Gaming & Leisure Properties, Inc. Q2 FY2024 Earnings Call

Greetings and welcome to the Gaming and Leisure Properties, Inc., Second Quarter 2024 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. Thank you, sir. You may begin.

Thank you, Maria, and good morning, everyone, and thank you for joining Gaming and Leisure Properties Second Quarter 2024 Earnings Call and Webcast. The press release distributed yesterday afternoon is available in 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 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. 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've had a pretty eventful quarter with good performance from portfolio companies and the actualization of some of the various projects that we've been working on for some time. We've pretty well locked in the next couple of years of growth before anything else we might succeed in creating. Earlier this month, we announced an approximate $1.6 billion transaction with Bally's that we believe is a clear win-win for our company and for Bally's as well. I'll skip reading through the details of that since it's well-documented in my written comments on our press release and I suspect that what we might miss, you'll find a way of asking us anyhow. So I'm going to let Desiree Burke highlight a few financial items. Thanks, Des.

Sure. Thanks, Peter, and good morning, everyone. I'm going to hit the highlights of what we achieved in our P&L for the quarter as I normally do. For the second quarter of 2024, our total income from real estate exceeded the second quarter of 2023 by $24 million. That growth was driven by the Tioga acquisition, which increased cash income by $3.6 million, the Rockford acquisition which increased our cash rental income by $3.8 million including the loan proceeds, the Casino Queen Marquette acquisition and the Baton Rouge landside development increased cash income by $2.3 million, the strategic acquisition increased cash income by $1.2 million and then the recognition of escalators and percentage rent adjustments on our leases, which added approximately $4.7 million of cash income. Lastly, we had the combination of non-cash revenue gross-ups, investment and lease adjustments and straight-line rent adjustments, which drove a collective year-over-year increase of approximately $8.4 million. Our operating expenses decreased by $31 million, primarily due to the non-cash decrease in the provision for credit losses. Our amended PENN Pinnacle and Boyd master leases had rent resets that occurred on May 1, 2024. These resets increased percentage rent by $5.9 million annually. In addition, we received full escalation on these contingent leases, which resulted in $6.5 million of additional rent annually. Finally, the amended PENN master lease is subject to contingent escalation on November 1 of this year. And if obtained, we would get a full $4.2 million of additional annual rent. Included in today's release is our full-year 2024 AFFO guidance ranging from $3.74 to $3.76 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. The increase in guidance is primarily due to the closing of the strategic transaction. Our zero-coupon treasury bill matures in August of '24 at an implied yield of 5.32% and our coverage ratios remained strong ranging from 1.94% to 2.66% on our master leases as of the end of the prior quarter. With that, I'd like to turn it over to Matthew for comments.

Thanks, Desiree, and thanks to everyone for joining us this morning. History shows the periods of heightened volatility lead to opportunity for those who are prepared. Our thoughtfully constructed portfolio of safe and durable cash flows combined with our continued commitment to balance sheet strength and liquidity, along with our track record of capital markets discipline have set the stage for more opportunity. This past quarter, we again demonstrated our team's creativity to uniquely source and structure a multi-part win-win transaction with the recently-announced Bally’s Chicago, Kansas City, and Shreveport investments, along with the improvement of economics related to the Lincoln project. Our development team's confidence and input in the Chicago project combined with our creativity to open the door to opportunity as we offered another bespoke solution to Bally's. Over the course of the last six months, we announced close to $2 billion of new investments with four different counterparties across the gaming world. We have done each of these deals with a healthy yield in an unpredictable macro environment. Our strong market share of all gaming real estate investments that we have demonstrated recently has further solidified our position as the go-to landlord of choice within the gaming world. The flywheel effect has been to our benefit. Our pipeline remains healthy. With each deal, we have new and interesting case studies that encourage more conversations with our pipeline of potential investments. We remain focused on protecting and perfecting our existing cash flows as we continue our efforts to unearth opportunities for the prudent and thoughtful deployment of our shareholders' capital. With that, I'll turn the call back to Peter.

Well, thank you, Matthew. That was a good summary of where we find ourselves today. A couple of gratuitous comments if I may. Since the time of our spin, I get the question on the road all the time: where is your pipeline? What have you guys got coming next? And I always say un-apologetically, we don't have a pipeline. It's something we create as we go. This last quarter and this last year, I think underscore the tremendous amount of work that we do. And just because we have a quarter or two quarters, even a year with no activity, if you look at what we've collectively done over these last years, it's been terrific. So, we're quite proud of what we're accomplishing here. And with that, we'll pass it over to your questions. So, Maria, please open the phones.

