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Edited Transcript of GLPI earnings conference call or presentation 7-May-19 1:00pm GMT

Q1 2019 Gaming and Leisure Properties Inc Earnings Call

Wyomissing May 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Gaming and Leisure Properties Inc earnings conference call or presentation Tuesday, May 7, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew Demchyk

Gaming and Leisure Properties, Inc. - SVP of Investments

* Peter M. Carlino

Gaming and Leisure Properties, Inc. - Chairman, President & CEO

* Steven Ladany

Gaming and Leisure Properties, Inc. - SVP of Finance

* Steven T. Snyder

Gaming and Leisure Properties, Inc. - Senior VP & CFO

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Conference Call Participants

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* Barry Jonathan Jonas

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Carlo Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Joseph Richard Greff

JP Morgan Chase & Co, Research Division - MD

* Robin Margaret Farley

UBS Investment Bank, Research Division - MD and Research Analyst

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Thomas Glassbrooke Allen

Morgan Stanley, Research Division - Senior Analyst

* Joseph N. Jaffoni

Jaffoni & Collins, Inc. - Founder & President

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Presentation

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Operator [1]

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Greetings, and welcome to the Gaming and Leisure Properties First Quarter 2019 Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Jaffoni. Thank you, you may begin.

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Joseph N. Jaffoni, Jaffoni & Collins, Inc. - Founder & President [2]

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Thank you, Matt, and good morning, everyone. And thank you for joining Gaming and Leisure Properties First Quarter 2019 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at www.glpropinc.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ 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 forward-looking statements contained in the company's filings with the Securities and Exchange Commission 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; and Steven Snyder, Chief Financial Officer at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President and Chief Accounting Officer; Brandon Moore, Senior Vice President, General Counsel and Secretary; Steve Ladany, Senior Vice President of Finance; and Matthew Demchyk, Senior Vice President of Investments.

Thank you for your patience. With that, it's now my pleasure to turn the call over to Peter Carlino. Peter?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [3]

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Well, thanks, Joe, and good morning, everyone. As usual, we have our entire talented team present, willing and able to contribute to this call. And by the way, before I get started, we were jokingly -- talking that we've got to find some livelier music to keep you guys entertained before we get started on this call, something a little more contemporary because it was killing me.

Listen, we're happy to report another strong quarter here at Gaming and Leisure Properties, and of course, that reflects the benefit of the acquisition of the properties now operated by Boyd Gaming and Eldorado Resorts and of course, our adjusted arrangement with Penn National. There's a lot of activity -- as you've probably have heard, there's a lot of activity this quarter, and we're probably as busy as we have ever been. We'll see what shakes out from that, but I think we do need to highlight that as I've said over many, many years, if it's alive and breathing, you can imagine that we're looking at it and aggressively so.

Look, our criteria is very strict. We, as I have long said, are not in the business of building monuments, but doing profitable business that will build value for our shareholders, which I consider myself to be first and foremost in my role at this company, kind of shareholder-in-chief, and that's the way I think about it and I expect that you do the same.

I think we'll highlight a few things. Our quarterly release, I think, was pretty robust and thorough but nonetheless, Steve Snyder will highlight a couple of points that might be helpful to you. Steve, why don't you start?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [4]

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Thanks, Peter, and good morning, everybody. Before I get started, just a quick housecleaning matter. This morning, we did file our quarterly financial report on Form 10-Q with the Securities and Exchange Commission. So to the degree there are any questions, feel free to peruse that at your leisure. It may address some things that will probably come up on the phone call.

In addition to the 10-Q, which we filed this morning, you've already noticed that the level of disclosure and transparency in our Q1 2019 press release, which we're discussing this morning, is probably more user-friendly than any of our previous press releases as it relates to the real estate portfolio here at Gaming and Leisure Properties. Part of that is thanks to some accounting pronouncements, which have gone into effect, so that you don't see the gross-up of real estate on the revenue side or the real estate tax expenses on the expense side.

Likewise, as a result of the Penn-Pinnacle transaction, at year-end, we were able to reclassify the Pinnacle -- amended Pinnacle lease out of the deferred financing lease category and categorized it as an operating lease, making our disclosures much easier and more straightforward to convey to you, our investor community.

