Greetings, and welcome to Gaming and Leisure Properties Inc Third 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 formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Jaffoni, Investor Relations. Thank you, Mr. Jaffoni, you may begin.

Thank you, Andrew, and good morning, everyone, and thank you for joining Gaming and Leisure Properties third quarter 2023 earnings call and webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on the company's website at www.glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to the risk factors and forward-looking statements contained in the company's filings with the SEC, including its Form 10-Q and in the earnings release, as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer of Gaming and Leisure Properties. And joining Peter will be 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 now my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you, Joe, and good morning, everyone. As always, you will hear from most of our team this morning, though almost everything relevant has been highlighted in our earnings release. However, let me underline a couple of accomplishments this quarter. We expanded our footprint with the addition of the Hard Rock Casino in Rockford, Illinois, by signing a 99-year ground lease generating an initial $8 million in rent. Plus, we've agreed to fund up to $150 million of construction costs at 10%. This construction, you should know, is well underway, and the temporary facility there is doing exceedingly well, with great management looking at the Hard Rock Group going forward. And as you recall, we sold our Hollywood facility in Baton Rouge to Casino Queen. As part of that sale, we retained the right to design, build, and construct the landside facility, eliminating our old boat. Our $78 million spend will produce a yield of 8.5%. The new casino is doing spectacularly well. For the money invested, to say this is an issue of personal pride is an understatement; it's a terrific facility, and it's performing exceptionally well. But I'll leave it to the Queen folks to release the numbers when they're ready to do so. Performance numbers are terrific. As part of managing our design build capability, we hired Jim Baum, who was our Head of Construction at PENN National during my time there. Our team here with Jim built many round-up casinos and major projects over the years. Now Jim gives us the ability to assess and monitor the flow of money into new projects or expansion of existing properties, and we have a number of those on the horizon. With that capability in mind, we acquired the land and certain improvements of Casino Queen Marquette, with an annual rent increase to our Queen master lease of $2.7 million, with a commitment of at least $12.5 million for new construction, perhaps more at the property. I should highlight, it's not our goal to become a construction company, but Jim expands our capability to keep an eye on the money as it's spent in these construction situations and brings a great deal of experience. We are doing a more thorough examination of our properties, oversight, understanding utility costs, and some of the things that we need to know these days. We are making sure that the major systems are inspected on a periodic basis. Jim runs that process as well. So I had suggested over the last couple of quarters that 2023 would be a good year for us, and I think it's going to pan out to be a very good year for us. Looking at our probable pipeline, 2024 should be strong as well. With that, I'm going to turn it over to Desiree.

Thank you, Peter. Good morning. For the third quarter of 2023, our total income from real estate exceeded the third quarter of 2022, once again, by over $25 million. The addition of the Bally's, Biloxi and Tiverton properties drove an increase in cash flow income of about $12 million. The Tropicana Las Vegas land lease increased our cash rental income by $2.5 million. The Rockford acquisition increased cash rental income by $700,000. The Casino Queen Marquette acquisition and the Baton Rouge landside development increased cash rental income by $900,000. The recognition of our escalators and percentage rent adjustments on our leases added $2.9 million in cash rent. The combination of higher noncash revenue gross-ups, investment in leases, and straight-line rent adjustments drove a collective year-over-year increase of approximately $6.6 million. Our operating expenses were impacted by the prior year recognition of a one-time gain due to the sale of the Tropicana building and other noncash increases such as depreciation. We still anticipate an annualized rent reduction in the amended PENN lease percentage rent between $5 million and $6 million beginning in November of this year, which was negatively impacted by casino closures from COVID during the 5-year reset period. We also expect full escalation of $4.2 million annually on this lease. In addition, $3.5 million of escalation on the PENN 2023 master lease. Also, around 10 amended Pinnacle and Boyd master leases have rent resets occurring on May 1, 2024. While it is too early to predict with confidence, we expect these resets will increase percentage rent adjustments because the resets that occurred on May 1, '22 included months where the casinos were closed due to COVID. From a balance sheet perspective, our pro forma net leverage is at 4.74 times EBITDA. We raised approximately $211 million at a net price of $48.24 under our $1 billion at-the-market program this quarter, which we used primarily to fund the Rockford transaction and repay some short-term borrowings. Our current rent coverage ratios remain strong, ranging from 1.96 to 2.78 on our master leases as of the end of June 30. We have refined full year 2023 guidance for AFFO per diluted share in OP units to a range of $3.68 to $3.69 per diluted share, which now includes the impact of Rockford and the Marquette transactions. Please note that this guidance does not include the impact of future transactions. With that, I'll turn it back to Peter.

Okay. Thanks, Desiree. Matt, do you want to add some comments up front?

