Gaming & Leisure Properties, Inc. Q3 FY2021 Earnings Call

Greetings. Welcome to the Gaming and Leisure Properties Inc. Third 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. Please note this conference is being recorded. I will now turn the conference over to your host Joe Jaffoni Investor Relations. Thank you. You may begin.

Thank you, Hilary and good morning everyone and thank you for joining Gaming and Leisure Properties' third quarter 2021 earnings call and webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our 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 10-Qs in the earnings release as well as 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.

Thank you, Joe. Good morning everyone and welcome to our third quarter earnings call. I'll keep my opening remarks brief, as our press release provides comprehensive information. I also want to mention that I woke up with a bad cold, which makes talking a bit challenging. Nevertheless, I want to emphasize that we had an excellent quarter, with more announced transactions expected as we finish the fourth quarter and move into the first quarter of next year. We continue to focus on strengthening our balance sheet at favorable levels, preparing for future opportunities. There are several transactions on the horizon pending regulatory approval and typical timing issues. While the timing of these events is uncertain, you can anticipate that we will have concluded nearly everything we've discussed by the first quarter of next year, and we aim to finish 2021 on a strong and positive note. Now, I’ll hand it over to Desiree Burke, who will address some financial matters she has worked hard on. Go ahead.

Thanks, Peter. Good morning. Our third quarter results outperformed the third quarter of 2020 as income from operations increased by $24 million over the same period last year. That was primarily due to we had a gain on the sale of Perryville's operations of $15.6 million. That would be $11.3 million net of tax and the receipt of $1.9 million in Perryville rent, resulting from the new lease with Penn. Closing the Bally's transaction on June 3rd of this year which increased our income by $10 million for the quarter. The reduction in G&A expenses of around $7 million due to the 2020 severance and stock compensation charges related to our previous CFO, which obviously were not repeated; escalators on our Pinnacle Boyd and Belterra leases that became effective on May 1st, which added $1.5 million; an increase in rent related to Casino Queen of $2 million and that's primarily related to the timing of the cash collections on this lease. You may recall that they deferred some of their rent in 2020 related to COVID. Morgantown rent from our new lease with Penn that began in the fourth quarter of last year. These positive variances were offset by the loss of Perryville operations, non-cash straight-line rent adjustments of approximately $4 million, lower percentage rent of about $2 million on our Penn Master lease, Caesars lease, and Meadows lease due to the prior year competition closures in the Toledo market, which benefited Penn's property last year, as well as the impact of the prior year's resets that were negatively impacted by the casino closures from COVID-19. With respect to Perryville, I wanted to mention that this has been recorded in our TRS segment the rent on Perryville that is. As we've disclosed, we are in the process of closing our anticipated transaction with Casino Queen, which is pending regulatory approval to sell the operations of Hollywood Casino Baton Rouge and lease the real estate back to Queen. Once this is completed, we'll be able to finalize the tax consequences of unwinding our TRS operations and rental income will then become part of the REIT as we report. So for now it's in our TRS and we have footnoted that throughout the document. But in the future we expect it to come into our REIT. Finally, as we continue to expect a full escalator from Penn on their master lease and it becomes effective November 1, 2021 and it will increase annual rent by $5.6 million of which $900,000 will be reflected in 2021. With that brief summary I'm going to turn it back to Peter.

Thanks, Des. Desiree highlighted the pending sale of Baton Rouge to Casino Queen and that is just hanging out there with some regulatory issues that have to get solved. It pains me to part with that property because it's one of our long-term successes from the years we bought it from Carnival. With the approval of the folks at Queen we are, of course, going landside and dramatically expanding that property which is, in our judgment now speaking with an operator's hat if you will even though that's not what we will do going forward it's going to be just a terrific property we think is going to be highly competitive in that market. And we should also point out that our coverages across the board from our various tenants have never been better. I mean you know well the success that these regional properties are having pretty much across the board and that has certainly added an extra margin of safety that we feel really good about. With that let me ask Matt to make a few comments that I know he would like to add.

