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Edited Transcript of GLPI earnings conference call or presentation 27-Apr-17 7:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Gaming and Leisure Properties Inc Earnings Call

Wyomissing Apr 30, 2017 (Thomson StreetEvents) -- Edited Transcript of Gaming and Leisure Properties Inc earnings conference call or presentation Thursday, April 27, 2017 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter M. Carlino

Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO

* Steven T. Snyder

Gaming and Leisure Properties, Inc. - SVP of Corporate Development

* William J. Clifford

Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer

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Conference Call Participants

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* Carlo Henry Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

Telsey Advisory Group LLC - MD and Senior Research Analyst

* Robin Margaret Farley

UBS Investment Bank, Research Division - MD and Research Analyst

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Steven M. Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to Gaming and Leisure Properties First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, [Hayes Cruscea] Vice President of Finance. Thank you, sir. You may now begin.

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Unidentified Company Representative, [2]

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Thank you, Manny. Good afternoon, everyone. I would like to thank you for joining us today for Gaming and Leisure Properties first quarter 2017 earnings call and webcast. The press release distributed earlier, this morning 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 from those discussed today. Examples of forward-looking statements 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 these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.

On this afternoon's conference call, we are joined by Peter Carlino, Chairman and Chief Executive Officer; and Bill Clifford, Chief Financial Officer of Gaming and Leisure Properties, Inc. Also joining are Steve Snyder, Senior Vice President of Development; Desiree Burke, Chief Accounting Officer; and Brandon Moore, Senior Vice President, General Counsel and Secretary.

Now I'd like to turn the call over to Peter Carlino. Peter?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [3]

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Thanks, Hayes, and good afternoon, everyone. I'm glad, always happy to announce the completion of a good quarter, we had an excellent quarter. You'll note, we highlighted on Page 1 of our release that our Bally's closing is scheduled for May 1, it's a small transaction, but a nice one. And I think we have, if you look at Page 2 of our release, pretty fairly outlined the improvements to net income that explain much of what has happened this quarter. I'm looking around the table here, trying to get volunteers to see who is going to shed the real insight on where we're headed and what we're doing. I know Bill Clifford is just itching to make a couple of comments and we'll probably drag in Steve Snyder to talk about future development. So Bill, go ahead.

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [4]

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Sure. Relative to the -- what we saw in the first quarter, we obviously had a good quarter and we exceeded our expectations relative to guidance and that's primarily attributable to three factors. One of which is Ohio and the rents received from PENN relative to Columbus and Toledo, as well secondly, Baton Rouge, had a very good quarter, certainly exceeding our expectations and that was a big part of it. And then the last piece is, a little bit less corporate overhead than we expected. Part of that was because we were successful and able and got a transaction done. And therefore, we are able to capitalize some of the expenses associated with the efforts that we had relative to the Tunica properties.

On the guidance, as we look forward there's really 2 major components to what's accounting for the increase in our expected performance going forward. One is the fact that we expect the Tunica properties to close on Monday, and obviously, that was a transaction we announced at the end of March and which we're very happily surprised -- somewhat surprised, but appreciative of the efforts that Mississippi did to approve a transaction. And one in the gaming industry is a lightning pace, given that it's basically one month from the time of the transaction was announced to when we were on the agenda and actually approved. The other component, which is favorable news that was not in our formal guidance, is that the Pinnacle, we are assuming in our -- for purposes of our guidance, that they're going to pay us an escalator on the anniversary in May. So those 2 components are obviously helpful in terms of where we're going. We've announced the dividend for this quarter at $0.62. We will look at adjusting the dividend or relooking at the dividend in the quarter following that we have the first full quarter of results from Tunica and Pinnacle, which will be in the third quarter. The only other piece of news, I would reiterate that we're very happy about, is that PENN national on their call this morning, obviously had very good results. They'd preannounced some of their results previously, but again, exceeded those numbers and the rent coverages that they were -- had alluded to 3 months ago has improved dramatically to the point where they expect the end of the year to be just slightly south of the 1.8. That's almost a full tenth better than where they were a month or basically 3 months ago. So not that that's any of our accomplishment, so we definitely want to thank them for their efforts.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [5]

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We're wishing them well. We're very appreciative. Look, I think there is reason for optimism. It's hard to know where a year is going to go, every year has its own character. They are off to a great start, but one doesn't know how they're going to finish, but we have renewed hope that they're going to close out the year in a very positive way. Steve, I'm not sure there's a whole lot we can tell this group about what we're up to, you can assume as always, that we are very active here, the entire team, everybody at this table, looking at the next possibilities, nothing of course, that we can ever announce. But we remain optimistic looking for steady and continued growth in this business.

