Gaming & Leisure Properties, Inc. Q2 FY2023 Earnings Call

Greetings, and welcome to the Gaming and Leisure Properties Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Joe Jaffoni, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria. Good morning, everyone and thank you for joining Gaming and Leisure Properties Second Quarter 2023 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 of Gaming & Leisure Properties; and also joining today's call are Brandon Moore, Chief Operating Officer General Counsel and Secretary; Desiree Burke, Chief Financial Officer and Treasurer; Steve Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you, Joe, and good morning, everyone. We have, as Joe has highlighted, our entire team and you'll probably hear from most of them throughout this call. Look, we've had another strong quarter and as we continue to build and strengthen our gaming portfolio which by the way now totals 59 properties. And I wanted to highlight that, our spin from PENN in 2013 we started with 19 properties. So we continue to build our portfolio base. While nothing is certain over the next 6 to 12 months, I believe that we can continue to grow that number. Also, as a large shareholder myself with approximately 12 million shares in this company, I am highly focused on building our dividend base which, at the moment, our current stock price is overly generous. We need to get that number down, but continue to build. Let me briefly talk about a couple of projects that I think you're well aware of. The first, of course, is Baton Rouge that has been ongoing for some time. I think we've announced that that property will open at the end of August, and we're excited about it. The physical facility is terrific. We've pushed our budget a little bit up to $78 million but all of those are related to project enhancements. I believe that Casino Queen, and certainly our team here, are really proud of what has occurred there and we're excited about its potential. The other project you are all well aware of is Tropicana. With respect to that, we have a long-term land lease with Bally’s which is financially unaffected by the nine acres that we and Bally’s have seeded to the A's. Obviously, Bally’s is willing to do that because the spectacular new park should be a terrific addition to that site. You know also that we have committed $175 million to infrastructure and various construction items at the site. We believe and hope that, as the project evolves, there is a lot more opportunity than that. We will look at what is appropriate for our shareholders at our company but are excited about the possibility of doing a lot more, subject to what Bally’s would desire with this project. We need to be competitive, but that being the case, we'd like to participate at an even greater level. So that's a couple of the big things that are occurring right now. And as I say, over the next couple of months, we hope we can deliver a number of new things as well. So with that, I'm going to ask Desiree to go through some of the financial issues.

Thanks, Peter. Good morning. We reported record results for the second quarter of 2023, and our total income from real estate exceeded the second quarter of 2022 by over $30 million. This growth was driven by the addition of the Bally's Biloxi and Tiverton assets, which led to an increase in cash rental income of $12.1 million, the Tropicana Las Vegas land lease which raised cash rental income by $2.6 million, the recognition of escalators and percentage rent increases on our leases that contributed around $3 million of cash rent, and the combination of higher non-cash revenue gross-ups, investment, lease adjustments, and straight-line rent adjustments, resulting in a year-over-year increase of about $12.3 million. Our operating expenses increased by $28.9 million, largely due to non-cash items like the rise in the provision for credit loss on our Cordish leases, and an increase in depreciation expense mainly related to recent transactions. We expect an annual rent reduction in the amended PENN lease percentage rent between $5 million and $6 million, starting in November this year, due to the adverse effects of casino closures from COVID during the previous five-year reset period. We also anticipate full escalation of $4.2 million annually on this lease. Furthermore, our PENN Amended Pinnacle and Boyd Master Leases will undergo rent resets on May 1, 2024. Although it's too early to make a confident prediction, we expect these resets will lead to increased percentage rent adjustments, since the resets effective May 1, 2022 included periods when casinos were closed because of COVID. Regarding our current land site development project Peter mentioned, we have spent just over $56 million to date. As Peter indicated, the total project cost will be $78 million, and we will start generating rent at an 8.25% cap rate upon opening. From a balance sheet viewpoint, our net leverage is just under five times EBITDA. We raised about $14.5 million through our at-the-market program. Our rent coverage ratios remain strong, with a range from 1.96% to 2.76% on our master leases as of the end of the previous quarter. We have updated our guidance for 2023 AFFO per diluted share in owned OP units to a range of $3.66 to $3.68 per diluted share. Please note that this guidance does not factor in the impact of future transactions. With that, I'll turn it back to Peter.