Just touching on a couple of portfolio highlights. Obviously, it goes without saying, but our portfolio is 100% occupied, and all of our tenants are current with respect to their rent obligations. I'll get into that in a little greater detail in a moment.

In Q1, we realized almost $255 million in income from real estate. You'll see the reconciliation of cash rent and interest income to GAAP in the financial -- in the press release, in one of the newer tables that's been added.

One thing I will highlight, during the quarter as a result of the Penn-Pinnacle merger and the amended Pinnacle master lease and the new Boyd master lease, we did, working with our tenants, end up with a reallocation of some of the base rent components in the amended Pinnacle lease between Boyd and Penn National. Such that in the quarter, there was a $330,000 reduction from our Q1 guidance in the Boyd occupancy cost that moved over to the amended Pinnacle master lease that Penn has now assumed. That $330,000 quarterly number will roll through for the balance of the year from our Q4 or from our earlier guidance that was provided in conjunction with our Q4 earnings release.

As it relates to the Casino Queen transaction, I just want to remind folks that we did lend $13 million to the parent of Casino Queen. We also own the real estate as a result of a sale-leaseback transaction which we did with the Casino Queen entity back in 2014. They did pay their rent in May. So they are current on their rental obligations under the lease pursuant to accounting convention. And as a result of the undertakings at Casino Queen, they have been in a process to identify a purchaser. That process has slowed down materially, and the outcome of that process has become much less clear than it was when we filed our year-end financial statements. As a result of that, we have chosen in the quarter to write off the full amount of the subordinated loan that we made to the Casino Queen parent entity as a result of the senior loan that is in front of us and the indications of value that we've seen throughout that sale process.

We are engaged directly with the Queen management team and are monitoring the situation closely. As you see in the exhibit, they were right under the 1.4x coverage at year-end, that has resulted in obviously us being in an even greater dialogue with [they] and their outside consultants at this point in time.

Additionally, in the quarter or subsequent to the quarter, you heard Penn's announcement of their intent to close the resorts facility in Tunica, Mississippi. That will have no impact whatsoever on the rent that we will continue to collect from Penn under that master lease that was amended in 2017 when they acquired those 2 properties in Tunica. There will be -- it's likely that there will be a noncash charge that the company will take in Q2 of this year to reflect that asset write-down but again, no impact whatsoever with respect to our rental income from Penn under that master lease.

Lastly, I'll touch briefly on the taxable REIT subsidiary. You saw in the press release that we've reduced our guidance in the taxable REIT subsidiary as a result of legislative action in Maryland. I'm sure a few of you know this, but the Perryville facility is the highest taxed facility in the state of Maryland. The gaming tax on slot revenue at Perryville is 61%. There was legislative relief that was provided. The Lottery Commission granted us the relief of 500 basis points at the end of last year, but the legislature through its budget process revoked that relief and that's why you saw the reduction in guidance from the TRS and the reduction in the performance in the quarter.

As to the balance sheet, you see the revolver balance has been paid down modestly from year-end. As a result, at quarter end, our gross leverage based on the trailing 12 months EBITDA pro forma for the transactions that closed in the quarter -- in fourth quarter 2018, our gross leverage was 5.6x and our net leverage after taking into account the $30 million approximately of cash on the balance sheet was 5.57x. And we are comfortably in compliance with all of our debt covenants based on those outstanding balances.

Finally, on the balance sheet. There was no activity in the quarter on the at-the-market program. We still feel -- in spite of the improvement that we've seen in our equity price, we still feel that the underlying fundamentals of our business are not fully reflected in the equity values that we are seeing in the equity markets as we speak.

Lastly, on guidance, I just want to give you a little color on our guidance. The guidance has been impacted, as was the quarter, by some modest weakness in the Ohio casinos as Penn mentioned on its earnings call. We hope that as the year progresses, they will get back closer to where their plan was at the beginning of the year. But based on the weather impact in the quarter and their projections for the balance of the year, we do see some modest declines as to that revenue stream compared to where we were when we issued our guidance at the end of last year.

Finally, on the 2 bands of guidance, the lower end of the band, you will see that it includes the Eldorado Resorts escalator on the Tropicana lease and it also includes the escalator on the Boyd properties under the amended Pinnacle lease, those properties that are -- were retained by Boyd and it covers the escalators associated with the loans to those 2 entities.