Sure. Thanks, Peter and good morning, everyone. With this release we feel as well positioned as ever and excited about our business plan on an absolute and a relative basis. During the quarter we bolstered our offensive capacity issuing $182 million of equity through our ATM program for net proceeds of $49.75 a share. And to Peter's point, our balance sheet is now at better than fighting weight and has robust liquidity. Reviewing the additional capital as dry powder to be allocated for future opportunities and to that end our pipeline is active and we're very pleased with the opportunity set. In looking at our existing portfolio the robust fundamentals that have been brought up and we've been talking about for the past few quarters and our properties are now better reflected in the updated trailing 12 coverage numbers each of our master leases being above 2 times coverage and eclipsing pre-pandemic levels. And these results also result in our cash flow being more protected and valuable. Of note during the quarter we also saw a large-scale M&A transaction at MGP that represents another milestone in the institutionalization of our asset class. The overall portfolio includes a subset of regional properties that traded at what most estimate to be about a six cap rate. The transaction validates our long-held thesis that regional assets when thoughtfully structured with strong credit support and rent coverage are of institutional quality and deserving of true institutional multiples. With cap rates continuing to compress across much of the real estate world regional gaming assets are both as expensive as ever and still one of the if not the most attractive risk-return propositions in all of real estate. In short, with the preeminent portfolio of regional assets in existence, we at GLPI own most of the houses in a very appealing neighborhood. Going forward our efforts remain focused on unearthing and creating opportunities to grow our cash flows and increase long-term intrinsic value per share. With that I'll hand it back to Peter.

Matt, thanks very much. Desiree and Matt thank you for your comments. With that operator let's open the floor to questions.

Thank you. Our first question is from Todd Thomas of KeyBanc Capital Markets. Please state your question.

Hi, good morning. This is Ravi Vaidya on the line for Todd Thomas. I hope you guys are doing well. With where the stock is today, the company's cost of capital has improved. Does this make you think differently about investments and return your target? Would you be more aggressive underwriting assets given the lower cost of capital?

I'll take a whack at that, although Matt will surely have a comment and perhaps others around the table. I don't think it's a matter of being more aggressive. It's just getting an adequate return. So a bigger number in our stock price gives us a more valuable currency. It's as simple as that. Our goal and mandate is to find a spread to our cost of capital. That's the whole issue. So bigger is better. Matt, do you want to add anything to that?

That I think you put it well, Peter. I mean the more equipped we are with a better cost of capital, the more, I guess on an absolute basis our bid can be competitive, but it all comes down to a spread. That's our business model. And one area I'll point out that we're not willing to be aggressive on is getting some sort of margin safety in the deals we do. You know that that's one of the things that we hang our hat on. And whether pricing moves up or down, there are going to be other aspects whether it's a guarantee or four-wall coverage or some other support to make the value of our cash flows even more, you're going to continue to see us be creative in the way we structure things to try and maximize value for shareholders and find things where we can clear the market.

So look, we would not be more aggressive. We are extremely aggressive people but we're very disciplined in making sure that the transactions we do provide a return to our shareholders. It's as simple as that. So yes, you're absolutely right. Better price opens the door to more opportunity.

Thank you. Just one more question here. There's been an increase in institutional capital and private equity coming into the space, but for one-off single asset targeting mostly. Are you seeing institutional capital look at regional assets on a single asset basis? And do you expect to see new entrants in this space and the increase in competition around new assets?

That way you do that. I mean we've certainly been on the radar for a while. And you know there's some structural things that give us a bit of a competitive moat, whether it's licensing or just the portfolio benefits of folding something into what we have versus someone starting from scratch. But we have seen on the margin some folks poking around. There was one small deal that we turned down a couple of times that traded to someone else a month back. But beyond that I haven't seen any large-scale movements into the space. But over time, it does seem to be inevitable that more capital will be interested. So we're kind of in a Nirvana period. We get most of the opportunity set for us but over time there's this backlog of capital that should ultimately further rerate our assets.

Got you. Sorry, just one more question here. Would you consider deploying these proceeds from ATM or maybe just your overall investment pipeline into non-gaming at this point? Have you considered it?

The quick answer is an easy answer is sure. But we've been saying that for the last eight years since our spin. It falls into the same category of what I had outlined before. Show us the right spread to capital to our cost of capital, show us the kind of certainty that we would want over a long, long-term lease and the kind of coverage and credit support. Matt kind of highlighted it all, all the things you would immediately think of show us all of that and yes, we're up for anything. And we continue to look at various things. This happens. We're in one of the absolute best classes of investment on the planet. And it's tough when you're already number one asset class, say we, to drop down to the number two, three or four. So look, someday I suspect that may happen but – and we'll continue to look. But you now know with clarity what our requirements are.

Appreciate the time.

Thank you. Thanks.

Our next question is from Barry Jonas of Truist Securities. Please state your question.

Hey, good morning guys. Maybe just a general question. I would love to get your thoughts on how the M&A pipeline is looking just in the current environment. Have you seen any noticeable change in interest levels for sellers? Thanks.