Thanks, Des. And Matt, would you add your thoughts?

Sure. Thank you, Peter, and good morning everyone. One thing that's become increasingly predictable through each reported quarter of our results is the consistency of our business model. As our results continue to consistently compound GLPI's cash flows, the path towards institutionalization for our assets continues, while other real estate sectors are facing a number of unique challenges. The stage is set for the continued convergence of perception and valuation. Our business model is also incredibly simple. Our top-line rent payments drop to the bottom line without the impact of re-leasing fees, tenant improvements, routine CapEx, or other typical landlord costs that are common in other segments of the real estate market. In addition to this consistency and simplicity is our thesis that a commitment to transparency supports institutionalization. We have respected positive investor feedback regarding our four-wall coverage disclosure and transaction yields and appreciate that they are valuable and necessary data points that enable our investors who we view as long-term partners to reach their own informed conclusions about the stability and strength of our business model. As you know, our cycle-tested approach to managing the company focuses on the long-term. To complement the strength of our underlying business model, we have methodically and purposefully positioned our balance sheet to have conservative leverage. In addition to managing debt to EBITDA into the high-4s, we have also staggered debt maturities with the next of $400 million not due until September of next year and over $1.7 billion of available liquidity. We value the strong foundation that our balance sheet provides as both the ballast in an uncertain environment as well as a tool that positions us to play offense whenever and wherever prudent. As we navigate a monetary, interest rate, and economic environment that has little precedent, we clearly see the potential for opportunity. Traditional sources of capital are not as abundant and are also proving to be less predictable, which is a natural opening for GLPI. Over the past quarter, dialogue with existing and potential counterparties has been healthy. We are working hard in the effort to translate that dialogue to tangible outcomes. We remain focused on unearthing opportunities to prudently deploy our shareholders' capital in the effort to increase long-term intrinsic value per share. Thanks for joining today's call and to our investors for their vote of confidence. I'll now turn the call back to Peter.

Thank you, Matt. And Maria, would you open the floor to questions please?

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Barry Jonas, Truist Securities. Please proceed with your question.

Hey guys, good morning. I wanted to start with Tropicana. There's been some discussion about whether nine acres will be sufficient for a ballpark. I know there'll be some shared space, but it would be helpful to get your thoughts here?

Speaking just for me and others have thoughts around the table, I was surprised myself that they could do it so efficiently. But I can tell you that a lot of design work is already in place that makes it pretty clear they can accomplish that with the way the site is prepared. Very interesting integrated plan. Some of it's been public. But did you want to add some comments to that? Others around the table. Steve?

No. I mean, I think you said it right, Peter. The plan is for nine acres. The nine-acre number has always been the number provided by the parties involved and those who are constructing the baseball stadium. So you're right, Barry, there is a significant portion of shared space, which also includes parking. So there is a plan to make sure that a lot of what you would normally see in a purpose-built stadium in a standalone land parcel, a lot of the ancillary exterior amenities and things will be shared between both the casino and the stadium itself.

Yeah. And I might mention that this design process is on a tear. The A's and Bally's have been highly focused on keeping this moving, and there have been already significant meetings and a lot of detail. So this is moving at a very, very fast pace.

That's great. I appreciate all that color. And then just as a follow-up, maybe more a modeling question. Any thoughts on how the deployment schedule for funds relating to PENN's construction projects will work out?

Des, I wonder if you want to take that question.

Yeah, not really. No, I'm kidding. So we're working with PENN, but they haven't put out their plans yet. So we definitely don't want to jump ahead of them, but it will be a coordinated effort. And I don't believe anything will start until next year. But we'll have to wait and see what they finally determine when we did buy the Aurora property this quarter to be used for the relocation, but that's as far as we've gotten at this point.