Sure. Thanks, Peter, and good morning, everyone. Our decision to use our ATM program during the quarter was driven by the health and composition of our investment pipeline. The quarter also presented a unique event with our addition to the S&P 400 MidCap Index. The $200 million that we issued bolsters our offensive capability. We've utilized $100 million in proceeds already for Rockford, and the remainder allows capacity for new opportunities. On the topic of new opportunities to grow the portfolio, we remain disciplined, thoughtful, and measured. In this environment, traditional sources of capital are not as abundant and are also proving to be less predictable. At the same time, the value and kind of bespoke solutions that we offer is as relevant as ever. Our recently announced Rockford ground lease is a prime example of what is possible in this environment. A relatively bite-sized $100 million, 99-year ground lease at an 8 cap or about 30% of overall development cost with 2% fixed escalation would have been unthinkable just 12 months ago, when banks and other providers of capital were much more aggressive. We've effectively waited for the world to come our way, and it's beginning to. Over the past year, we have been comfortable waiting to throw strikes. Rockford was a strike, and the current environment holds the promise of throwing a few more. We will see. Dialogue with potential counterparties has been healthy around a number of generally smaller potential opportunities, and we remain highly focused on risk-adjusted returns in this environment. As Peter likes to say, many are called, and few are chosen. No mention of opportunities would be complete without a discussion around funding. Our funding philosophy remains the same: do it right and sleep at night. When we approach transaction funding and our overall business model, you can expect to see the same continued discipline around match and prefunding that results in GLPI locking in transaction accretion for the benefit of our shareholders and avoiding equity overhang. Our leverage and liquidity are at levels that strengthen and support our business model, with net debt in the high-4s, a staggered maturity profile with our next maturity not due until next September, and over $1.8 billion of available liquidity between our revolver and quarter-end cash position. Our balance sheet continues to be a solid foundation for all that we do, and you should expect that to continue. Overall, we remain focused on all aspects of our business, with a goal of maximizing long-term intrinsic value per share. We also appreciate the partnership we have with all of our shareholders. Thank you for joining us this morning. I'll turn things back to Peter.

Well, thank you, Matthew. I appreciate that. And with that, operator, let's open the floor to questions.

First question comes from the line of Greg McGinniss with Scotiabank. Please go ahead.

Given the broader economic backdrop and elevated interest rates, how is that impacting your underwriting, your targeted cap rates or investment spreads, types of transactions you'd like to pursue and the availability of those deals? And then if you could also just touch on expected investment spread on the Rockford deal as well. Our math is putting it at like a 30 basis point investment spread, but just thinking about how you guys are considering it?

Matt, why don't you take that?

Well, taking a step back and looking at the macro environment, I mean, clearly, rates are up, and volatility is up. We see economic and geopolitical forces that make certainty a lot more challenging, and we've still got a lot of money in the system from the printing that the Fed did effectively. Our goal is really to be agile and adaptable to the environment. So we're playing against the new defense, and we need different places to play. We still stay resolute in our goal of maximizing long-term intrinsic value per share. You've seen a lot of this in the actions we've taken in the previous quarters to position ourselves for an environment like this, getting our balance sheet at the leverage level we talked about. Focusing on really the simplicity of match funding, prefunding, and finding accretion. People seem to detach from conversations where cap rates and funding costs are concerned. For us, it's all about a risk-adjusted spread. Peter's point on the Rockford transaction is significant: they have a ground lease to be at that part of the cap stack with an 8 yield out of the gate and a decent spread. So looking at the capital we raised during the quarter at the $48 handle, you can calculate the spread. It's very healthy for our business and value-accretive. One thing that seems to be missed in the environment by perhaps some is the need to check two boxes with acquisitions: not just the box of initial earnings accretion, but also that of actually adding value to the business over the long run. When you look at the deals we do, there are a lot of subjectivity and qualitative and quantitative factors that go into the latter, and we strongly believe that Rockford checks both boxes. The deals in our pipeline are generally smaller, so they enable us to be very balanced with our funding. But we ask the same questions and have the same goals. Does that answer your question?

Yes, I think we can get what we want out of that. Thanks, Matt. Looking at Queen Baton Rouge, I can appreciate you guys not wanting to disclose ahead of them. However, it does look like looking at the gross gaming revenue, it was up like 85% year-over-year. So a pretty significant job there. However, they also have the Belle Baton Rouge, which saw a bit of a decline year-over-year. I know Caesars was looking at doing an investment there before selling the property. Just curious what might be happening there? You also bought a couple of buildings nearby. So curious what that was for, and then how it even works in terms of making additional investments there as the assets are kind of still under the casino—the Caesars master lease, while being owned and operated by Casino Queen. Just any details you can provide would be helpful.

I'm going to ask Brandon Moore to speak to that. Brandon is very close to that issue.