I think as I look at this, I think we're quite proud of what we have been able to accomplish since we created this REIT. It's been a nice move over these last few years. It's always about, what's the next magic trick, and I can only say that we are working on that. So with that, any other comments. I'll open it up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Robin Farley of UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [2]

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Great, just wanted to ask you a question that I was asking a similar company earlier today, which is, are you -- do you have any thoughts on whether the potential changes in the corporate tax rate out there, changes to the tax code are impacting the likelihood or timing of the sales as you talk to asset owners?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [3]

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Robin, we were actually kind of hoping to ask you and others on this call that very question. We've poked around at Navy. We're trying to understand better through our lobbyist and others, what is likely to happen, but it seems so premature right now, as anxious as we are and maybe even concerned as we are, it's just too early to make in my judgment any guess at where this is going. Steve, do you want to opine.

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - SVP of Corporate Development [4]

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No, but Robin to your question, I mean just as we are trying to figure out what impact the tax reform package that the President has now given us sort of a bullet point note on, will affect our business, you can rest assured that sellers are also contemplating the same question. So I think more than anything, we're anxious to see clarity, whatever form it takes, whenever it takes.

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [5]

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And relative to timing, I think the tax code implications are different for large strategic corporate type people versus maybe some of the people that we deal with, which are -- can sometimes be privately held situations where the tax impacts are much greater consideration for whatever they might do relative to a transaction. So I mean, I think the answer to your question is, some have expressed some concern or desire to understand the implications of potentially doing a transaction, others are probably a little less sensitive to that.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [6]

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Our capital gains improvement would maybe motivate some by our sitting on the sidelines. That would be a positive thing. One does wonder a bit about the notion of doing away with interest deductions. Could be intriguing in this business or any capital-intensive business. You really -- I just don't think -- I think patience is going to be necessary in this case. But I'm confident everybody out there who has a business, is in business, owns a business, has shares in the business, is wondering where in the heck this is all going to go. In other words, we didn't tell you much.

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Operator [7]

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Our next question is from Steve Wieczynski from Stifel.

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Steven M. Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst [8]

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So with, just I guess, Bill first with you at the TRS, obviously a pretty good quarter there. And I think when you look at your revised guidance, it seems like all you really basically did was kind of flow through the beat from 1Q into the guidance. And I assume you're probably going to give me the answer that PENN gave this morning, is that for the remainder of the year you're still taking a pretty cautious view around the TRS component?

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [9]

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Well, listen I think its 2 properties, right? It's Perryville and Baton Rouge, so to the extent that its -- probably don't put as much time and energy and effort into it as PENN does relative to understanding trend lines. It was a surprisingly good quarter, and my history with surprisingly good quarters is that somehow or another by the end of the year things tend to come back to normal. So we've kind of -- we have taken credit for the beat in the first quarter and pretty much flat, left everything the same going forward because we're not a 100% sure we understand exactly why the first quarter was as good as it was. But somehow or another these things always have a way of normalizing themselves. I don't know that -- we don't have properties that are really affected by weather or anything. So I don't -- it's not a weather attribute, but it could just be the excitement of Trump or the desperation of Trump or whichever way you want to look at it. Some people are motivated in different ways. Or it could be other factors that we just don't really feel like we have a great handle on why we did so well. So it's hard to get excited and say well we -- if we knew that it was some sustainable component that we felt really good was going to -- was a new trend or a new thought process or a new way of doing -- just new approach or whatever you want to call it. We would've -- we might have been a little bit more aggressive. But we felt like, okay great, let's take what we've got. We're going to leave it where we were because we don't really have any information to indicate that the rest of the year is going to be any different than what we originally thought it was going to be.

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Steven M. Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst [10]

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Got you. And then Second question, I guess bigger picture question, maybe for Peter, but you talked about how you're continuously are out there looking for your next move or your next deal. But just maybe help us understand, what does the environment look like out there at this point. I mean is it still -- do you have potential deals coming to you, kind of on a consistent basis or has it slowed down a little bit?