Steve Ladany, would you take that?

Sure. Hi, Barry. Look, I think, the prospects in US regional gaming remained bountiful. I think, there's a number of different potential pipeline opportunities for us and we continue to be very active. I think as the national operators continue to strategically expand their footprints to enhance their omni-channel strategies, I think there's opportunities there both in existing projects as well as new development transactions. The smaller high-quality operators have performed exceptionally well over the last 12 months. So as you can imagine they have very low leverage. They're flushed with excess cash flow. So I think they'll continue to start to look to expand. I think the tax law changes could impact the way some closely held operators view the future, whether that's through sale leaseback or divestiture. So I think that's another opportunity. And as we look internationally, I think we've looked at transactions on four continents this year. So we think there's a huge opportunity in international. It hasn't aligned up for us yet, but it's an area we continue to look in as well. So I think there's a lot of opportunities. There's a lot of folks that are starting to kind of turn the corner as far as operations are now what they are, run rates are strong and cash flow and liquidity is enhanced. So I expect to be seeing a number of transactions on the forefront.

That's great. Really appreciate that color. And then just as a follow-up, Peter or anyone would love to get your thoughts on this debate around iGaming longer-term cannibalizing land-based gaming and sort of as one of the largest landlords out there, how you think about that in terms of your longer-term strategy?

That's a fair question. I mean, the totally honest answer is, we really don't know. We really don't know, because we're in the early stages. However, early results are very positive that this has had little impact on the bricks and sticks that this is complementary. I know if you were to talk to Penn National about their thoughts, iGaming has enhanced their ability to drag people into the properties with incentives and so of that drag and send customers to come to their bricks-and-mortar facility. And in fact as you know, they're rolling out a significant number of these with a pretty significant investment around their Barstool theme, sports books and so forth. And of course, this all ties into iGaming. We see it more as an adjunct. I think from a public policy point of view what you're going to find is that, this is going to be a lot more gambling, a whole lot more for better or for worse. There's really a lot more. But in the end if you want to be placing every bet that you're going to place particularly iGaming, Blackjack or do you want to be at the table with some people and a drink in your hand and a lot of activity in energy. It's interesting. I look at the Cordish facilities, the live facilities, non-gaming facilities that they have, they're sports-oriented. No gambling going on, yet the energy in these places are packed, which tells me that there is a desire for people to be part of the energy, part of the scene, watching the sports and getting involved. So I think it's just more of an adjunct, frankly to create more business for the bricks-and-mortar facility. That's my prediction, but time will tell.

Yes, Barry. And it's been really interesting to see. I mean, we've seen it in a lot of other sectors where people were actually online only and realize that it's so important to connect with your customer in a physical way. And that's for things like glasses think about Warby Parker opening up physical facilities. And here you've got something so inherently experiential, connecting with your customer in a physical setting gives you stickiness gives you profitability. I mean, part of it is intuitive, but part of it's factual. I mean, what we're seeing early on is the reality that if the operators can get people to go through multiple channels, the customer lifetime value goes up by multiples. So the interesting thing is they're actually incented to take people that come in through the online channels and steer them to the bricks-and-mortar. So long-term, the relevance of bricks-and-mortar and the overall delivery to Peter's point should only go up. And it will be interesting to see if some of the online-only folks appreciate that over time, and actually go the other direction, and start getting bricks and mortar. And at the end of the day, all that means for us is higher values, more relevance, and better cash flow for our shareholders.

All great points. Thanks so much, guys.

Thank you.

Our next question is from Smedes Rose from Citi. Please state your question.

Hi. It's Smedes. I'm actually on with Michael, I think, Michael you want to go ahead?

Did you hear that?

Okay. Sorry. Can you hear me now?

We can hear you, Smedes. You said you might be on with Michael.

Yeah. I think maybe he's not on. I just wanted to ask you, you started out talking about having a balance sheet that's prepared to be more on offense. And I'm just wondering, could you maybe talk about what you see as your capacity here sort of on the dry powder side, if you were to move forward with the transaction? And then if you could just talk a little bit more, you mentioned some of the opportunities whether it's new development or smaller operators coming to market for tax law reasons or potential tax changes. Could you talk about kind of what's more interesting to you or kind of where you feel like you'd be able to sort of strike sooner?