Yes, I'll start with the last part of the question regarding whether or not that property will be moved to the Casino Queen lease from the Caesars lease. The short answer is yes. We anticipate moving that property formally over from the Caesars lease to the Queen lease. The thing that was holding that back was a small piece of litigation involving two of the leased properties that's now been resolved. So we're working to move that property over. The bigger question on what's happening with the Belle is probably a better question for Bally's than it is for us. But clearly, they've made some— they have put in an application to do a landside move off the boat into the atrium there at the Belle. I think that's still being evaluated, and we're currently evaluating what our role in that will be. If we can play a role in moving that landside in a way that's accretive to the shareholders, we'll certainly be a part of that. So I think there's more to come on that. We've been focused more on solving the legal issues there and being able to move that property into the Queen master lease, and I think we'll be able to do that shortly.

Yes. Look, it's right in the sweet spot of what we do, and coming off the heels of a terrific job patting ourselves and our team on the back for what we did down the road, if you will, with the old Hollywood property. It really is quite exciting. I'd invite anybody to get out and take a look at that $78 million spent in gaming, so I appreciate the good answer. We'd love to participate if it fits.

Last question for me. I'm thinking about your commentary on leverage. How are you thinking about addressing the $400 million term loan coming due next year? Are there any plans to take that out early or address it early, or potentially just pay off using cash, cash flow, or ATM?

It's actually a $400 million bond that isn't due until September. Yes, and it's due on September 1 of '24, and all of those options are being considered. We look at our cost of borrowing or cost of raising equity on a daily basis. We haven't concluded at this point. You can stay tuned for that, but know that it's definitely on our radar.

Alright. So is the overall plan to be reducing leverage from here?

So we mentioned last call, we're at a steady state place we like, and any incremental delevering really relates to prefunding opportunities and is based on the health of our pipeline. We're effectively at our sweet spot in this at this level in this environment. So there's no need to proactively delever for its own sake. It's really to do things offensively.

Yes. Desiree pretty well answered it, that this is an everyday event for us. Look, we're in the finance business. We're looking at bank, we're looking at bonds. We're looking at equity. We will take advantage of any one of the three if they line up in our sights. So we're going to be opportunistic where we can but realistic at the same time.

Next question comes from the line of Jay Kornreich with Wedbush. Please go ahead.

Wonder if you can just start off by giving some commentary around the depth of the buyer pool you're seeing in the regional casino market and how that may be impacting cap rates holding steady even in this uncertain market, or if the buyer pool is dwindling, which leads to cap rates rising?

Steve, you're looking kind of quiet at that end of the table...

Yes. Look, I think the buyer pool is ever-evolving. The market backdrop, as far as capitalization in the credit markets, has changed the players slightly. The cash buyers who were highly leveraged and taking advantage of low-cost debt have pulled back some. However, others have started to participate, as you've seen with folks like Realty Income. So I think the players might have changed, but the game remains the same. I think broadly speaking, everyone involved realizes that market cap rates have moved. Whether you're a new entrant as a buyer or a bidder, or you're an existing and long-standing person like ourselves, you realize that the market is changing, and the cap rates need to adjust in order to garner the upfront accretion that Matt mentioned earlier, even though there is the qualitative aspect.

Right. And I guess just on that comment, do you have a sense of how much cap rates have already moved? Or do you need to see more transaction activity to get a sense of that?

I think it's ultimately going to depend on the transaction, right? This isn't cookie-cutter. So we've seen historically, even if you look back before the credit markets have dislocated, you had very different cap rates for different assets. We bought an asset in Maryland from the Cordish folks, and we paid a low cap rate. There was an asset that traded also in Maryland six months later at a materially different cap rate. So it's going to be very dependent on the asset, the market, and things of that nature. But I think wholeheartedly, the entire marketplace is seeing a shift.

And if I could just throw in one more. Regarding the construction financing that you guys made some commentary on, specifically with the $150 million development commitment to the Hard Rock Casino development. Is this type of higher interest construction financing something that you guys like and should we expect to see more of that going forward? And then also just specific to the Rockford, how likely do you foresee that becoming a ROFR going forward or using the ROFR, I should say?

Desiree, do you want to?

I mean, obviously, a 10% rate on the construction loan was specific to the Rockford transaction because it was well underway when we entered into the financing. Whether or not we would do it going forward depends on the facts and circumstances related to which projects we determine to undertake. To answer your question on the ROFR, we negotiated for it specifically. We would like to own the asset someday, but we can't quantify whether that will occur or not.

Yes. I think the ROFR you should see as—what we've said in the past was we would do these types of loans if there was a segue to property ownership. In this transaction, we acquired the land and negotiated the ROFR so that if the building changes hands, we would have the ability to potentially acquire that building. We're somewhat uniquely positioned in this area to underwrite a loan like this because we've seen significant development expertise here with Jim and Peter and others. I think we're confident in underwriting that type of a loan. So in Rockford, we were pretty confident with the Hard Rock team and the ownership team and the ability to get that casino constructed. You may see more of that from us, but it will be thoughtful, and it will depend on each project and what it brings to the market and what we view the risk of the construction to be.