Lastly, on the upper end of the guidance. As a result of Penn's earnings call last Thursday, we've removed the Meadows escalator from the upper band of guidance, just to give you a little bit more specificity around the background in the bands of guidance that we've provided.

So with that, operator, I would turn it over to you to entertain any questions that I'm sure exist from the members of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question here is from Carlo Santarelli from Deutsche Bank.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [2]

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Just a quick one, Peter, on the comment you made earlier, which was you've kind of -- that you guys are very busy and as busy as you've been. I'm just wondering not necessarily what you're working on, because I know you won't answer that, but more along the lines of what's changed, what do you think has changed in the environment out there that's maybe triggered an onslaught of new kind of actionable stuff?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [3]

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Well, I wouldn't call it an onslaught. I mean, look, there are some big company stuff. You know which companies are involved. They're kind of out there and open, and I think everybody is aware of that. And then around the fringes, there's a number of properties that we're looking at in various states. I don't know that anything has changed. Steve, would you have a comment -- I mean, a thought about that? Or Steve Ladany, you spend a lot of time looking at this stuff. I don't sense that there's been a material change, just a lot of little stuff we're playing with.

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Steven Ladany, Gaming and Leisure Properties, Inc. - SVP of Finance [4]

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Yes. We -- I mean, clearly, the environment with the activism has created some of the items you've seen out publicly or rumored to be public. With the exception of that, I believe that the valuations in the liquidity interest of ownership is probably driven by the fact that the transaction multiples, the comparable multiples have driven valuations as well as low cost of borrowing. And at this point, the equity valuations of all the gaming industry is also performed well. So I feel like there is a good environment for sellers to look to try to find liquidity events. And I think just as much as these are these formal processes out in the market, I think that we continue to believe that the informal discussions that are constantly ongoing are what will ultimately drive many additional transactions which are maybe not as well known.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [5]

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I mean, when we look at the big stuff, I consider that home run territory if we can find it. But we're perfectly willing to hit singles, just solid safe transactions that boost AFFO and, from my greedy point of view, boost dividends which is hugely important I think and -- to me as a shareholder. So -- and that's our focus.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [6]

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Great. And then, Steve, If I could just on the guidance. With respect to the Pinnacle escalator, is that in the high end of the range right now?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [7]

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It is. Meadows is not. But Pinnacle is.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [8]

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Pinnacle is. And Pinnacle's not in -- at the lower end, I would imagine then?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [9]

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That's correct.

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Operator [10]

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Our next question is from Robin Farley from UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [11]

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Yes, I just wanted to hear your thoughts on, theoretically, if there were a larger company that were to sell some assets, how would you think about when you sort of unplug a property from a large marketing database and from a large maybe sourcing, cost-saving synergies of being part of a much larger company. How would you factor in what that could do? In other words, if your -- would you be factoring in that a property sort of unplugged from a larger company might see a decline in EBITDA? Or is the idea that there would be -- could be something done better with it than what's currently done and you'd be actually factoring an increase in EBITDA? I guess, just to think about what your expectations would be in that scenario?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [12]

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Robin, it probably depends on where that property is. And look, if it's in Las Vegas, I mean, let's be real clear, that's one thing. Because, again, you're typically looking at properties with way higher CapEx, need bigger coverage, are hugely dependent on database marketing and so forth as opposed to a regional property. And so it's property-to-property, but one would have to be much more careful as you look at a property on the Strip for, example. Steve or...

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [13]

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Yes, Robin, to your question specifically, we've done it, right? When Penn spun off as a result of the Pinnacle merger, the 3 core properties to Boyd, you'll recall Pinnacle had their mychoice rewards program, they had a central database, central warehouse for everything. It really comes down to what is the strategy that the new operator has for the asset and what access does that new operator have to the database? Does the database stay with the parent? Does the database go with the selling parent? And the property, does the property get those unique visits or those customers who are unique visitors to their properties? So there is no template whatsoever that is consistent across transactions. But suffice it to say it is something that we do consider in underwriting the acquisition of real estate.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [14]

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Okay. Great. That's helpful. And I don't know if you have any more color to add. I don't know you talked about Casino Queen in your opening remarks. But is there a way to think about what your total exposure there might be? Like, in other words, you talked about the Tunica property and kind of no impact on rent and just a noncash charge. What's the sort of -- if a new buyer or a new operator, could you sort of talk about what your exposure is to, I don't want to say worst-case scenario, but the downside case?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [15]

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Yes, Robin, it's 1.4% of the company's EBITDA. And that 1.4% is the rent that we collect from our current tenant, CQ Holdings, the parent of Casino Queen. They jumped a little too far when they bought an asset in Iowa. Their management team was stretched thin and their management team has since departed. So we do feel that anybody coming in will probably be in a position to improve the operating performance of the asset such that our $14-plus million in annual rent, we would hope will survive. It is, as I said earlier, a work in progress and that progress is something that we are heavily involved with. And we'll do everything within our power, through the remedies available to us under the lease, to influence.