I don't know that it was ever fast, and I'm not being cute about that. Everything we have done to date -- well, there are a couple of examples that have kind of come to us, like a Baton Rouge, where we're asked to look at something. But the largest transaction we did was Pinnacle. We went to it, if you will, to make that distinction, I mean making it happen. So I think there's not a lot of action. I can't tell you quite candidly that there are 100 people knocking at our doors. There are a handful of properties around the country that we remain focused on, a handful of businesses that we kind of keep a very close eye on, keep in contact with. Steve's constantly on the phone every day working these things. And we wait for a break, we wait for the opportunity to open up. But sadly, that's the nature of this business. And I will say, in anticipation of a question we always get, "Are you looking at anything else?" I think we stepped up the pace at which we're looking at other possibilities. Absolutely nothing that we're willing to say makes sense for us today. But I think we're bound, as employees of this company, to explore every possibility as we look to develop this business going forward. Look, it's all about dividend growth. As a shareholder that's the way I feel. We ain't going backward and we're anxiously looking for ways to safely go forward. So I think -- this is kind of a lame answer, that, of course, this is the one part of this call that I always hate. I wish we were in a business where we could say, and you've heard me say it quarter-after-quarter, Starbucks might be able to say we're going to roll out 50 units next -- with some predictability. It's not the nature of what we do. So all we need for you folks to understand is that we are not asleep here in the home office. We're actively chasing down every possibility. But to suggest that there is somehow people hanging on the clothes line for the picking, that's not the case.

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Operator [11]

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The next question is from Shaun Kelley of Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [12]

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Maybe sort of on the whole M&A note, and since these transactions are sort of difficult to talk about in the future. Could you give us a little bit more color on just how the Tunica transaction came together? And just like sort of -- was that something you approached or they approached you? And just a little bit more on sort of the specifics of that deal?

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [13]

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Sure. Yes. No, they approached us about doing a transaction. It's one of the benefits of being in a relatively small industry and that anybody who has decided that it's time to do a transaction, even if we weren't calling them on a regular basis, they know that we're the -- certainly, one of the alternatives is to -- who you can sell your casino to, in a way that's going to maximize your potential returns. So we got a call, and we basically contacted PENN about doing a -- to fill out the transaction, and they were without a doubt the -- probably the only clear choice from our perspective in that. They already had -- they were very familiar with the Tunica market. They were prepared to put it into the mass release, which was a very important consideration for us and they also had the benefit of being able to extract some synergies because they already had a major property in the market. So between the 2 of us then, we were obviously able to get a transaction completed. And without a doubt, the sellers were motivated and I've said that probably on every call, is that the best -- the only way we really are going to get transactions done is when we have individuals on the counter-parties who are motivated to do a transaction, and they just want to get the best price that they can get, not motivated directly by price, right. So when we approach people and say well, how much does it take to get you to do something that you don't want to do, it really works out very well for us. So we've come to a recognition that we want to be in touch with everybody to make sure that we're front and center of mind and that we are expressing our extreme interest in doing a transaction. But we also recognize that we've got to get transactions done in a way that are going to be value-enhancing, and typically the problem obviously is, when you approach somebody about a sale, the first thing they want to do is sell you their real estate at your company multiple. So that doesn't work for us. So those conversations are fairly short. But I think I'm not sure I can really add much more color than that.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [14]

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That's helpful. Again, it's just, given the lumpy nature of the (inaudible), just understanding how the stories come together is useful. And then the second question would be, and this is also a follow up to earlier, Peter you mentioned that you may have stepped up -- you're looking at different types of assets. Could you give us any color or view on what types of classes of assets that you at least have under consideration? Are these going to be things that are leisure in nature and somewhat tangential to gaming? Or can it go even further field, restaurants or convenient stores, something like that?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [15]

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I guess a quick answer is it could go anywhere. I mean we tend to be focusing on some leisure possibilities and Steve spends a lot of time in that space. But no, in the end, it's all about -- look, we're a finance business. And in the end that's what we are. And finding reliable sources of cash flow is all that really motivates us. That's kind of it. Show us a reliable source of cash flow that we can pay reasonably for and we'll go there, it's as simple as that, if we have confidence and it's sustainable. So I mean, again, I hate these kinds of vague answers, but I couldn't be clearer that we're not stuck in a rut. We're looking at anything that can move the needle and safely do so. So Steve, would you...