Think of it, Jay, as a tool in our tool chest to provide an even more holistic one-stop solution for a counterparty.

Next question comes from the line of Barry Jonas with Truist Securities. Please go ahead.

There's been some commentary this quarter on macro pressures for the operators. I think we all understand how safe your end streams are, but wondering how you're thinking about the current environment there. I'm curious if it's influencing any of your deal discussions.

Who wants to grab that one?

The question is how the macro environment plays out? Yes. Look, we have to be continually careful. The volatility is higher, and the odds of things moving are more significant, but there are more natural openings for folks to need solutions from folks like us if they need money or they are in an environment where development and redevelopment is something they need to do. The reality is that the cost of funding for everyone has moved up. But as a counterparty, we are uniquely positioned to try and meet their needs. This is bleeding into all the conversations we are having with folks.

Yes, let me add to that. On a deal-specific or property-specific underwriting, though, Barry, I think to your question, we are comfortable that the gaming revenues have held in pretty well. Obviously, the commentary coming out of some of the operators' calls is that their costs are escalating. When we look at the underwriting, we're scrutinizing the ultimate cash flow that's coming out of those assets and the surety and stability of that number and whether there will be deterioration as costs continue. So what I guess I'm saying is, we're very focused on the rent coverage upfront and ensuring that we feel comfortable with it longer term.

And then just for a follow-up question, can you maybe just give us an update on next steps for Tropicana? I'm curious if you have any thoughts you can share about what might drive you to allocate more capital there than what you've outlined so far?

Brandon, why don't you take that? We all have a thought around the table, but why don't you go ahead?

Yes. I think Tropicana is a process largely driven by the A’s and Bally's at the moment. As the landowner there, we have a unique interest in making sure that the value of what we own there is preserved. I think to your question about how much we might participate, you know that we've disclosed that we've committed to a minimum investment number to help demolish and clear the site and do a little bit of shared infrastructure. Whether or not we decide to invest more into that project really depends on how the project comes together. We're sort of waiting to see what the A’s put out in their stadium design. Then we will work with Bally's and the A’s to determine what the casino resort might look like. When the time comes for us to make a decision regarding whether or not to invest, we will do that based on the project and what we see at that time. I do think there will be an opportunity for us to invest more, but it's way too early in the process for us to make any sort of commitment on that now.

Perfect. Said it best.

Next question comes from the line of Haendel St. Juste with Mizuho. Please go ahead.

My question has to do with non-gaming. We saw one of your peers execute another non-gaming deal in the bowling sector. I'm curious if that's something you would have considered and how differently perhaps you would underwrite non-gaming investments versus conventional gaming investments today?

Our answer has been pretty much the same for years. We look at everything—we've looked at bowling. I'm being very direct. And these specific transactions just didn't fit what we're looking for. Look, I think the best answer is we'll continue to look. So long as we can find the kinds of transactions that we're finding in the gaming sphere, and you've seen a couple right in front of you that we've presented today, we're going to stick with that. It's what we do best. I've always said someday maybe we'll be someplace else. But we're not in a hurry to jump into bowling or frankly, anything else unless it makes such terrific sense that we could sit here with a straight face and say, this is a fat, solid deal. I mean, you know what our criteria are. Would we have done that transaction? Look, I can't speak for somebody else. But we look at everything. As Matt used my favorite line, actually from the Bible, many are called, but few are chosen. And that's kind of the way we operate here.

And pound for pound, you look at what we put into Rockford eclipse the upside of anything we saw outside of gaming in the past quarter. If we found something that was better, you would have seen some sort of headline on it. But remember, we have to sell a piece of our portfolio every time we buy something new in the form of our equity. If we're not getting a better return on that incremental capital, and also doing something we think is going to increase intrinsic long-term value per share, we're not going to do it. We don't mistake activity for progress. We're very methodical in the way we think about things.

Yes. I'm not saying we're right versus somebody else, but it's kind of the way we operate. We only take the long view.

It's good being in a world where there's a short list of bidders. I mean, once you start getting outside of gaming and some of the more traditional triple-net opportunity set, the list of folks bidding on it is greater typically; the price efficiency is greater, and the opportunity for alpha from the kinds of things we bring to the table is less generally.

I appreciate that context and color. Maybe then, what is your—how do you view the right investment hurdle? What is your current hurdle rate today in light of the current environment?

