Gaming & Leisure Properties, Inc. Q2 FY2022 Earnings Call

Greetings. Welcome to the Gaming and Leisure Properties' Second Quarter 2022 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. You may now begin.

Thank you, Kyle. Good morning, everyone, and thank you for joining Gaming and Leisure Properties' second quarter 2022 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-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 at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President, 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 your host, Peter Carlino. Peter, please go ahead.

Thank you, Joe, and good morning to everyone who has dialed in with us today. Happy to report another excellent and impactful quarter, and I'll highlight, as I always do, that we have outlined all the activities this quarter pretty thoroughly in our release. Rather than have me go through or read in detail all the information available there, I think if you look at the bottom of page one right through page four, you'll have a perfect idea of everything that we have accomplished this quarter. Notably, we announced significant transactions with Bally's that are in the range of or over $1 billion, which combined with the Cordish transaction in the last eight months, aggregates about $2.7 billion in new business and potentially as much as $3.1 billion depending upon how the Bally's transactions shake out. So, it's been a pretty successful quarter for us, and I do want to highlight that. Again, lots and lots of detail that we provided, and then we'll turn to your questions. I'm going to ask Desiree Burke to highlight some financial points that I think will be of value. Des?

Sure, thanks, Peter. Good morning. Our total income from real estate outperformed the second quarter of 2021 by over $52 million, which is a result of the fact that we closed the Cordish Live! transactions, which increased cash rental income by approximately $31 million. We closed the Bally's transactions in June of '21 and then added the Rock Island and Black Hawk properties to that lease, effective April '22, which resulted in increased cash rental income of $10 million. We completed the sale, the operations of Baton Rouge and Perryville last year, and leased the real estate, which increased their rental income by $4 million. We achieved escalators on our Pinnacle, Boyd, Belterra, and Penn leases, which added $3 million of rent. We also had positive percentage rent resets for the Pinnacle, Boyd, and Belterra leases which were effective May of 2022. We had higher non-cash revenue gross-ups in investment and lease adjustments, partially offset by straight-line rent adjustments, resulting in a net $5.3 million increase. Our operating expenses decreased by about $16 million, primarily due to the decline of $28 million in gaming expenses, NG&A expenses related to the sale of the TRS operations. Offsetting this decline, we incurred non-cash charges of $2.2 million related to the provision for credit losses associated with the Cordish leases and an increase in the lease gross-ups and ground rent from the new acquisition, as well as amortization of $3.5 million and an impairment charge on land that we intend to sell shortly for $3.3 million. We have included in our release full-year 2022 guidance for AFFO per diluted share and OP Units ranging from $3.50 to $3.54, which does not include the impact of pending transactions, other than the Tropicana. With that, I'll turn it back to Peter.

Thank you, Des. I want to mention that we'll introduce Matthew Demchyk shortly. Looking at our achievements and the cap rates we've been paying for these assets, Matt emphasizes that our company competes based on our capabilities rather than the cost of capital, and we take pride in that. It's one of our key strengths in navigating complex transactions and benefiting our shareholders. So, Matt, would you like to take it from here?