Yes Smedes. I mean, I'll hit the balance sheet first. I mean, we've historically talked about having a leverage range of 5 to 5.5 as our target. And that's one metric. I'd also point out think about percent of value of assets, and our assets are certainly getting more valuable over time. And then think about fixed charge coverage given where rates are. You put all those things together, you can back into it, but pro forma for all these moving pieces there's certainly a decent amount of leverage capacity on the balance sheet, especially driven by these ATM proceeds. And thoughtfully, we'll be able to integrate that into the next transaction. I think the two key takeaways are, a, last quarter we made it clear we got the fighting weight. We were not de-levering for the sake of making our balance sheet even stronger for its own end. I mean, this is about playing offense. And, b, as we move forward we're going to be able to not over-equitize depending on the size of the transaction. And we'd like to adopt, and we are adopting the model most triple nets used to prefund and be prepared for what might be in the opportunity pipeline. To your second question, we've certainly at least underlined a few things as Steve did a great job of pointing out, some of the trends in the backdrop that gave us some level of appreciation that in the not-too-distant future, we should be able to deploy some of those proceeds. And I mean, the opportunities are the same. Can we create a situation a bespoke solution for a counterparty ideally off market, that gives us access to assets that diversify the portfolio, that give us a new operator with strategic upside, and different possibilities over the future. And it comes back to where I started. I mean, increasing long-term intrinsic value per share. And you could be sure given the opportunity set, we've been busy in dialogue to see, which of those things we can perfect as far as which ones we might do stay tuned.

Okay.

We raised those funds with the expectation that there are potential opportunities we might be able to pursue. Time will tell.

Okay. Thank you, guys.

Our next question is from Haendel St. Juste of Mizuho. Please state your question.

Hey, good morning. So Peter, I guess, it's no secret at least amongst investors that you were a company A on the MGP proxy. So I was hoping you could talk us through your thought process, when it comes to approaching major acquisitions mergers like in MGP. And what it means for how you navigate the company going forward? And then also, I'm wondering if it keeps you up at night knowing that you might have missed out on something so transformational generational so unique? Thanks.

That's a fair and interesting question. I appreciate when people discuss a strategic transaction, which often serves as an excuse for making a poor deal. It was strategic, and that's great, but the reality in our business is that we either find a deal that makes sense from the moment we sign it and execute it, or we face the consequences indefinitely. We remain as eager as we have always been. Those assets were more appealing to us than to VICI, to be honest; they would have complemented our portfolio perfectly since we already have the largest domestic portfolio. The issue is that we couldn't make the financials work in a way that we felt assured our shareholders would be satisfied. As I've mentioned repeatedly, there's no deal we are obligated to pursue; no transaction is essential for us. If the financial spread isn't suitable, or if the risk isn't manageable in a way that protects our shareholders' investments, we will not proceed. Ultimately, it wasn't difficult for us to decide to back out or adjust the price to serve the best interest of our shareholders. If that means we miss out on the deal, so be it, and we will find other opportunities. I am completely confident we made the correct decision. The numbers didn't add up. If a deal doesn't make sense on paper, it's unlikely to make sense in execution. This one didn't work for us in the end. However, I want to emphasize that we put in a lot of effort and resources to explore this thoroughly. In hindsight, it's probably a better arrangement for them than it would have been for us, and they've helped clarify the values we see in our existing properties. We wish them well and want to stress that our lack of participation wasn't due to a lack of effort on our part.

Got it. Got it.

I'll just add Haendel you look at this team and what they've been able to accomplish over the years mostly before I am here looking at Pinnacle at GLPI looking at rolling up things back at Penn. I mean there's been an incredible amount of thoughtful forward-leaning M&A over the years. And when you say, could you sleep at night, I'd argue we've got a structure that really ensures we look at everything from all angles. I mean we function as a partnership. Everyone's got diverse background experience viewpoint it all goes into the funnel. And at the end of the day, I mean I've been doing this long enough. I mean all Peter's points are spot on. For triple-net company I mean it's accretion, it's numbers. I mean that's your key starting point. Think about the future growth impact. Think about the benefits of portfolio diversification, put it all in and see what's possible, but with discipline. I mean that's how companies over time have really hurt themselves missing on the discipline and that's one thing. Peter brought it up two or three times already on this call. That's one thing we hang our hat on. We are a disciplined company.

Got you.

Just to say in my years with Penn you get the question. You look at X or you're looking at Y. And I would say always, always, if it's alive and breathing, you can assume we're looking at it. Now we've been a little more forthright in this case, you know we're looking at it and beyond that. So consistent with what we said just didn't pencil. So we're moving on to what's next.

