Gaming and Leisure Properties Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2025

There are 20 speakers on the call.

Operator

Greetings, and welcome to the Gaming and Leisure Properties First Quarter twenty twenty five 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 Giuffrone of Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you, Christine, good morning, everyone, and thank you for joining Gaming and Leisure Properties First Quarter twenty twenty five 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.

Speaker 1

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 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 Executive Officer at Gaming and Leisure Properties as well as Brandon Moore, President and Chief Operating Officer Desiree Burke, Chief Financial Officer and Treasurer Steve Ladney, Senior Vice President and Chief Development Officer and Matthew Demchak, 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.

Speaker 2

Well, thank you, Joe. And good morning, everyone. And it's always fun to introduce a good quarter. It's another good quarter for us here at GOPI. And we have announced in our release an array of new projects, financing adjustments, and and the like, which are, I think, well documented and will be explained, I think, in more detail as you hear from Desiree and Matt.

Speaker 2

I won't run through them, though. There is one item that I think I will raise in advance, and that is Chicago. We've had a lot of questions. We I've read a lot of reports overnight through this morning asking about Chicago, which is understandable. But that project, I think you need to know, is well underway.

Speaker 2

Jim Baum, our head of construction, is in Chicago significantly, monitoring what and and how that is proceeding. I'd highlight that we only got control of that ground in July, and it's a complex project requiring lots and lots of city approvals and the like. It was delayed first because the contractor managed to knock a concrete or a masonry wall into the river, which caused some environmental problems, and needless to say, delays, understandable, but delays. And then the complexities of putting a building on a site that has probably been developed over several hundred years in underground conditions meant that the caissons that are upon which the structure is built have to be approved and were examined very, very, very carefully by the city. So there are 331 caissons required at this project.

Speaker 2

I forget, Steve, the number's 200 and how many in now? Two seventy two, I believe. Two seventy two. I got a new report this morning, and I just forgot to write the number down. 272 of those are done.

Speaker 2

They are installed. They'll all be finished in another month and a half. And notably too, you should know that steel has been long ordered and expected to arrive sometime in July, and that was that was an order placed quite early. So that that all looks very good. So the company is committed.

Speaker 2

Remember, we're not the developer, Bally's is, but the company is committed to this project. It is very well underway, and I just wanna diffuse any thought that to the contrary. So hopefully, I've done that. And with that, Desiree, would you take the floor?

Speaker 3

Sure. Good morning. For the first quarter of twenty twenty five, our total income from real estate exceeded the first quarter of twenty twenty four by over $19,000,000 This growth was driven by increases in cash rent of over $26,000,000 resulting from acquisitions and escalations. The acquisition of Valley Chicago Land increased our cash income by 5,000,000. Tropicana funding increased it by a million dollars Kansas City and Shreveport increased it by $8,000,000 The Tioga acquisition increased it by $1,400,000 The Rockford loan increased it by 1,900,000.0 The strategic acquisition increased our cash income by $2,300,000 And lastly, the ION cash income increased by $500,000 for that funding.

Speaker 3

The recognition of escalators and percentage rent adjustments on our leases also added approximately 6,700,000 of cash income. The combination of non cash revenue gross ups, investment in lease adjustments, and straight line adjustments partially offset increases, driving a collective year over year decrease of approximately $7,600,000 On the expense side, our operating expenses increased by 18,000,000 but it was mainly resulting from a non cash adjustment in the provision for credit losses due to a more pessimistic, forward looking economic forecast. For the company's development properties, we will continue to capitalize interest and defer all our rent during a development period for financial reporting purposes. However, we will add these back as we have been doing and deduct the capitalized interest in deriving at AFFO. Included in today's release is an updated full year 2025 guidance ranging from $3.84 to $3.87 per diluted share in OP units.

Speaker 3

The reduction in the high end of our guidance from prior quarter is primarily a result of the assumption that the escalation on the Pinnacle lease will not be achieved. Please note that the guidance does not include impact of future transactions. However, it does include our anticipated funding of approximately $375,000,000 for the development project and the expectations to settle our forward sale agreements in June of twenty twenty five. Our rent coverage ratios remain strong ranging from 1.73 to 2.51 times on our master leases as of the end of the prior quarter. With that, I'll turn it over to Matthew.

Speaker 2

Yes, indeed. Go ahead, Matt.

Speaker 4

Good morning, everyone. Thanks Desiree and welcome. In the first quarter, amid the market noise and macro uncertainty, we remain focused. We don't manage for the moment, we manage for the long term and that discipline leads to consistent results. In choppy waters, our cash flows remain steady, transparent and resilient.

Speaker 4

We respect our balance sheet as the foundation for all that we do. Our leverage is very healthy at 4.7 times annualized net debt to EBITDA and that's before including the benefit of the forward pulling in that Desiree mentioned. Our maturities are also very well laddered and our pre funding capital strategy is designed to reduce risk, maximize flexibility, and position us to act decisively when opportunities arise. In volatile times, that kind of readiness is an asset. The pipeline of opportunities we have built is intentional.

Speaker 4

It helps lay the groundwork for growth that reaches into 2026, '20 '20 '7, and beyond. In periods like this, the value of a strong, reliable partner becomes even more evident. Our tenant partnerships rooted in a creative win win mentality often open doors that others don't see. In a relationship driven business, as we continue to grow our roster of tenants, our reputation continues to be one of our most valuable competitive advantages. Our strategic approach is simple, but not easy.