Yes, thanks for those thoughts, Peter, and thanks to everyone for tuning in. The current backdrop really serves as a reminder that volatility breeds opportunity. Those of us who have lived through a few cycles have learned that if you want to take advantage of it, you need to have staying power, which means having the financial position that enables you to zig while others are forced to zag. As we've watched funding costs for companies diverge, our thoughtfully constructed portfolio, safe, endurable cash flows, combined with our commitments to balance sheet strength, liquidity, and capital markets discipline have set the stage for opportunity. To that end, this past quarter, we again demonstrated our team's ability to uniquely source and structure a transaction for the benefit of our shareholders. Our team has again created a bespoke solution for a tenant partner with our recently announced Bally's transaction. It really illustrates Peter's point that we compete on capability, not just cost of capital. At a time when few large-scale transactions have been announced, we were able to use structuring and other levers to achieve a noteworthy 7.6% cap rates. We've again demonstrated discipline with our funding for the transactions, locking in adequate equity, a key move in conjunction with our transaction announcement to position our balance sheet well within our target leverage range of five to five-and-a-half times. Our recent bank backstop equity raise was over five times subscribed, reflecting very strong support from existing and new shareholders. We've also begun the process for a delayed draw term loan to support the funding and tax structuring of our Bally's transaction. Our actions reemphasize our commitment to balance sheet strength and our respect for the role it plays in our long-term success. Our core message to potential counterparties is that despite the macro backdrop and recent volatility, we are emphatically open for business. With our leverage at a comfortable level and benefiting from our continuously demonstrated match funding discipline, our team continues in its unrelenting efforts to unearth and create opportunities with attractive risk-adjusted returns. Our overarching objective remains the same: increasing long-term intrinsic value per share for all of our shareholders. Thanks for joining today, and I'll turn the call back to Peter.

Thanks, Matt. And I think you outlined it quite well, which highlights the ethos of our company as we think about creating value for our shareholders. And with that, Kyle, would you open the floor to questions?

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question is from Neil Malkin with Capital One Securities. Please proceed with your question.

Hey, everyone, good morning, nice quarter. I'm sure everyone appreciates you reinstating guidance, so thank you for that. First question, Matt, you talked about being thoughtful and making sure the balance sheet was in a position to perform well in uncertain times, but also be in a position to be opportunistic. Along those lines, do you feel like you have or will see more opportunities with existing or potential new tenants as they look to grow or access the capital markets, but at a time when the high-yield debt market is less attractive than, say, a leaseback opportunity, thus providing them with lower-cost long-term capital to execute any of their discretionary growth endeavors? Is that something that you think will start to occur, and have you seen that yet?

Yes, well, to the first point you made, I'll reemphasize that having a balance sheet and liquidity position that makes us open to business is certainly the first step in that process. And having all of our connection points with existing and potential tenants is the next key piece. Beyond that, I'll comment that if you look at our relative all-in cost of capital versus that same metric for the folks we talk to, it would suggest that the backdrop could be ripe for more opportunity. But there's also more to it. We're not trying to replicate market risk and returns when you just look at the cost of their debt or where that trades because we could do that by buying a portfolio of unsecured debt in our potential counterparties. Our mandate is really to create a superstructure of lease terms and coverage, and credit enhancement, and all the other factors that you watch us continually put into our structures that collectively result in our shareholders getting attractive risk-adjusted returns. If you look at the deal we just did with Bally's, I think it's a great illustrative example where we're able to thread the needle to achieve something important to them, arguably facilitated by the backdrop. They recently had a share repurchase out there that I'm sure they got far better returns on, in their eyes, than we might get on our real estate. But we're looking for a different risk profile. When you think about the relevance of that for our counterparties, it kind of turns into a win-win because, to your point, there's certainly a perpetual nature to the capital that we're using. So, big picture, watch us continue to have those relationships, to understand when the stars align to move meaningfully when they do, and to make sure that we're always positioned to move aggressively and quickly when opportunities arise. And continue to use the discipline again on the balance, to your point, to support that.

And this is Peter. I think the answer is yes.

Okay.

And Matt highlighted it very well. I stuck my neck out earlier this year to say, for the first time, that I think there is an increased likelihood that we'll be able to get together on a project or two with one or more of our tenants. We're working hard on it this year; we see that window. The window is open; Matt is very attuned to that. We could probably say more, but we won't. We take that opportunity very seriously.

Okay, I appreciate that, won't push that too much. The other question is just, do you have any updates in terms of the Bally's transaction with the regulators or approvals, and is that going to be something where you can actually do both Lincoln and Tiverton, or is it going to look more like Biloxi, Tiverton, and then potentially Lincoln later? Any updates would be great.

Brandon Moore, of course, is sitting here with us right now; I think he was hoping to stay silent on this call. But with that, Brandon, why don't you take that, please?

