one of the lowest ratios in not only the triple-net sector but across all REITs. Turning to guidance, we are raising our AFFO guidance for 2024 in both absolute dollars as well as on a per-share basis. AFFO for the year ending December 31, 2024, is expected to now be between $2.35 billion and $2.37 billion, or between $2.24 and $2.26 per diluted common share. Based on the midpoint of our updated guidance range, VICI expects to deliver year-over-year AFFO per share growth of 4.7%. As a reminder, our guidance does not include the impact on operating results from any transactions that have not closed, interest from any loans that do not yet have final draw schedules, possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions or items. And as we have mentioned in the past, we reported non-cash CECL allowance on a quarterly basis, which 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 productivity on our equity investments and evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

Well, thanks for the update on the plans to not execute options that you have this year. I guess just as you think bigger picture, on deals you might do going forward and the options that you might create, does the way that this one ended up kind of working out or turning out, and your decision-making process have any impact on, I guess, how you structure options in the future, what the details might be, how far in advance they are? Anything like that.

John or David, do you want to take a first crack at that in terms of how we think about options going forward?

Yes, it's a very good question. I do think it's important. I heard my comments were broken also a little bit. But it is important to understand that this was a strategic decision really based on capital allocation and portfolio management at this time. We have great conviction with opportunities that are in front of us that will further our tenant, geographical, and category diversity. And as we continue to look at opportunities and we negotiate put calls or renegotiate these agreements, we'll think about the length of those and the appropriate timing of those. Again, it's important to understand that we have great conviction to continue to grow the business around the world.

And just as a follow-up on that geographic diversity point, I noticed the prepared remarks also mentioned international potential opportunities. So just wondering if you could comment further on the sort of international opportunities for this type you think could come up over the medium term or where?

John?

Yes. Another good question. We have been busy traveling, not only domestically but internationally. And I think on other calls, we've talked about countries that we've been studying. We've spent some time in Australia, New Zealand, Europe, the U.K., and other parts of the world where it makes sense and where our capital can work. I don't have anything to announce now obviously, but we see opportunities to continue to diversify not only in location but with new tenants as well.

As you look at that international opportunity set, just curious how that's split between gaming and non-gaming?

John, do you want to take that once again?

It seems like I am answering the first three questions today, Barry, but it's all good. I'm not sure we'll have the exact percentage of what's going to come in gaming and non-gaming. But I think you can imagine when we travel around the world, we spend time in countries with legalized gaming and understanding the real estate of those assets, while at the same time meeting with experiential operators. In my remarks, and I've said this for the past seven years, the greatest opportunity we see is still in casino gaming, both domestically and internationally. But we do spend time with operators in both the experiential sectors in gaming when we travel around the world.

And Barry, I'll just add that pretty much by definition and by logic, the dollar percentage will always tend to favor gaming investment given the magnitude of the assets and the capital required to acquire them.

And then just as a follow-up, seriously, how you're thinking about your strip land and just development these days? You obviously own several acres on the strip and office strip, and then your tenant Caesars is now talking about maybe selling some non-core assets, which I presume include land.

Yes. So Barry, we, as John talked about in his opening remarks, are just great believers in the Las Vegas ecosystem, which obviously has gaming at its center. But as we see with really almost each passing quarter, the amount of innovation that's going on in terms of the broadening and deepening of Las Vegas experiences truly makes it like no other place on earth. We obviously have a lot of exposure to Las Vegas right now as a percentage of our annual base rent. But we would— we are and we will be very comfortable and continuing to invest incremental capital, much the way we did with the Venetian investment in Las Vegas, because it is truly one of a kind destination in the world. And that has implications, obviously, for putting incremental money into the assets we already own, with the Venetian, with our Caesar asset, and especially, obviously, given the magnitude of MGM assets we own, particularly at the South end of the strip that's seeing more and more demand drivers. And then in addition to that, as you alluded to, we do have vacant land that, over the coming years and decades, represents further potential to invest capital and broaden and deepen our exposure to Las Vegas.

