Gaming & Leisure Properties, Inc. Q2 FY2020 Earnings Call

Greetings and welcome to Gaming and Leisure Properties Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Joe Jaffoni, Investor Relations. Thank you, sir. You may begin.

Thank you, Christine, and good morning, everyone, and thank you for joining Gaming and Leisure Properties’ second quarter 2020 earnings call and webcast. The press release distributed yesterday afternoon is available on the Investor Relations section of the company’s website at www.glpropinc.com. On today’s call, management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance, as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management’s current estimates and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to risk factors and forward-looking statements contained in the company’s filings with the SEC including its first quarter 10-Q and in the earnings release, as well as the definitions and reconciliations of non-GAAP financial measures contained in the company’s earnings release. On this morning’s call, we are joined by Peter Carlino, Chairman and Chief Executive Officer; and Steve Snyder, Chief Financial Officer at Gaming and Leisure Properties. Also joining today’s call are Desiree Burke, Senior Vice President and Chief Accounting Officer; Brandon Moore, Senior Vice President, General Counsel and Secretary; Steve Ladany, Senior Vice President; and Matthew Demchyk, Senior Vice President of Investments. With that, it’s my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Thank you, Joe and good morning everyone, and thank you for joining our second quarter earnings call. As you all know, there have been eventful and unprecedented challenges that we and our triple-net competitors have faced this quarter. But I think on balance, GLPI has weathered the crisis extremely well. As always, our team has issued a very detailed summary of activities over the quarter. So, I will limit my summary remarks, but I think the important net result is that we have received 99 percent of our contractual rent through July. Additionally, I think we’ve proven to be very flexible in helping our tenants meet liquidity or other business challenges in order to ensure their long-term viability and success. As you all recognize by now, the partial opening of all, but a few of our tenants' properties has produced stunning and unexpected results. Business volumes are surprisingly strong, but margins have proven to be even stronger. We expect to hear the same result from Penn National when it reports on August 6. This is probably the best time for me to say what I’ve been saying for years, and that is my belief that the real strength of our industry lies with the regional properties, not on the Las Vegas strip. Not only is the cash return on invested capital better, certainly with all the properties I’ve been involved with over the years, but you’re about to see again, the resiliency of our tenants, regional properties far exceeds that of destination properties in Las Vegas; however wonderful and exciting they might be. Let’s be clear. I’m not suggesting that Vegas properties are not extremely valuable, they are. But I want to make the case and I think this demonstrates it, that regional properties have long been undervalued, and we deserve equal or even greater appreciation for that. Another bright spot that I would highlight is that within the triple-net space, our company is uniquely positioned to collect virtually 100% of our rental income. Further, our tenants are largely distinguished public companies, whose earnings and issues are largely transparent. Not a lot of guesswork for investors about the health of gaming – about gaming REIT earnings, pretty open book. So with that, let me turn the call over to Steve Snyder, who will give you a lot more detail. Steve?