And benefited when I add Haendel, I mean back to the point I made in the intro benefited by this light that's been shown now on the regional aspect through MGP. And our stock has done well and enabled us to put the balance sheet in shape to be opportunistic. So in an indirect way, we're actually benefiting from what's happened and it leads in part to us being now well positioned to do whatever the next thing might be.

That's a great point and it brings me to my next question. I wanted to discuss the implications of the MGP deal, as well as your current assessment of regional cap rates. We've observed a decline in cap rates across various real estate sectors, often by 50 basis points or more in the past quarter. What are your thoughts on unique or reasonable casino transactions? How do you view the current cap rates?

I'll say broadly Haendel, I'm not going to negotiate against myself on the call. So there's no numbers. But I will say the trends continue in regional assets just like everything else. The capital markets are very supportive. And rest assured there's been compression in cap rates. So the last deals we saw we did an 8.3, we did an 8. MGP did a 7.5 and then this large subset of properties went at a 6. The first three were off market. The last one was unique. So there's kind of your bookends. And I want to go back to the stay-tuned comment on what might be the art of the possible. We'll see if we're the one to deliver the next print time will tell.

All right. Got it. All right. Well, thank you. Appreciate the time.

Thank you.

Our next question is from Jay Kornreich of SMBC. Please state your question.

Hey, good morning. Earlier in the year, you announced several acquisitions in Roper with Bally's. And I'm just curious if you can give any high-level comments for additional near-term opportunities you may see with this partner?

Steve, do you want to do that?

Sure. Look I think with Bally's there's constant dialogue across back and forth between the companies and the different folks. I think they continue to be acquisitive. They obviously closed Gamesys very recently and that was a major focus for them. So now on the other side of Gamesys, I think between them incorporating their omni-channel strategy and looking to continue to be acquisitive. I think there's future opportunities for us with them. I think they continue to look at new jurisdictions as well which is partly what was driving the ROFR state selection. So I think you'll continue to see us working closely with them.

Okay. Thanks for that. And then as the sports betting market continues to grow and Penn National expands their presence in addition to aiding rent coverage do you see any external growth opportunities this may provide you?

It's difficult to say for certain. At the moment, they have sufficient cash and their opportunities are wide open. Currently, they are spending relatively modest amounts while aggressively building out Barstool-themed facilities in their existing casinos. There has also been some talk about hotels in a couple of locations, and we would love to get involved if the conditions are right. I believe there's potential for collaboration with them and possibly others as well. I hope that in the future we can pursue that. They are quite busy with a complex agenda right now, focusing on their iGaming and sports betting operations, but they are also very committed to their physical locations, as they have a significant plan to launch these facilities across the country. Time will reveal more. We have made it clear that we have capital available, and we communicate regularly with them and others. So, as usual, I'm giving you a vague response because we truly don’t know. However, we remain focused on that opportunity.

Appreciate it. Thanks for the time.

Thank you.

Our next question is from Neil Malkin of Capital One Securities. Please state your question.

Good morning, everyone. I’m glad to be on the call. My first question is about the focus many operators have on enhancing their omnichannel and digital capabilities. I’d like to discuss iGaming and sports betting, which are significant and costly initiatives. Do you believe that the need to raise funds for these efforts might lead to potential sales on the Las Vegas Strip? If so, would you consider partnering with a new operator who might be willing to invest in order to establish a presence there, thus helping maintain your investment given your strong regional focus? The Las Vegas market remains robust, even without international visitors. I would appreciate your insights on this.

That's a very specific question Neil. If there's somebody you want us to talk with which I'm sure we're happy to and probably are if that backdrop is the case. I'll just say broadly to the extent trends evolve and companies need money and they evaluate the alternatives, whether it's equity, debt or preferred permanent capital like ours, we're certainly part of the conversation. And if we can find ways to help facilitate interactive efforts by buying real estate, it's exactly what we did in our last deal with Bally's, when we backstopped the Gamesys acquisition. They got what they want strategically and we were able to get access to assets and give them permanent capital. We're certainly open to being creative around doing that. But as far as we can really go.

It's clear what Bally's plans for the Trop site in Las Vegas. I have some knowledge of their thoughts, but it's not finalized, and I'm unable to provide details. We hope to explore a potential opportunity to collaborate on one of the ideas they have for the site. We want to be supportive, and it's possible they'll need our assistance, or perhaps they won't. Rest assured, we are in continuous discussions with them about future possibilities. There have been significant conversations, and only time will tell. We are always looking for safe investment opportunities.