Speaker 4

Keep the balance sheet strong, deploy capital with discipline, and scale with purpose. Our teams, both at the core and the specialized areas, are executing to monitor the active opportunities and also create new ones in our effort to maximize long term intrinsic value per share. With those comments, I'll hand things back to Peter.

Speaker 2

Thank you. And with that, Christine, would you open the floor to Q and A?

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. Thank you. Our first question comes from the line of Greg McGinnis with Scotiabank.

Operator

Please proceed with your question.

Speaker 5

Good morning. Good morning. The Chicago development. I'm just curious, you know, on the expectation to build out from this point forward, is it basically just assuming that there's kinda no other complications, I guess, from this point forward?

Speaker 2

Well, mean, that's a speculative question. Who knows? I mean, you it's a massive project. Delays are always possible, but I can't predict what the future looks like. We're monitoring this process.

Speaker 2

As I mentioned, we have our head of construction who has built many, many projects with us through my years at Penn. And he's on-site and will remain on-site until this thing is well, well established. So could something else come up? Of course. I mean, that that goes without saying.

Speaker 2

Is there any reason to expect that? Well, let's hope not. So but but the point is things are well underway. The thing is coming out of the ground, which ought to be quite visible, publicly visible to anybody who rides by and wants to take a look. So

Speaker 5

Okay. Thank you.

Speaker 2

How's it going? So far, so good. It's a guy who falls out the top, you know, window of a tall building on on the way down. You know? So far, so good.

Speaker 2

Mhmm.

Speaker 5

So Okay.

Speaker 2

I mean, look. I can't give you a better answer than that. And, Greg, that that is you

Speaker 4

know, we structured this to make sure we had current pay along the way. So it's not like some of the other structures. We have to wait till it opens to get our our cash flow. Separately, we also capped our exposure as part of our deal structure.

Speaker 2

Yeah. Right now, the cash has been advanced, comes from valleys, so that's fine with us. Right.

Speaker 5

Okay.

Speaker 2

But the cash draw the cash draw for us is is not predictable until we get there.

Speaker 5

Okay. Yeah. No. No. That that all makes sense.

Speaker 5

I can appreciate it. I was just trying to understand you know how much leeway was built into the assumptions. On the Penn projects have you had any recent conversations with them and I know Ameristar in Iowa just got approval from the state commission Has there been any recent conversations there as to whether or not they plan on taking the GLPI capital to help?

Speaker 2

Steve, you want to take it, Steve?

Speaker 6

Sure. I think that it's a constant dialogue we have with them. I don't think we have any better clarity than we've conveyed in documents here that we've published. I don't think our current expectation is that they withdraw funds this calendar year, but we will have to wait and see what comes of that. I can tell you that the dialogue around their reinvestment in properties is along the same lines as what you've seen in Boyd's announcements yesterday.

Speaker 6

I think the operators we talk to and deal with are starting to focus on the brick and mortar assets, and we think that's a positive thing for our properties and our assets.

Speaker 2

Yeah. And let me say this. I'm not totally sad that they haven't drawn on our cash right now. Suggest that they've got enough cash to do what they need to do. And look.

Speaker 2

Penn is in the the digital element aside in a very strong position. They've got great properties. They're performing relatively well. And that side of the business, the bricks and mortar side, is doing extremely well. And I'm and, and I'm gratified, frankly, to see that they're actually highly focused now on bricks and mortar again.

Speaker 2

So good for them.

Operator

Our next question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your question.

Speaker 7

Hey. Just two quick ones for me. So I noticed the guidance, I think the assumptions for developing funding was reduced. I think it was $400,000,000 last quarter and now it's $375,000,000 Is that all related to BALYs? What's the color behind that timing?

Speaker 7

What sort of drove that sort of change? Thanks.

Speaker 3

So it's all timing and it's just pushing out some of the projects due to the delays that Peter mentioned.

Speaker 2

Yes, believe me, it's a guesstimate. It's best we can make it, but you need to know. It's just a guesstimate of where things are going.

Speaker 7

Okay, great. That's helpful. I guess my second question is just going back to sort of the Chicago project. Maybe can you comment on just the latest update on gaming trends around the asset nearby the assets? What you guys are seeing?

Speaker 7

What you're hearing? And if you can broaden that out to just regional gaming overall. I mean, mentioned Penn, but just curious about what trends you're seeing in regional gaming overall and your views post tariff. Thanks.

Speaker 6

Sure. Maybe starting in Chicagoland area. Look, I think that the trends have been pretty consistent so far this year with the one wrinkle being the recent opening of Wind Creek and the performance there, which I think has done what most people expected it to do, which is take some market share from other competitors. Talking about Chicago specifically, I think we did notice that the performance last month was up, which is positive. I think there have been some changes there on the Valley side, and I think that we are looking forward to what those might bring to the property going forward.

Speaker 6

More broadly speaking, I what we hear and what we see from our tenants when we talk to them is very much in line with what you heard on Boyd's call yesterday, which is that they continue to see resilient customer base, They continue to see assets performing. At the same time, they're very, very attentive to those trends and what is going on and their ability to pivot and take care and manage their costs if in fact they have to do that. So I think we're seeing promising trends right now. As we all know, that's only good for as many minutes as till the next tweet comes out.

