Gaming & Leisure Properties, Inc. Q2 FY2021 Earnings Call

Greetings and welcome to Gaming and Leisure Properties Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Thank you, Doug and good morning everyone and thank you for joining Gaming and Leisure Properties' second quarter 2021 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. The 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 its risk factors and forward-looking statements contained in the company's filings with the SEC, including its second 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 of Gaming and Leisure Properties. And also joining today’s call are Desiree Burke, Senior Vice President and Chief Accounting Officer and Treasurer; Brandon Moore, Executive Vice President, General Counsel and Secretary; Steve Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you Joe, and good morning to all who have dialed or tuned in this morning. We're very happy to report another excellent quarter here at GLPI. I can tell you having done this for many, many years, it is a lot more fun to talk about good quarters than disappointing ones. And happily in my career, we've had very few disappointing quarters over many years. So, this is a good one. As usual, I'll make very few comments. I think we have our entire team here as always. And I'm going to ask Desiree Burke to highlight some significant points. And Matt Demchyk will also have a few comments and then we'll open it to your questions. Our release, I'd like to think as always, is very, very thorough. So most everything you need to know of course can be found there. But we're here today to answer your questions. So Des, why don't you take the mic?

Thanks, Peter. Good morning. Our second quarter results were great and we're ahead of the second quarter of 2020 on several metrics. To highlight the second quarter REIT segment results, income from real estate increased by $22 million for the quarter compared to the prior year. That's primarily due to higher percentage rent from Penn's Master Lease of $11 million related to Ohio. Rental income from the new Bally's lease of $3.1 million, Morgantown round of $750,000 related to the lease with Penn that began in the fourth quarter of last year. An increase related to Casino Queen of $3.4 million as a full quarter of rent was collected in 2021, while 2020 had a deferral. Escalators on our Pinnacle and Boyd Master Leases that became effective on May 1st of $1.2 million and some non-cash straight-line rent adjustments and revenue growth of $4.5 million. These positive variances were partially offset by lower percentage rent of $1.8 million due to our amended Pinnacle lease, Boyd lease, Caesars lease, Meadows lease; percentage rent resets that were negatively impacted by the Casinos' closures from COVID-19. The REIT segment also had an increase in expenses of $6.4 million compared to the second quarter of 2020 and that's primarily related to an increase in non-cash items, such as our land rights and ground lease expense and depreciation. Our second quarter TRS segment results continued strong performance with net revenues and adjusted EBITDA exceeding prior year levels by $33.7 million and $14.3 million. I also want to point out that we anticipate achieving a full escalator on the Penn Master Lease effective November 1st of this year, which will increase annualized rent by $5.6 million and that we also expect to collect Casino Queen rent deferral of $2.1 million related to the first quarter of deferral upon the closing of the Baton Rouge transaction. With that summary, I'll turn it over to Peter.

Thanks, Des very much. And Matt, you've got some points you want to highlight, please do.

As many of you remember, we set a theme for this year focused on being proactively positioned. Strength in our balance sheet and effective capital market execution with carefully sourced and reasonably priced capital are crucial for this initiative. In line with this, during the quarter we chose to use our at-the-market equity issuance program, raising slightly over $70 million in proceeds, at an average net price of just over $47 per share. Our decision to use the ATM program considered both our balance sheet objectives and the nature of our investment pipeline.

Thanks, Matt. That pretty well highlights many of the great points that we'd like to make. We're in a great business, had a great year. It's pretty exciting. So with that let's get to Q&A, Doug if you would.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. Our first question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Hi, thanks. I guess my first question is you mentioned achieving rent escalators with Penn. I was just wondering do you expect to achieve those escalators with respect to other leases, which have anniversaries later this year based on what you're seeing now?

The quick answer is yes. Des, do you want to comment?

So the Penn escalator because of the performance of the Penn properties, we do expect. The only one that would reset later this year as well is the Meadows Lease, we're not certain to that we expect to get an escalator on that. We'll have to see as their COVID months drop-off and the better performing months come in how they perform. So the only one we are projecting right now is the Penn escalator.

Okay. Thanks. And then Matt, you just mentioned institutional capital continuing to look at this space. So I was wondering, do you expect more interest in their regional assets? Obviously, you bought other transaction in Las Vegas recently. But I'm just wondering do you think – is there something about the structure of regional gaming that makes it maybe more difficult for institutional capital to come in?