Our first question comes from Brad Heffern with RBC Capital Markets. Please proceed with your question.

Yeah, thank you. Good morning, everyone. Obviously, a lot of capital commitments coming up between the Bally's transactions, development funding deals, and debt maturities. So can you just walk-through your expectations for how and when all that will be funded?

Sure. So, the funding needs for the transactions we recently announced with Bally's will be staggered over the next couple of years. As we've done historically, we intend to fund the transactions with both a mix of debt and equity. Our balance sheet gives us a lot of flexibility with our leverage below 4.6 times and our $1.750 billion revolver currently undrawn. With our second-quarter 10-Q filed and the financial results announced, obviously, we'll be actively monitoring the capital markets to take advantage of any opportunities to lock in capital at attractive rates for both of these transactions as well as other upcoming capital needs, including our debt maturities that we have coming due.

Okay, got it. Thank you. And then, Peter, you've historically been somewhat bearish on the Illinois market. Obviously, you're making a very large investment there now. I'm just curious what is it specifically about this asset or what changed in your thoughts around that market that makes you comfortable with that?

Well, this is a big-time project that is going to be pretty impressive. I mean, obviously we have some knowledge of what is planned there and I think we've had some material impact assisting the strong Bally's team in coming up with something that makes a lot of sense. The key to any project like this is on-budget, on-time, and I think we've had a pretty good track record over the years of accomplishing that. We've looked carefully at the market and the competition and so forth. And despite that, and some of the more egregious things in years past that our former governor used to promulgate. Things have changed. Tax increases are not good. But I think we feel pretty confident in this project. We've spent a lot of time looking at it. We like the sponsorship with Bally's. We will have a seat at the table in assisting and hopefully creating a project that is going to be successful. So we feel pretty good about it. I think the range of outcomes in any case for us is very strong.

Okay, thank you.

We are actively conducting business in Illinois, and our tenants continue to operate successfully without any failures. Business activities are ongoing, and we are supporting PENN with the developments in Joliet and Aurora. We are also willing to make further investments in the state.

Our next question comes from Jay Kornreich with Wedbush Securities. Please proceed with your question.

Hey, good morning. As we think about Bally's as they continue to become a larger tenant for you, I think there was a headline yesterday that they just accepted a buyout offer from Standard General. And I wonder if you see that translating to any changes in plans or strategy you currently have with them or changes in how you think about credit underwriting with them? Just any comments from that standpoint.

I'm going to ask Brandon Moore to take that question.

Yeah, I was excited for this one. Look, I mean, I think first off, we should let you know, we know what you know about the Bally's go-private transaction and we've known what you've known. So, we haven't been under the tent in that transaction at all. But I will say, look, we look at that transaction, we're looking to understand more about it. But overall, I don't think it changes anything with Bally's to date. So, we have not just made clear, we've not been approached by Bally's or Standard General to make any changes to our leases, to make any alterations to the existing documents we have in place. I'm not saying that might not happen, but it hasn't happened to date. And so for us, it's business as usual, but we're waiting to carefully take a look at the control transaction structure when it's announced and it comes out. I think we'll try to strike a balance between what's best for our shareholders and what's viable for the tenant as we continue to negotiate the definitive agreements that will ultimately spell out the transaction terms for the term sheet that we've announced. And so I think there'll be a lot more to come on that, but we're optimistic. We work really hard here to get into transactions, not out of them, and we think that this will be a positive transaction, and we still think that the path that we've set forth in the term sheet will be the one we'll ultimately take. But obviously, there's a lot we have to learn at the same time you do.

Yeah, Jay. And our underwriting was very focused on having a good basis in the assets. I mean, we're aware of the public nature of the potential take-private at the time. And if you look at the coverage on the sale leasebacks in Shreveport and Kansas City being at 2-2, was a basis in Chicago being some margin to safety relative to the construction cost, we're happy with that basis. We didn't rely on any greater support or anything else beyond those things that give us comfort.

Okay. Appreciate that. And then just maybe one more kind of big-picture on the transaction market as the Fed seems poised to lower rates and we've seen the tenure start coming down recently. Are you already seeing, I guess, increased interest and conversation from casino owners who have been on the sidelines the past year and maybe waiting for cap rates to come down or is it too early for that to start happening?