Speaker 2

Thanks, Steve.

Speaker 7

Helpful. Thanks so much. That's it for me.

Operator

Our next question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question.

Speaker 8

Yeah, thanks. Good morning. First one is just with regards to the pipeline and your own thinking right now. Has anything changed in terms of what you might want in terms of a yield now versus even like a month or so ago? Just what your thought process is there as you look at deals?

Speaker 6

I'll go and then anybody else wants to jump in again. Look, think from my perspective, from our perspective, with respect to deals, I think obviously we always want to get the most accretive transaction as possible, and so when our cost of capital starts to climb, we obviously look to keep the spread intact and increase the cap rate at which we would transact. I will tell you though, anecdotally, and I think it's important, the counterparties seem more interested in talking right now. So as you would imagine, as the markets gyrate and stock prices move around and credit spreads move and the treasury moves, discussions which were maybe exploratory and soft in nature seem to be a renewed interest. That doesn't mean that transactions happen, it just means that there's a more attentive counterparty on the other end of the phone.

Speaker 6

So I would share that with you anecdotally.

Speaker 8

Okay, thanks. And then just quick follow-up on the guidance and just the assumption around the equity settlement at midyear. Is that just a placeholder or do you intend to do it that way? It doesn't seem like you necessarily need the money. Just trying to think

Speaker 3

we wanted to give everyone a placeholder for doing your modeling. Clearly, our forwards do expire by August for the majority of them anyway. We just provided a placeholder.

Speaker 8

Okay, thank you.

Operator

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

Speaker 9

Hi. Thanks. I wanted to just maybe get a little more color kind of your thoughts. You mentioned your counterparties being more attentive. I mean, just put that up to kind of just volatility and interest rates in the overall Or is there anything else going on specifically?

Speaker 9

And then maybe just as a part two, you mentioned on your last quarterly call, potentially with higher layoffs from the government that that could encourage some states to look to issue more gaming license or to initiate gaming legislation. I'm just wondering if you're seeing anything on that end of things.

Speaker 6

I'll take the first one maybe. With respect to the counterparties, look, I think the interest is, yes, as you highlighted, a lot of it's around what their alternative capital sources? What could they do with the capital? Where do they find themselves in the current universe? So I think folks who were maybe willing to dip their toe in and find out what they could get done, and maybe were holding out for a very significant price, I think all of a sudden they've seen that field and landscape in front of them is changing, and maybe they don't need to hold out for the last penny.

Speaker 6

So I do think it's just that the macro climate has caused people to kind of have a renewed sense of where they sit in the grand scheme of things. With respect to other jurisdictions, I don't know if anybody else

Speaker 2

Brandon, do you want to talk about just the regulatory climate?

Speaker 10

Yeah, sure. We are monitoring legislation in a number of different states for different reasons. So you have bills that were proposed in states like Georgia and Alabama that would introduce gaming for the first time. I think those look unlikely in those states, but you have other states where iGaming and VLTs in Illinois and other states, And we take a very close watch on those for the impacts those could have on the bricks and mortar businesses and our tenants. And I think those are all complicated endeavors and it's different in each state.

Speaker 10

So there's a lot of different factions at play when you have those kinds of regulations that are being proposed and you have a lot of different groups that are pushing and pulling on those. And to handicap the legislation in some of these other states would be a bit speculative right now, but I think you're seeing a very intent focus on things like iGaming and supply expansion because people are starting to realize the impacts that those things have. And it's not as simple as just build it and they will come. So I think those are pretty complex. I think you're going to continue to see legislation on iGaming and sports betting.

Speaker 10

Sports betting is now prevalent in the majority of states, but you'll see it in states that don't have it. And I think you'll continue to see legislation this year and in future years in states that don't have gaming, Georgia, Alabama, South Carolina, North Carolina. Now some of those have tribal gaming, but the ones that don't have commercial gaming, think you'll continue to see those coming up.

Speaker 2

Texas in somebody's near lifetime.

Speaker 9

Thank you. Appreciate it.

Operator

Our next question comes from the line of Todd Thomas with KeyBanc. Please proceed with your question.

Speaker 11

Hi, thanks. Good morning. I just wanted to follow-up a little bit on the investment landscape and sort of thinking about funding future investments, just given the comments that conversations are active around potential new deals. So you have the $400,000,000 of unsettled equity, but you aren't active this quarter at all and the stock is up on the year. Your absolute cost of capital seems to be holding in relatively well.

Speaker 11

And in the past, you've been fairly proactive about raising capital investments. I'm just curious how you're thinking about your equity capital here today.

Speaker 4

Yes, Todd, our philosophy remains the same. If you look at our business plan for this year, we've got $3.75 going out, you have got 400 plus coming in from that forward settlement, and you have also got a free cash flow, which is about $200,000,000 per year. So if you look at it in isolation, we are in a cash positive position for the calendar year before anything new happens. And to your point, we're always looking out at least twelve months and thinking about the needs beyond the end of the calendar year, and also thinking about our pipeline. And you're right, we've used our ATM program as a tool historically and we'll continue to have that.

Speaker 4

Our goal is to continue to pre fund, but always to do it in a very measured and balanced way. And if you look at our balance sheet, we've got some flexibility and some capacity. So we're going to continue doing what we did. I wouldn't take this one quarter in isolation as any read in any direction, but we're in a very solid place.