Yes. I mean, Smedes, as you know, on one hand, we've got a bit of a moat because in a lot of the limited license states, there's a need for licensure and some other things that make it a little less direct for capital to go into our asset class but over the many years I've been in the investment world, that reminds me of that law of physics that water ultimately finds the lowest point. Capital is ultimately going to find the best risk-adjusted returns. And I mean the amount of capital out there now, if you look at some of the private equity platforms and the recurring income that they're focused on in their private REIT vehicles is stunning. And over time, our cash flows fit that return profile incredibly well. To date, we've been very successful with our relationships being the first mover creating the space in finding and sourcing off-market transactions at very nice risk-adjusted spreads. And we've also pointed out as institutionalization continues, we expect to see more cap rate compression. So you've got a few recent comps on the strip that happened. Interestingly, what you've seen in the regional markets year-to-date of anything of scale and our quality has really been off market. Our deal with Bally's and then the transaction that MGP did at Springfield. It's going to be really interesting to see a market clearing high-quality asset in the regional markets and perhaps we'll see when in between now and the end of the year.

Okay. Thank you, guys.

Our next question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.

Thanks. Good morning, everyone. I guess in terms of first question on Bally's are there any – have you discussed any other options or opportunities with them now that that $500 million investment is off the table?

The quick answer is yes but I want to turn to Steven Ladany for that.

Yes. Look we have a great relationship with Bally's as seen from the various transactions and structures that we've accomplished and achieved with them. Our dialogues with them continue even beyond this commitment. Part of the commitment was necessary for the UK regulations. Clearly, they had the amendment from the Rhode Island statutes to allow them to increase leverage and their outperformance of the properties has been incredible. So they no longer needed that capital earmarked today, but I would not suggest that that means that there's no further dialogue with them. We're always talking with them and always interested in transacting with them.

Okay, that's helpful. Thanks. My second question is about the CFO search. Can you provide an update on that? I believe it has been a year now. When do you expect that to be resolved?

Well, there isn't one. That's the quick answer. There isn't one. We abandoned that quite some time ago. As I've answered in earlier calls, functionally we've decided that among the principles here with Desiree, Steve, Matt that we're perfectly able as you've seen in the interim time to handle everything and anything, including all the financings we've done plus the day-to-day operating stuff that we have reported. They just don't need it. Now, somewhere down the line I expect we'll do it. But we're not in any hurry with the great team that we have in place. We just don't need it, quite candidly. And I expect, I'll say it again, somewhere down the line we'll probably designate somebody or bring in somebody. But at moment, we've got no interest and spending no time on that subject.

Okay. Thanks Peter.

Thank you.

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

Hey. Good morning everyone.

Good morning.

Just somewhat of a modeling question. As you guys get closer here to the sale of the TRS assets, how should we think about kind of the G&A that maybe goes with those assets?

Des, do you want to take that?

Yeah. So, the performance of the properties are pretty much split pretty evenly. So I think you can think about those as half-and-half to do your modeling. And you shouldn't be far off.

I think the G&A also if you look at the breakout in the earnings release the line item that's attributable to the non-corporate piece is related to the TRS. So I think that's the piece that's ultimately going to go away.

So that's what I'm referring to. The entire TRS will be eliminated when both properties are sold. However, if you're planning for this year, about half of it was finalized with the Perryville transaction on July 1st. You can anticipate that the other half will be in place until the sale of Baton Rouge is concluded.

Great. Thank you.

And then, the whole line item obviously goes away.

Yes. All right, I appreciate it. Thank you.

Thank you.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi. Good morning. This is Ravi Vaidya on the line, for Todd Thomas. I just wanted to ask here. Are there any regional markets in particular that have surprised you in their strength and resilience coming out of the pandemic?

It's everything. And I don't mean to sound clever, but the entire industry is surprising and somewhat shocking. No one, including us, who is familiar with this industry anticipated the turnaround we've seen. In many instances, we are achieving record top line numbers, which is the astonishing part. I understand the bottom line and margin improvements along with the cost reductions that took place, but it is truly remarkable to see many of our properties and our tenants' properties reaching record numbers. This has been happening over the last few months, even with restrictions on occupancy, and they have been very cautious about who is allowed in and have carefully tailored their marketing to better serve their customers. In our industry, we have a strong understanding of the value of every customer who visits our facilities. Overall, it is indeed shocking. However, it reinforces what we have always said: there is immense strength in gaming as a whole. Many have heard me mention in private conversations that according to Maslow's hierarchy of needs, right after food and shelter is gambling. It's very significant. People do not give up their entertainment; they simply do not. This has been my experience for many years. There is resilience; it's incredible. People will not be denied their entertainment.