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - SVP of Corporate Development [16]

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No, I think that says it well. I mean we're going to continue to look at things that are consumer-driven, that are tangential to gaming, that are just maybe a couple of steps away from gaming but they're really in the consumer-dominated markets.

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Operator [17]

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The next question is from Carlo Santarelli of Deutsche Bank.

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Carlo Henry Santarelli, Deutsche Bank AG, Research Division - Research Analyst [18]

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A lot of my questions have been asked. But if I could, and this is just getting back to the recent acquisitions. When you go into a tougher market or market that's been historically viewed as being one of the more competitive ones, and I think we could all agree that (inaudible) certainly was certainly is one of those markets. Would you guys say, that like your process of identifying what proper rent coverage needs to be et cetera, is a lot different? Or do you kind of rely on the historicals? And part of the reason for my question is if you think about some other stuff where new competition could potentially be coming in, does that kind of dependence on the history of the market relative to the history of competition et cetera, help you make a more informed decision that you'd be more willing to do something ahead of a major competitive threat?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [19]

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Look, I think that is a terrific question actually because I think we do pride ourselves in bringing a unique underwriting ability to gaming assets. I mean it's hard to find a corner of the United States that we don't understand or haven't had some dealings with so that we could look objectively and carefully at a market like Tunica. It's not anybody's first choice. But look, the price was right. We understand that market has some real opportunities for synergy. And yes, that's a transaction that we were quite pleased to do. I mean look at what we paid for it. We should be out of it fairly quickly. Bill go ahead.

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [20]

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No, I think, listen, I think relative to Tunica, obviously, that's a mature market that has obviously threats coming from potentially way long-term down the road, something in Tennessee. But Arkansas is clearly taking a bite out of the existing operators. Having said that though, we do think that it's shown some signs of stabilization and the purchase price multiple was the right price. And then combined with the synergies, we felt -- we got comfortable. And I'm not going to hide behind the fact that from GLPI's perspective, the fact that we have the lease to the properties embedded in the Penn National with the cross-collateralization and the protection of the rest of the PENN portfolio, inferring that we are going to collect our rent, it just makes it a lot easier. And clearly had we done this transaction with an individual on a single lease basis, the rent coverage would have had to have been a lot higher and comfortable.

There is a little bit of -- it's somewhat not always completely underwriting that specific asset, it's underwriting that asset in the context of where it's going to end up and who our counter-party is going to be and who is going to be the tenant and what kind of collateral and protection we're getting.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [21]

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Yes, so it was a credit decision in the end, but a fair one.

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [22]

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I think it's right. I think we got to the right answer for both.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [23]

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And I think PENN's going to be very happy with that asset. The properties are actually pretty nice.

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Operator [24]

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(Operator Instructions) The next question is from David Katz of Telsey group.

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David Brian Katz, Telsey Advisory Group LLC - MD and Senior Research Analyst [25]

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My question is not dissimilar from Carlo's, which is, thinking about these assets that you've acquired in Tunica from a much longer-term perspective and an entirely different one from PENN's, which is more about the accretion and what it sort of does to our model, let's say, over the next few years. How do you -- I mean do you -- are you comfortable with Tunica being a stable market? It's certainly not a growing one. But are you comfortable that this asset will be salable at some point in the future should you choose to want to sell it?

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [26]

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We don't expect to sell it. We expect it to be a part of the PENN portfolio of assets for the -- forever. So I don't think we look at it as an asset that we're coming in to be able to carve out. I mean once it goes into the master lease, it kind of goes into the big pile and stays there and -- et cetera, et cetera. So as we look at it, we're feeling -- we feel perfectly fine. I mean, as I kind of indicated earlier relative to the Tunica piece, right, is that when an asset goes into the master lease and is cross-collateralized, the risk profile of that asset is dramatically different than if it's a single one-off asset with a tenant who has got the ability to then potentially hand it back. Had we entered into a lease like that, I can assure you that both the rent coverage that we would have expected as well as potentially even the multiple that we would have paid may well have been different. So it's a little bit of a way that we can get to a satisfactory outcome with very little risk to our shareholders. And quite candidly, you end up with a transaction that works because there are enormous cost synergies potentially available in that market. So there are multiple -- they will certainly generate dramatic free cash flow improvement over -- with that transaction, and will have it more than paid off well before anybody would expect there to be a problem too. Relative to the Tunica market itself, I think it's a mature market for sure, but I think the Tunica market is a market that's going to be around for a very, very long time. I think the likelihood of the Tunica market disappearing is, I think, remote. So with some other markets -- I mean every market will survive at some level. But there are other markets that we look at across the United States that we think have a lot more downside to them over the long term than potentially Tunica.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [27]