We hate to quote a number because every situation is different. You can kind of back into what we did in Rockford, and it's a very healthy spread for that set of circumstances and that quality of cash flow, and we want to mimic things that have some similarity to that spread. But we can't—look, we are the price discovery for some of the deals in our pipeline right now, and we can't really negotiate openly on our calls around what the appropriate spread is.

We can tell you we're confident more is better than less.

We try for every basis point we possibly can get. And it has to check both boxes: it has to be initially earnings-accretive and long-term value-accretive.

And that having been said, we're not always the low bidder. Frankly, that's not our goal. Our goal is to provide a complete answer to the needs of our clients. Sometimes it's pricing, but more often, it is an assembly of things that we can bring to the table that others can. I think the Queen deal in Baton Rouge is illustrative of that.

Certainly. One minor follow-up. I appreciate the comments on the balance sheet earlier, but it wasn't clear—kind of where you guys felt the right target leverage range was in the current environment. I think that the EBITDA today is 407, really good, really low, but where should we see that migrate to? Or how are you thinking about the right target leverage range today?

We've, for a long time, pointed out 5 to 5.5 is the target range over time. We’ve also said more recently that we're very comfortable being near or at or below the lower end of that range given the environment. But remember, that gives us capacity to be opportunistic. In certain situations, you just get closer to the bottom end of that range for the right opportunity in the right situation. We've got optionality, and I'd expect to see us toward the lower end of that range over an intermediate period of time.

Next question comes from the line of Daniel Guglielmo with Capital One Securities. Please go ahead.

So on the operator side, it's pretty clear that growth from an organic perspective in the brick-and-mortar is going to be a little tougher near term, and management teams may need to spend a little more to get growth there. Have you been getting additional inbound calls around financing and more—maybe moving up the timeline of any projects already in the pipeline probably relates to the hiring of Jim, too?

Steve, do you want to talk about that?

Yes, sure. No, I think you're correct that as the capital markets have become more difficult to navigate, most of the gaming operators are not normally issuers of equity, and they've traditionally leaned on the high-yield market to access additional funds. So rewind two years, when people were going to build or contemplate a new hotel tower, they were going to fund it themselves at a cheaper cost of capital than I would have offered. Fast forward to today, and the exact opposite is true. We have had—I think there's two things: one, the operators have a renewed interest in investing in their properties to drive growth because I think the external growth pipelines are a little more challenging right now. Secondly, they're much more open and willing to have conversations with us around potential funding sources, especially in properties we already own with them. The velocity of those conversations has definitely picked up.

And then just around the Bally's relationship and thinking about the Lincoln option, do you all think that can still happen next year? Or is that going to be like the option went out to 2026? Is that going to be kind of later? I know there's a lot of moving pieces with Bally's, but just kind of thinking about it from a modeling perspective, I'm not sure we can see it.

Yes. So I think we pushed it out to 2026 in our negotiations, mainly because we didn't have clarity, right? They're not our lenders that are holding up the ability for them to do it. So we didn't really have clarity. We are cognizant of the maturity date on their revolver, and therefore, we did look to move that timing out such that if that debt gets refinanced and that prohibition is removed, we feel comfortable and confident that we would have that opportunity to complete the sale-leaseback transaction. We don't have any insight into the timing or any insight into updated conversations, which may or may not even be happening with their lenders.

Next question comes from the line of Chad Beynon with Macquarie. Please go ahead.

Just in terms of destination versus regional. Peter, I know you've talked about this a lot, with regional, obviously being more resilient during different times of the cycle, but hitting kind of a near-term ceiling right now; and destination, i.e., Vegas, really capitalizing on the inflation pricing environment. But having more cyclicality. Has anything changed in terms of how you're thinking about the 20-, 30-year long-term lease opportunities and kind of the spreads between regional and destination?

That's a fair question. I don't think much has changed because it varies property to property. How secure is a property in a given market? I'm just picking one that jumps in my head, the Cordish property in Maryland, for example. That thing is rock solid. The PENN property at Charles Town— you can look at a handful of regional properties that for unique reasons are going to be strong today and going to be strong tomorrow. We're not in Las Vegas. If we saw more opportunity in Las Vegas, you probably see us, and we do poke around there as well. We're not opposed to owning property on the strip or elsewhere in Nevada. We do look at things there on a routine basis. But it just gets down to, can we add value? That's pretty much our mantra. Can we add long-term value for shareholders? I really don't care what it is, and you've heard me say before, and it's actually kind of serious that I don't want a shack on the beach with no windows and doors. If the revenue from that—I don't care much about asset quality; I'm being a bit facetious. What we care about is income quality. How secure is that income now and 30, 40, or 50 years from now? That's what matters. And that's the only thing that drives us, no matter where it is or what it is.

And then as we think about the purchase price size of opportunities, obviously, Rockford circa $100 million, you've had others in the last year or two that were in the $500 million to $1 billion range with Tiverton and Cordish. As we think over the next couple of years, should we expect more of these bite-sized opportunities, the circa $100 million to $500 million? Or do you still think there are opportunities out there that are north of that?