Regarding the regulatory process for this transaction, it's important to note that we are dealing with only two assets in Rhode Island. The Rhode Island Regulatory authorities have not previously engaged with REITs, so we are their first experience in this area. There are still issues to address concerning our licensing, as well as how our leadership and governance structures will fit into that process. That said, I believe the regulatory review will consider both Tiverton and Lincoln simultaneously. It's unlikely that one would be approved without the other; they will likely either both receive approval or neither will.

And this is Steve. If your question was more about the amendment concerning Bally's, as you may know, they withdrew the amendment due to an inability to reach a consensus with their lenders. Nevertheless, Bally's remains open to discussions if circumstances change and the parties decide to revisit that matter. From our perspective, the transition to Biloxi won’t occur until November. If that proceeds, we would then have a two-year option on Lincoln. This is what Peter referenced in his opening remarks about the slim possibility of us closing an even larger aggregate transaction if we finalize Tiverton and Biloxi first, and then subsequently close Lincoln.

Yes, I understand, and not to go on too long, but wouldn't it not make sense based on what you just said, that if Lincoln doesn't get approval, Tiverton also will not get approved?

Yes, I think we are mixing concepts. The concept that Brandon discussed was a regulatory concept. His commentary around Lincoln and Tiverton was that they are both in the same state of Rhode Island, and therefore, there's an expectation that if you are able to get regulatory approval for one, you likely can get regulatory approval for both. The delta that I think you are bringing up now is there is lender consent required, not regulatory consent. A lender consent is required for Bally's with respect to the Lincoln asset. That's why the outcome of Tiverton and Lincoln could be disconnected because you don't need the lender consent to get the Tiverton asset. You just need regulatory approval.

Okay, it makes sense. Thank you.

Yes, look, I am going to speculate that that's the minimum possible outcome Tiverton and Biloxi regardless of what consent they may need from their lender, there is the question of approval in Rhode Island structure. Do they license all the management for example, or is it, as in many states, no license required at all? This is parts unknown, but we expect that ultimately we will get there.

Thank you, guys.

I would now like to introduce Barry Jonas with Truist Securities. Please proceed with your question.

Thank you for that introduction.

Where is the drum roll?

I wanted to start with Tropicana, any sense within the second-half of when the deal could close? What are we waiting on? And then, any update on redevelopment opportunities there? Is it kind of you guys or Bally really driving those discussions?

I'll tackle the first part, probably the easier part of your question. The regulatory process is a little bit opaque to us because we're not licensed in Nevada as a REIT. But from what we understand, that process is coming to a conclusion. I would think that in the next few months we hope that that transaction will be in a position to close. I'll let others address the reinvestment in the property.

Well, sensibly, it has nothing to do with us necessarily. It might be an opportunity under some circumstances. But there are defined today; I think you are all generally aware of the kinds of things that Bally's is looking at for development at that site. But we don't run that process. We have a strong interest and understand it's proceeding at pace, but can't really tell you where that stands today.

Got it, got it. And then just as a follow-up, can you give an update on the construction at Baton Rouge, whether that's timing or budget? Or any update there would be great.

Steve, you want to take that?

Yes, I think the timing expectation is still first quarter of '23. I think as everyone is aware of the macroeconomic and actual labor situation nationwide, it might be imagined that you would have had some fits. We have been dealing with a number of different complications, but the project is moving along. Like I said, our tenants are looking forward to moving landside there. We are actively working to make that happen.

Great, thank you so much.

Our next question is from Haendel St. Juste with Mizuho. Please proceed with your question.

Hey, guys. Good morning. So, I guess first question is a follow-up on Bally. I was hoping to help us understand the tax structuring in the Bally's transaction and the implication for GLPI. Thanks.

Sure. At a high level, they will be buying into our operating partnership. We will be guaranteeing some of their debt to help them defer any tax payments. The tax structuring is crucial to that transaction and how we are organizing it. But that's the general overview of how the tax structuring will work to facilitate a deferral of tax through the structure.