I know you target full-cycle investments with high-quality partners, but there have been some pockets of weakness in the consumer. Has this led you to change how you're looking at the current acquisition pipeline?

Yes. It's a very good question, Wes. And obviously, whether it's the McDonald's earnings report or other earnings reports, you are starting to hear about weakness, especially in the lower-end consumer. And even recently, there's been some talk among gaming operators about seeing some weakness at the lower-end in the regionals. I would not say at this point it's yet affected how we are thinking about our investments going forward. We're focusing on the categories of experiences that we do, focusing generally on middle to higher end; it hasn't caused concern for us yet. Especially when, of course, you take in the existential fact that we as a net lease asset owner are not exposed to the variability quarter-by-quarter in consumer spending.

And then you do have a highly predictable business model, but you have the Caesars lease coming up in November. It does have a variable component. That's a little bit harder to model. Could you maybe put some goalposts on that, how we should think of that?

David?

Yes. Thanks, Wes. It is a good question. We're entering lease year 8 with Caesars. Hard to believe it's – we're getting to lease year 8. So it seems like yesterday we started this company. But November 1 will be the start of that lease year and there does become a variable component and a base component. And we are – the way that the calculation runs for the Vegas lease, 80% is based, 20% is variable for the regional lease, it's 70% based and 30% variable. It's based on a comparison of net revenues for years 5 through 7 versus year 0 through 1. We are still collecting the data of Caesars because the calculation period actually runs through September of 2024. But based on what we're seeing, it should be relatively neutral to no impact to our escalation in November 1, 2024.

Maybe one on your decision today to say that you're not going to move forward with Centaur. So I thought you may have had until the end of the year to make a decision, and so we certainly can appreciate being decisive and looking at your pipeline. But curious if you could talk a little bit about why make that announcement today with still maybe several months ahead to consider that?

Yes. No, it's a very, very good question, John. The reason we decided to announce this today is that the strategic factors that went into making our decision are of a nature that they were not going to change over the ensuing, whatever it is now left in the year, five months of the year. And so in fairness, obviously, to our partners at Caesars, but also recognizing our need to always be as ruthlessly efficient as we can be with return on management time, we decided again because the strategic decision factors will not change in the next five months, to announce it today. So that everyone can understand, our team can understand, Caesars can understand, you all can understand that we will not be calling it, and none of us have to spend time wondering if and when we might between now and the very end of the year.

That's likely the last question from us regarding Centaur, although there have been numerous discussions over the past eight months. I appreciate that. Looking at the broader picture of underwriting gaming assets today, there's been significant activity. We've discussed various consumer trends and the direction of recent deals. I'm curious if you have any updated thoughts on how you perceive full four-wall coverage and cap rates in the gaming space now. There seems to be a more stringent approach to four-wall coverage and an outlook on cap rates. While I understand that each asset and transaction is unique, it would be helpful to hear your general perspective on this matter.

Yes. Yes. So I think our starting point, John, is that we always want our capital investments to pass the test of if this was our last dollar capital, would this be the highest and best use of that capital. And as we have engaged in the continuous learning given that the heart of our creation of VICI is both a company and a culture, I think very much to the point of the question you're asking, we continue to refine our thinking on what will drive the strongest, continuous improvement in our access to and our cost of capital. And that really guides our decision-making in many different forms, including, obviously, tenant diversity, geographic diversity, tenant credit quality, strength of tenant balance sheet and, very much to your point, rent coverage. So as we look at that, that mosaic of factors, we feel very good about the discipline we've developed around capital allocation. And the degree to which it can, again, just to stress the point, lead ultimately to the strongest comparative cost of capital advantage over the long term.

Following up on the previous question, is this deal fully established? Is there a possibility that the assets are assigned to you, or is that all included as well?

John?

The way the contract reads, you are correct that the assets could be put to us. But Tom Reeg at Caesars, I think, has been very vocal about this, at least over the past year, that they had no plans to put these two assets to us. But the contract does last until the end of the year, as we spoke about earlier today.

And then just as we look to November, I'm just curious if there's any legislative issues on any ballots that you're watching that could be important for regional gaming.