It's tough to see out two or three years, but in the relatively short term, we certainly see a robust opportunity set in that $100 million to $500 million range. After that, I mean, this environment has to season before we see larger mega deals. That said, that can change.

Next question comes from the line of David Katz with Jefferies. Please go ahead.

So I wanted to just talk more about the Tropicana side, which—and I think one of the earlier questions may have touched on this $175 million, like, what the ceiling on where that could go is. I assume that the—once the property does shut, right, the rent is suspended? Or do they continue paying rent?

It goes on forever. It goes on forever.

Rent is forever. Got it. But in terms of where the boundary is as to what you would consider participating in, is there a boundary? And presumably, the outcome of whatever you do participate in is going to be rent based, not operating based at the end of the day, correct?

Absolutely. Look, there's no—almost it relates to the last question. There's no real limit. I mean we could do a $5 billion deal, but is money available? Can we do it with a proper spread?

Project going to get a reasonable payout, long term?

Yes. It all comes down to the same issue. So we haven't seen yet where this is going to go. The script is not written at the Trop site. We have an interest in preserving the long-term value of what we've got. We could do something more, but we haven't seen that yet. We're ahead of placement where that is. So we'll have to see. Anything is possible, but the same criteria applies.

Next question comes from the line of Smedes Rose with Citi. Please go ahead.

I guess I was wondering, you talked about this on the last quarter call a little bit of—is there any sort of update from PENN in terms of their plans, and would you still expect to put capital towards those projects next year that they've talked about? I think you said you bought some land maybe last quarter in Aurora. I'm just wondering if there's anything on that that you can speak to?

Nothing certain. I can say because I'm in touch with some of the architects doing work for these projects that they are going full speed ahead with design and so forth. Precise timing, we don't have. Anyone around the table have a better sense?

I don't have a better sense of timing regarding our fund draws. I mean, I think PENN has said that those projects are moving forward, and we don't have any reason to believe that they're not. It’s just a matter of where they decide or when they decide to draw our funds. We are trying to stay in close contact with them, so if there's a change in the timing of the need for those funds, we would be aware of that. But I'm not aware of anything specific that's changed their timing at the present time.

But we're looking forward to it. And expecting it somewhere down the road.

Next question comes from the line of Connor Siversky with Wells Fargo. Please go ahead.

First, I want to start on labor. Just across labor-intensive businesses in the U.S., we've seen a ton of strike activity over the last year or so, and I'm wondering where this sits on the spectrum of risk for GLPI, and then whether or not higher labor expenses are making their way into your underwriting framework as you address future opportunities?

Well, look, one advantage of having 61 properties in our portfolio is that we can have—I used to say, and I still say our revenues are largely bulletproof. I think they are. I used to say we're taking an atomic attack to threaten our business. We actually had one, called COVID, the equivalent of a neutron bomb that shut down properties coast to coast. Let's hope this is a one-time aberration that we'll never see in our lifetime again. We look to the distribution of our income across the portfolio. Again, our master lease means a lot in that case. I don't think there's anything on the horizon that we find threatening. Does anyone around the table have a different view?

I agree that it has impacted our tenants, but it hasn't impacted our rent. Our rent is fairly fixed across our portfolio. You're right, we have to consider their margins when you're doing the underwriting, but we definitely do that. As we said, we have really strong rent coverage at every property. So it hasn't impacted us, and it will first impact the tenant before it impacts GLPI.

Yes. One of the advantages we have is that we're gaming people. I mean that's kind of who we are. So that when we look at these markets, we know them and we spent decades understanding them so that I do think we bring an understanding of risk and location and all the things we consider as part of our underwriting.

Yes. Right. Understood. And just to clarify, I'm asking that question in the context of rent coverage, but I understand your points there. And then second, maybe just taking a more abstract look at the world, but a couple of interesting things in net lease earnings this week. On one end, you had to read temper expectations; they weren't really penalized by investors. On the other end, we saw some accretive transactions take place that were not well received. From the perspective of GLPI as we look into 2024, is there any sense out there that it could make sense to put on the brakes even if accretion is apparent, if it's just not an asset where you're comfortable taking on that kind of risk? Specifically, if we look at Bally's, for example, I mean, we have an operator that seems to have a challenged cost of capital, and there are expansion plans that need to be funded. Does this open up the door for GLPI to become the preferred funding source and maybe a couple of attractive opportunities on that end? Taking it a step further, is it worth taking on a degree of what could be perceived as corporate-level risk for assets that are performing well at the property level?