And we do understand with some authority that they are well along in architecture, design, and planning on these various projects. So that gives us a lot of comfort. This is going to move relatively quickly. Never fast enough but it's moving.

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

Good morning. Thanks for taking my question.

Good morning, Haendel.

Hi there. So first perhaps, Peter, can you talk a bit about the competitive landscape today and your ability to execute in the current environment and convert some of the dialogues you guys were having into tangible opportunities, especially as it's well known you're facing a bit more competition from some newer entrants and from peers who have a bit better cost of capital? Thanks.

I can't say that we see a lot of change. If anything, I think things may have improved for us in this market. We have a very active series of discussions occurring, again obviously nothing we can really say about that, but we're very encouraged that the next couple of years should be pretty positive for us. Again, cautious in how we say that, but we feel pretty good. Any other thoughts around the table?

Yeah. I mean, I'll add, Haendel. It's been interesting to watch kind of who's competitive when people look at solutions for their balance sheets. Over the past number of months, we've watched banks get their wings clipped a little bit, and in a different way around real estate, private equity folks have certainly shifted their focus looking more at potentially debt to sell some of the bank void and also don't have the same juice they could get from really low price debt to lever things up. I'd almost take the opportunity to take a step back and think about our differentiators. I mean we're different by design compared to banks, private equity, or other public REITs. Remember we've got around this table a more collective gaming experience than arguably anyone else doing this and a lot of that goes back to Peter's respected place and position in the industry and the relationships our team has. We've got a track record of creativity that's second to none if you look at the deals that we've put together over time compared to others. The nuances, I mean we don't say something has to fit perfectly in a certain structure. We figured out with a clean slate what makes the most sense for us and the counterparty, certainly of dependability. If you look at the importance that a lot of our counterparties place on having someone that's going to be there not just today, but two, three, four years out to be able to be a partner over the long run. And also as a public company, you know especially in our balance sheet position we can use our ability to match fund things. It's certainly a different tool chest than folks in private equity or banks have to be able to fund deals. So if you put it all together, we've got a very natural seat at the table and sometimes for our first call to be able to be a solution for counterparties.

Thanks, Matt. Very helpful. And then a related follow-up, I guess you guys have a long-running and well-known relationship with Bally's. I guess I'm curious how you're thinking about the possibility today of being a takeout for their Chicago project and other opportunities like perhaps the Tropicana and how this would potentially fit with your long-term balance sheet philosophy? Thanks.

Every project is unique. We are currently more engaged in Las Vegas than in Illinois. However, we are open to exploring any opportunities Bally's may present, and it’s evaluated on a case-by-case basis. We aim to be the preferred partners for Bally's and have a deep appreciation for their vision and their strong motivation to grow the company. We remain optimistic about potential collaborations, but as of now, there are no immediate prospects. This situation applies to Las Vegas as well, where we need to observe how things develop. We would like to be involved if the opportunity arises, but as of now, we have not received any offers and do not have a clear understanding of the project's direction.

And on the balance sheet philosophy question and how it ties in, I mean we're going to continue to do the same things you've watched us do. We're going to emphasize prefunding and match funding. Depending on the size of the transaction, we certainly have the tool in our ATM, the tool chest to use and we'll be thoughtful about long-term rates and how we position our debt structure to be able to support our business model.

Thanks guys. I'll leave the floor. Thank you.

Our next question comes from Chad Beynon with Macquarie. Please proceed with your question.

Good morning. Thanks for taking my question. Peter, can you touch on your appetite to expand into Canada given that we've seen some more transactions up there, that market appears to be as stable as the United States from a GGR and kind of a spend per adult standpoint and some recent capital that's been deployed into that market? Thanks.

I'm happy to discuss this. Canada is just across the border, and we constantly evaluate opportunities there. However, we've yet to identify a project that aligns with our requirements, particularly due to tax considerations. We've assessed numerous options but haven’t found the right fit. Brandon, do you have any additional insights on this?