Perfect. Thanks. Just one more here, are you looking to expand any non-gaming experiential real estate either via debt or equity?

The quick answer is yes and yes. We've been exploring various opportunities since we spun off, nearly eight years ago. The challenge is that we operate in a very strong category. Our revenues, as we've demonstrated, are quite stable, though we remain cautious about potential risks. Finding a comparable alternative is extremely challenging. We are actively considering options, and while I don't typically gamble, I would suggest that down the line, we might discover something appealing. Our focus remains on enhancing shareholder value over time, but until we identify the right opportunity, we won't take action.

Got it. Thanks so much. I appreciate it.

Thank you.

Our next question comes from the line of Barry Jonas with Truist Securities. Please proceed with your question.

Hey, guys. Good morning. As you've talked with operators, do you think more are willing to move to a complete asset-light model under the right circumstances, or is there still some hesitancy to go all the way?

Look, I'll look at Matt for an opinion. My sense is that there's still those who are taking it cautiously that want a balance, that are willing to do some and consider others. But I think generally people have recognized the value that REITs bring to the industry and you're going to see more and more people saying or frankly, just wanting to cash in and take advantage of the kind of multiples that their cash flow can generate.

Yes. I think you put it well, Peter. I mean, I think, it's a learning curve for the operators. I think the fact that we had COVID and we saw the valuable benefits of having leases in place that are permanent capital, that have no bullet maturity, resonates with folks. And ultimately, I think, it's going to be conversations between them and folks like you around what valuation they might get under one structure or another. And as we move forward, things could likely line up for that, but it may take some time.

Got it. And then, just to be clear, as we're seeing rising COVID cases out there, curious, if that's influenced, or you see it influencing discussions or timelines in any way? Thanks.

Not yet. And so, the quick answer is, no. As I said, there's always a threat of an atomic attack down the road, I suppose, or the equivalent thereof. But at the moment, no, I think we're a good bit from that.

Yes. I think it's widely accepted, Barry, that the operators have now been battle-tested. There's protocols in place. There's a lot of people who are inoculated. There's masks, there's a lot of steps that could be taken and going to the draconian knee-jerk. We're just going to close things down is certainly not the first step for anyone. And if the doors are open, we know how resilient things can be.

Perfect. Thanks so much guys.

Thank you.

Our next question comes from the line of David Balaguer with Green Street. Please proceed with your question.

Good morning. Wanted to discuss the institutional capital once again and just thinking about that from a long-term perspective. Obviously, it seems like it'd be advantageous if we saw cap rate compression in the regional markets from the standpoint that street NAVs would go up. But at the same time you've been able to attractively source deals at attractive pricing immediately accretive to AFFO. Could you stand to benefit somewhat from this moat lasting for a bit longer to continue to grow at attractive pricing before we see pricing reset like that?

I think we've seen some of that this year. If the assets traded were fully marketed, they would have had tighter cap rates across the board. I see it as a win-win. On one side, we continue to look at the deals we've executed to deliver solid returns for our shareholders. At the same time, if the market shifts and there’s a re-rating, we have the largest and most diversified portfolio of these cash flows in existence. This gives us the opportunity, whether through a joint venture or another structure, to acquire capital at much better rates, allowing us to redeploy it effectively. We're prepared for all potential outcomes. Also, one of the reasons we've been cautious about venturing outside of gaming from the beginning is the difference between our asset pricing and that of other options. If the scenario unfolds where our entire portfolio sees a significant re-rating, which it arguably should, we are in just as good or better position to explore other opportunities more aggressively. Our role is to have a playbook ready for any eventuality, and that’s how we focus our efforts.

Got it. That's helpful. And just a quick follow-up on that, as you mentioned JVs and considering that the moat in this business is quite real. Is that a potential avenue to help potential institutional capital overcome some of the gating issues from a regulatory standpoint?

Absolutely. Ultimately, when deciding how to allocate capital, especially in the presence of a competitive advantage, it's crucial to identify a strong platform and an experienced management team. Over time, particularly in specialized real estate sectors, this has been an essential factor to consider. Therefore, it makes complete sense. I believe this approach could also leverage our expertise, particularly if the scenario unfolds as you’ve described.

Got it. Thank you.