Thank you, Peter and good morning, everyone. Hope everyone is staying safe and healthy through these crazy times. Just to clarify, although we’ve been trying since last evening, we did file our second quarter 10-Q this morning in spite of some interruptions to the EDGAR system with the SEC. Before I move into the quarter, I just want to touch on some personal things and bear with me this will only be a few minutes. Obviously, my retirement is something that I’ve been thinking about for quite some time, just having reached the age of 60, believe it or not. And about to be a first time grandfather, my wife and I have bought a place in Nashville and we look forward to spending a lot of quality family time in Nashville in the next years to come. So, it has been a fantastic run here at GLPI and previously at Penn. I joined Peter back in the late 1990s, and I’ll be forever grateful to Peter, to the Board here at GLPI, and to the Board at Penn originally for giving me the opportunity to contribute to two transformative companies. I think while we were at Penn, we laid the foundation for Penn to now be the leading regional gaming operator here in the United States. And certainly, over the last seven years at GLPI, we’ve created a new asset class in the triple-net lease space, which others have come to copy, which to me is the highest form of flattery. Finally, the value creation that we’ve been able to achieve at both these companies is a testament to the talented and dedicated team members. I’ve had the privilege to work with over these many years and I’d be stepping away with a very talented group of the next generation of leaders for this company. So, I look forward to it. Moving forward into the quarter, it certainly was, as Peter mentioned, a strong quarter that exceeded even the most optimistic scenarios that we looked at back in the dark days of March and April, and trying to evaluate what this unknown pandemic would mean to our businesses. Clearly, it’s not over, it seems to be heating up in certain parts of the United States and gaining a little bit less traction in other parts of the United States. What we think the company, and most importantly, our operating partners, our tenants are well positioned to weather and get to the other side of this unprecedented pandemic that we’re currently seeing. Part of the outperformance that we’ve achieved has really been across all variable items in our business. The percentage rents in our Columbus and our Ohio businesses since they were able to reopen in June exceeded our expectations, the operating performance in our two operating assets in our taxable REIT subsidiary just wildly exceeded any assumptions that we had made when we scenario-planned back in March and April. I give a lot of credit to our VP of Operations, Matt Hisco down in Perryville, who is also the GM in Perryville, as well as Jeannie Magnafrell, our GM in Baton Rouge, and their teams for very effectively and efficiently, literally shutting down a business, furloughing folks and then bringing those businesses back online with unprecedented performance over the course of the weeks that they have been open. Lastly, on the expense side, we really were able to also outperform from an interest expense standpoint, and you’ll see that in the press release in terms of the effective execution that we did achieve and accessing the capital markets to term out some of our variable rate debt. Also during the quarter, as Peter touched on this, we spent a great deal of time collaborating very closely with all of our tenants, and that’s evidenced in some of the items that are highlighted in the press release. Spent a lot of time with our brethren across the parking lot at Penn coming up with a rent credit program that really allowed them and proved to be the catalyst for them to achieve some pretty significant performance with respect to access to the capital markets, and most recently performance with respect to their assets. Also, the new Caesars team, we spent quite a bit of time with them. You saw that as evidenced by the lease amendments that we entered into, which I think really helped them set the stage for getting the final regulatory approval with the accommodations that we worked with them on with respect to the substitution of the assets in Indiana. So, I’m certain that they will perform quite well now that they’ve got their new platform under their belt. And lastly, we also spent quite a bit of time during the quarter with the folks at Boyd as evidenced by the approval of the Ohio Racing Commission to own the real property assets of Belterra Park, which now does stand in a separate lease. So, we have taken that real estate onto the balance sheet and no longer have a loan in place with respect to that asset. Also with respect to our public tenants; in all cases, we spent quite a bit of time providing them the necessary relief from non-payment covenants in all of our leases to give them runways back to normalization. Because these, as I’ve said, are truly unprecedented times, and there’s no point in using these times for a footpath under our existing leases. They need to get through to the other side and are well on a trajectory to do that. Lastly, in terms of the portfolio, we spent quite a bit of time during the quarter with the folks at Casino Queen. They were successful in procuring a loan under the Payroll Protection Program plan that the federal government did put in place. We did get, as you’ll see in the earnings release, a partial June rent payment of about $250,000. And we do expect to execute a deferred rent agreement with the new owners of the Casino Queen that will get us paid in full by year-end. We have elected to go to just cash recognition of the rent receipts from Casino Queen, given the situation that we find them in at this point in time. Finally, from a liquidity and balance sheet standpoint, we ended the quarter with an undrawn revolver with a complete capacity of $1.175 billion. We ended the quarter with $74 million of cash on the balance sheet, in terms of any near-term maturities; we’ve got a $224 million term loan A1 that is due in April of next year. But beyond that, there are no other maturities until 2023. So, the company has been in a tremendous liquidity position at this point in time to get through what remains of this pandemic. As it relates to leverage, you will note that our leverage did tick up modestly in the quarter relative to our EBITDA, not because the debt increased, in fact the opposite, but because of the modest decline in EBITDA affected by the pandemic. And we did, as it was noted in the press release, declare a second quarter dividend at 80% in stock, issuing about 2.7 million shares. And I will note for those on the call that that $0.60 quarterly dividend ended up being the lowest payout ratio that the company has ever paid at about 71% of the $0.84 AFFO that we reported, because you will see from the press release that our performance did exceed any of the consensus estimates that were out there on Wall Street. Finally, as GLPI moves forward, we clearly are still in the fire of this pandemic. But as Peter mentioned, I’m very comfortable that regional gaming assets and our operating partners in particular will lead the recovery of this asset class. And once normalized, our tenants will achieve the strongest four wall coverage of their lease obligations in the entire asset class. So with that operator, why don’t we turn it over to the participants for any questions they’d like to address to the management team?

Thank you. Our first question comes from the line of Barry Jonas with SunTrust. Please proceed with your question.

Great. Thank you. First off, Steve, I just wanted to say congrats. It’s been a real pleasure working with you over the years. So, thanks for everything. And I guess I’ll start just with the dividend, is this the appropriate level? Is this the appropriate rate here and how are you thinking about the payout ratio going forward?

Well, let me take a quick whack at that. Look, we’re going to do whatever is prudent looking ahead. Steve has said earlier, we’ve matched what we’re paying out in cash to what we get in cash. We expect the fall to be actually excellent. And so that we’ll be taking a hard look at what the next quarter might offer exactly. But we’re not going to make any commitment about that now, but I will highlight that as a shareholder, who loves dividends personally, that we’ll get back to a normalized rate as early as we think is prudent. And that’s really the best answer I can give you.

Okay. Fair enough. Next and maybe, this is a question for Matt, but maybe, just talk generally about the M&A environment. What does the pipeline look like? What’s your appetite here?