I don't think anyone is sitting idle. Every transaction has a reason behind it. Sometimes it's related to state issues, sometimes liquidity, and other times it's hard to pinpoint the exact motivation. There are no people just waiting on the sidelines for the right moment to move their assets. These situations develop over time, as we've witnessed. We could never have anticipated acquiring the Kansas City or Shreveport assets; they arose from the evolving needs of our tenants. Bally's is an active company, and Soo Kim is a creative, innovative leader focused on building a successful business. We're excited to partner with him in these transactions. The idea of being "around the hoop" is key for us, and that's what we do. I believe the situation hasn't dramatically changed; these opportunities arise when they do, and we always have something in progress. I wish I could provide a more detailed analysis, but that's essentially the situation.

Okay. Appreciate the thoughts. That's it from me.

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

Hey guys. Can you talk a little bit more about your level of input now in Chicago for construction and design? How important is this for you? And is this a formal or informal role?

Yeah. So we're in the process of negotiating the definitive agreements, including the development agreement on the Chicago project. But needless to say, we'll be taking an active role as that project continues. We'll be financing or funding the construction of the improvements and owning the improvements. And as part of that process, we'll be keeping a close eye on the budget, the plans and specs, the construction timeline, the construction documents, all those things. We expect Bally's to be on the front-line of all those, but we'll be very closely behind and I think we're aligned. This is just another example of us providing a resource to them as someone that has done these projects before successfully and we have internal resources that we can bring to bear to help ensure that the project is delivered on-time and on-budget and we intend to do that. I don't think we ever would have entered into this project if we weren't confident that we could have a front seat and make sure that it gets done along the timelines and budget that we've underwritten.

And we're providing resources to do just that. So Bally's has a great team in place. We're adding to that with some of our skilled players as well. We have a terrific track record. I'm knocking on wood when I say that because every project is brand new. But we feel pretty good about our ability to provide strong assistance in this case, both design assistance, construction, so on and so forth. We've done it.

Yeah. And I think as you probably saw in the deck that we put out in conjunction with the term sheet, the design of this project has changed dramatically from the project that we first looked at a long time ago to the project that we announced. We had a pretty significant hand in the redesign and development and structuring and programming of the project that you currently see.

I have brought back some of my former team at PENN, and as you know, we have extensive experience building casinos from the ground up, so this isn’t uncharted territory for us. We are also strengthening the front line, and overall, we feel optimistic about it.

That's great. And then just for a follow up, M&A is clearly happening with Bally and Casino Queen and there's more M&A being speculated for some of your other tenants. So can you just remind us what your rights are in the event someone new assumes a lease or if the lease is broken up for new parties? I believe there's some specific criteria, but it might just be helpful to talk about it here.

Yeah, in general terms, our leases, if you want to break them up will require the consent of GLPI. So if you want to take assets out of the lease or split the lease into multiple leases or push them to new tenants, that will all require a conversation and approval of GLPI. The leases do have in them, generally speaking, some flexibility for tenants to transfer to what may be a discretionary transferee or an eligible transferee; the defined terms tend to be a little bit different. But the point is, if their transferee meets certain pre-established thresholds, then we would not be able to withhold our consent to that. So I think the answer is it depends. If you're not going to change the structure of our leases, the rent, or the portfolio and you're going to another large operator, you might not need our consent. If you want to do any of those things, you probably do.

Got it. Okay. Thank you.

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

Hi, everyone. Good morning. Thanks for taking my questions. I think you answered the first part of what I wanted to ask about is with respect to your seated table on Illinois. So I'd like to pivot to Tropicana, Las Vegas. My impression is that Bally is exploring alternatives as to how to create value out of that property. And just common sense, redeveloping it themselves seems a little far-fetched. And so I'd love for you to comment on your boundaries, given that you've taken the step now of getting involved in Chicago in a new way, just help us think through what could happen with Tropicana. Thank you.

I believe the best course of action is to speak with Bally's regarding that matter. They are currently taking a leading role in the developments happening in Las Vegas. It seems clear to us that the stadium is likely to be constructed and its design will align with Bally's planning for the site. We have shared some insights, and while we are aware of many details, I prefer not to discuss a project that fundamentally belongs to them. We have a significant stake since we own the land and wish to see a long-term valuable project established. However, they have put together a capable team, and while I'm hesitant to comment further, I feel positive about their current efforts at that location. They have a top-notch team focused on architecture, design, land planning, and I believe it is on the right track. Brandon, would you like to add anything to that?