Okay, that's helpful. I am just curious how much of the debt you are guaranteeing, just a quick follow-up.

Yes. We haven't determined that just yet. We have to wait and look at their tax bases for their assets and some other diligence items that we have to complete in order to be able to finalize that.

Okay, fair enough. Matt, maybe one for you, I guess the thoughts on equity, use of the ATM, and leveraging this environment. If you feel you are in a position today to execute on more transactions given, I guess, with slightly higher cost of capital and your balance sheet objectives?

Matt, you want to take that?

Sure, yes. As I stated in the intro, we are happy with the leverage level now. Staying within our 5 to 5.5 range is the key for us. To the extent we had an opportunity set that made us feel confident, you certainly could see us using the ATM as a tool in our tool chest in conjunction with that mentality. We don't have a goal of deleveraging for the sake of deleveraging beyond being within that range. This is the efficient frontier of our leverage that we want our shareholders to benefit from. But that said, yes, it's certainly a tool that we have and we will be thoughtful about its use within the context of those other comments.

Wonderful. Thank you, guys.

Our next question is from Jay Kornreich with SMBC. Please proceed with your question.

Hey, thanks. Good morning. Some new cities have recently legalized or are in the process of legalizing full-scale casinos such as New York City and Chicago. This has led to the recent Bally transaction with the development there. Can you give us an update on any other cities or states that you expect to improve full-scale casinos or add licenses in the near future which could provide additional external growth opportunities for you?

Sure, I think the expansion of the gaming TAM is something we are always focused on. We are closely watching and eager to try to be helpful and participate. We agree that Chicago and New York seem the most near-term opportunities. We continue to monitor what's going on in Georgia and some other states such as Alabama. I think, as far as near-term goes, I probably would not put Texas in that bucket. But we constantly look around the country and realize the opportunity not only for the gaming operators and the gaming REITs but more importantly the states and the taxpaying public and the benefits that can prove. We are actively looking and I think you've named the two that are most near-term. I wouldn't suggest that there are no others that could pop up in the medium term.

Okay, thank you. And then, just as a follow-up. Within your current portfolio, are there any expansion opportunities that your tenants are looking into at this time which could be a development opportunity for you to finance?

Yes, let me take that. As I suggested before, we are in active discussions with a number of our tenants today about some interesting possibilities. I mean, that's just that. It's the tenants who decide when and if they want to pull the trigger, but we talk about, without naming locations, hotel opportunities this year. I think the stars may be aligning better than they have been almost from the beginning. We are feeling optimistic; that's the best word I think I can use that you'll see some significant investment with one or more of our tenants in the next 12 months. I will just pull that out of the air. But we're hopeful that that will be the case.

Okay, thanks very much for the time.

Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Just a quick question; obviously, there are a lot of talks of recession, and sort of the gaming has been very recession-resistant in spending. The question is really when you look at the facilities today, is there something different whether it's diversification of revenues, whether it's marketing, whatever it could be, what are some of the intangible factors that give you guys confidence in those facilities producing as we go into a downturn?

Yes, look, Ronald, this is Steve. I appreciate the question. If you look back at the last recession, we have a slide that Matt will be able to comment if it's still in the deck. It's been in the deck for years now, and it showed what happened from a rent coverage perspective for the regional properties versus the strip. This is not me saying that the strip is going to act the same way as it did historically. We've seen a nice run-up post-COVID on the strip. But, if you look back at the slide and history, it suggests that the regional assets held up better in the recession. We attribute that to the fact that there isn't the same level of diversification of revenues; the revenues are primarily focused on gaming business. Therefore, our belief is that people will zero in on gaming and enjoy that activity. Their focus on paying $200 for a stake might wane. I think that slide, if it's not out there anymore, we will make sure we get it out again. And Matt, do you know if that's in that deck?