Sure. Yes. So, the top-down answer is really that the stage seems to be set – at least partially set for there to be some activity in the space. There’s one thing that COVID taught us, it’s that there’s certain importance to solvency, and the value of permanent capital in our lease structures really as permanent capital gets. You can also look at where operators have priced debt in recent trades, and that suggests that our capital is attractive from the cost perspective. And when we look at our capital sources, we definitely see a functioning capital market but from a bottom-up perspective, it feels a bit too early or soon, operators really have been focused on survival, successfully reopening their properties. And the real question is going to be when they’re going to be strategic reasons, be they rationalization, consolidation, regulation for assets to change hands. And when that happens, because of the ability to both help in pricing for transactions, and also the help with permanent capital in that maturity risk question, our sale leaseback structures, value proposition is really as relevant as ever and we definitely have been working to ensure that we have a seat at the table for all those discussions.

Great. And then just the final one, Peter, you kind of touched on this, but as you look across the triple-net sector, maybe even beyond that, how do you see GLPI and the gaming REITs positioned in a long before coronavirus, there was an argument for cap rate compression, where do you think that stands now either coronavirus?

You kind of know what my answer’s going to be Barry. It’s better than ever. Look, we always said that these are state-sponsored businesses and most that rely heavily on the kind of revenue that we generate for them. And that these places essentially don’t close, even through tough times, you saw at Caesars, the operations still continued, life went on, maybe the ownership changed hands, but this stuff is about as bulletproof as it gets, and I’m not going to lie when I say, because there’s always some surprise that may appear in the future, but I think this demonstrates perfectly how rock solid the income coming out of not just us, but our gaming partners, gaming REIT partners really is.

Perfect. Thanks so much.

Thanks, Barry.

Thank you.

Our next question comes from the line of Carlo Santarellis with Deutsche Bank. Please proceed with your question.

Hey guys, how are you, and Steve, congratulations. Guys, I know this is going to be hard to answer, but it was recently obviously in the paper earlier this week, kind of the Tropicana is beneficially listed and could you talk a little bit about in the couple of months now, since the transaction the way, maybe, your thinking has evolved, as it pertains to potentially, working with somebody in some form of mixed-use versus an outright sale of the property versus kind of any other agenda you could potentially have at this point?

Well, there’s an easy answer to that, and that is that as things settle out and they’re certainly not settled in Las Vegas right now, it’s hard to guess. We’ll do whatever makes economic sense for this company. We’ll look at every opportunity, all opportunities, partial sale, partial sale leaseback, grand leases. I mean, you can go through a litany of things that we’re open to, and even though we’re having some discussions, albeit early, that will lead us to the right answer. I think the key is we have a valuable piece of real estate in Las Vegas and we got fairly priced. We feel very confident about that. And as this evolves, we’re just going to try to maximize value for all of us here and for you.

And Carlo, just to amplify on Peter’s point, I would make it clear that these 35.1 acres are strip frontage; others talk about strip proximate. There’s nothing proximate about being on the corner of Las Vegas Boulevard and Tropicana Boulevard. This is the corner of main and main and you know everything that’s going on down there with respect to the stadium opening and everything else. So, it’s really a matter of being patient letting Las Vegas come back to some feeling of normalization. But in spite of that, to Peter’s point, there have been folks that have been making inquiries because this has been an ongoing process and in spite of the Las Vegas Review-Journal, just sort of suggesting it’s just been listed. We stepped into Penn’s shoes in this process and they had started this process well over a year, year and a half ago. So, it is something that will continue, and to Peter’s point with the goal being maximizing value for GLPI.

Great, thank you both, guys. And then if I could, it’s been a question that’s come up for years in terms of your interests outside of the gaming space and it’s – that would have been something that made a ton of sense, but in the current environment, where some of the entertainment-related companies maybe aren’t seeing that the multiples that made the transactions a little bit more difficult from an accretion perspective in the past. Has there been any change in kind of your view of non-gaming related assets since the pandemic?

Well, it’s Peter. as I had indicated earlier, look, we’re happy to be in the space we’re in and thankful, we’re not in some other spaces right now, where people are hurting a whole lot more. So, but what you’ve asked is does that open opportunity in some other sectors? Look, I think again, we have to wait to see how things settle out. It may create some opportunity for us, but again, the struggle has always been, and I said this when we started seven years ago, show me a better business than the one we’re in, show me a business that has the cash flow certainty that we have, and we’re about to prove it; we’re proving it now. So that’s always been the struggle. When we’re on the road talking to investors and to all of you, it’s really a matter of – we’re trying to make the case that we are in a business that is about as bulletproof as it can get. It’s not about occupancy. It’s not about tenants canceling. None of that can happen. So, we’re looking for something that may well emerge. I mean, I’ve always said, I used to say on the Penn side, if it’s alive and breathing, you can imagine we’re looking at it. I mean, that’s still our kind of philosophy, but we’re going to be patient. We’re going to see what may change and we’re looking to the future growth of this company. But again, prudence and caution, remembering who we are, staying close to the core value of safety for shareholders isn’t going to change. So, we’ll see – we will see. You may well have a good observation that this is going to open up something for us. And if so, we hope to identify it.