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

Hey. Thanks. Good morning. It's great that you're planning on hitting all your Master Lease rent escalators this year. And I'm curious if you can just break out if that was achieved largely due to margin expansion the regional gaming operators saw, or it's more from strong revenue surpassing 2019 levels?

So the answer we provided regarding the Penn lease is that the $5.6 million pertains solely to the Penn Master Lease. Their performance is the key factor here. They have achieved record earnings, record EBITDA, and record revenues across the board. The adjusted revenue to rent ratio is calculated as noted in our earnings release, and they are performing exceptionally well, which is why we can meet the rent escalators.

Okay. And then do you foresee any opportunities with your current tenants for either to fund expansions or redevelopment opportunities?

Yes, the answer is yes. This is part of an ongoing discussion with several of our tenants. We're optimistic that within the next 12 months, we may be able to announce some significant expansions, such as a hotel or similar projects. While nothing is certain at the moment, we are actively discussing various options. We would certainly welcome the opportunity to put some capital to work. As Matt mentioned earlier, we are well positioned to do so.

Got it. Okay. Thanks so much. That’s it.

Thank you.

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

Great. Sort of, going back to an earlier topic and I know that Vegas assets are not your strategy. But I'm just curious for your take Peter in some of the transactions where the public gaming REITs having maybe more leverage constraints than others out there. Just that in some way put the public gaming REITs at a disadvantage in terms of bidding for assets, or is the answer well it doesn't matter because those other buyers aren't going to go after the type of assets that you're going after which are not the big Vegas assets?

I don't think you can assume either way. We do consider Vegas assets, and it's part of our regular discussions. We're not afraid of the competitive numbers out there. We know that others are also looking at the same types of assets that we are. It's a competitive environment with many players, and there are more who see the success of this industry and want to join in. It's a dynamic situation. We like what we see ahead, expect a strong year next year, and believe we have ample opportunities. However, we remain open to all possibilities. We evaluate everything thoroughly. As Matt mentioned, we are becoming increasingly competitive across a wider range of industries.

But, I guess, in terms of not taking on the kind of leverage that maybe some other buyers are how do you ultimately compete with that?

I believe that if our strategy were solely focused on acquiring assets on the Strip, the recent development of the CMBS market, which supports and increases valuations of Strip assets, might pose some challenges. However, up to this point, there hasn't been significant development of CMBS capital in regional markets, which explains the protective advantage we currently enjoy. While this situation could change, we are currently benefiting from it. Our returns on equity are stronger because there isn't as much debt impacting lower returns within the capital structure. You are also correct that as a public company, we have a specific leverage sweet spot that might differ from that of private operators or private equity funds, which may leverage up to 70% or 75%. Both approaches have their place. In looking at other real estate asset classes, we see developed CMBS markets. For example, in apartments, there exists a substantial GSE market where the government offers loans at very low rates, yet public companies continue to build large portfolios. Therefore, there is room for everyone to thrive together.

Yes. Let me say, that if we did not value our investment-grade ratings and we were a private company we'd lever the living daylights out of these assets because as we've said time and time again our revenue streams in both grew. I could sleep at night forever looking at the portfolio that we have knowing that we're going to get paid this year, next year and 10 years from now with absolute confidence. Of course we'd take more leverage. But look we're a public company with a different set of goals and a different financial structure that we want to protect and maintain. So we're much more cautious and we play within the sandbox if you will that we have.

Okay. Great. Thanks for your thoughts.

Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

Hi, there. Good morning.

Good morning.

So going back to the comments on the balance sheet for a second. I guess, I was intrigued by the comments on the Bally's games sys-packs that no longer needed and you're back to fighting waiting and getting more offensive. And so it sounds like you're clearly gearing up to be more offensive in near-term. And, I guess, I'm more curious if you're thinking about investments outside of gaming as one of your peers has done here recently. If there's been any change in thinking on that or anything on the table and how you think about required returns there versus your more core regional gaming assets? Thanks.

Yes. Good morning, Haendel. We continue to consider opportunities beyond gaming. The required returns depend on the spread to our cost of capital, considering the associated risks of any investment. I want to highlight that not only is our cost of equity solid, but our cost of debt is also sector-leading among our gaming peers. We are well-prepared, both in terms of capital costs and our balance sheet. Opportunities outside of gaming are indeed included in our potential plans. Our goal is to ensure that striving for excellence does not hinder us from seizing good opportunities. While we have excellent prospects in gaming, there could be valuable options beyond that as well. We have dedicated many years to research and development to identify what those opportunities might be. So, stay tuned.