I will take the first part, Connor. I mean, we live with a foot over the gas and a foot over the brakes. The last year, I mean, someone asked last call, 'It's been 12 months, why didn't you do anything?' And I'll say here, one of the deals that we didn't get, we were exactly the same at cap rate, but we wanted more coverage to your question about how do you think about risk. We've done it before—it was popular or in fashion. That mentality is not going to change in this environment. I suspect we did Rockford not long ago. Every feedback item we heard was positive because it checked those boxes, not just am I OpEx, short-term GAAP accretive, but people agree with us, this is long-term accretive to the value of your company. Thanks for doing this. When you think about smaller deals that we bite-size match fund in a balanced way, but expect to have similar responses as long as the risk profile fits what we're mandated to find. So I'll give Peter the second part.

Go ahead. What you're going to say, Steve?

So I’ll try to answer the second and third and then people can help out where needed. The second question was around Bally's and opportunities of funding. Look, I think with respect to development transactions—whether it's Bally's, Rockford, or whatever player is named later. I think we look at these things twofold: how do we reduce the construction risk? We will look at what's our level of oversight. We will ask, do we have a seat at the table to help make decisions, monitor the budget, how closely can we be to foot on the ground and at the table to control the budgeting experience. Secondly, we have a lot of experience between Jim, Peter, and the rest of the team here. Ultimately, we're going to look at contractual and procedural protections to ensure we have everything buttoned up to avoid surprises, budget busts, or overruns. Now once we get through all that, if it still somehow makes sense and we can feel comfortable that the risks are manageable, then we have to get a commensurate return to balance that out and offset that risk. I think it's a large process. I am giving you a circuitous answer that until we do all that work and can get our head and hands around all that information on any development project, I could not tell you whether something makes sense or doesn't. And rest assured, if we get to the point where we feel comfortable with the risk and we feel like the return we're getting is commensurate with the risk, then you'll probably hear about the transaction. That's kind of how we go about the underwriting process on the development side. With respect to a corporate deal versus a property-level deal, I mean, I think right now there are a number of gaming companies that are seeing their share prices impacted by things that are at the corporate level. Whether it be growth opportunities, interactive opportunities, and the like. I think in many of those cases, if you look at our master lease performance, we have very strong rent coverage. In situations where we're comfortable with the underlying properties and who's running them and how they run them in the future long-term cash flow prospects, we are comfortable still transacting on that basis. I think, though, it depends on how the corporate level operates. I don't think we're—you’re going to see us run into a burning building. If there’s a pending bankruptcy coming, I'm not sure how quickly or eager we're going to be to step in and buy property because it's covering at 2.5 times, only to find ourselves going through some process. It depends on the pendulum of opportunity, where things sit. But ultimately, we’re underwriting the assets we own, and we’re comfortable with them. One of the things we consider when we look at transactions is, would someone else be willing to run these properties and operate them if the party we're currently working with were no longer there? If that's a yes, then it makes the underwriting decision significantly different.

Next question comes from the line of Robin Farley with UBS. Please go ahead.

Great. A lot of my questions have been asked already. I guess just circling back to the issue of potential non-gaming. Can you describe a little bit more? You said you looked at something, and it wasn't really a fit for you. Is there any more color on kind of what made it not fit for your goals? Were you suggesting—you made a comment about when there are a lot of bidders for something that it's—not necessarily something that you'd end up doing. Are you suggesting that that was the case for that non-gaming transaction? Or I didn't know if that comment was unrelated.

Probably, Robin, unrelated. Look, I don't like auctions. I have to speak for myself around the table, whether it's art, whether it's cars, or anything, I'd like to say the winner loses. Generally, I think that is the case. Just because I paid the most for any property of any type doesn't make me feel proud of it. I think we do business around our bespoke offerings, the ability to provide something that our clients want that maybe somebody else can't provide. It's a package of things, and I think we do that extraordinarily well. Just straight up, we're going to bid the highest price for almost anything that just doesn't fit into our DNA, not saying we wouldn't do it under some circumstances, but it's certainly not our goal first, second, or third. Just isn't. With respect to other properties, no, I don't think we've lost a bid or anything like that or any other group of assets. We've looked at golf courses, we've looked at every possible entertainment option on the planet, and we've been doing it year in and year out. We just haven't seen anything that gives us the kind of secure comfort that we get from the stuff that we present to you today. If we run out of that stuff, I don’t know, maybe we'll deal with that if we ever get there. But so far, that hasn't happened. In fact, we're very encouraged by what we see as our pipeline and portfolio of opportunities right now. We're going to stick close to our knitting. We do look at other stuff. We look at it almost every week, but we haven't seen it. Is that fair, gang?