Great. Thank you, guys.

We’re open to anything. I mean, that’s pretty much the answer.

Appreciate it.

Thank you. Thank you very much, Carlo.

Our next question comes from the line of Jared Shojaian with Wolfe Research. Please proceed with your question.

Hi, good morning, everyone. Thanks for taking my question.

Good morning, Jared.

So, if casinos are going to come out of this crisis and a new normal of higher profitability, but potentially lower revenues, like what we’re seeing right now, how does that affect you with the rent escalators tied to revenue? And is there anything you can do to address that or does it frankly not matter to you, because the overall corporate coverage would just be so much better?

Well, it matters. I mean, it certainly matters. And again, I’m going to – I’m going to pump maybe, Steve or Matt has – or Steve Ladany has an answer or a different thought about it. But look, like everything else, we’re going to have to wait and see how things go. Look, I have faith in ultimately, getting back to the kind of levels we were at before. It may take though a lot longer than we ever would have imagined. In the meantime, I think companies were already working, certainly Penn National was and everybody else as well on improving margins. Now, look, let’s be real. I think the level, the margin level that we’re looking at right now is likely not – I mean, it is not sustainable. I mean, right now, we’re kind of the only game in town, I think in terms of entertainment and things that people can do and get out. But I think there has been a permanent shift; companies are going to operate more profitably and we’ll have to wait and see what the net result of that is. Steve, do you want to or Matt?

First of all, Jared, welcome and thanks for the work that you’ve done in understanding the asset class and initiating in June. So, it’s great for you to take the time to drill down into heavy drilling. In terms of yet the escalators, clearly, as Peter mentioned, we do expect to see permanent margin improvements in these businesses, which will drive four-wall coverages, so that there is the ability to realize escalators. But I think the bottom line is look at the amendments that we’ve made with new Caesars under the Tropicana lease and see what is in those amendments that drive known future same-store sales growth in the form of escalators. And those are the kinds of things to look for on a go-forward basis in my mind from GLPI, just to be specific with respect to your question.

That’s a fair answer. anybody else at the table, want to add?

Jared, if you look at it from the perspective, the vast majority of our rent is subject to escalation based on EBITDA. So, the bulk of it does get the benefit of some of these trends. And when you think about variable, right – you’re right, there could be headwinds that we’re working to protect and protect our cash flows through steps like these brought up with Eldorado and also going forward, you should expect us to continue those efforts and help the value of the cash flow.

Thanks, guys.

Great. Thank you. And then assuming Caesars decides to swap out Tropicana Evansville out of the lease as you’ve granted that option, and then they look to sell it for regulatory reasons. Is that an asset that you would bid on?

Absolutely – oh yeah. See, Ladany just for fun, you’ve been silent for a bit. You’ve been keeping that we all have, but...

No, I think, look, I think the short answer is yes, we own the asset now. We like the asset, it’s performed very well and it’s a quality property with known competition. I think we would definitely have an interest in it. I do think it will be interesting to see how that entire process rolls out, because as you’re well aware of the other two divestiture requirements in Indiana, are both least currently to one of our competitors. So, we’ll see how we can be involved in that process, but we do have an interest.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Finbar with Bank of America Merrill Lynch. Please proceed with your question.

Hey, guys. Thank you. I’d like to echo all the sentiment towards Steve. a quick one from our side of – think about the TRS Properties, specifically Baton Rouge, do you guys go through some of the long-term strategic importance of that? Do you see it having a place in your portfolio or would you look to do something similar to Perryville?

Look, I think we’ve been pretty public about that. I personally have a great affection for that property is one of the early ones that we bought and I really do, but look, I think ultimately we’re a REIT and that’s probably where we’re going to need to be. I say that, but happily, there’s some interesting opportunity and that of course, is the possibility of moving that boat landside. We have orchestrated, in fact, Steve Snyder had directed at effort. with the team that we’ve used in all of our Hollywood properties and guys I’ve worked with from the very beginning Don Bangert and the Genesis folks in California to do a Hollywood thing facility landside for a relatively modest budget. It’s pretty exciting. I’d like to see that through there’s some other things happening in Baton Rouge that are actually very appealing. So, there is a real opportunity to do something good with that property. Beyond that, I’m not sure what happens, but I would like to see through assuming we get approval that in fact this month or in August coming. We get approval to move landside with a modest, but very attractive facility. The spend is going to be very cautious, but I’ve seen plans. They’re terrific. We just have to go sell them to the folks in Louisiana. And so I stay tuned for that. I think that property has some room to move and we’ll see.

Great, really appreciate it. That’s all from our side. Thank you.

Thank you.

Our next question comes from the line of Jordan Bender with Macquarie. Please proceed with your question.

Good morning, and thanks for taking my question. First off, thank you, Steve, for everything and best of luck in retirement.

Thank you.