I'm sure it's part of the deck. To flesh out the answer, simply drive through is better than slide through. If you have a recession, lower fixed operating costs are better than high fixed operating costs. Higher state tax rates are better than lower state tax rates when you think about how it impacts the bottom line. To Steve's point, the regional asset checks all the right boxes. It's also very important for us to be thoughtful about coverage in this environment. You'll see in the last few transactions we've done whether it's this last deal with blended coverage two times. The deal before that with Cordish, Pennsylvania, two and then Maryland has a single asset 2.7 times. We have certainly looked to build in a margin of safety in our underwriting to ensure that we can sleep at night knowing our rent would be collected now and well into the future.

Yes, that slide which I think many have seen indicated that the low point during the whole collapse coverage in Vegas dropped to 1:1 or even slightly below at the nadir; the coverage in the regional market never below 1.4 to 1.5. It never got to disaster range, even in the worst of times, which is something we've been pretty firm about. I've been clear about it in many presentations that the regional revenues are essentially bulletproof.

Helpful. And then my quick follow-up is the Bally's; is that still expected to close at the end of this year? Or could that slip into next year?

Steve?

Yes, the Tropicana you are interested in or the Tropicana Las Vegas or the Rhode Island?

The Rhode Island.

The Rhode Island, I don't think we have enough visibility to know. We are still targeting year-end. I think in the coming weeks and months, we are going to have a much better idea. As you probably can imagine, the regulatory process is usually the long pole in the tent for our transactions. This one is no different. So, as we continue to work with Rhode Island, I think we will have better visibility and whether or not year-end is possible. But we are certainly targeting it from the business side.

It may be a little slower or unpredictable simply because they don't have any REIT experience. I think they get it and understand it, but it does add a layer of complexity that they have to get their arms around.

Yes, certainly a layer of uncertainty in the timing. States that already have REITs, we usually have better visibility into how long that process might take. I think this one we expect to work cooperatively with the regulators. In fact, we have already started that, but we just don't have enough visibility at the moment to really prudently predict whether that will happen by the end of the year. But that's the goal.

Thank you.

Our next question is from John Massocca with Ladenburg Thalmann. Please proceed with your question.

Good morning.

Good morning.

Maybe just turning to the new guidance, I am just kind of wondering, I understand there are some seasonality to rent, and you had a diluted impact around the share issuance in July that’s not deployed, so later this year or even potentially next year. But what are the pushes and pulls that got you to the guidance range on a per share basis just giving, obviously, the annualized 2Q will be way above it? I understand you can't do that, but just maybe kind of factors that are going into that guidance that created the $3.50 to $3.54 range for AFFO per share?

Sure. So, what's driving the range are different assumptions so far on the interest rate on very lower debt, assumptions that you make on percentage rent and how the Ohio properties perform, as well as we have a reset coming later this year for the Meadows property, assumptions on the timing of the Tropicana transaction, when that occurs, and assumptions on escalators, of which there are a few remaining this year. So, those are the key assumptions and drivers. I agree, you can't just take the quarter, but you can take year-to-date numbers and almost double them and get close to within the range. It's really hard to do that because, as you said, there is some seasonality in the Ohio properties, as well as the timing of when Black Hawk and Rock Island closed, and that wasn't until April, and when that Cordish transaction closed in January and March. So, those are the big drivers, really four things; what's happening with our interest rate, what's happening – what are your assumptions on the percentage rent, what's the timing of the closing of the Tropicana, and what are your assumptions on escalators.

And I guess maybe there's no other capital market assumptions besides the July closing of the equity offering, correct?

That's correct.

Okay. And then maybe if you look out at future deal volume, assuming we still are in a rising interest rate environment, how do you think about timing of deals? It seems like, in kind of net lease broadly speaking, there's been this idea that cap rates are going to expand in the back half of the year, and it may be prudent on deploying capital because of that. I mean is that something you're seeing? Is that something that makes sense strategically or just because of the bespoke nature and the kind of limited nature of assets you can buy that you kind of take what you can get when you can get it?

Yes, let me have Matt answer that question, but you used the right word to describe the bespoke nature of the transactions we've undertaken. Many have been influenced by the goals of our tenants or potential new clients. So, Matt, please take it from here.