John?

We are actively exploring opportunities not just in regional gaming but globally, assessing areas that are experiencing significant change, whether positive or negative. Our focus is on identifying potential for capital deployment with new tenants and locations, possibly in different categories. There are regions around the world undergoing considerable transformation that we are getting to know better. We are also keeping an eye on opportunities in the United States. Each year, states like Texas, Georgia, and Kentucky typically introduce some form of gaming legislation. Additionally, with the rise of online sports betting spreading across the country, other states are also considering this. Discussions often include traditional brick-and-mortar casinos as well. While we don't have specific plans, we remain connected to monitor potential investment opportunities. Lastly, we are watching the situation in New York, where the licensing process is set to continue into 2025. We will gain more clarity when three licenses are awarded and information about the recipients is announced.

Nick, I would just add that we obviously do monitor continuous legislative change and, in many cases, the associated emergence of new supply across American regional gaming. And I do think we obviously need to take care, as capital allocators, that as we allocate capital into regional gaming assets, which we will continue to do, we do so aware of the supply-demand trends on a mark-to-market basis. Because in regional gaming, catchment areas for regional gaming tend to be more confined than we would find in Las Vegas, because the catchment area for Las Vegas is global. As John said in his opening remarks, international travel to Vegas has rebounded stronger than any place else in the U.S., probably one of the strongest international travel rebounds around the world. And so while new supply will come to Las Vegas, it will come into a market whose catchment area, again, is global. And we obviously need to be mindful in regional areas that the catchment areas are somewhat finite, and we need to weigh our capital allocation decisions based upon supply/demand trends on a highly localized basis.

This is Ravi Vaidya on the line for Haendel. Just had a couple of quick follow-ups here on the Indiana assets. Was the cap rate not attractive enough in the current rate environment? And did the emergence of Chicago coming up the next five years' payroll potentially impact casino operations throughout the Midwest?

Yes. I'll let John take the second part of that. On the first part, the cap rate is perfectly fine cap rate. As we look across our array of investment opportunities and as we contemplated potentially investing more than $2 billion of capital or close to 5% of our total capital, we again wanted to be relentless in our scrutiny as to what would be the highest and best use of our capital both on a cap rate basis and the associated accretion, but also on the key if you will non-financial accretion factors of tenant diversity, geographic diversity and those secondary factors. So the cap rate by itself was not the gaining issue. And then I will turn it over to John for his thoughts on midwestern gaming.

Yes. The question about whether the facility that ultimately is built in downtown Chicago will impact the Indianapolis casinos, the answer is no on that. To Ed's comments earlier about where consumers go to regional gaming and how far do they drive, the Indianapolis market is considerably far away from downtown Chicago. In fact, there are many other casinos between Indianapolis and Chicago that consumers can choose from as well. So that was not a factor in our decision to not call the Indianapolis asset.

How large do you forecast the experiential credit solution strategy to become? And we noticed you have a couple of deals with Great Wolf here over the years; how important is that as a defense and entertainment option in this recessionary environment?

David, do you want to take the first part of that?

Yes. Thanks, Ravi. Roughly, our credit book today is $2.2 billion; it's 4% to 5% of total assets. And we feel good in and around that area. We developed a credit book as a way to broaden our means and to expand our relationships. And you've heard us talk about that, at the end of the day, our capital is relationship capital. And the credit book allows us to develop new partnerships, develop new relationships, ultimately through some of the deals that have call options at our discretion. But along the way, we learn about new segments and new businesses. And we've learned things that ultimately we may not like. Our loan gets repaid and we move on. But if we learn things we like, we continue to want to grow in those areas through either real estate ownership or deepening the existing relationships. So it's been a very, very effective tool and it's been something we're excited about and something that we continue to use in our toolkit as we expand both domestically and internationally.

And Ravi, could you repeat the second half of that question?

Sure. We've had a couple of deals with the Great Wolf over the years; I just wanted to hear your comments on how this is particularly defensive and important entertainment source as we go into a recessionary environment where the consumer is stretched?