Yeah, I'll just add. I still think despite what people may be reading in some of the press that this project is still largely on schedule. So as Peter said, Bally's has developed a strong team of professionals that have a lot of experience in the Las Vegas market, which is crucial, particularly on the strip. If you're going to build a project that is going to be successful out of the gate, it's tricky. This is not the same as regional development. And when you put that in conjunction with a stadium site, this needs to be carefully planned. But I would say we're pretty confident in the team of professionals they've put together, but still too soon for us to know what kind of role we might want to play there. And so as you look at Chicago, I think this is several steps behind. And then it's too premature for us to really evaluate the project and determine for our shareholders whether or not it's prudent for us to invest capital into that project. But the A's are moving forward on their timeline at the moment. They've had a lot of progress at the stadium authority and some very public meetings recently where they're clearly making progress. They're working simultaneously to get into their entitlement process and things. And so while I think the timeline remains tight and the A's will probably say that time is of the essence, I think this is still a project that can get delivered on time and we’re still optimistic about the potential there.

Yeah, look, I think Bally's primary focus was Chicago, period. That is my sense. And it took a little while for them to turn their full attention to Las Vegas. But I know for certain that they've assembled a Class A team of professionals. And I know sitting around this table, we feel a whole lot better about what they're working on. So I'd say stay tuned, talk to Bally's, and I'm sure they'll be happy to tell you kind of where they find themselves.

Just one quick follow up, if I may. In there, there was some reference to it being on schedule. Can you remind us what that schedule is or means?

Well, I think on schedule at the moment, the demolition needed to be completed by roughly April of '25 or something. I think we're clearly on target for that. If you've been out to Las Vegas, you'll see all the low-rise buildings are now gone, they've stripped the towers. So that part of it is in line. The part of it that's a little more squishy is the entitlement process. And as you all know, if you've developed, that can go fast or that can go slow, you got to get into the meat and potatoes of that to really know where they are, but I think they still believe where they sit today that the way things are moving, they can still get started when they wanted to get started. So from our perspective, would they like to be moving faster? Yeah, I'm sure, any developer would like to be moving faster, but the progress is being made on the site. And clearly, if you've been out there, you would see that.

I get the sense too listening to their team that the city is very supportive of this whole project and anxious to make it happen sooner rather than later. So I think there's a positive vibe out there around what's going on. And if there was any delay in the past, I think frankly that is now over and it's full speed ahead.

Our next question comes from Haendel St. Juste, Mizhuo Securities. Please proceed with your question.

Hey there. So just one from me. My question, I guess, is on the underwriting of the Bally Chicago project and what gives you, I guess, confidence in your 2 times to 2.5 times rent coverage projection for that asset? It looks like the temporary casino there has missed numbers with the initial targets. Thanks.

Thank you for the question. We have a thorough underwriting process for every transaction, whether it's a traditional sale-leaseback like the deals in Kansas City and Shreveport or a new development project. With the new development, we need to ensure that we can complete the project on time and within budget. The budget is influenced by the potential profitability and opportunities in the market, which vary by location. In this case, our underwriting, along with analyses from third parties, suggests that this property has significant potential for success. We expect the rent coverage to likely exceed what we presented, but we believe that achieving a rent coverage of two times is realistic and acceptable. This process informs how much we are willing to invest in the construction project. Ultimately, we want to ensure that the rent coverage is sufficient to support long-term security and stability for our cash flows.

We believe this will be a significant project in the City of Chicago, featuring one of the top hotels and casinos in the market. We recognize a tremendous opportunity here, which is a key aspect of what we bring to the current process. I can provide more details, but I think Bally's is better suited to share that. Ultimately, our goal is to create nothing less than an iconic project in Chicago.

Very helpful. Thank you.

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

Hi, thank you. I just wanted to go back a little bit to one of the first questions talking about the capital commitments and the funding. I know you said it would be staggered over the next couple of years, but could you just say sort of at the end of the day kind of how you would like to see the mix of equity versus debt? And, I guess, particularly on the equity side, I mean, since you will be issuing a lot of equity presumably to fund over $2 billion of activity here, how do you think about it relative to at least consensus NAV or your internal NAV estimates? You just issued some after the quarter that was below at least consensus and maybe there doesn't seem to be a forward equity program in place. So maybe you could just talk a little bit more besides just that it will be staggered, but kind of how you think about perhaps flexing the balance sheet more in the near-term if you're not getting the equity pricing you like and just some color around that.

Yeah. And I think to answer your question, Smedes, it really depends on the capital markets and what we find attractive in both the debt and equity markets. Our balance sheet is so strong. We have a lot of flexibility on which way we intend to raise capital. And it really depends on the pricing that we're receiving and the ultimate spread that we're getting to the transactions that we price.