Thank you. I have another question regarding your lease structures. You mentioned being cautious to ensure a good initial yield, as that is crucial for your operations. I am curious if you might consider a different approach, perhaps being more aggressive with your purchase price or underwriting, while also negotiating more favorable lease terms, such as no minimum thresholds or escalators, to enhance your growth potential. Additionally, are there opportunities to amend leases in your current portfolio? Thank you.

Yes. There was a lot there. So, I'll start and if we miss the part maybe somebody else can hop in. I think the simple answer is, our underwriting and the way in which we underwrite, is specific to each circumstance. But yes, I would say is overarching conservative. Our goal is not to end up in a renegotiation with a tenant, down the line, whether that's year five or year 25. Terms of leases in the most recent transactions have been extended, as you probably noticed. Therefore, in order to underwrite the transaction and feel comfortable that we're not going to be reducing our rent down the line or finding a new tenant, we need to underwrite with a certain level of conservatism. And that's the way we run our business and that's the way we go about transactions. Anybody else have anything? Heads are nodding around the table. So, I think our team is at least satisfied with that answer.

Okay. Thanks.

Thank you.

Our next question is from David Katz of Jefferies. Please state your question.

Hi. Good morning, everyone. Thanks for taking my question. Good to hear that, it sounds like there maybe some fruit brought to bear from all of your efforts going forward. But I'm curious about the degree to which your competition for those deals has evolved over the recent past also. Domestically, I'd say we probably feel like we have a good sense of who's out there and who you're up against internationally, which you mentioned we may not. If you could talk a little bit about that, that would be helpful.

David, I don’t spend much time thinking about competition. We rarely engage in straightforward auctions because, as I've said for many years, our business, like any auction, can result in the winner losing. I dislike being in a situation where we feel compelled to pay the highest price for anything. Historically, we find alternative ways to complete transactions that don’t involve auctions, and I stand by that belief. If the market shifted entirely to auctions for every transaction, it would likely become a challenging environment, and we try to avoid that. The projects we are currently working on don't necessitate being in an auction setting. For example, we previously discussed MGP, which was a direct auction. Did we want to win it? Probably not. Could we have? Yes, but I doubt our shareholders would have been pleased. It’s simply not the environment we wish to be part of. In both the present and past, we’ve consistently found varied methods to facilitate transactions, and while I won’t detail them all, there is plenty of evidence to support that. I will continue to uphold that approach.

Yeah. I'll pick up David. I mean, we've got a different tool chest even if new people show up. Remember as a REIT, we've got the capacity for OP units whether if someone wanted to do something creative on the tax front. And separately we've also illustrated to Peter's point tremendous creativity. I mean, it really is a bespoke solution not a pre-package could give us the highest dollar for some real estate. And we've done it now a number of times with more people in the market. Can pricing shift a little? Maybe. But will the relevance of our approach stands? Of course.

All right. So…

Pricing has changed for sure and one has to offer something competitive. But people do business with more than just a flat out the highest price. There are many other elements that go into it. And as you see how we're able to leverage what we've done with Bally's through a variety of transactions we did something for them. They did something for us. And that's kind of the way it works.

We've added ideas and structures that sometimes our counterparties didn't appreciate where possible over time and created win-win ways for us both to benefit.

Understood. Thank you very much. Very helpful.

Our next question is from Spenser Allaway of Green Street. Please state your question.

Thank you. You guys mentioned you looked at deals on four different continents this year. So when you are betting international gaming opportunities, can you just provide a little color on what was enticing about those? And then also what were some of the biggest deterrents in moving ahead with some of those?

Sure. This is Steve. Look I think as far as what's interesting is it's an opportunity for us to expand our tenant roster. There are some very high-quality gaming operators that are not located in the United States of America. So there's an opportunity to expand your tenant roster. There's an opportunity to get additional growth profile and potentially expand further in that geography or continent. So those were all things that attracted us to some of these opportunities. To be totally frank and honest, the biggest deterrent is that not every other country operates the same way as the United States tax code. And, therefore, there are a number of circumstances where through extensive tax structuring and diligence you find yourself in a position where you're going to have tax leakage and you must consider that in the transaction. So that's, kind of, one of the major things that we have to work through each time we look at one of these and to be frank every country is a little different. So it's a lot of time and effort put into these things and there's a huge opportunity there and we're going to continue to pursue it.