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If you look at the rent coming from that property. Obviously, if you add a new property you have got to make a determination of what the rent additive will be at a multiple that in coverage, that's acceptable to us. But once its goes into the pot, it's just part of the pot, and never to be remembered again. So whether it's up or it's down. Having a portfolio of properties as PENN does, one assumes that at a given time this X is up, Y is down, will be all this. But the beauty is the coverage that we have is spread across the board. We will never again think about specifically what Tunica is doing versus Ohio or any other place. Well, I'd take Ohio back because we have escalated it. So there are some that we do watch a little more closely, but generally, I think you get the idea. There's 1 rent and that's it. I hope that helps.

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David Brian Katz, Telsey Advisory Group LLC - MD and Senior Research Analyst [28]

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It does. And your answer sort of lead me right into my second question, which is our experience with hospitality reaches that at some point or some stage of life, they become more of a balanced buyer and seller. And obviously, at the moment I think the list of buyers, if you were a seller, is sure to nonexistent. At some point and under some set of circumstances, don't you need to become a seller, not necessarily in a large way, but a trimmer or a trader as we've seen with other hospitality REITs? And obviously, it would appear that Caesars is headed in the direction of joining the fray. How do you think about that evolution for GLPI over time?

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William J. Clifford, Gaming and Leisure Properties, Inc. - CFO, SVP and Treasurer [29]

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Well, I think to the extent that we would be a seller and we're not, just to be clear, but if we ever got to a point where we wanted to be a seller, we would be looking at the different leases that we have, and obviously, and again, let me reiterate we're not seller, but we would look at it and say, well how many independent leases do we have. We have PENN, but that would be a huge lease to sell, right. Pinnacle, that's a huge lease to sell. We have the Casino Queen potentially is a lease that you could sell on a one-off basis to somebody. And we have the Meadows that we could turn-off -- turn around and sell. So those are 4 leases that theoretically are different in sizes that you could potentially sell, so to speak, if you ever got to the point where you wanted to do that. Now we have some other limitations in that with the current tax law we can't just turn around and sell anything without potentially creating the risk of an embedded gain that we'd have to pay tax on, so -- and that's the 10-year period. Oh, 5 years. Okay, I got corrected. I thought it was 10, but 5-year period. Did it used to be 10? Okay, I feel a little better. So it used to be 10, it's now 5, so you can't, you basically can't turn out and sell an asset for 5 years. And we'd be selling the lease. So at the end of the day, we would have whatever properties are embedded in that lease. There's no ability to carve up the lease without a negotiation with the tenant in terms of, if you were to try to say, well I want to take these 6 properties and separate them out. Just like we have the right to object to that, the tenant would have the right to object to that if we said we want to take, let's say we wanted to go to Pinnacle and say, hey, we've got somebody that really would like to own XYZ properties. We want to separate the lease agreement. That would involve a negotiation with them and they would have a right to object and maybe they would agree to it or maybe they wouldn't. But -- so I guess it's a very long-winded answer of saying that we could sell the individual leases, but that's really not in any way, shape, or form any part of our strategic thought process as we sit here today.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [30]

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It's not, but I will say this, I think that possibilities will open over time, as the investment world, the REIT world, gets to understand the stability of the cash flow that we have here. I mean, look, we consider ourselves grossly undervalued today for a couple of reasons and I'm not going to try to dissect those right now. But look, we have an extraordinarily stable cash flow that in itself would be appealing, I should think too many, but certainly appealing to me. If that adds any color to this at all.

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Operator [31]

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At this time, I'd like to turn the conference back over to management for closing remarks.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman of the Board and CEO [32]

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Not much to add. I think we've said most of what we can this quarter, but thank you very very much for joining us today. Desiree said she hated the afternoon, but we're taking votes. So Des, you might see us on an afternoon again, we'll see. We thank you all very much. See you next quarter.

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Operator [33]

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Thank you, ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.