Yeah, high-level, Smedes, our balance sheet philosophy remains the same over a long period of time. Our goal is to be in the 5 to 5.5 net-debt to EBITDA range. We've kind of hugged the bottom of it over time, and that might be the sweet spot over the long-term. But just expect us to be thoughtful, measured, and balanced as we have been historically.

We use an old term, the proof is in the pudding and I think we've proved kind of what our commitment is to the kind of balance sheet that we want to have, so you can expect more of the same.

Okay. And then I just wanted to ask you too on the land purchase in Chicago, do you have a sense of what the timing is on that? Or are there any particular hurdles that you need to overcome to finalize that transaction?

I'd say, Smedes, customary hurdles. By that I mean typical due diligence: title, survey, Phase 1, all that kind of stuff. So we have an agreement in place to acquire that land and we're running through the hoops that we need to take ownership and title to that property. The Blue Owl team has been a good team to work with. I will say very professional and helpful and we appreciate the partnership we had with them in reaching an agreement to acquire the land. As soon as we're able to do it, we'll do it. But there's obviously a few hurdles you got to jump through to acquire a real estate of that nature and we're working on that now.

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

Hey, good morning. We recognize rent coverage is still healthy at most of the casinos. What are your thoughts on cash flow and profitability at Bally's, especially after going through the transactions adds a bit more stress to that company's cash flows? Plus, you got the take-private by standard general, which might be adding even more debt. So what are you thinking about cash flows there and potential options if the parent runs into a problem?

We can't comment on the go-private transaction. As we mentioned, we have the same public information as everyone else. Regarding Bally's and our tenants, the rent coverage on our existing Bally's master lease is significantly above two times. We believe that as long as our assets are underwritten to such standards, another operator would eagerly step in to manage those assets and take on the profitable position if any issues arose. This perspective applies to all our tenants, not just Bally's. With a lease covering more than twice the rent, we are confident that someone would be interested in taking half of the cash flow and managing those assets. That's how we view Bally's. Additionally, as previously mentioned, we were aware of the go-private offer in the market when we underwrote this, and based on the rent coverage and profitability, we felt very comfortable proceeding with the transactions ahead.

It's one of the reasons, Matt, I know you've always wanted to emphasize, four-wall coverage. Because again, these things in the end stand alone. They're not going anywhere. They're not going to close, but irrespective of what could happen at a parent level. So it's nice to feel good about what that individual property is doing. It will always have a home.

Right. And I guess in regards to the rent coverage, those numbers have generally declined over the last several quarters. Is that representative of some natural give-back of margin gain during the pandemic or are we seeing some broader shift from customers away from regional gaming where we've seen kind of some pressure on GGR lately?

They have decreased by a few basis points, but it's not significant. We're not encountering any major issues in any market. I believe there's still a little bit of reversion from the highs following the COVID pandemic, but we are operating with stronger margins than we did even in 2019. We are confident in the coverage ratios, and while they may fluctuate by a few basis points, some actually increased while most decreased slightly.

All right. Thank you. Last one from me is just on Lincoln. That still requires debt holders to approve that transaction, correct? And has there been any progress on that front?

You'd have to ask Bally's that. I think the answer to your first question is yes. The answer to your second question, you'd have to ask Bally's that. My guess is that the go-private transaction that they just announced and what they've been working on could have some bearing on that, I don't know. But for us, we look at the timeline for the acquisition of that property and the renegotiated purchase price for that property. We're pretty happy where we sit and we're confident by the end of '26 that Bally's will have that sorted out in a manner that will permit us to own that property.

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

Hello, everyone. Thank you for taking my questions. The team always seems focused on risk-adjusted returns. And I was just curious what are some of the main risks that you all think through when doing these high capital and longer-term deals?

I'll start. First of all, you brought up timing. So what's the cost of money over time? Number two, when you're related to development, what's the timeline? What's the risk of that timeline shifting? What's the risk of the cost shifting? What's the risk in the market? Hopefully, you get the combination of our master leases with the Bally's deal in Chicago, our involvement on the development side and having support from our superstructure of our leases help mitigate these risks. The vast majority of all of our assets are in master leases with strong coverage. It really comes back to the point Peter made. These are mission-critical assets for state budgets, especially in limited licensed states. At the end of the day, if you get the right basis, which is incredibly important to us and the right rent level based on the long-term productivity of the assets, you solve for the vast majority of the pieces that are important. And that's not an easy thing to do.