So, my first one here to kind of touch on the CFO search. Is there anything you’re looking for within a candidate someone with REIT experience, gaming experience anything you can provide there?

Look, I’d love to answer that question, but I don’t think that’s inappropriate or this is inappropriate forum for it. If you want to give me a call directly, I’d be happy to chat about it. But in an open call like this, I think it’s much – it requires a much more nuanced answer than I would be prepared to give now. So if I may, it’s one of the few times I’ve got to dodge a question.

No worries. Okay.

We’re happy to discuss it separately later.

All right. And then do you expect to restructure the lease with Casino Queen given that it’s been under the minimum coverage for some time now?

Steve Ladany, do you want to take that?

Look, I think we’re currently in discussions with the current management team there, as well as the current secured debt holder around that transaction and what’s going to happen with that property going forward. as you may have seen, they just announced the DraftKings transaction, which from our perspective is very positive, should support the performance of the property and therefore enhance our rent coverage. So, there are a number of things going on behind the scenes, and we’re working on with them. We are working closely with them and we hope to have that entire lease in a much better place going forward.

Yes. it looks like, I mean, in summary, much improving situation there.

Okay. Thanks guys. I’ll pass it off.

Thank you.

Thanks, Jordan.

Our next question comes from the line of Thomas Allen with Morgan Stanley. Please proceed with your question.

Thank you. So – and Steve, thanks for all your help and the best wishes. So, Peter, you’ve been around the industry for a little bit. You made some interesting comments earlier that I don’t think anyone disagrees with you, but that the margin levels we’re seeing right now are not sustainable. And 16 years are the only game in town. If you look at regional properties and true regional properties or EBITDAs right now are growing in those kind of mid-to-high teens. What do you think like if we go out a month or two in the current environment sustains, what do you think career with that growth is going to be for regional properties? Thank you.

Well, Steve, if you want to say, it looks like he’s ready to.

Good morning, Thomas. Let me give you a couple of data points, because I know you’re a data junkie. I’m a data junkie. I’m looking at our TRS properties earlier this week in July. I mean, our volumes in the two properties were up nearly 6% on a year-over-year basis. And our EBITDA is up over 30% on a year-over-year basis in those two properties. That does not feel sustainable. The issue really is where does the world normalize when we get to the other side of this whole COVID-19 situation and there’s still a risk, because you got 50 governors out there. Of course, only 16 of them affect us that you might see governors roll things back as they’re starting to do. But I think we, as an industry, have proven our ability to provide adequate social distancing. We and our regulators have enforced mandatory masks for anyone coming on our gaming properties and those are the things that have allowed us to realize the performance that we’ve realized in our taxable REIT subsidiary and our operating partners are realizing in the facilities that they operate, which we own. So, it’s too early to tell, it is really the bottom line. I think to Peter’s point, I don’t know about the volumes, because again, these are capacity limited, and yet we’re doing these upticks that I mentioned. But I do think, and others have said Boyd, on their call, we’ve heard from Caesars – new Caesars in their update. And we’ll hear from Penn next week. I think operating expenses have permanently been taken out of these businesses. And that’s where the margin improvements will come from and that’s what I think will drive the four wall coverage improvements that these facilities will see in the not-too-distant future once we anniversary this.

Yes. Penn already was the – I think had the highest margins across the board in the regional markets anyhow. They were committed to still a margin improvement program that has been well-publicized. And then you put all this together, I think you’re going to see that all businesses, certainly in the regional sector, are going to be able to operate a lot more leanly than they ever did before. So, we know it’s going to be better, just don’t know where it’s going to settle out as Steve said. We’ve just got to have to wait and see. But look, this – we’re thrilled with the early results.

And just as a follow-up, looking at your TRS properties, can you just discuss the demographics that are coming through the properties and driving that 6% volume growth? And is there any way to read into this stimulus tech, where today, I think was the last day, what the impact could be?

It’s too early to tell. let me answer the easy one first, which is the demographics slightly younger, seen more table games drop than historical norms, because of that younger and a little bit more male-oriented demographic. And these data points adjust from Perryville, Maryland and Baton Rouge, Louisiana. So, don’t extrapolate these globally. And we’re also seeing a much higher participation by – from unrated play. We’re just seeing much more unrated play, because remember, we have not marketed aggressively because of capacity limitations. We’ve been fortunate. But Louisiana has provided $5 million in annual tax-free promotional credits. One of the reliefs that they’ve provided the industry as a result of this whole COVID-19 situation. So, it just went into a fact. So, these things are still playing out. but generally younger demographic, more midweek, midday business than we’re accustomed to seeing greater unrated play and higher spend per visit at a high level are the demographics that we’re seeing.

Perfect. Thank you.

Thank you.

Thank you.

Our next question comes from the line of David Katz with Jeffries. Please proceed with your question.

Hi, good morning, everyone. And Steve, all the best. none has been more engaging and enjoyable, so well earned.

Thanks.