Speaker 11

Okay. And then I just wanted to also, just following up on the $375,000,000 of fundings that are in guidance. I realize it's fluid a little bit, not entirely in your control. And I think that it was initially described as being back end loaded during the year. But just curious if there are any updated thoughts at this point around the cadence of that amount?

Speaker 11

And then any early thoughts on how we should think about fundings in 'twenty six, just given the timing of Bally Chicago was pushed out into '27 at this point and some of those amounts seem to be spread out a little bit further than we previously may have thought?

Speaker 3

I mean, can start with '75 is still back end loaded. We had only funded about $12,000,000 in the quarter. As far as pushing it out, as I think I said on the last call, we do fund after BALY's has done the work. So therefore, we pushed ours out to '27 because the funding will lag when the actual work is completed and can be reviewed and signed off. So I do think that everything is consistent with what we said on our last call.

Speaker 11

Okay, thank you.

Operator

Our next question comes from the line of Jay Kornreich with Wedbush. Please proceed with your question.

Speaker 12

Hi, thanks. Good morning. Just going back for one follow-up to the Bali Street, how do we see no development? Are you expecting any impact just from the recent tariffs maybe increasing the cost of building items and maybe just the overall cost of the total project? Does that I guess, does that lead to any changes in your funding commitments if that happens?

Speaker 12

And any significant impact to how you think about stabilized rent for the overall asset if it does become more expensive or stabilized rent coverage, I mean?

Speaker 2

It's hard to know just because we're so early in the game. Many of the expensive components have already been ordered and are in hand. We'll get a report somewhere down the road in the next weeks, about where they are in purchases and so forth and what what's locked in and what is not. The goal, of course, is always to lock in as many of the big contracts as you possibly can, steel, concrete, a lot of the electronics and and, coupling equipment and so forth. And that a good bit of that has been ordered and is in in, in the queue.

Speaker 2

So we need more information at our end, frankly, to kinda know just where that is, what percentage is bought out. We'll we'll know that fairly soon and what percentage is still out there.

Speaker 10

And a lot of that was domestically sourced.

Speaker 2

So tariffs

Speaker 10

would not have had an impact on that. Things like steel would not have had any impact on that anyway.

Speaker 6

From a rent perspective, our financing commitment is a lock number. So if you extrapolated a tariff impact, that would just mean that we're buying less assets, but we're spending the same amount of dollars. And therefore, your stabilized rent math will be the same thing because my rent's gonna be a function of the amount of spend I have. It would just mean that their return on capital from the Valley side of the equation would be worse if they had to actually fund more dollars into the project to get the same amount of EBITDA.

Speaker 2

And this tariff thing, as you all know, is pretty fluid. So it's not real clear kind of who, what, where, and when.

Speaker 4

That's the understatement of the day. So

Speaker 12

When it hits the dock.

Speaker 2

But we'll we'll we'll know it when we see it.

Speaker 12

Okay. Appreciate that thought. And then just one follow-up. I guess going into the iONVEN investment, looks like you guys have invested $18,000,000 out of $110,000,000 commitment. Just curious of your thoughts on is the pace of investment going along as planned?

Speaker 12

And just any overall thoughts about how that progress is going in the overall just general opportunity set of tribal land investments?

Speaker 2

Brandon, you wanna do that?

Speaker 10

Yeah, the ION investment is going as we had expected. There's a GMP contract there. So I think if there's a question on tariffs and things like that, that's been covered on the ION project. We were out there recently for a tribal meeting and had an opportunity to see the site. I think that project is going great.

Speaker 10

We're enthusiastic about that project. And tribal gaming in general, we were out at the Indian Gaming Trade Show and Convention in San Diego a few weeks ago. We had two days of meetings with a lot of different tribes, and I think there is a healthy level of interest from both tribes and quite frankly, professional tribal advisors in our structure. And I'm not saying that's things that people are definitively deciding they need, but I think they are recognizing that they need to consider it as part of their overall financing program when they are refinancing debt, entering into expansion programs, doing Greenfield investments. So we're out there and we're talking to a lot of folks.

Speaker 10

I think it will take some time to get traction on additional deals. And to say we will or we won't do additional deals, I don't think we're there yet. I would say the interest level in tribal country for our financing structure on tribal land is robust at the moment.

Speaker 12

Okay, appreciate the thoughts. Thank you.

Operator

Our next question comes from the line of Barry Jonas with Truist. Please proceed with your question.

Speaker 10

Hey guys, good morning. How do you

Speaker 6

guys think Bally's risk profile has evolved since you started the relationship?

Speaker 2

That's an interesting question. I'm looking for somebody who wants to jump on that one.

Speaker 6

Yeah, look, think that have, obviously we have more exposure to them now than we had before, which is stating an obvious. They obviously were more broadly held as a public equity when we started the relationship. That's obviously changed. Casino Queen, when we started some of this, was in a significantly worse position and Standard General was involved there, which they turned that around. And then now that's part of Bally.

Speaker 6

So that's another aspect that is uniquely changed here. So I think the relationship has continued to evolve. I think we continue to look at it in ways that we can be a cooperative long term partner while supporting their business and at the same time making sure we don't take undue risk for our shareholders. And that's partly how we ended up structuring Chicago the way in which we structured it, which is direct funding hard cost as opposed to providing a loan alongside of all the rest of their capital structure. So things like that were done in a thoughtful manner.