I don't know that I have that much to add. I mean I think we do look at a lot in Canada, but between the tax leakage and getting the repatriating the money back to the United States so that we can dividend it out and things like that. And of course, we can put debt on it, there are strategies we could employ to try to make those transactions more accretive. But I think to date, we haven't seen the transaction in Canada that's offered both a growth profile where we could turn that into something more and in a way that would be accretive for our shareholders. And so I guess, in summary, we've seen them so far as more risk and less reward. And I think we'll continue to look there. But as you probably know, each of those provinces is different and how their taxes are structured and how their regulatory systems are structured are a little bit different. We look at each one uniquely and we look at a lot of them. And I think if we find the right project, we'll certainly do it. But we've been in Canada and looking at all those projects, we just haven't found the deal structure and the project that's right for us.

Just as an aside, when I bought Hollywood casinos at PENN, we got of course the management contract at Casino Rama, which is a great experience. There was a fight between the US government and the Canadian government over taxes that was there when we bought the company. And 16 years later, I'm not sure it was solved even by then. It went on literally for year after year. And that was just such a mess that certainly colors my thinking somewhat to be extra cautious about the intercountry relationship.

Great points. Thank you. And then as a follow-up, I wanted to ask about rent coverage conversations. We've seen a few operators report so far in the second quarter and it looks like revenues are broadly flat or maybe even down on a same-store basis which has put a little bit of pressure on margins. So, there are questions around, are we at peak margin place for the operators? So, as it relates to rent coverage conversations, how does this change deals that could be done in the future? Historically, I think when these deals were done there were still some opportunities for your partners to increase margins, and now there's less they could do. So, should we start to see different types of economics or deals printed in the future given where we are from a margin standpoint? Thank you.

I'm looking around the table to see whose face is just dying to answer that question. Matt, I think it's you.

Okay. Yes, look this goes back to our underwriting philosophy. We've always structured in a margin of safety. And as you've heard us talk about on a number of calls, the reality that as margins expanded, we would likely find a set point somewhere shy of the max. And we're not calling the max or the min, but we're going to continue to get pound for pound more four-wall coverage than we feel necessary to make sure that our cash flows are safe. I mean look at the last few prints we've had and where we've settled out, it usually has a two-handle if not a very high one-handle. If you look at the stress test, look back at both the financial crisis and also what happened during COVID, we've proven to have more than enough in both those situations. So, it's thoughtful, it's case-by-case. We consider where things were pre-COVID as well to look at kind of a clean picture, and we thoughtfully apply our judgment.

Thanks, Matt. Appreciate it, guys.

Thank you.

Our next question comes from Daniel Guglielmo with Capital One Securities. Please proceed with your question.

Hey everyone. Thank you for taking my call. Peter, just the first one going back to your comment about the dividend where you said you're highly focused on the dividend base and you're trying to get the yield number to come down. Is that just saying the price is undervalued and you think the dividend yield is too high?

Absolutely. We're giving away too much free money to people who aren't appreciating it adequately. You bet. Absolutely. Look, I mean we don't control what the market does but it's pretty fulsome right now.

Great, okay. That makes sense. And then kind of on a similar vein to past questions, Matthew, you mentioned kind of the flexibility partnership you all provide to the operators and it's worked well with Bally's and Cordish recently. And there's a lot of operators out there with good properties that would appreciate the knowledge base and flexibility. So what do you think can happen over the next year or so for them to come to the table and allow you guys to leverage the strong balance sheet?

Yes. I mean look, we're in an environment where there's a lot of uncertainty. We've had a lot of great moves that haven't fully found their way to the economy, and you've got camps on both sides expecting very dramatically different outcomes. Maybe we get Goldilocks; maybe we have some delayed stress that is really tied to when people's maturities come due and when they have to do things. But the catalyst for us to have an opening typically is either M&A, some generational wealth shift, transfer, estate planning, or some strategic goal that a counterparty has. I mean we've yet to have someone who wants the top tech price and sell for the sake of selling. The reality is that we've seen some inflection. I mean rates are moving, and we're in a period of cap rate discovery. So the discussions we've talked about are in real-time, helping determine what might be our possibility and opportunity set.