Yes. David, do you want to talk about what we have seen historically on Great Wolf's durability through all cycles?

Yes. In the broader indoor water park sector, Gabe Wasserman is in the room here and he did our first white paper back in '18 when we started looking at indoor water parks and the economic vitality of these businesses. When the original Great Wolf went public back in '04 or '05, it was Thursday through Sunday, Thursday through Monday business. Now it's a seven-day-a-week business. And we call them casinos without gaming because of the economic leverage they have and the multiple cash registers they have, both with the water park, the family entertainment center, the food and beverage, the lodging. And as an example, Perryville opened just earlier last year. And within three months, it was exceeding its initial underwriting and ultimately went into the broader refinancing package. So these things open, they open quickly and they open producing a lot of cash flow. So we're excited about that. And hopefully, there's an opportunity someday to own the real estate of some of these indoor water park businesses.

So, John, I have a slightly different question for you. Over the past few days, we've noticed a shift towards a more moderate or even declining outlook, particularly in leisure transient activities within hospitality. While this may not immediately affect your earnings, I assume you’ve been able to gauge this trend during your travels. I’d appreciate any insights you could share based on what you’ve seen and heard.

Yes, David. It's great to connect with you. I hope to see you while I'm traveling. You are right that we are noticing some softness in certain businesses and consumer behavior, especially among lower-end consumers, as Ed mentioned earlier. I recently shared with my colleague David an observation from my trip to Scotland. Everyone I spoke with expressed a desire to visit the United States, and if they could only choose two or three cities, Las Vegas was a top choice. Interestingly, this is a change from ten years ago when most would have said New York, Chicago, or San Francisco without mentioning Las Vegas. Our tenants have successfully diversified the attractions of Las Vegas, appealing to a wide range of visitors, from those traveling by private jet to others like myself who fly Southwest Airlines. While I'm not addressing the broader U.S. economy, I am focused on where we want to invest and where our current investments are, which is why we remain optimistic about Las Vegas. As we analyze other sectors and regions, we will remain attentive to consumer spending trends. However, I am genuinely excited about our investments in Las Vegas, as it continues to draw travelers to that destination.

Before we move on to the next question, I want to add to David Katz's point. During times of potential economic volatility, especially in consumer spending, the importance of dividend-paying stocks becomes evident as they help mitigate the fluctuations in equity compared to those in the consumer economy. This is why we are very deliberate in our investment choices; we focus on assets and partnerships that we strongly believe can withstand the ups and downs of consumer spending cycles. We are not in search of cheap real estate; rather, we seek properties that we know can endure market fluctuations and benefit from positive long-term trends. This allows us to be confident in our ability to consistently pay dividends and ideally grow them at a rate that matches or surpasses inflation.

My question on balance sheet. Your $2 billion in notes coming due in the first half of next year. How did that factor into the decision to not exercise those call rights, particularly as you look to potentially reduce your leverage and earn a better investment-grade rating?

Yes. I'll turn it over to David in a moment, Michael. But I would say it really factored in, virtually not at all. And not that we're not mindful of the obligation we have to refinance as effectively as we can in the coming year. But we again made the decision we made on those call rights because of how compelling our other investment opportunities are, which you should be hearing about in due course. And so that was not a constraining factor. And Dave, I don't know if you want to add anything in terms of how we're thinking about leverage and the ratings curve.

Yes, you mentioned it, Ed. It's about managing the portfolio without exercising the call option. Michael, regarding the balance sheet, we have three maturities next year in February, May, and June. As you observed, we successfully refinanced our 2024 maturity with an oversubscribed refinancing in March. We are planning to refinance the maturities due in the first quarter and then in late second quarter of 2025. Additionally, our peer, GLPI, had a very successful refinancing or debt offering just two days ago. Being investment-grade rated with a strong and liquid credit profile benefits us. We are confident in our ability to refinance these maturities and continue to extend and ladder our maturity profile. Over time, we aim to lower our cost of capital and compete effectively for asset acquisitions worldwide.