Yes, broadly, John, there's clearly a bid-ask gap in a lot of the real estate world, and the structuring and all the things we talked about throughout this call with Bally's enabled us, effectively, to get to our economic ask, which was the 7.5% cap rate that you saw, and fees beyond that too, if you include those, it's even slightly a better return all-in. We wouldn't have done that if it didn't get over our return threshold. We calculate that based on our cost of capital at the time; you plug the actual numbers in, and the key next piece, which we've now delivered on multiple times, is locking that in. I’ve watched a lot of folks get offside by getting involved in a transaction and not locking in the cost of capital, and the world changing. As long as we follow that discipline, again, we're open for business. There’s absolutely no reason for us to say we're just not going to do deals. As long as we get a spread and lock it in, we can do that deal and the better one later in the year if they come up, to your point, as long as we're positioned to keep doing it, and that's what we've positioned ourselves to do. Remember, we did close to $2 billion towards the end of last year, and then another $1 billion in the last few weeks. If you asked us 12 months ago, I think the quantum of transaction volume we might expect could have been much lower. The visibility is not there. But there are errors of omission; you can't pass on an opportunity just because of the macro. If you can make the math work and lock in the return, it's our job to do that. So, when the stars align, we know what it looks like, and we're happy to push the buttons at the right time for our shareholders' benefit.

That makes sense. And then one last quick detail one, if the timing for the close of the Bally's transaction can roughly be impacted by a switch to the Hard Rock Biloxi deal versus if you do somehow get Lincoln and Tiverton together? What's kind of the timing differential if you switch to the smaller transaction?

I don't think that timing is materially different from a regulatory perspective. As you know, we have several facilities in Mississippi, and we're fairly confident that a sale leaseback in Mississippi would be a fairly streamlined process. The issue is, if Rhode Island approves our entering into a lease for properties in their state and the sale leaseback, the only question will be whether or not the Lincoln lender consent has been obtained, and so it won't be a regulatory issue. I think that will be the real dictator, is when Rhode Island approves our entering into a lease for properties there. We'll either be buying Tiverton and Lincoln, or we'll be buying Tiverton and Biloxi because Lincoln is impossible due to the lender consent. I think that's the real decision tree.

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

Thank you.

Our next question is from Smedes Rose with Citi. Please proceed with your question.

Hi, thanks. I just wanted to understand a little more about how you might be thinking about financing the balance of the Bally's transaction. I mean, you'll generate a lot of cash through year-end, but are you leaning more towards debt issuance, an OP issuance to Bally's? Is the timing really just related to the regulatory process you mentioned going through, or is it more opportunistic around where your cost of capital is? I just want to understand how those things might match up as we move towards that closure.

Yes, it's Steve. I think the timing is linked to regulatory factors. As for funding the transaction, we've already issued equity and expect to receive proceeds from the Tropicana sale, which is $150 million. The remainder of the financing will come from debt, primarily in the form of bank debt. As Matt mentioned, we're currently in the market for that, and we should provide an update by the next quarter.

It's with Smedes. Just had a quick question just going back to the guidance. We appreciate you putting up both the gross AFFO as well as the per-share numbers, given the equity raise, and those proceeds are obviously dilutive until they can be put to work. Maybe just focusing on the gross AFFO guidance, because I think that may help sort of bridge some of the gaps between Street expectations. You had about $453 million of AFFO in the first half, and based on that 900 to 920 sort of implies about $460 million in the second half of the year. Desiree, you called out interest expense, percentage rents, the Tropicana sales, and the escalators. Can you sort of goalpost each of those items effectively? What you've embedded into that second-half midpoint range of $460 million so that we really understand the puts and takes of those items that are already known? Can you break that out a little bit more for us, please?

Yes, we don't have any other detail that we put into the release, so I can't break that out for you. But again, it's just assumptions on those four items, and how to get to the guide.