In addition to that, we conduct a thorough analysis of the markets. This is a strategic game in gaming, where you must consider developments in both neighboring jurisdictions and the one you operate in. Limited licensed states tend to increase licenses, so it's essential to be aware of these factors. Our focus extends beyond the five- or seven-year horizon; we're planning for a 30- or 40-year timeframe. We aim to gather all relevant information about the various market elements and make prudent underwriting decisions. If we can incorporate this into a master lease or similar arrangement, we enhance our safety over time. Our research is comprehensive, and we utilize outside vendors to evaluate these markets before any transaction.

Yeah. Part of it too, we bring our own skill and experience over many years of just understanding what the risks are, what the adjacencies that threaten us might be on and on. We bring in, as Brandon says, outside resources to further give us kind of data that helps us in that analysis. Look, it's not perfect, nothing is ever perfect, but you apply your best judgment.

And I think in addition, what you see in our transactions is, as Matt touched on, there's a margin to safety. We try to do healthy rent coverages because we understand over time, tenants need the flexibility and the ability to grow and to build their business and we try not to put too much pressure on that with the rent right out of the gate.

Great. Yeah, I really appreciate all of that detail. And just as a quick follow-up. In general, do the return hurdles for other potential deals go higher when you do have a full plate of capital commitments, or do you try and make the funding work if a deal meets your standards?

The latter, and we try to make the funding work if the deal meets our standards. We spend a lot of time. Some of these deals are many, many years of effort put in. So we wouldn't be able to walk and chew gum.

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

I have two quick questions. Regarding Lincoln and the ability to lower the purchase price, was that a unique situation for this deal? Is it something you've considered in the past or might pursue in the future in other circumstances? I'm trying to understand how much of this is specific to this transaction versus whether we could see similar scenarios in other parts of the market.

I think with respect to Lincoln, look, it was part of a broader negotiation that related to Chicago. Over the course of time since we first entered into that transaction agreement, cap rates in the world have moved. We are still very interested in acquiring that property. That's a marquee asset in that market, but we were more comfortable doing it at an 8 cap rate at this point than we were at 7.6. As part of the total package of the Chicago negotiations, that was just part of it. We are in a unique circumstance there to better our position. If we have circumstances and chances like that in the future with tenants, sure, we might do that, but I don't think there's anything necessarily on the horizon that we'd be seeking to renegotiate with any tenants. That was just unique to this transaction.

Yeah. I don't want it to appear predatory or taking advantage of a situation. These relationships are holistic and I think establishing a relationship with a tenant that is good for them, good for you, and having a tenant, by the way, who is mindful of what is good for our company at the same time and open-minded about a balanced transaction is hugely important, terrific. We're very thankful that we're dealing with a partner like that in Bally's.

I would like some clarification on the guidance range. Can you provide any details about what contributed to the increase? Is it all related to the transaction, or has there been a change in the financing aspect? Any general insights on the reasoning behind the guidance raise would be appreciated. Thank you.

Sure. I'm going to mostly talk about the high-end of the range, but it's all due to the strategic transaction. Clearly, we raised the ATM proceeds and we'll invest that in cash and have some interest income, but that gets a little bit offset by the share count increase obviously. So it's really on the high-end related to those proceeds going up as well as mainly the strategic transaction. On the low end, it's the exact same thing. It's the strategic transaction as well as the proceeds being invested. We had different assumptions for the percentage rent adjustments on the low-end than we did on the high-end as well as some different assumptions on interest expense.

Our next question comes from Shaun Kelley with Bank of America. Please proceed with your question.

Hey, good morning, everyone. Peter, I wanted to build off of, I think comment you just made and it goes back to Barry's question much earlier in the call, but a lot of the conversation here has been about M&A as it relates to Bally and the privatization offer. I'm curious about kind of the rest of the tenant base and obviously really your major tenant where there's been a lot of M&A speculation too. So your big picture question is sort of how favorable or amenable are you to, let's call it, larger-scale consolidation, especially when it impacts GLPI? And then if one of these transactions would require particularly meaningful divestitures, how are you kind of trying to protect GLPI's interest in a case like that?

Let me say at the outset, it wouldn't surprise anybody that I like it the way it is today. There are tenants, they're reliable, their business is highly profitable, their operating business is highly profitable and everything works. I would look with a jaundiced eye towards anything that could upset the apple cart of what we have here. We like our cross-collateralized leases, would be very reluctant to see anything change. I'm not well disposed to, but we'll do what we must. In the end, it will be what's good for our company here, period, period, period, period. We'll have to see. I'm not going to speculate on what might and might not happen, but we would look, speaking just for me, not particularly favorably at anything that would break up our beautiful arrangement.