Okay, fair enough. We will. I guess back to the CFO search for a second and not to beat the dead horse, but I think many of us were under the impression that research was ongoing. It wasn't maybe the highest priority even it would just take a bit of time. And if it's that you're comfortable with players internally who can fill the role do the responsibilities why not designate one of those persons as CFO? It's a bit unique for a company of your size did not have a CFO. But my real question is more on guidance. I guess we're pretty far into the new year here. And I'm curious why not the comfort level to provide some annual guidance here but just not going to happen? You have a lot more visibility obviously than back in April. I'm just curious on some thoughts there as well. Thanks.

We've mentioned previously that we are likely to provide guidance as we enter next year. Given all the variables this year, there are a few things we are uncertain about, but I don't want to imply anything negative. We may not have complete clarity on how this year will unfold, so we will navigate through this year and look ahead to next year, where I believe we will be able to provide guidance again. Regarding the CFO situation, it's an interesting challenge. We have a highly capable financial team, and I can see part of that team right in front of me. As the CEO of the company, I am very pleased with how this team operates and we could certainly consider designating one of them as CFO. We've discussed it, and I suspect there will come a time when we proceed with that. However, we will take our time to ensure it does not disadvantage our shareholders or the company. I emphasize that we have an excellent finance team, both present and in other areas of the organization. For now, we will continue on our current path.

Fair enough. Thank you.

Thank you.

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

Hi, good morning everyone. Thanks for taking my questions. I wanted to just delve in a little bit to Tropicana, Las Vegas, which obviously, you've transacted already, but there remains I believe some excess land if I'm correct that you own, which for as far back as I can recall, had some development potential. Is there anything potentially afoot or prospectively there that where you could maybe activate that asset just a little bit?

David are you referring to excess land at the Trop site or more broadly in that portfolio?

Yes. I was specifically referring to the Trop site, but I'm happy to have you elaborate elsewhere as well if you feel would be supportive.

David, there is potential for more at that site. I don't think we or even Bally's knows what more is right now. Frankly, we're working cooperatively with them to figure out how we can maximize whatever occurs there. And I'm just here to say that we are considering the maximization of every inch of that property. So, that's as much as I can say for the moment. But I wouldn't assume that the deal that we've announced is all that you may see coming out of it. Time will tell. Time will tell. I mean look we're very anxious to build our relationship with Bally's. They've been terrific to work with to-date. But I don't think they've refined what they want to do but we're helping in that process to figure out how we can get the best use from that site. So, I think Matt used the term stay tuned. I would stay tuned on that one as well.

Got it. If I could ask you about your chronological experience, and the fact that your team has closer ties to regional properties than we do, I would appreciate your opinion on the profitability levels we've observed in the past two quarters. People in our position are debating how sustainable these profitability levels are. Based on your experience and the information you have, how realistic is it to assume these levels will continue?

At the current levels, I would say not at these levels. However, a significant portion will definitely remain. I believe every company has recognized that there is a different way to operate this business to maximize efficiency. Penn has mentioned they expect to retain about half of their gains, which they have publicly stated. If they hadn't, I would have estimated about that same level. I have also shared with many of our investors that I expect to retain approximately half of what has been gained for the long term. This industry has changed, and it isn't going to revert back quickly.

Okay. Neighborhood half is?

Yes.

Sort of the takeaway.

I'll stick by that. Yes, I think so. Which David, I'll add is a beautiful outcome for us. I mean just look at our four-wall coverage pre-COVID add in that piece and all of a sudden we have an even more robust portfolio, more potential for escalator achievement. I mean that really gives our business model some momentum.

Yes. Sure. And if we were to drop it in the context of digital proliferation, which is only supportive in most cases, it's all good.

More relevance, more durability and more cash.

Perfect. Okay. Thank you very much.

Thank you.

Our next question comes from the line of Daniel Adam with Loop Capital Markets. Please proceed with your question.

Hi, good morning, everyone. Thanks for the question. Peter, what do you believe is driving the record top line results in gaming that you mentioned earlier? Is it pent-up demand, or is retail sports betting playing a role, knowing it's not GLPI's primary business?