We’ve covered an awful lot of information, but I just wanted to propose the notion of getting involved in a category of assets that’s tangential to what you have. What we’re hearing more and more about are hard assets that may house sports betting other than casinos, that could be sports venues, obviously OTBs are near and dear. But how much looking or thinking have you done around those kinds of hard assets, particularly in a world where all things digital seem to be top of mind?

Look, I think we spent a lot of time looking at both opportunities, or potential threats to our business as we look to the future. So, the quick answer is we spent a lot of time talking about that here. Remember that this is going to unfold though in a state-by-state basis. Some states are going to be completely bricks and mortar oriented. There’s a potential that in some places like, I guess in Washington D.C., or I understand that Michigan maybe, was talking about anybody in his – their kids can get a license to do this. I mean, it’s just open to the – almost anyone, that’s a suggestion, it hasn’t happened. But so we have to see how it’s going to unfold. Look the states have and I can speak a little bit with about Penn National. I do think they are largely focused on legislation that supports their bricks and mortar facilities. There’s plenty of reasons, employment otherwise that the states ought to be sensitive to that. But the truth of it is, it’ll be up and down. Some states will be highly sympathetic to the bricks and mortar protection. Other states may be less so. We’re very early in the game and I think we just kind of have to keep an eye and see how this unfolds. That would be my answer around the table, anybody want to add his?

I’ll just add, David. When you think about things outside of gaming, the gating factors are really, does it fit our competitive advantages and our institutional skill set? Does it have durable qualities similar to the assets we already own? Does it have an attractive risk-adjusted return profile, a predictable growth profile and also a margin of safety? And if we can find those attributes in some of the areas that you’re suggesting, make no mistake, we’re looking and we’ll certainly move when prudent.

Okay. If I may just follow up, I know we’ve talked a fair amount about the Tropicana, Las Vegas. Is it fair of us to assume that the full range of options, including you continuing to own the real estate and bring in an operator is on the range of outcomes?

Well, the quick answer is we look at everything again, you’ve ever heard me say that ad nauseum. it’s hard to guess where this is going to go. I mean, I think we’ve tried to leave the impression that we’re very open to look at anything that is profitably, safely prudent for this company. And that could be just a straight-up sale for the highest dollar we could get or something more long-lasting that we believe grades value for our shareholders. And that’s what drives the entire thing. So, we suggested until the market kind of settles out. We’re going to be patient. We’re going to look at a lot of things. There are people as Steve Snyder offered before that are talking to us about stuff. Well, okay. Let’s see a check and we’re – let’s see a concept that we can accept. So again, it’s a squishy answer, because frankly, that’s where we find ourselves right now.

And the outcome probably will have some sort of counterparty that wants to bring capital to the table at some point, because it doesn’t seem the highest and best use is not the exact configuration that the property is in right now.

Got it. Thank you for taking my questions.

Thanks, David.

Thank you.

Our next question comes from the line of Jay Kornreich with SMBC. Please proceed with your question.

Hi. Thanks very much, guys. So, to follow up on the acquisition potential, is the pandemic creating new opportunities for you as hotel operators, maybe looking to raise capital by selling the real estate for the first time?

Pardon me, again – I’m not sure I understood the question. So maybe, unless Matt, you kind of got it?

You mean kind of just originating new sale leasebacks as an alternative capital source?

Yes. I’m saying there are a number of casino operators that own 100% of the real estate, not yet working with the gaming REIT. So, does this environment provide incentive for them to look to raise capital by working with you guys to sell the real estate?

We hope so. It certainly could. Where’s the public market pricing, their entities. And is it giving them appropriate value or not? Arguably, right now, I mean, there’s certainly dislocation in pricing if that persists for a longer period of time, but certainly, it could be an opportunity, but I’ll point you back to the original comment it’s right now, it’s really too early to tell. We’re certainly engaged though and in dialogue and we make those suggestions all the time, because not only do you get some balance sheet arbitrage, but you also get the permanency of capital that we talked about, which can ultimately lead to higher values for the companies. So, computer’s point, we certainly hope so.

Right. Okay. Thank you for that color. And then switching gears, relating to the approval to own the Lumiere Place casino, is this a new single asset lease like you similarly did with the Belterra Park loan and if so, why not get the protection that comes with placing it in the operators master lease?

Well, let me just for fun. Because he hasn’t said anything yet, our general counsel of Brandon Moore, at least talk about how we’ve structured that as to where it goes thereafter and what – go ahead, Brandon.

Yes, I think the future of whether or not that remains in a single property lease is something that’s far down the road. at the moment, the Missouri Gaming commission permitted that property to be transferred to Gaming and Leisure Properties pursuant to a one-off single lease. And so at the moment, that’s where it will remain and as I said in the future, we can take a look at that, but for now, that’s where it will be.

Jay, one of the other things that you should be aware of too, as part of the regulatory approval for that our operating partner or our tenant, their new Caesars has committed to investing capital in that facility and they’ve made it very clear that this was a key asset for them in a key market to be in St. Louis. So, in terms of the risk of a single asset lease, I would suggest to you that the tenant’s disposition should be the counterweight to any concern that you might have or anyone might express by the fact that this isn’t going to be a single asset lease to satisfy the regulators.