Speaker 6

We capped the amount of exposure we had on that financing, driven by our underwriting of the asset. So I think we continue to look at it, as well as any other tenant relationship we have, as we want to be supportive, we want to be helpful, and we want to be thoughtful. But all of that is cloaked in making sure we take care of our shareholders, not only return, but the risk that the shareholders of ours are taking in any one of these relationships. So a lot has changed, but at the same time, think at the end of the day, we look at a lot of it very similar. We're just much more alert to some of the risks.

Speaker 10

Yeah, I'll also say, and I'm not discounting the Valley's parent corporation credit risk as an important and integral component of what we look at, but the underlying assets that we have in our portfolio are strong assets. They're performing very well. And you can see that in the earnings release and the table there and the coverage, the four wall coverage at those properties is very strong. And I will say Valleys has in front of them some challenging yet potentially very big opportunities when you look at Chicago, Las Vegas, and other things they do. So they've proven to be a very good partner to us, I don't want to underestimate the value of the assets that we have in our portfolio and the importance that we place on that.

Speaker 2

Yeah. As you know, we opened two essentially new projects with them at the Hollywood Baton Rouge property, which we completely redeveloped. It's really exceeded all expectations, and the Belle of Baton Rouge, of course, is under construction now. The hotel has opened, and the gaming facility is fourth quarter target. It's first rate.

Speaker 2

It is really, really first rate. So they have single handedly transformed that market with just going landside and building high quality property.

Speaker 10

And I don't think it's unique to that market. I think you're seeing with Boyd and others, the transition from boat to land side is proving to be a pretty profitable move. So that move off the water at the bell, we'll see how much that grows the market there, but it's proving in other situations to be a good investment.

Speaker 2

Yeah. I think it spurred Penn to move seriously to going landside where they can, and it's hard to mistake the reality that going landside beats the heck out of the three story boat.

Speaker 6

Got it. That's all really helpful. And just as a follow-up, I think you mentioned iGaming before. And I wanted to maybe see if you could talk more about how that factors into your underwriting. I know Sands looks to be exiting New York and they cited cannibalization as a concern.

Speaker 6

Thanks.

Speaker 10

Yeah, I'll skip the Sands part because I'm not sure if that was the reason they went or not. I haven't done any digging into that. But on iGaming, I think we're very cautious with iGaming. It's obvious that with our bricks and mortar portfolio, iGaming on its face would seemingly be dilutive to that and a threat to that revenue. That being said, a lot of our leases have parent guarantees.

Speaker 10

If you tie the iGaming to the bricks and mortar casinos, that may not necessarily be a bad thing for us. If that increases the revenue and strength of our tenants, that's good. Where you have iGaming coming into states where you don't have to have any investment in the states, you really have no employees, you don't have any real skin in the game in any state. Clearly, that's more destructive to us than in the other states. So I would say broadly, we're against iGaming.

Speaker 10

I think there are a lot of public policy reasons why iGaming can be dangerous if it's not regulated as meaningfully as it is at the bricks and mortar casinos. I think by having bricks and mortar operators be the iGaming licensees, you at least have your hooks as a regulator into those licensees in a manner where they have investments in The States, employees in The States. And so we continue to monitor that. As it relates to our underwriting, we have to look at the relative strength of our tenants and we have to look at the markets where iGaming has been in place for some time, including our own home state of Pennsylvania, and see to the extent we believe that ultimately impacts our rent. So in order to impact our rent, iGaming has to have a very dilutive impact on the bricks and mortar.

Speaker 10

Is it having an impact? Sure it is. We've seen that. Is it strong enough to date to cause us concern as to the stability of our rent? Not at the moment, but we'll continue to monitor it.

Speaker 2

Yeah. Let let me suggest it's really unconscionable for these states to approve the invaders to arrive at the door and and offer iGaming who have no investment in the state whatsoever when those of us in the bricks and mortar world have hundreds of millions, if not billions, invested in that state so that we will lobby strongly in the future to look. If you're not if you don't have a bricks and mortar investment, you ought not to be in the iGaming business. There's a price to be paid. So we'll see how that all plays out, but I maintain that there's an unconscionable excess on the part of these states.

Speaker 2

So we'll continue to lobby hard against iGaming where it's detrimental.

Speaker 6

Got it. Alright. Really appreciate it. Thank you so much, guys.

Operator

Next question comes from the line of Mitch Germain with Citizens. Please proceed with your question.

Speaker 13

Thank you. How will the accounting for the Penn commitments, they when or if they're done, is that going to be similar to a loan or what you're doing on the development side of capitalized interest?

Speaker 3

Yes, so it really depends on the timing of when they take our funding. So if the property is open and running when they come to us to ask for the funding, then it will not, it will just be a normal lease and add on to the lease. However, if in fact they take it during the development period, we will end up with some of the same accounting that you see with Chicago, which will be capitalization of interest and deferral of any rent collected.

Speaker 13

Gotcha. Okay, that's helpful. And then Desiree, maybe take me to what variables have to occur to bring you to the low end of guidance. It seems like there's absolutely no growth at that if you get there. What kind of has to go wrong to take you to the low end here?