Desperation is what comes to mind, and I truly mean that. My priority is aligned with the Maslow illustration of the hierarchy of needs. Having been involved in the gaming and gambling industry since 1972 when I was President at Penn National, I’ve weathered many recessions and crises. In almost every situation, except during the 2008 downturn, we experienced a growth in business. Business tends to rise when the world is facing challenges. While it may not seem logical, my experience over the past 50 years confirms this pattern. We've witnessed people's desperation; they have been confined for too long and want to stop wearing masks, enjoy life, and have fun again. This sentiment is evident in airports and everywhere else today, as people are eager to engage in activities. We’re fortunate to benefit from this. Additionally, companies have become adept at understanding their customers. Although marketing has been limited, it’s targeted toward those who can generate the most revenue, and they've been quite skilled in that respect. This approach will continue. The two largest expenses in any gaming business are marketing and personnel, so avoiding reckless marketing, which was common in the earlier days of the gaming industry in the U.S., is crucial. Companies have learned to prioritize their bottom line. We are in a very different era, but the main takeaway is that people won't abandon their entertainment options; they are eager to engage and enjoy life again, and I believe this trend will persist.

Got it. Thanks for that. And one more for you Peter. Earlier this year, you made a very timely sale in Penn stock. And I guess, at this point as Chairman Emeritus of the company, what is your involvement if at all in Penn? Thanks.

I have very limited insight into the company now, as I no longer receive daily reports like I used to. The price at which I sold my shares was purely coincidental. I sold primarily due to concerns about the political climate under the current administration, particularly related to potential changes in capital gains taxes. I felt a responsibility toward my family's financial interests and decided it was prudent to act. I still have a significant amount of family money invested, and we didn't sell everything. My main motivation was the fear of increased taxes; if capital gains tax rates rise to match ordinary income tax rates during my lifetime, I wouldn’t sell any stocks again. This personal frustration with how my long-term investment could be taxed at such a high level influenced my decision.

I appreciate the candor. Thanks.

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

Good morning.

Good morning.

So, one of your peers, and even some broader peers in the net lease space, have been using construction financing as a potential entry point for new transaction deal flow. Is that something you would consider, or are there too many risks associated with that structure?

Yeah, John, it's something we certainly have thought about, especially, I mean, when you think about within the gaming space, opportunities where we can have a really good insight in underwriting of pro forma. If we see mispriced risk there we certainly could put capital there into the structure, ideally that transforms into a sale leaseback. But you said the right thing. I mean, the goal is to get the talent in, to what's ultimately going to be a recurring attractively priced durable income stream. And the other fact is, we don't lend our balance sheet out for free. I mean, you look at the deal we did with Bally's, the equity backstop, we've got $150 million of real estate at an off-market eight cap rate that we're going to have for many years, its very different than doing a fully pre-payable mezz loan on a construction project. I mean, our goal is to maybe do something strategic, but ultimately to get recurring cash flow. So we're open to everything and anything that we can – that makes our platform more valuable for shareholders. We're also cautious and prudent in that application.

Are you seeing opportunities for those types of transactions today? I mean, there's a couple of state markets, where there's some greenfield or brownfield development? I mean, is that a potential vertical for investment?

Let me answer it this way. Look, we are talking with a couple of tenants about significant expansion at their properties. I'd love to put capital to work in that way, because it would fall under the Master Lease illustratively. But we have said, look, we'd love to see some greenfield opportunity in some of the states that are talking about going to gaming. We need to be there with a partner, whatever fashion we can get there. And I can tell you that, where there is that activity we are engaged. That's all, I'll say about it. But look, the opportunity so long as you don't overspend to develop in a limited license state is about as bulletproof as you can get. You kind of can't go wrong, if you just don't overspend. That's the only discipline. I'd point to the properties the last that, I built well we would have been Plainridge in Massachusetts, and of course the Ohio properties, that I was totally involved with all the design and the building and development, those things were built to tight budgets. They're spectacular in every way and the performance has been astoundingly good. So would we pass up an opportunity like that at GLPI? I don't think so. So, I mean, it's what we do. And yes, we would be there.

Yeah. I guess, just to add to Peter's comment. I mean, most recently, we've had discussions with folks in states such as Nebraska, Virginia and Illinois, which are already permitted locations, but we're on the ground and having discussions with people in jurisdictions which are not yet legal as well. So yeah, we are – we are scampering around looking for opportunities to deploy capital. And as Matt said, get a foothold to ultimately own the land and building of those properties.

I like that Steve scampering.