You looked at a very, very high quality property. We’re delighted to own it in any case. So again, I have a lot of confidence in the real value there, whether it’s current operator, which we expect it will be forever or somebody else. It’s a quality asset that we’re delighted, frankly. And I credit Brandon with tremendous work to get that done in Missouri. So, it’s a big accomplishment this quarter, huge accomplishment for us and we appreciate all, who made it happen.

Got it. Okay. Thanks so much, guys.

Our next question comes from the line of Spencer Allaway with Green Street Advisors. Please proceed with your question.

Thank you. Given that economic backdrop, I’m just curious, have you guys considered waiving your tenants CapEx responsibility embedded in the lease agreements simply to improve tenants’ liquidity over the near term?

Well, it’s so small. Yes, look, I know one of our peers talks about that frequently. look at our leases, our leases capital expenditure requirements are 1% of revenue and it’s pretty easy to satisfy that in zero revenue months. So, unlike our peers that have not been a topic of great concern among our operating partners.

Yes. Look, we’ve made a judgment early that if tough times got tough, remember we created this industry and we set up, and maybe in hindsight, there’s some things we might’ve done differently. but we made the judgment that if things were tough because they spend more than that anyhow, right. So, we just wanted, in a tough situation, to put an amount in. It was just a nominal amount. They spend more than that and just refreshing the casino floor year in, year out. So, it’s such a de minimis burden that it just doesn’t really apply in our case.

Okay. And just regarding Steve’s upcoming retirement, I understand you don’t want to comment on the specifics of the search, but given the retirement date is fast-approaching. Should we expect to see an interim CFO named, if a successor is not identified relatively soon?

Just not prepared to answer that question either right now. So, I can’t tell you what to expect, except that we’ll do something that’s smart and sensible. There are a number of alternatives. Obviously, we’re talking about that internally right now. So, I’m going to dodge that with that’s two questions in one outing here.

Okay. Thank you.

Thank you.

Our next question comes from the line of John Massocca with Ladenburg Thalmann. please proceed with your question.

Good morning, everyone.

Good morning, John.

So first, Steve, let me echo all the sentiments with regards to the help you provided to kind of everyone on this side of the phone with understanding GLPI. It’s always been greatly appreciated. Thinking back to kind of the lease modification that you completed with Eldorado, I talked about it a little bit, but any, I guess we’re looking forward to potentially trying to do more of that type of thing. Has the window maybe for that closed, given the kind of recovery or can it still be open to those conversations or is that maybe less attractive now if given the outlook for the industry seems to be better, it’s hard to say.

I mean, look, I’m a tenant doesn’t want to give up any favorable arrangement that they presently have. But look, these things are always trade-offs, negotiations as they need something, we might need something. So, we’ll take advantage of opportunity to fairly, that goes great with tenants to our advantage, where it makes sense and where we can offer something in exchange. That makes sense to them. It’s just – it’s an ongoing process. And you can always assume that we’re looking to our situation where we reasonably can.

Okay. We’ve done it all along the way.

But go ahead, please, John.

I’m going to switch gears if you have any other color on that. Switching more of the acquisition side of things, I mean, I know it’s still early days. Has kind of the activity of the last couple of months, has that impacted pricing on transactions specifically with GLPI and is that increased your kind of return threshold you’re looking for any potential future acquisitions?

Matt, you want to go?

Yes, I’d just say that, hey, I mean, if you look at the few things that have happened, I mean the key one that we point to is our sale leaseback one of the land at Morgantown, right at a 10 cap, but that came from very unique circumstances. Going forward, if you look at the pieces of what we’re looking for, a strong operator, a strong asset and credit support to strong four-wall coverage and counterparty balance sheet, the ability to access capital, that last piece of the puzzle is obviously more important than it has been for a long time. And it’s been something we’ve been very adamant about getting. So, when we think about risk-adjusted returns to our cost of capital, I don’t think that’s changed, but I think about the definition of risk and the way we look at it and that being relevant. And it might steer the types of counterparties that we might want to deal with near term in a specific direction. But the math is the math that you can see we’ve got efficient or at least effective capital markets that are functioning. We’ve just accessed that and the debt markets, and we know where our cost to capital would be. So, the short answer is not necessarily.

Okay. That’s very helpful. And that’s it for me. Thank you all very much.

Thank you.

Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Great. Thanks. Most of my questions have been asked already. Just one follow-up though when you were talking about the sustainability into July and the level so far, you made a comment that it didn’t feel sustainable and you said something about governors rolling back. Is that – I guess I’m just wanting to understand, is that we think is not sustainable, that there will be changes in some of the state regulations or did you mean not sustainable, because mid-single digit demand is just not how the industry normally grows or did you mean not sustainable because of the that eventually for competitive reasons, some marketing will come back and maybe margins will be able to be as good, at just all of those things, I guess. I just want to make sure I understand what you were saying there? Thanks.