Yes. It's safe to say that we're looking at our balance sheet every day. That's our business. We're looking at equity, how it's priced, and debt, how it's priced. Looking ahead, we know what we have. Fortunately, a lot of what we have is spaced over a period of time that is helpful, particularly in this environment. So we are very, very thoughtful about kind of where and what our opportunities are in the marketplace.

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

Hi. Good morning. Thanks. I just wanted to ask you a little bit more on the dividend. You mentioned the yield is very high. Does it make you think you change your policies or the way you might think about dividend increases going forward if you kind of view that they're not being appreciated? And given that the shares have underperformed year-to-date and selling off today, would you look at potentially some sort of purchase opportunities on the stock? It looks like it's trading below consensus NAV at this point?

I'm going to start with your first part of your question. Our dividend is largely driven by taxable income and required distributions to remain as a real estate investment trust. So we don't really have the luxury of pulling back our dividend as the initial question suggested. Currently, we are not looking to deploy capital in a buyback. We just mentioned that we had been in the ATM during the quarter and raised $14 million.

Yes, Smedes, if we take a look at our pipeline, we see some interesting opportunities. We generate free cash flow of $200 million annually, and any new acquisition needs to provide a better risk-adjusted return than what we currently have. If that criterion is met, we will proceed, but we require a consistent discount over a period and for our cash reserves to accumulate before we consider shifting strategies towards stock repurchase. That said, if the circumstances align in the future, it will be something to think about. We feel confident in our current position regarding potential opportunities in the next six to twelve months. However, in the short term, we are not making day-to-day judgments; this is a long-term strategy.

Okay. Thank you.

Thank you.

Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Hey. Good morning. So, Peter, you mentioned wanting to be the go-to guy for Bally's. How are you considering the underlying credit quality of that company protecting your cash flows and your willingness to continue increasing exposure there when some of their debt trades in the low double digits at times?

Do you have a comment? I'm looking around the table. I can answer that but go ahead.

I think from the beginning, we’ve always focused on the overall coverage of the portfolio of assets that we own. We have maintained this focus from day one to today. When we evaluate the Bally's assets, we believe they are strong assets and we are pleased with the lease agreement. We are excited about their initiatives, but we continuously assess the assets in our portfolio, which we believe are solid. This allows us to be a supportive partner to Bally's while also considering the quality of our own portfolio. Regarding Chicago and Las Vegas, we are in a wait-and-see mode to understand how these projects will unfold. If there are opportunities that benefit our shareholders and enhance our portfolio, we will be eager to engage. We have been cautious in acquiring Bally's assets, ensuring they are robust assets in their respective markets.

Yes. I think that says it. I got to pile on with that, Brandon. What we have is terrific and we're very comfortable with that. What may come in the future will depend on what the future holds. So we anxiously await new opportunities and we'll evaluate them as they appear.

Okay. Thanks. I appreciate the commentary regarding potential deals over the next six to 12 months and understanding the deals to be lumpy. But there haven't been any new acquisition announcements since June of last year. And besides the trough, there's less investment opportunity with the PENN deal announced in October. So is there anything changing in the broader environment that makes maybe some of those catalysts that Matt mentioned, more likely or changing in your process and targets providing you more confidence on getting deals done?

We can't take credit for the Bally's A's deal, except to mention that, a few weeks ago, I did make the original introduction. Bally's was very focused on finding something appealing for the site. We played a significant role in that, since we agreed to part with the nine acres, and Bally's is funding that. In that sense, it's a new project that wasn't here a month ago or so, and there are many other developments underway. We've stated clearly that we are working on numerous projects. Our pipeline is unique, as we haven't had one before, but we are planning multiple deals. We've increased from 19 properties to 59, and that growth was intentional. I expect you'll see that number increase over the next couple of years, and that's all I can share for now.