And then maybe changing gears just a little bit on the balance sheet, where do you see your cost of debt capital today? And I'm just thinking particularly in the context of some of the pieces of debt on the balance sheet that have kind of shorter remaining maturity or some of the higher coupon pieces. I mean, is there potential there for pre-payment? I know, there's kind of an equation in math you all will go through, but just the opportunity there maybe?

I have a sense you're looking at our 2023 and the five-plus coupon on those. So you can look out and see our current 10-year papers trading just around 3% in the public market. And believe it or not, I mean, we've talked historically about conceptually looking even at the 30-year market and breaking the sound barrier for our asset class there. And those rates believe it or not are very close to, if not at 4%. So we're not in a rush to pre-finance or prepay the 2023s, the NPV is still negative to do so, but it's certainly something we've got in our back pocket. Between now and then, and we'll do something if and when it makes sense.

Okay. That's it for me. Thank you very much for answering my questions.

And John, I'll just add with the goal of continuing to increase the term of our debt on our balance sheet given the long life of our assets in the long life of our existing leases.

Our next question comes from the line of John DeCree with CBRE. Please proceed with your question.

Good morning, everyone. Thank you for taking my questions. Maybe to get your views on the current M&A landscape or outlook a little bit Peter and revisit your response to an earlier question about the current levels of record profitability and how much of that is sustainable, obviously, a lot of different views on the investment and analyst community. I'm sure, your counterparts and peers as well. Has that influenced buyers and sellers? Do you think that's made it more difficult to get some regional gaming stuff over the finish line? Just wanted to get your thoughts on how the M&A market might be considering that debate?

We need to explore the regional market actively. Opportunities aren't just plentiful; we actually have to dig for them since there's often not much available for purchase. We've identified several significant properties we'd like to acquire, and we're in discussions with the sellers. However, many of them express that they don't have a clear plan for the proceeds if they sell. It may seem trivial, but it highlights that sellers aren't inclined to sell unless they see a compelling reason. Most of our acquisitions have occurred when sellers have needed to divest for various strategic reasons. Until that need arises, we can't finalize any deals. It's like a scenario where someone passes by your house, admires it, and insists on buying it, but you reply that it's not for sale. Even if they really want it, without the seller's willingness or an agreeable price, no transaction can take place. Our role is to remain engaged and be ready when opportunities do arise. There simply aren't hundreds of properties hitting the market all at once.

That's helpful color Peter. And to ask a follow-up on part of your answer there, given maybe some of the reluctancy. As we see cash flows from casinos increase and cap rates compress. Are we heading to a point, if you had to pull out your crystal ball where valuation or just absolute dollar price, given where cap rates are going and where EBITDA is going at these properties. Do you think we're getting close to where there's going to be folks that are willing to let stuff go if we're seeing record levels of EBITDA and record cap rates as well?

The answer is to my view is yes but I'm looking around the table. Other comments?

Yes, John, I think of Zillow and the impact it has on pricing. In Peter's analogy, someone might think that if they ever got a certain amount, they would consider selling. You're right; the strong results currently give capital providers like us more freedom to approach those pricing scenarios, if they exist. But ultimately, it depends on what they plan to do with the money. We can help a bit by offering units or structuring deals, but if they don't need or want to use that capital, we can’t force it. Additionally, in those cases, if we aren't certain about where EBITDA will be, we need to be cautious and ensure we have a margin of safety. It's important to note that in our recent deals, given the uncertainty, we've managed to address pricing while still maintaining a solid coverage ratio. This has been crucial for us and will continue to be.

Very helpful, guys. I appreciate the color and all the stuff.

Thank you.

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

Everyone, good morning. This hasn't been touched on in a while or at least since before COVID, but you once talked about doing $500 million in transactions on an annualized basis. I know that you don't have a crystal ball into future years here but can we kind of expect this $500 million as a benchmark moving forward?

I haven't given up on that goal and I don't think we will. It's not going to be a straight path, but we believe it's an achievable internal target. We have already far surpassed that benchmark to date. However, how ads are done on television today shows that past performance is not indicative of future results, which is a common disclaimer with financial projections.

Awesome. Thanks. I mean understanding the COVID uncertainties today your dividend payout ratio is still below historical levels in 2021. And you've kind of talked about possibly reimplementing guidance as we enter '22. Should we expect that payout ratio to go back into your 78% to 80%-ish range?

The answer is yes. Des do you want to make a comment?