Yes. Robin you’re really parsing my words this morning. Thank you. Look, the bottom line is, we are living in just completely uncertain times. And planning for next week is difficult, planning for next month or next quarter is impossible. So, I didn’t mean anything specific. I just like you read the headlines. Watch what’s going on throughout the world. I’m very concerned about it. But at least what we’re seeing right now does provide us with some glimmers of hope, but that hope could be very fleeting depending on how this progresses. And I have not met anyone yet, who’s forecast as to how this is going to progress. I have any faith in.

And maybe one other question, just thinking about to the degree that the margin that’s come back from maybe not having buffets operating or some of those lower margin things. I guess, how sustainable is that if as volumes surge recover over time or, say these will continue to recover over time, that when somebody else opens a buffet that then you have to as well and all of those, right? And then the same thing with all of the marketing to kind of put margins where they are? Right. I mean, I guess, how do you keep from going back to that if the competition does that to get more market share?

Look, that’s a fair question. And that historically has been the problem in regional gaming, whether it’s in Atlantic City or the Gulf Coast or different regions around the country, there’s always been a race to the bottom at times. I shouldn’t say always. There have at times been sort of a race to the bottom in terms of giving away business to drive unprofitable business, quite frankly. Where I personally, and I’m sure Peter and others around the table get their comfort is this industry has been vastly consolidated over the years. This industry is now dominated by large publicly traded companies. The presence in the industry of the data analytics capabilities have improved dramatically in recent years. And I think, and I hope you would agree any conference call that you listen to, whether it’s Keith and Josh with Boyd or Tom and Brad at Eldorado or Jay and his team at Penn they are very focused on profitability. You’re correct. There is a risk that somebody gets out in front in a market, but I really do think that this new focus on profitability is going to lead to the sustainability of the margin improvements, not to the degree, but directionally that we’ve certainly seen over these last few weeks.

Yes. Look, I think Steve has provided the perfect answer. I know through our time at Penn and there were years ago back, historically since the industry came regional in the early 90s, there were a lot of places where competitors were blowing their brains out. Those days are over. And I recall when I was running Penn on a day to day basis that, we had a discipline around that. We just simply said, let them go, let them go. We’ll move some business in the meantime, they’ll all come back. So, we always had a very strong discipline. I am a 100% certain that each of the companies we’re talking about now has a much more sophisticated view of markets, values of customers and so forth. So, we’re looking at a different time of world. I’m not overly worried. It could happen on property to property basis in a certain city or town that they put the buffet back as you illustrated. And maybe a GM will decide that that is necessary. But I think there’s a lot more discipline in the industry today. And certainly this whole COVID mess has shown companies that they can operate very profitably with less. So, I’m not overly worried that it’s going to quickly flush away all the games that have been made.

Okay. All right. Great. Thanks very much.

Thanks, Robin.

Thank you, Robin.

Our final question comes from the line of Joe Greff with JPMorgan. Please proceed with your question.

Good morning, everybody.

Hi, Joe.

And Steve, congratulations on a great career and best of luck to you in your retirement. It’s always been that accessible, helpful, and thoughtful. So thanks for everything.

Thank you.

So, my question does exist with your payout ratio. Most recently at 71% of AFFO and all the things that you’ve done to strengthen your lease structure, the improvement in your tenants performance, and obviously all the things you’re talking about to improve the coverage ratios with tenants margins improving the way it is. What makes you increase that payout ratio is, where is it really a function of once you kind of get past this year with having a stock component, then that would allow you to go back to that upper 70%, 80% payout ratio. How are you thinking about that?

Joe, that was a question earlier, but let me emphasize again, we’re going to get back to exactly where we were before at the earliest moment, quarter, day, hour that we think it’s prudent for the company. We liked where we were. I think shareholders liked it, and we’re going to get back there as soon as we’re satisfied that our, the stability of our cash flows justifies it. So, I just can’t answer it.

I guess another way, maybe asking it, just to get a sense of how maybe you’re thinking about this Peter, if you’re 71% and it would still be the same consideration matrix as it would be if it were 80/20 stock cash?

I mean, no, listen. I think it’s going to be the same. Not going to change. I’m looking around the tables, we have the different point of view, but no, I mean, I expect to get back to exactly where we were, exactly, at the earliest plausible moment. But again, we’re not going to be dumb, and get ahead of ourselves, or get ahead of the market. It’s just about certainty when we’re satisfied with cash flow. Recognize it, look, we view ourselves as an income-generating company for investors. I know, I like it and value that. So, we’re focused on generating the income for our shareholders among other things, but that’s probably a primary driver as a REIT. So getting back to the highest possible number and the earliest possible time is kind of driving me a lot. That’s why we work on our balance sheet and do all those things that we do to improve our ability to do that.

Great. Thank you guys.

Thanks, Joe.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.