Could you discuss the practical protections VICI has in its master leases if there is a change of control on the operator side, especially given the recent M&A discussions?

John?

Yes, that's a great question, Michael. It's a challenging one to answer because we started as a company with one or two leases and now have over ten. However, we have protection in all our leases. Samantha Gallagher, our General Counsel, is available to provide additional insights on that. We feel confident and are keeping in contact with our operators to understand the market dynamics better. I believe you mentioned the term chatter, which is probably the most accurate way to describe the current situation. We do have safeguards in our numerous leases. Sam, would you like to add anything to this question?

Yes, John, you did a great job. I think just to John's point, while we do have a number of different leases, all of our leases are mined. What happens in a change of control and have strong protections to ensure. And just as a reminder, we have gone through a change of control with one of our tenants already, where we see the Caesars Eldorado merger. So we feel very comfortable with how our leases are structured to address any change and control.

David, was there anything in particular that led you to bump the guidance at this point? I mean, the acquisition investing activity has been well disclosed and you don't include prospective activity and guidance. So I was just curious if there are one or two factors that motivated to do it at this time?

David?

Jim, you brought that up. I think when we reflected on our first quarter earnings call, the timing of the funding and how we were going to finance some of the announcements we had previously made weren't confirmed. As we mentioned in our guidance, we don't forecast any unknown capital markets activities or unidentified activities. Therefore, those announcements, along with the ongoing funding from our loan portfolio, have made us very confident about raising our guidance, and we feel good about meeting it. A significant part of this came from the impact of Great Wolf, which was finalized shortly after our earnings report.

And then the second question, please. Ed, you've expressed enthusiasm about alternatives for investing capital besides the Caesar option properties. While I understand you can't provide too much detail, can you share if these future opportunities represent a growth in your investment options in terms of dollar value? How do you see the potential split between expanding the credit book or earning more fee interest?

Yes, it will mostly be fee interests, Jim. As we continue to allocate capital, you can expect that it will not be heavily concentrated on one single investment like it was with the Indiana assets. To reiterate, that would have involved nearly 5% of our capital going into one deal. From both a return and a risk management perspective, we aim to maintain a consistent and sustainable capital allocation strategy, which will primarily focus on gaming and fee interests over time.

Kind of going back to the embedded growth pipe; maybe if we can jump down to the experiential side following the comments on Caesars. I'm just curious, and I know that these are a little less pressing in terms of timeline, but how are you thinking about the call options for Canyon Ranch and Cabot and home field to market retail?

Yes, John, I'm happy to start with that. Before I do, I want to add one last comment regarding the previous question from Jim Kammert. This relates to having a consistent and sustainable capital allocation strategy that allows for a steady funding process instead of needing to secure a large amount of funding all at once for a single deal. Now, regarding your question about Cabot, Canyon Ranch, and the others, we're discussing assets that are currently under development or in the process of ramping up. We will take the necessary time, as will the operator, to ensure these assets reach their full potential in supporting the opco/propco model, which is not immediately on the horizon. We're very excited about Cabot's progress at Cabot Citrus Farms, where they have gained significant momentum. Samantha, I think we can confidently say that we look forward to the day we can exercise our call right at Cabot Citrus Farms. In the meantime, would you like to provide any insights on what we are observing in terms of mind share and market share?

Yes, thanks, Ed. As some may know, our partnership with Cabot continues to grow internationally. We are enthusiastic about that and our future opportunities to exercise our call rights. Our commitment remains unchanged.

And then maybe just quickly addressing your guidance. There was a statement about the dilutive effect of the approximately 90 million shares under your sale agreements. I'm curious about the impact of that dilutive effect for the remainder of the year.

David?

Yes, John, it's David. Yes, it's very minimal. If we've got to account for the forwards under the treasury stock dilution method, and it's a very, very minimal impact to the share count that shows up in our guidance range.

I think John was probably a little early calling the last question on Centaur. I just have one follow-up. There was some overhang on the stock given the uncertainty, the Centaur assets. And I'm curious how much of an impact that had on your decision to announce today that you wouldn't be calling the assets? I'm just curious if we can interpret that as doing other opportunities between now and the end of the year that you may pursue and don't want this overhang on your cost of equity?