Yes, but are those positive or negative factors? I understand these are known items, but we really need the numbers. What percentage rents are you assuming? When do you expect the Tropicana sale to happen? We need those details to understand how the numbers will come together.

For the Tropicana, it could either be closed this year, as we mentioned it could be in the second half, giving a range of six months when it might happen, or it may not close at all. If it does close on December 31, there will be no impact. The percentage rent is essentially all or nothing based on whether they meet their adjusted revenue-to-rent ratios. As shown in the tables on pages 14 and 15, most leases appear likely to meet their percentage rent, as they are expected to fulfill their escalation provisions.

Right, so given the six months of range, it could close this year or it might not close at all. If it closes on December 31, there would be no impact from that. This affects the percentage rent, which is essentially an all or nothing situation regarding whether they achieve their adjusted revenue-to-rent ratios. As shown in the tables on pages 14 and 15, most of the leases seem likely to reach their percentage rent, or rather, they are expected to meet their escalation provisions.

Other than that, the FFO rate – you pull a forward yield curve, and it's changed significantly. The FFO rate has changed significantly over the last month even. So, it's anybody's guess as to what that will look like when we get to the end of the year.

I understand that you have provided guidance for the full year, indicating a range of 900 to 920 with a midpoint of $460 million. I would like to clarify the assumptions behind these figures. Given the current volatility and uncertainty, I'm trying to comprehend what specific factors you considered in these numbers to make sense of the guidance. Additionally, regarding Tropicana, could you explain what factors contribute to the low end and the high end of this range? This shouldn't be overly complicated.

Obviously, it's nothing or it's all of the rent, like it's all or nothing. So, you're right, it's not rocket science.

I'm trying to understand what assumptions are included in the numbers you've provided. It would be helpful if you could clarify the specifics of each component that affects the total, as most of your rent should be straightforward. However, with variables that can change, grasping their impact on your figures is crucial, especially when giving bottom-line guidance. Understanding the assumptions that lead to those numbers is more significant than the overall figure. For instance, you mentioned that Tropicana could be at zero, which is likely the lowest estimate, while at the high end, it's the full rent contingent on a close, though I'm uncertain about that. Knowing what's included is far more critical than just the bottom line.

Matt, I'm not sure if you have anything you want to add to this, but frankly, we're just not prepared to go any further with that question now.

All right, so it sounds like we're just not prepared to go any further with that question now.

Frankly, we didn't want to deal with guidance in the first place because we are not prepared to go any further with that question now.

Well, then don't give guidance, I mean like you can't.

Understanding what is embedded is much more important than the bottom line number. I'm not sure if you have anything you want to add to this, but frankly, we're just not prepared to go any further with that question now. Frankly, we didn't want to deal with guidance in the first place. Well, then don't give guidance, I mean like you can't.

I understand you didn't want to provide this information, but you've done so, and we are trying to comprehend the effects of the various factors included in those figures. For instance, when you mentioned that Tropicana is at zero, which probably represents the lower end, and at the higher end, it's the full rent assuming closure, I’m not sure if that means closure. Grasping what is included is more significant than the final figure. That's all.

Okay, I think that we have that message.

Our next question is from David Balaguer with Green Street. Please proceed with your question.

Good morning. Sorry if this has been clarified, but I just wanted to ask a clarifying question on this Bally's deal. So, if those two Rhode Island properties close, is there anything that would preclude you from still being able to pursue the Biloxi property later?

The Biloxi will not be part of the transaction if those two close. It doesn't preclude us from participating in a sale leaseback on the Biloxi property down the road, should Bally's elect to do that.

Yes, I think the main question is whether they feel a need or desire to pursue that at that time. However, Brandon addressed it correctly: it won't be part of the transaction if we acquire the other two properties, which were our primary objective.

Got it. So, we could take that as a signal that this is a property that you would be potentially interested in, if Bally's decided later on that the sale leaseback makes sense?

Absolutely; we're in the business of leasing properties, so you bet.