Speaker 3

So, to the low end, it would mean that we do not achieve any escalation on our variable escalators for Boyd. We already removed Pinnacle. Also, what happens with we now have over $930,000,000 of variable rate debt. So, what happens with our variable rate on that as well would have to increase pretty significantly from where we are now to get us down to our low end. That has been pretty volatile.

Speaker 14

Thank you.

Operator

Our next question comes from the line of Rich Hightower with Barclays. Please proceed with your question.

Speaker 15

Hey, good morning, guys.

Speaker 10

Good morning.

Speaker 15

Good morning. I want to circle back really quickly just on the some of the counterparty discussions and more openness to talking with GLPI about different forms of funding. Can you guys help us understand the composition of the projects we're talking about there? I mean, we talk, is it more expansions, construction related financing? Is it full on traditional sale leasebacks, for assets that aren't already sort of nailed down within a REIT structure somewhere?

Speaker 15

Just help us understand maybe what the opportunity set looks like at this point.

Speaker 2

Kind of all of the above, but Steve, why don't you?

Speaker 6

Yeah, would say, look, my comments were more directed at traditional sale leaseback and M and A, to be honest. Some of the other types of financings you mentioned, our involvement or any one of our counterparties' involvements in a discussion around a greenfield financing probably yields a better result for the counterparties. So those discussions were already intertwined and those were progressing as you would expect. Things like M and A where maybe I'm interested, maybe I'm not from a counterparty perspective. I think those are the areas where people seem to be a little more open to now discussing in a real tangible way what might have been on the periphery before.

Speaker 15

Okay, that's helpful. And then just on the balance sheet side, going back to some of Matt's prepared comments, in terms of capital funding and that sort of thing. But so if I'm not mistaken, you still got the Lincoln Valley's options sitting out there. I think you guys have said you would do that in a sort of a % debt financed method. So let's just fast forward and assume that that happens at some point.

Speaker 15

Where would you sit leverage wise based on kind of everything in the mix as of today that we know about? And what would you have to do at that point to fund new growth from there, if you don't mind?

Speaker 3

We'll still be well inside of our target leverage of five and a half times. Once we fund the $735,000,000 with all that. I haven't calculated the number, but I'm sure it's right around five because we're at four seven now. So I think our balance sheet will still be in an extremely strong position post that acquisition.

Speaker 4

We have it in this shape in part because we know our forward commitments and pieces like that of the puzzle that we have to think about. So just think about us as we use the ATM to the previous question as kind of chipping away at that on a blended basis. And in an environment like this, we're not going to stray meaningfully, especially in the higher leverage direction. We're getting a very good spread to our cost of capital, and we want to lock that in for our shareholders. Great.

Speaker 4

Thank you, guys.

Operator

Our next question comes from the line of Daniel Guigliano with Capital One. Please proceed with your question.

Speaker 16

Hi, everyone. Thank you for taking my questions. So there's a lot of good construction going on at the Valleys and Penn properties. Can you talk about the team's process for keeping up to date and in the know on those projects? And then is there a different level of touch project to project or partner to partner?

Speaker 2

That's actually a fair question. I guess it depends, not surprisingly, on the scale of the project, the complexity of the project. Things are pretty much on autopilot, for example, in Baton Rouge. Big project, terrific project, but it's well understood and proceeding pretty simply and straightforwardly well. Chicago is in the early phases.

Speaker 2

It's it's a bigger project. Obviously, it's gonna take a lot more attention from us. As I mentioned at the outset, we have detailed our head of construction, since we're involved in such projects, to Chicago, and we expect to spend a lot of time until we're absolutely satisfied that most of the major buys have been done, pricing looks good, and the project is well underway. It is now well underway, and we're confident in that. But now we're in the process of trying to buy out the balance of the job, get the balance of the plans drafted and priced and so forth.

Speaker 2

So there's a lot going on. And so the bigger the project, the more complex. We'll spend more time there. And remember, we're not really we're not the developer, Valleys is. But because we can and wish to be helpful, we'll pay close attention to that to make sure that project comes out successfully.

Speaker 2

Any I'll look around the table if anyone wants to add anything to that, but it's a matter of need and importance, and, so Chicago does rise to the top.

Speaker 4

We've got a a smaller case study if you look down at Baton Rouge of some of the same points of contact and what was done at the Queen and the outcome we got there.

Speaker 2

Well, the Queen's a little different because we actually built that. We actually did the construction and turnkeyed it to Valleys. That's not the case in Chicago. This is their project, and we're monitoring that. So far, of course, there's been no request for a draw from us, and that's fine.

Speaker 2

And and as I said earlier, I'm always gratified when our tenants reach into their own pocket and put money up, said suggest that they got it. So you know? But in due time, obviously, that money will be drawn and required without any doubt at all. So it's just a matter of timing. The long way around is saying we do pay attention, but it's proportional to the complexity of the project.

Speaker 16

Great. Yes, I really appreciate all that color, and that makes sense. And then just one more on the counterparty sale leaseback interest. How long does it take from someone dipping a toe in to an actual announcement and deal? And do you think we need a little bit more macro stability before we really start to see folks commit and get serious?

Speaker 2

Well, I'll stick my nose in that one. Totally unpredictable. Some deals go in a matter of negotiated in ninety days or less, and some take years. I mean, it's another unknown. You know, we wanna get these things done as quick quickly as we can.