It’s great to hear from you, R.J. The overhang on the stock was not a key factor in our decision. We recognize that it influenced perceptions during much of Q2 and into the early weeks of Q3 due to the overall state of the REIT equity market. However, it did not drive our decision to make the announcement now. The main reason for the announcement was to convey our decision clearly, and we feel confident in that choice. We have attractive opportunities for capital allocation, and our aim remains to have a sustainable capital allocation and funding strategy. In our early years, we focused on large deals with significant funding needs that often required immediate action. As VICI matures and we achieve consistent growth in AFFO, we intend for that growth to be supported by steady capital allocation activities, such as acquisitions and funding.

Should we interpret that funding comment as you're likely to be a bigger user of the ATM going forward versus overnights?

I'll turn that over to David. But before I do, we obviously want to take care that the market never develops VICI ATM fatigue. And with that, I'll turn it over to David for any further color he wants to add.

No, Ed, you stole my line. That's exactly right. You've heard us say, under Mo’s leadership, we have a balanced approach to raising equity, whether that be in an ATM, blocks, overnights; smart deals in connection with larger transactions. So we want to ensure that we raise capital the most efficiently, but also ensure that we are not developing or becoming stale in our style and then developing fatigue out there with our owners.

Just one from me on the credit solution investments. Most of the recent growth has been in the mezz and preferred investments, which do historically carry more risk. How are you all monitoring those investments? And could you pull future funding commitments if the macro economy does get choppy?

David?

Yes. Gabe is the envy of the VICI experiential credit solutions. He's here in the room, our Chief Accounting Officer. So for this Credit Solutions head on and answer that.

Dan, thanks for the question. So we're very thoughtful with our underwriting. Even though those certain investments are structured as mezz and preferred equity, we're very thoughtful about where our attachment point is and our last dollar. Looking at the operating history of the property, future underwriting projections, and the strength and sophistication of the sponsor, so that all goes into our underwriting. We have quarterly investment loan reviews, where we're working at the property performance and discussing it as a management team. And then in terms of contractual rights, if there's something that went sideways in the macro economy, that generally wouldn't allow us to have funding. But we certainly have protections under all of our loan agreements, that the borrowers have to meet certain conditions precedent in order for us to fund.

And Dan, this is Ed. I want to add that we are consistently lending against experiential assets that, in the worst-case scenario, would satisfy our strategic investment criteria. If the asset ever ended up in our possession, we would ensure that these are assets we would be willing to own even in the worst case.

You guys a few times have highlighted the strength in Las Vegas, some of the stats in terms of visitation, which is obviously being driven by the casino assets, but also the growth in sports and entertainment that we've seen out there, that gets a lot of people who don't visit the casino to still come to the city. So with that in mind, you obviously benefit from the visitation. But has anything changed in terms of you looking to do deals with some of those live entertainment, concert event stadium types of businesses? And how do you think about the durability and pricing of that sector?

John?

Yes, it's a great question, Chad. And I think you've heard us over the years talk about the sectors that we're looking at. And obviously, we've made investments in Pilgrim's Golf, indoor water parks, wellness, and sports. I think you're asking us a question about would we make an investment in the live entertainment, real estate, and facilities. I know you're asking that question about Las Vegas, but it also filters out into the rest of the United States. It is a sector that we have been spending some time better understanding. We love what has happened in the city of Las Vegas with the growth of sports and entertainment. We're better understanding the economics of what happens inside those big buildings. They're absolutely beautiful, and the shows are great, but can they support our model? And we're continuing to study that. And could there be an investment over time? There could be. But we want to make sure that the cash flows are durable and that the operator is a tenant that we want to be partners with for a long time. But it sure is exciting how Las Vegas has diversified its revenue stream and attracted new consumers by adding sports and entertainment, not just gambling and food and nightlife.

Thank you, Carla. We'll just thank all of you for your time on today's call and wish you, once earnings season is over, an enjoyable rest of the summer. Bye for now.