I mean, when we look outside of gaming, the goal is not to focus on just experiential. It's to find durable cash flows that have some strategic tie-in to what we do currently. If you look at the continuum of consumer discretionary from one extreme staple to the other extreme south of totally discretionary, regional gaming tends to be about as stable as it gets. You can look at the resilience of the cash flows of our underlying company to start with overall. It's really hard to find that on a risk-adjusted basis outside of gaming. I think that's the point you keep hearing from us. We know what it looks like; we do it in our day job all the time. To the extent we see something that adds to that, we're happy to do it, but it's a tall task. At least it has been. The opportunity for alpha within gaming, when you think about where cap rates are and how durable cash flows are, there's still a fundamental mispricing in the market. It has been institutionalizing, but it's not there yet. At some point, maybe it will be. Maybe this math is the opposite, and you might see us do more, to Peter's point. But we're still somewhere mid-innings in that curve.

We’re not opposed to doing something outside of gaming, by no means at all. Maybe we will know it when we see it. But if we get on a call like this, and we've done something else, I want to be able to have the greatest confidence on the planet that the story we're telling you is a terrific one. We just haven't seen that opportunity.

Next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

You have Janet for Ron. Just two quick ones for me. I think the first is if we just dig in on the pipeline right now. Even in this higher rate environment, do you think that's lowered your conversations in the last quarter? That said, if the deal conversations are ongoing right now, is it still at the same pace? Or will parties wait a little longer to continue? Any color on that would be helpful.

Steve, do you want to take that, or Matt?

Is the question if conversations have slowed? I'm sorry, I wasn't following.

Like even slower in the last quarter? Or do you think like all the conversations you have ongoing right now are still on the same pace?

No, I think—the markets obviously cause people to react at a little more measured pace. There’s probably some truth to the fact that things are moving a little slower, and people are constantly reevaluating where things sit and where things stand. So I think that's accurate.

Nice. The second one is a follow-up question about refinancing. I'm seeing the current interest rate on that $400 million is only at $3.35 million. Given this higher-for-longer environment, how should I think about the potential interest rate headwinds on AFFO in 2024 or even 2025? Any color on that will be helpful.

If we were to refinance it with the 10-year, we're talking mid-7s. So you're right, obviously, our cost of borrowing, like everyone else, is going up.

Maybe the market will give our equity the price it deserves. That will raise a lot of cash that way. Look, I said earlier today that this is a tough environment for everybody in the borrowing world. We look at equity, we look at bank debt, we look at bond debt. It’s an everyday process. People are literally walking around the halls saying, "Where is the window?" We're not going to hold out for the unimagined. We're going to be opportunistic as we see best, but we're also going to be practical. We’re going to pick that point along the way that seems to make the most sense for us, but really thinking about where it is. We want the lowest prices. However, we get there—and only time will tell just where that's going to go. But we keep an eye on that.

That makes so much sense.

Next question comes from the line of R.J. Milligan with Raymond James. Please go ahead.

Just two quick ones. First is, what is the expected impact of the rent reset on the PENN master lease coming up here in a few days?

We expect it to be between $5 million and $6 million of a rent reset down for PENN.

What is the expectation for internal growth for '24, just sort of based on the rent escalators?

The maximum escalation that we can get in any year is around $20 million.

Operator, I think we'll take just one more call. We're past 11:00, and I think it's time to wind things up. I'm sorry if we have to cut somebody off, but do you have anyone else on the line?

Mr. Milligan, are you done with your question?

Yes, I'm all set. Thanks.

Next question comes from the line of Chris Darling with Green Street. Please go ahead.

Thinking about the Marquette transaction and given that you now own all of Casino Queens assets, can you help me understand how you think about the holistic risk of owning the entire portfolio of the single operator? The flip side of that is you might also benefit from incremental growth opportunities given that deep relationship. Any thoughts there would be helpful.

The quick answer is that if they're doing well and have demonstrated they're capable of running these properties successfully, we're thrilled to have it all and every single time of their opportunity. So far, I can say with some confidence that they're doing a terrific job, and we're delighted to be partnered with them. Any other thoughts around the table? That's the quick and completely honest answer.

No. I just harken back to when we did the Pinnacle transaction. There was only one asset that they retained that we didn't own the real estate for at that point, and that was a tax-driven negotiated point. It’s not the first time we have a tenant where we own all or almost all of their underlying properties, and we've done it before, and they’ve managed successfully, and that's kind of how we look at the underwriting.

Yes. So we're doing well. We'd love to own all of everyone's properties.

They are one of our best-performing rent coverages at around 2 times, almost 2.4 times. With the addition of the new Baton Rouge property, we expect that to continue to be strong. So we feel it's a good underwriting effort.

Yes, we feel good about it. Okay. Well, look, I think we're out of time right now. We invite you to contact us directly if we've left someone at the altar here, and you have a question; call any one of us, and we'll do our best to provide what you would wish. With that, we thank you very, very much for dialing in this morning. We hope this has been helpful. See you next quarter. Thanks, operator.

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