Yeah, look, I mean, I think what we don't know and we haven't been approached by is anybody presenting anything to us and what it is. If and when we see that, as Peter said, we'll do what's in the best interest of our shareholders and our company and we will have some opportunities that people want to break-up leases. Could we transition that into something that's good for our shareholders? Absolutely. We might be able to do that and we'll look to do that if we're presented with that kind of situation.

We did that. If you go back, look historically at what happened when Pinnacle was acquired by PENN, we were asked to separate assets out of existing leases. It did require our consent and we did extract some value for our shareholders.

Thank you all for entertaining that one and giving some detail. My follow up would be going back to Chicago and I appreciate a lot of angles have been approached, but mine is pretty simple, which is, obviously, I think part and parcel of this transaction is making sure that the project as you structured it is now fully funded as it relates to the overall stated budget. Oftentimes, these urban developments, in particular, have a bit of a history of struggling with budget overages and there's a lot more complicating factors when you're vertical and you're dealing with, I think, urban landscape. So the question here is pretty simple. If we were to run into bigger overages on a budget than maybe you've experienced in other regional projects, what's kind of the make whole for that? Where does that extra funding come from? And how protected are you if we kind of get to the latter stages of this? And again, there's material dollars here that still need to be found to get a project like this over the finish line in cash flow?

Well, let me say at the outset, we're not obliged to provide it. We spent a lot of years in the construction business and I'd like to say that if a project doesn't make sense on paper, it certainly isn't going to make sense when you actually put it in the field. Having your advanced work done thoroughly, completely, and with as much certainty as possible is how you best protect yourself. We're involved right now and Jim Baum, who is with us, not on this call, but I suspect is listening, was the Head of Construction at PENN and he and I did a lot of projects together over time, all of which were on time and on budget. Jim is spending a fair amount of time, haven’t seen him around the office much because he's out in Chicago working on this project to make sure we get it right upfront. There is no certainty. We recognize the difficulties and the challenges, but we're putting a lot of advanced work to make sure that we know what we've got.

Look, I think to maybe add to it, as Peter mentioned, in part of our transaction negotiated that we were not responsible for any expansion of the budget. I will say there's a $735 million solution that's available if there was in fact a budget problem, and Bally's was responsible for it. If you're not following what I'm saying, Lincoln can be acquired, that's negotiated $735 million. We feel comfortable there are adequate safety nets if there was an issue. But I will also mention this unlike some of the other urban projects, which have been retrofits into an existing building, which is always fraught with unknowns, this is going to be a scraped site. We do feel that provides some additional comfort to us that we know what we're starting with, which is nothing.

Thank you very much.

Part of our job right now is to help Bally's make sure that they don't run into that problem. We're spending a lot of time right now in the design phase and the planning phase to make sure that we know exactly what this is going to cost and what the product is going to look like.

Finally, I want to emphasize that there is a significant amount of contingency included in our forecasts. While this may not address every issue, we are aware that this will be a challenging project in a large metropolitan area, and we have accounted for that in our planning. Therefore, although there are uncertainties, we have carefully considered all these factors.

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

Thank you. One of my questions has already been addressed. Taking a step back, after periods of explaining the variability of transactions and encouraging investor patience, would you say your current commitments are substantial? Do you have the capacity for additional transactions now, or are you primarily focused on managing the opportunities ahead, some of which may not be publicly disclosed yet, but could be more apparent in the coming two years?

If we need a bigger plate, Robin, we'll get a bigger plate. It's not remotely filled. Look, each transaction stands on its own. We have announced a couple that we're more actively involved in as opposed to a straight-up acquisition. But no, I don't think so. We haven't seen the horizon yet. I don't know if anybody else has a comment about that.

The market remains strong and we continue to look at and have lots of conversations. While opportunity presents itself, we are inclined to grab the opportunity when we can in a thoughtful risk-adjusted way and look to continue to climb forward for our shareholders and increase our dividend as we go. So we're looking to continue to grow accretively.

I want to reiterate what you mentioned, Robin. There is no urgency on our part. We don't feel any pressure to finalize a transaction. I have consistently stated that we are under no obligation to make a deal. We will proceed if it benefits our shareholders, plain and simple.

Great. Thank you.