Speaker 2

What's the made of motivation of the of the of the seller, so to speak? What what what what do they need, want, or desire? And then I can maybe tell you how long it might take. So but that's all over the lot. We want them as fast as possible.

Speaker 2

Thirty days and done would be ideal. They don't usually go that way.

Speaker 10

We wish we had that level of predictability. Yeah.

Speaker 16

Okay. Thank you. Appreciate it.

Operator

Our next question comes from the line of Chad Bannon with Macquarie. Please proceed with your question.

Speaker 17

Hi, good morning. Thanks for taking my question. Just one for me today. Wanted to ask about a deal that, we saw this quarter with with one of your tenants, Bally's, and Star Entertainment, it looked like a pretty complicated multi tranche convertible note and subordinated debt deal. Wondering your interest kind of working with them on this just given the risk profile.

Speaker 17

And then also related to that, your interest in getting into some of these other international markets where there might not be as much competition. Thank you.

Speaker 10

I think at this point, we have not been approached by Valleys to participate in the STAR transaction and we haven't done any level of work on that. We're obviously cognizant of it and we're cognizant on the impact that could have on the overall credit profile of that tenant. But at the moment, we don't really have any more information than that. And those assets have come up several times over the course of the last several years. We've looked at them at various points in time, but I don't think that translates into the transaction that Valleys is potentially looking at.

Speaker 10

So I don't know we'll have much more to add to that until or unless we hear something from Valleys.

Speaker 3

And on the international front, we do look at international acquisitions on a regular basis. The things that we have to worry about are the tax consequences of getting the money back to The US, how it impacts that REIT, as well as exchange rate risk. But we do look at all of those risks and we do look at international transactions regularly.

Speaker 17

Thank you both. Appreciate

Speaker 5

it. Sure.

Operator

Our next question comes from the line of Haendel St. Jess with Mizuho. Please proceed with your question.

Speaker 14

Hi, good morning. This is Ravi Devi on the line for Haendel. I hope you guys are doing well. Can you offer any commentary regarding foot traffic, consumer spend at your properties in light of a slowing macro and the tariffs?

Speaker 3

Yes. So we don't actually get property level information from any of our tenants. All we can tell you is what you've seen at Boyd's results were very positive that came out. I'm sure we'll get more information as our other tenants release. But we have everything I've read to date has been pretty positive in the first quarter.

Speaker 3

I don't know whether or not that will continue, but we know what you know at this point.

Speaker 2

Yeah, remember, we get no nonpublic information. You know exactly what we know. And there's no inside track with any of our tenants. Sometimes we wish we had that, but we do not. I think our general expectation is things are fine.

Speaker 2

I'm not losing any sleep over how well our tenants are doing. Have high confidence that we'll be perfectly fine with every one of them, frankly.

Speaker 14

Got it. Just one more here. Regarding the new deal at Council Bluffs,

Speaker 7

do you expect Penn to take up to

Speaker 14

the $150,000,000 And if they do, do you think they'll take it as rent or as the five year pre payable term loan?

Speaker 10

We've left that option to Penn. I think it's too early for us. We have not heard from them as to the final spend in that market or the structure pursuant to which they'll take our money.

Speaker 2

Yeah, I mean, they just wanted to backstop or make it very clear getting regulatory approval that it could be financed and done. So we've served that purpose. In due time, I'm sure they'll come to us with the request.

Speaker 14

Got it. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Robin Farley with UBS. Please proceed with your question. Thanks. You've answered most of them

Speaker 18

and you did talk a little bit about tribal opportunities already. Guess the takeaway from that is that it doesn't sound likely that there'd be a travel transaction and and anything additional in in 2025. Is that kind of what the bottom line would be on that? And then, I mean, is it really is the opportunity really in tribal only if there's kind of a new development or something, right? Maybe not some of the other reasons that we see doing transactions.

Speaker 18

Is that sort of fair in terms of expectations? Thanks.

Speaker 10

Look, I'm not prepared to say that there's no chance that we can get something signed in 2025. I think that is certainly a possibility. I can't give you a probability on it, but I think it's a possibility. And as far as the types of transactions we're looking at, I would say no, it's not all limited to greenfield projects. We have had a lot of conversations that have run the gamut from expansion opportunities to refinancing debt to Greenfield opportunities.

Speaker 10

So, don't think the uses of capital are significantly different than the uses of capital in a commercial transaction, quite frankly. The one type of deal you don't get is just a traditional sale leaseback, but we could have those too. We haven't had those conversations where somebody just wants cash for no use, specific use, but I think that's certainly possible. And I think part of the determination that some of these tribes need to make is not unlike a commercial facility of when you have your debt stack, you have to think about how valuable a long term piece of debt is to your overall financial picture and your growth opportunities and your goals and your strategies. To date that hasn't been available to tribes on tribal land.

Speaker 10

And we have a structure that's making that possible and it's a new conversation. So it's not only with tribes, but quite frankly, a lot of it is with professional tribal advisors who advise these tribes on their financing packages and their debt stacks and how to approach these things. And those conversations are ongoing and I'm optimistic that we'll be able to make something out of those, but we're still in a wait and see mode. But I wouldn't say necessarily 2025 is out of the picture.

Speaker 18

Okay, great. Very helpful. Thank you.