Got it. And just wanted to touch on the Meadows lease, just looking at coverage levels, I know with the escalator coming this October, and these coverage levels, I recognize that those are trailing, and the casino business has been pretty strong this year. We don't know where that could go. Could you remind us that end date when that reset would occur, that last date where you look at coverage to decide if it qualifies for that reset?

Yes, it's mentioned on page 14 of the lease, which outlines the lease commencement date. That's the date you review annually. Depending on what you're examining, it's available on page 14. If I remember correctly, the Meadows date is in September.

Got it, thank you.

We will look at it. Thank you.

Our next question is from John DeCree with CBRE. Please proceed with your question.

Hey, everyone. Thank you for taking my questions. I think we covered a lot of ground, so just two. One is just a kind of forward-looking clarifying question, but in the event the alternative transaction is the one that works with Bally's this time and Biloxi is included, between now and when the option expires, is there a mechanism that would require Bally's to get lender consent ahead of time or would that just be addressed at the time that you'd prefer to exercise that option? Just curious if Bally's has to kind of actively work towards that amendment?

Yes, we are currently negotiating the definitive document. The criteria that Bally's must adhere to have not been fully established. You can assume that we expect them to seek that consent. Whether they should be actively pursuing it all the time is a business decision on their part regarding how to engage with their banks and secure it. The option does not require them to be constantly seeking that consent. The two-year timeframe provides them ample opportunity to manage their relationships with their banks in whatever way they think is best for their business.

Yes, that's what I figured; I appreciate that clarity. Looking at the overall perspective on deal volume, earlier in the call we touched on it. Given the increase in interest rates and the market adjusting to the new normal, potentially at a higher cost of capital than what we've been accustomed to, have you started to see an increase in inquiries? I imagine there has always been a steady flow of conversations, but I'm curious if some of your partners are beginning to consider taking action or if there are people you haven't heard from in a while who are now reevaluating their cost of capital in relation to what you can provide. Have you noticed any change in the incoming inquiries yet?

Steve? Yes, go ahead, Steve.

Yes, I think deal flow has been consistent for a few years now, to be totally honest. The conversations have changed. What you're alluding to is, two years ago, if I called someone out of the blue and said, 'Hey, you have a bond maturing, why don't we consider a sale leaseback?' Chances are my sale leaseback rate was higher than whatever their borrowing rate was; that dynamic has shifted. It’s still the same conversation and the same phone calls that we have. The discussion is changing slightly because now my cost of capital may be advantageous for them and/or even just the fact that I'm open to transact might be better than where they find themselves in the current high-yield market environment. So, the dialogues change. I don't know that the volume of calls has necessarily changed, but the discussions around reinvestment in those properties has picked up. I know that was part of your question, and I know Peter made some commentary earlier today suggesting, in the next 12 months, you would expect to see us doing investment with a tenant. I think that dialogue will continue to trend and be more active going forward.

Thanks, I appreciate the additional color. Thanks, everyone.

Thank you.

Our next question is from Robin Farley with UBS. Please proceed with your question.

Hi, great. Actually, that last question was what I was going to ask as well. So, maybe just the other thing I'd ask about is, I don't know if you can give us any color, i.e., think about the upside for GLPI from what ultimately gets developed at the current site?

Do you mean participating in something? Yes, I believe the value of the land increases based on what is ultimately done with it. We are still in the early stages. We continue to receive our lease payments, but what will actually happen at the site remains uncertain. We have explored some of the concepts currently under consideration, but until they are finalized, I can't provide a definitive answer. As for whether we are planning to take any risky actions with our company's capital, the answer is no, we are not. Therefore, we will wait to see what is proposed. There may be an opportunity for us, or there may not. We want to pursue as much business with Bally's as we can, while being responsible.

Okay, all right, thank you.

Thank you.

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

Thank you, Kyle. Thank you all who have dialed in today. We feel we've had a great, and as I said at the outset, impactful quarter; we're excited about it. The balance of the year is looking good as well, so we're pleased to share this information. We're always available for your calls, if you like. So, thanks again. Have a great day, everyone.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.