Yes, our payout ratio is very close to what it has been historically, and we aim for 80% of AFFO. The challenge for 2021 was determining what our AFFO would be, how our TRS properties would perform, and what would happen with the escalators and other factors. We have always had the same goal, and that goal will continue into 2022.

Yes. Look and I'll say it just as an investor in this company myself that dividend growth is critically important to me within responsible levels. So you can bet that we're going to continue to move it to the best of our ability and keep it going forward.

Awesome. Thanks guys.

Our next question is a follow-up question from the line of Smedes Rose with Citi. Please proceed with your question.

Hi, yes. Thank you. It's Michael Bilerman here with Smedes. Matt, I wanted to come back to capital raising and Peter you can feel free to answer this as well. Matt, you talked about raising $70 million of equity on the ATM in the quarter. I think execution about 46.67. You obviously have a lot more you can raise on the ATM. But I want to see like how eager would you be to reload the balance sheet today to position you to do something down the road where you can know your cost of capital today not knowing where you may be able to transact and buy something in the future? It would appear as though the institutional interest in your asset class is so high and you've made a ton of comments on this call describing that. So wouldn't it be easier today to go out and do a joint venture, raise a significant amount of proceeds and be at the ready to capitalize on the numerous opportunities that you've been talking about that could come to fruition?

Yeah. Michael, I mean we have at our disposal a whole toll chest of things. One is the ATM, which we've used for a net price, a little close to 47. But at the same time we still remain open to joint ventures and other things. I mean remember there's a few things. One, we don't have a predictable cadence of acquisitions. So, we don't want to overshoot in the other direction and delever to a point where we're not getting the benefits of leverage at their maximum ability to kick in. And there's also large transactions out there. So if we did something of significant size that's where we're making a decision between the benefits of using equity and debt versus the benefits of the JV partner. So I mean I think it's going to be nuanced, it's going to be case by case. What you saw us do this quarter was do that call it last piece of positioning ourselves to be in fighting weight to take advantage of especially small and mid-priced opportunities out there not having equity overhang or any kind of headwinds to our ability to raise capital. But from here going forward, I think everything you said is going to be part of our business plan on an opportunistic basis.

Well, I guess why make it opportunistic? Why not go down the road and try to do something where you can get an attractive cost of capital and tap into that amount of interest that's out there and you run a little bit lower leverage for a period of time, but you've been able to take advantage of the situation. Why wouldn't you be aggressively trying to do it?

We are interested in pursuing this actively for the right reasons. In your scenario, if we proceed and cap rates keep compressing, we could secure a cost of capital and end up with a negative spread if we redeploy it after another 100 basis points compression in the next year. The REIT business, particularly in triple-net and healthcare, operates as a match funding business. I don't want to rush into it without knowing the use of proceeds, and I prefer to keep them aligned. However, we appreciate the effort and timeline involved. That's why we are focusing on that channel, ensuring we are well-positioned whenever the time is right.

And then just finally just Peter mentioned some uncertainties to not wanting to give guidance even though it's a lot more clear today in terms of the performance of your assets. And Peter you mentioned there are a couple of things not known. Are those with your existing assets that are not known, or is that external opportunities probably more so on the buy than the sell given the conversation we just had?

Des, would you like to add something?

The timing of the sale of our taxable REIT subsidiaries is still uncertain. We want to resolve all of that before we start forecasting, once we have addressed all the unknowns that we can better control.

We're halfway there with the sale of Perryville.

So all the uncertainties are related to the TRS. There are no other transactions or issues with your current assets. It's entirely about the TRS. Why can't you just outline the TRS income and provide the rest separately?

There are other possibilities to consider, but we won't pursue certain options. Yes, we're exploring additional opportunities that could happen, but I'm focusing on the positive aspects, which are mostly favorable. TRS performance has been outstanding. Des, would you like to continue?

Honestly, the flip side is that if everything is known, it's pretty easy for everyone to project. So, you don't necessarily need company guidance for that. However, I think we will consider providing guidance and decide the right time for the company to start doing so.

Yes.

That is all the time we have for questions. I'd like to hand it back to management for closing remarks.

Well, yes, let me thank all who have dialed in this morning. Obviously, we appreciate that. It's to say, this is a lot more fun when the news is good, which it is. You find us in a very optimistic mood about where we're going through the balance of this year, and looking into next year we feel very good. So if we've left that impression, which I hope we have then we've had a successful call and we thank you for joining us. Thanks again. See you next quarter.

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