Yes, Greg, I wouldn't look past – I mean the structure of what we did with PENN also. When you think about what drove that, you've got operators. Life goes on, and there's a function of time involved here too where folks need to run their businesses. If there's low-hanging fruit for redevelopment or some sort of capital expenditures on properties that make them stronger and better, that's another channel of growth potential and it's another dialogue. We always have ongoing conversations with our tenant base.

We take the long view here. We're trying to build value for years. Again, as a shareholder, I don't feel panic to do anything frankly. There's no deal we have to do but we sensibly are working deal by deal. I think you're going to find that a few years down the road we're going to have a lot bigger portfolio. I really do.

And if you just – a month before we announced Cordish, we probably wouldn't have thought we were doing it. Like sometimes these things are slow, slow and they get very quick.

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

Hey, just quick ones. So the first is just on the commentary on the amended master leases. You talked about it's very early for the 2024, but we expect that to go positive. Just any more color on that. It looks like there's also one of the single property leases that has a variable reset next year. Any color there would be helpful.

Des?

Yes. I mean, as I said, it's too early to tell. Those – it's two-year periods in the reset, which we're only a year into, and what I can tell you is what I've said in my opening remarks is that there were COVID periods in the prior reset that reset in 2022. We expect them to go up but we've got to wait and see how they continue to perform. It's a little bit early to give you a number yet.

Zero is an easy comp.

But well said. I like that.

And what about the – does that include the single properties? I'm looking at Belterra Park lease, it looks like there's one coming May 2024. Any comments there?

Yes, same commentary.

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

Hi. Great. Two questions. One is just kind of circling back to your pipeline, and fully understand that it's always lumpy. I'm just curious how you would characterize over the last quarter like between the credit environment and sort of macro views whether the pace of your discussions has gotten better or worse? Like in other words, does that make you think that you might have something new sooner or maybe a little delayed, just based on kind of those views over the last quarter? And then, I have one other after that.

Steve.

Sure, Robin. The pace has definitely picked up. The credit market dislocation really slowed down the M&A environment late last year and in the first part of this year. When operators looking to buy or sell struggle to access capital through the credit markets, it slows everything down. Earlier this year, many of our discussions focused on unique solutions to provide access to capital, and those conversations continue since the credit market hasn't fully rebounded. However, I believe that as the credit market starts functioning more normally, we will see larger gaming companies looking to divest certain assets and others looking to acquire them. Overall, I feel that discussions about various types of transactions have definitely begun to increase over the last quarter.

Okay. Great. Thanks. And then my question was just on New York and whether you've kind of how you characterize the early discussions with any of the bidders for New York. Thanks.

So, we have had discussions with a number of folks in New York. I think our discussions have been start and stop, much like the process has been. I think as the folks that are looking to bid continue to try to work through that process and await responses from the state, I think those conversations will continue to evolve. But at this point, I'd say, we are having conversations and we look forward to trying to be a participant there.

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

Hi, morning, everybody.

Hi, David.

Hi. So, I've been tracking for quite some time. It's a project in Pompano between Cordish and Caesars. And I'm not asking will you or won't you? But what I'd love to just talk about is, what aspects of it are potential positives, potential gating factors, how you would look at a project like that, and how you might get involved.

Looking around to see who wants to touch that.

We are very interested in executing a transaction sale-leaseback on a casino asset in Pompano. We have discussed this multiple times with the team at Caesars. Regarding some of the entertainment initiatives that Cordish is working on, I would defer to Matt and his conversations with them about those topics in different locations.

Yes. And I think there kind of folds in with their overarching strategy not to speak on their behalf around all the things that touch on casinos and how that gets funded and if and when there's the right opportunity for us to do something that's win-win on both sides. We haven't gotten there yet but it's certainly part of the overall org dialogue.