You might recall that I acquired the management contract at Casino Rama in Ontario. It was a great opportunity, and the company performed exceptionally well. However, for over a decade, we faced challenges as the US and Canada struggled to reach agreements. I can't emphasize enough how many resources we spent trying to manage that conflict between the two countries. There are complexities involved in completing these transactions, and it's important to approach them with a clear understanding of the challenges.

Yeah. And to be clear to the extent we did it, it would be in a country with rule of law and long black robes and established property rates. And all those economics to Steve's point are looked at on a net effective basis to us.

Yeah. Years ago I had a transaction that we could have penciled in Cambodia. Just pass it on. I don't know if anybody knows that but this is a story. And it turned out that the bulk of this facility's business came from Thailand. It's right across the border. I mean this facility is right across the border. Well, it turns out that time line had a requirement that the border got shut down at I don't know call it 6 or 7 o’clock but it was a limited time. Well, a line item that they have in their business was paying off the guards of whatever the heck they paid off to let people in. Now that's perfectly okay over there. But needless to say, there's no way as a public company or an American company, we would even consider such a thing, even though it's perfectly normal and reasonable for them. So, there are all these things that one has to be aware of. And of course, we packed in that opportunity and moved on. So yes, we look, but it's often difficult.

Okay. That all makes a ton of sense. I guess when you consider kind of all the opportunities that Steve that you mentioned access to more tenants, more growth opportunities. And then, you also layer in the hurdles you were speaking about the corresponding tax or regulatory hurdles, which region or regions do you think offer the most feasible and attractive kind of opportunities for you guys at this time?

In general, we find regions that closely resemble the United States to be the most appealing. While we haven't explored certain areas, it's not due to bias; rather, it has been a matter of where opportunities have emerged. We are not specifically targeting any continents or countries; instead, we respond to opportunities as they arise and actively engage with them.

Okay. Thank you, guys.

Thank you.

Our next question is from Daniel Adam of Loop Capital Markets. Please state your question.

Hi everyone. Thanks for taking the question. Good morning. Given the sheer magnitude of casino M&A and sale leaseback activity that we've seen over the past eight years since the spin, I'm wondering Peter, if you could update us by quantifying how big realistically the domestic opportunity for gaming real estate assets is today versus what it was eight years ago?

That's an interesting question and probably a good one. Is there more opportunity or less? Some of the easier options have diminished, which is undeniable. I have sometimes compared our efforts to shifting from passively gathering what falls from the opportunity tree to actively mining for opportunities. We're digging deeper to uncover these prospects, but they do change over time. There are individuals with properties we are interested in, and we have been in discussions with them for a while. The timing and circumstances that might lead them to sell or engage in a transaction can vary. Thus, we need to stay close to the developments. So, is there more or less? It's different but similar; these opportunities are sporadic. You’ve witnessed some significant transactions, but it's unlikely there will be too many of those happening again. However, many facilities across the United States are available for opportunity. Steve, do you have any thoughts on this? Do you feel differently?

No. The only thing I would add Peter is, I do think as more jurisdictions legalize gambling, it presents a whole new opportunity. And I would say like, we're not stating where we believe Texas will or won't go. But the fact is, if Texas goes, those are going to be legitimate properties that are going to cost billions of dollars. So, as much as some of the inventory has been taken off the shelf along the strip, I think there are a number of opportunities which may present themselves in the coming years.

Yes, it's a very, very good point because I know what some of our tenants are doing in some of these various states and they're investing significant time, significant money to try to get these things over the top. And look, the day will come where every place. Texas included will have gaming. It's inevitable. Pick the obvious ones Georgia, I mean you just keep going. It's going to be hard to find a place that doesn't have it ultimately. So, that is a whole category that I didn't think of right away.

Okay. Great. Thanks for the color. That all makes sense. And then just one more for you, Peter, I wanted to circle back on industry consolidation. I'm curious if there's a price or a valuation, where you'd be willing to sell the company, particularly given the size of some of these real estate private equity funds and their clear willingness to transact at sub-5% cap rates in certain instances. Is there a price that would make sense to GLPI go private? Thanks.

Well, look, that's a difficult question. Look, we're a public company, there's always a price, there's always a price. I have to give you that answer. But you have to measure it against what we think is the runway that we've got, what's best for our shareholders, period, including me as a shareholder now. I think we're still the third largest shareholder in this company, with a major stake. So is there a price? Yes. Of course, there's always a price. And that's the only answer I can give you, even if I wanted to give you a different one. Yes, there's always a price. But I don't see it. And we believe strongly that there's so much more value to be created in this machine that we've crafted over the last eight years that we've got a long way to go.