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

Good morning. Thanks for taking my question. Peter, has anything changed in terms of non-gaming opportunities? As you just mentioned, your plate is certainly full and you've had some great announcements year-to-date. But wondering kind of where the conversation scale lies between gaming conversations with current and potential partners versus non-gaming? Thanks.

Well, my answer hasn't really changed. We would look at other things if anything matched kind of value and the certainty and all the things we have in the gaming world. We're not close to that. We just haven't seen anything that grabs us and that hasn't changed one bit. So long as we can keep doing the kind of transactions that we've announced, it's kind of yields that we're talking about. We will continue down that road. But it's the Lee Iacocca thing, if you can find a better car, buy it. If I can find a better deal, we'll take it. But so far, we're going to stick to our knitting. That's really the same answer that I've been providing for the last decade.

Okay, thanks. And then another kind of high-level follow up. Last night, on one of your partners’ earnings calls, they talked about doing some projects at some properties, maybe these would have been done during the COVID time period, so they're slightly deferred. And that got us thinking that maybe there's a lot more out there just in terms of building additional hotels, convention centers or something adjacent to these properties. Do you think that this could be another wave of growth in the gaming space? When you talk to your partners, is this something that maybe you could help finance in the future? Just kind of thinking out loud after hearing that comment last night. Thank you.

It's a good question, and the answer is we're already doing that as you've seen with Bally's and we're doing it with PENN. We're always ready, willing and able to put money to work for a quality project. There are a number of those that we're looking at and will undoubtedly do right now. So yeah, no, I think it's terrific. Existing tenants are a good source of future business. I know, for example, PENN has a number of announced projects, some pretty sizable projects in Las Vegas and Ohio and so forth and Illinois, two big projects in Illinois landside as we've done very effectively in Louisiana. Look, so I think it's a terrific opportunity for us.

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

Good morning, everyone. Thanks for taking all the questions. But maybe just one, thinking a little further out about the New York City casino licensing process that's underway. It seems like it's taking its time. But if we look at Chicago and the template for financing that you've provided there, Peter or anyone, curious on your views on how you look at New York, if you would look at it similarly, obviously, I think Bally's is in the mix. Every market is different, and I think we're still waiting for some cards to turn over. But I'm curious about your views on the New York process and potential appetite to participate in financing if an opportunity were to come up and maybe how active or aggressive you might be in that market.

The appetite is huge. I'm going to turn the answer over to Steve.

We've had discussions with several parties interested in potentially pursuing licensing there. The marketplace seems very interesting and promising, and we expect it to be quite profitable for those who succeed. Regarding Bally's, which you mentioned earlier, we do have a right of first refusal in New York. We haven't had detailed discussions about their projects, only high-level conversations. However, we have engaged with several individuals involved in the process. Everyone is eagerly awaiting the go-ahead to proceed, and we are keen to continue discussions, as we see a significant opportunity in New York.

Thanks for the follow-up. I understand it might be challenging to answer, but could you provide any insight on the timeline for starting the facility in Chicago? Specifically, how soon in the process might you be able to share more concrete information about financing in New York? I assume we will need to wait for the economic details to be released, but I'm curious if you typically wait until a project is nearly ready to get involved in Chicago, or if you might engage earlier in the process.

I don't think I have a clear understanding of the timing in New York. It continues to change, and I personally don't know where that process will end up. I'm uncertain about what the final requirements for licensing, permitting, zoning, and other related matters will be and when they will come together. Therefore, I can't even estimate when those elements will align, and neither I nor any other organization likely could accurately predict the pricing of anything at this point.

Yeah, the gating factor for us is can we find a risk-adjusted return that's attractive? The one thing that rhymes with Chicago is oftentimes that comes from being the known entity and quantity and having dialog earlier in the process versus showing up at the end. That's one of the ways we've been able to monetize some of the competitive advantage we bring to situations.

Let me say to the group. Maria, we're going to have to cut the call now at this hour. We have another obligation. I would say to any who may have missed out on the question, please contact us here. Any one of us is available to speak with you and we look forward to it. If we've cut this off at a time and left some people waiting, I apologize, but we're going to have to move on to another scheduled call. So, Maria, would you please affect that?

Of course. And this now concludes our question-and-answer session. I would now like to turn the floor back over to Peter Carlino for closing comments.

Well, that was it. We thank you all for being here. From our point of view, we've got a lot of exciting stuff happening, and I hope we've shared a little bit of our feeling about that. Thank you. See you next quarter.

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