Yes. Suffice it to say, we would quite happily do more with Cordish on almost any front. They're just such experienced developers and you always want to partner with somebody that is as smart as they are.

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

Hi. Good morning. I just wanted to follow up on the commentary around the percentage rent reset a little bit more here. And Des, I appreciate the detail on the amended PENN master lease reset in November this year that is helpful. But if we look ahead, the PENN Pinnacle and Boyd master leases, as you mentioned, the two-year measurement period, shorter comp periods with a bigger impact from the period of closures as you said, Matt is an easy comp. The combined percentage rent on those two master leases is greater in total than the amended PENN master lease. Do you expect the percentage rent increase in 2024 to be greater than the $5 million to $6 million decrease that you're experiencing on the 2023 PENN lease reset that you outlined?

Yes. As I said, I'm not prepared to give you an exact number. But if you look back in that two-year period for May and June of 2020, there were closures that we do not expect to have in our new reset period. I expect as a company for that percentage rent amount to increase, not a decrease like you saw in the PENN transaction. That's all the information we're willing to guesstimate at the moment.

Let me add. We've labored over that thought for quite a while. And all we can do is give you the cautious answer. It should be better and we're pretty optimistic. But just unwilling to try to nail down something we can't guess at today.

Well, I think you have 10 months left out of the 24-month period. So it's probably prudent for us to note that we have quite a bit of time left before that reset takes place.

Right. And they haven't even reported to us for June of 2023. So the last information I have is March, right? So there's a lot more time remaining that we don't know about. Well over a year.

Right. Right. But net-net, I guess, it seems with the combination of the percentage rent amounts on those two master leases, the shorter period, and the impact that the closures would have on the prior period comp, it would seem net-net the contribution to 2024 should be positive or could be very close to being positive when combined with the $5 million to $6 million decrease that you're experiencing on the PENN lease. Would that be reasonable to assume?

Yes. That is the exact point that my commentary was trying to get at just don't presume just the $5 million to $6 million down for a period of time because early next year, we have other resets that should offset it.

Look, the word we've used internally is we expect largely offset. So that's about as cautious a response as we can give you.

So the calculation is over a two-year period, not a five-year period. But yes, the math works the same: the 4% of revenues compared to the base.

Right. And it's the percentage rent and the land base rent that's included in the calculation and the amount that will reset, and it will only impact the percentage rent?

That's right. It's only the percentage rent that should impact.

Our next question comes from Mitch Germain with JMP Securities. Please proceed with your question.

Thank you. I'm interested to know if all the approvals will be finalized by the end of the year. What should we expect regarding the timeline for the stadium project?

Brandon.

Yes. I mean this is really the A's project. But I think from what we understand they want to begin the 2028 season in that park. When you work backwards from that, they don't have a lot of room for error. Once they have their Major League Baseball approval, and we’re reasonably certain the project is a go, you will start to see a timeline come out for demolition of the current site that will permit the physical construction of the stadium to begin. I don't think there's a set timeline on this yet. But I will say, when you work backwards from the 2028 opening day, there's not a lot of margin for error for the A's team to get this done.

Yes. We've sat in on the all-hands construction meetings. I can tell you, they're whipping this process pretty thoroughly. Meetings are scheduled well in advance. The entire design and planning teams are engaged. So it's pretty evident that as Brandon has indicated, there's not a lot of time and they make that very clear.

And your portion of the project, toward the start, middle, or end. How does that work into the timeline?

I think the answer is, yes. So the part of the project that we've committed to includes demolition, which will be at the beginning obviously, and it includes construction of the podium and some other shared infrastructure that would probably come towards the end, quite frankly. You'll see the demolition piece upfront and then the rest of it that we've committed so far at the back end.

There are no further questions at this time. I would now like to turn the floor back over to Peter Carlino for closing comments.

Well, thank you, everyone. I hope this has been helpful and we always appreciate the opportunity to make these presentations. So see you all next quarter. Thank you.

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