Our next question is from John Massocca of Ladenburg Thalmann. Please state your question.

Good morning.

Good morning.

So think about the total addressable market, I mean, if we kind of slice it up into different section. One of the areas that hasn't had a lot of real estate transaction activity is the Las Vegas locals market. Is there some reason for that other than just simply owners and operators not really needing the capital at this point in time, in your mind?

On my mind, it's pretty simple. Just look who has those properties and they ain't sellers, not easily and not at a price at any rational person would pay. But, go ahead Steve.

No, I was actually going to say that you answered your own question. Red Rock and Boyd are the main owners of the locals market in Vegas and they have been for years. All of us and our competitors talk to them, so it's not for lack of trying. But to date, they've been comfortable owning and operating, and that's the situation.

And it's not some underwriting difference between what you think the stability of the cash flows are versus the operators?

Not at all.

Not at all.

I know we've been asking this question in various ways, but regarding pricing, was there any change in how tenants and potential tenants perceive pricing for their largely regional assets after the public announcement of some significant Las Vegas transactions? Did this influence the other side's view on pricing at all, or has it remained stable since those announcements over the past couple of months?

At a high level, I would say not necessarily. If you examine the private market, there has been a compression of cap rates over the past year or two that we haven't seen documented, as these transactions have been off market. We can assume that new transactions will follow this trend. In other words, Bally's deals, which were fully marketed and had no unique attributes or strategic advantages, would have seen very different cap rates. However, it's important to remember how we acquired those deals initially. We gained control of an asset, partnered with an operator, and included additional elements to ensure no cash was spent out of pocket. Therefore, the market clearing cap rate at that time would have been significantly lower.

I think, Matt, I agree with your perspective. There are certain regional assets that owners consider to be similar to those on the Las Vegas Strip. In those cases, I believe those owners have certainly been aware of the public information and have a different view regarding value.

Yes, I agree with you, Matt. Those large properties are owned by very knowledgeable individuals or companies. They are fully aware of the market dynamics and aim to achieve the best possible price. This trend is certainly in place, which benefits us in various ways. However, it's true that we're not securing deals like we did in the early days. That's a fact. But that's acceptable as long as we are recognized for the value in our company; we can remain competitive.

Okay. That answers all my questions. Thank you very much.

Our next question is from Robin Farley of UBS. Please state your question.

Great. Just wanted to circle back on your comments in the release about kind of diversifying, is that just a geographic diversity and you talked about looking at other continents, or is there some thought that outside of the gaming sector might be of interest?

Robin, I believe I touched on that earlier. We're always exploring opportunities. It's important to note that it may not happen as frequently as we'd like. In the past, at least once a month, one of our banks would approach us with various opportunities in non-gaming sectors. We examine these carefully. However, the challenge is that we're in an excellent position right now, benefiting from high-quality cash flow and stability. There aren't many options that meet those criteria. As long as we have opportunities within the gaming sector, we will focus our efforts there. We will continue to explore other possibilities. If you ask whether I see us expanding into other areas eventually, I would say probably. But we still have some time to go in the space where we feel comfortable, and as we consider other options, we will remain focused on our core business.

That’s helpful. I also have a question, but I missed a conflicting call. Can you comment on whether further consolidation in gaming REITs could make sense? I'm not suggesting that's going to happen right now, but does that make sense to you?

Who you're going to consolidate with, where's only one other?

Well exactly.

I mean, if they wanted to make us a substantial offer, there's always a possibility, but it would have to be significant. However, I don't think that's a significant advantage for them. We have plenty of opportunities ahead of us, and we generally don't see ourselves as competitors, especially not for individual assets. Any thoughts, Steve? I'm looking around to see if anyone else wants to add.

Because I'm just wondering if that would actually make it maybe less expensive for bidding up future property acquisitions if there were only one triple-net, bid out there for it.

It kind of a sad world if there only one entity in that space, I don't think that's good for anybody, probably also not good for sellers. They wouldn't like to see that.

Yeah, not good for sellers, but that's why I wonder if it made sense for the buyer. Okay. Thank you.

Thanks.

We have reached the end of the question-and-answer session. I will now turn the call back over to, Mr. Peter Carlino for closing remarks.

Well thanks to everybody who dialed in today. I hope our comments were as always frank. And maybe even useful to give you a sense of kind of where we are and what we're doing. We feel very good about where we are this year going to wind up a very good year we believe. And I think we're on good footing as we get into next year. So as I think, I said last time stay tuned and look forward to seeing you next quarter. Thanks so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.