Speaker 2

Thank you. Our

Operator

next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Speaker 19

Hi, good morning. Maybe just a question on new supply. As you guys think about that, what it means for your own construction opportunities and competition for existing properties. I guess, what's your expectation for new supply of regional gaming maybe over the next three years? And do you even have much or any visibility on that?

Speaker 10

I don't know that we have any more visibility than you do at this point. As you've seen, states that were limited licensed jurisdictions have found ways to be not limited licensed jurisdictions. So here in Pennsylvania, we've had expansion of supply in the last five years. Illinois has had expansion of supply. And so I think it's certainly possible in states that we may not be predicting at the moment.

Speaker 10

I do believe in the Southeastern Part Of The United States in the next two to four years, you will see some expansion of gaming. There are states there obviously that don't have commercial gaming today. And there are a lot of folks that are pushing for that down there. Next year being an election year, we'll make that more of a challenging environment for a new piece of gaming legislation. I think you'll see expanded supply in the Southeastern Part Of The United States in the coming years.

Speaker 2

Look. And our job, of course, is to be close to every and all opportunities coast to coast. I mean, that's that's it. And so we we wanna be a player in every case, stay on top of that stuff, have lobbyists in place. We ourselves spend time in these various states that look possible.

Speaker 2

I was gonna say likely, but look look possible. So, yeah, we stay as the expression goes, we stay close to the hoop.

Speaker 10

Yeah, we monitor this very closely because it's part of our underwriting. So anytime we're looking at a new project, we don't just look at that project and in that market, we're thinking five years ahead, ten years ahead, where can the competition come? Where's the new supply likely to come? What markets are currently underserved that could open themselves to new supply? So it is part of the overall underwriting process here at the company to make sure we're thinking ahead about how new supply could impact a deal today because we're entering into transactions for the long term, not the short term.

Speaker 10

And so this is something we do follow very closely.

Speaker 19

Got it. And then Peter, you mentioned earlier how some deals take like ninety days, other takes years, which I would totally believe.

Speaker 2

I was

Speaker 19

wondering if you could talk a little bit whatever you could tell us about the pipeline today and kind of just like what's active versus put on hold given macro volatility right now? Or have you to what extent have you seen some potential partners say, you know what, let's revisit in a while and we're gonna pause conversation for now?

Speaker 2

You know, there's not much I can tell you about that. I really as you know, I can't say too much, but I'll give you this one story. There was a particular property owner in another state that had properties that I really desired, and every year I'd go talk to that person, sometimes a couple times a year and year in, year out. And he was so well off, and and it is true. He didn't need the money.

Speaker 2

He said, have no place to put it. Why you know, I just don't need it. I think after three or four years, I finally gave up. And then a year or two later, made a deal with somebody else because they just happened to be there at the right time, at a time when he decided to do something. So our job is, as we said earlier, is to stay close to opportunity and basically never give up and make sure that you're there because there's often a day when that person decides for reasons, estate reasons, who knows that now they're ready to transact.

Speaker 2

And we want to be there close, close at hand. So that, that really characterizes our job and responsibility in looking at opportunities, completely unknown beyond that. Our job is to dig them up, keep close, hope to get lucky.

Speaker 4

Yeah, there's some groups that the macro uncertainty may impact. Maybe some of the larger public companies that Steve mentioned maybe are slower to do big things in an environment without the certainty. But there's a lot of catalysts and there's a lot of other groups out there that are doing things that need to do things. So the comments about us being more relevant in a volatile environment, we'll go back to. It's just getting to the finish line with folks.

Speaker 4

But we certainly have encouraging conversations in a backdrop like this.

Speaker 7

And our letterhead is very valuable,

Speaker 4

I mean, with that balance sheet behind it, especially for some of the things that are out there for a counterparty.

Speaker 19

Thanks.

Operator

Our next is a follow-up from Greg McGinnis with Scotiabank. Please proceed with your question.

Speaker 5

Hey, thanks for taking the follow-up. We've talked in the past about your relationship with Cordish on prior calls, but now that the Petersburg, Virginia casino is broken ground, do you have any renewed interest in a 20% equity co investment there? If not, why? And when would you have to make that investment if you choose to?

Speaker 2

That is a difficult thing to answer. So I'm looking to bail out on it. I'm going to give it to Brandon.

Speaker 10

Well, I think they're in the process of erecting their temporary structure down there, and we can't say too much more about the Virginia opportunity and our thoughts on our investment, potential investment, any investment there at the present time.

Speaker 9

Okay.

Speaker 10

You can ask the same question, Greg, on the next call and maybe we'll have a better answer.

Speaker 5

Yeah, I kind of figured it'd be something like that. All right, thank you.

Speaker 2

I used to say one question, do you look at this, do you look at that? I would say if it's alive and breathing, we're probably looking at it. That doesn't mean it's the biblical sense. Many are called, but few are chosen. And that's sort of the challenge for us always to stay close.

Speaker 2

We'll see. All right. Thank you both.

Operator

Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.

Speaker 2

Well, that's pretty simple. We thank all of you who have dialed in this morning. To many of the questions asked, stay tuned. Maybe by next quarter, we'll be able to give you some more color. And we thank you.

Speaker 2

See you next quarter.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Earnings Conference Call
Gaming and Leisure Properties Q1 2025
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