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Operator [16]

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Our next question is from David Katz from Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [17]

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Look, I think the details are all relatively clear. What I wanted to raise was a discussion I've started to have with you off-line that may be productive. And in our travels, when we discuss the company with investors, the question comes up around the downside scenarios for regional gaming and what happens and where the protections are and where it fits in the capital stack. I think it might be helpful to discuss some of those and how yours may compare to other competing companies, et cetera and sort of where you fit in the capital structure?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [18]

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Well, I mean that's -- we love to talk about that. Although I'm surprised that this late date, David, that that's still even a question. The regional properties we argue, of course, are infinitely more stable, reliable, dependable than, let's say, Las Vegas properties, by and large. With a neighborhood store, some of our properties don't have hotels. So CapEx is much more moderate. Yet, we have monopoly positions in a whole host of markets. I mean, I -- it's just not a hard case to make that our property and our portfolio is some of the finest properties in the United States with, I should point out, some of the best operators in The United States. Steve, you want to...

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [19]

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David, let me give you a couple of data points. I'm looking at pricing from Friday and I'm looking at the longest-dated senior unsecured credit of our 3 largest tenants. And those yields to worst as of Friday ranged from 5.07 for Eldorado out to 5.81 for Penn National Gaming on their senior unsecured notes. Our equity closed yesterday with a dividend yield of 6.71%. And I assure you the experience that we're going through in Casino Queen, we hope not to repeat, but we certainly understand where our tenant's occupancy cost lies with respect to priority. If they don't pay our lease expense, they don't have a building to operate. If they don't pay their unsecured creditors, they run into bankruptcy court and they reorganize. But even when that happens, I'm not aware of any lease payment that was not made throughout the pendency of the Caesars bankruptcy to any ground landlord or anyone else who had a real property interest in anything that Caesars operated through its bankruptcy.

So to your point in terms of where we stand with the capital stack, and then to your second point in terms of regional gaming, we feel strongly that these regional gaming assets, because of the tax they generate for the states in which they operate and the employment that they create in the communities in which they operate, is something that will be -- it won't be protected but in some way, shape or form will be preserved because of the reliance of those communities in those states on those income and employment streams. So time will tell. And unfortunately, we've talked about this, as you have mentioned off-line, maybe cycle testing our business will alert people to the durability and the resiliency of the cash flows that we have and to the value of the master leases in the cross collateral and coterminous features of our master leases. But we remain at it every hour of every day educating people on the merits of this business.

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Matthew Demchyk, Gaming and Leisure Properties, Inc. - SVP of Investments [20]

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This is Matt. I'd just add to Steve's point on the master lease point. We've added the table in the release so it's easy to follow, but 40 out of our 46 properties are in these master leases that Steve referred to with these high-credit quality tenants. And if you look at what happened at Tunica, it's probably a great example. There's a very different risk profile at the individual asset level and at the master lease level. So in that situation, we have an asset that's closed that actually should enhance the EBITDA and improve the coverage of our rents versus if it were a one-off asset that we held outside of a master lease, it'd be a lot greater option for the tenant to do what they wanted and wouldn't have that outcome. And our goal is really to focus, as we do our underwriting and capital allocation, on getting more capital into that master lease credit-enhanced bucket. Because I think you're right, there is a significantly greater value and should be a lot greater multiple applied to that.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [21]

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Let me highlight too that the closure in Tunica was not unanticipated. It was something that was considered from the very, very first as a possibility. They share a parking lot, look closely at cost structures. So we went into that transaction frankly with a clear awareness that, that may have been the smarter choice. It eventually evolved to be that, so there's no surprise to us here around that. Probably a good move for Penn. Doesn't hurt us.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [22]

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Got it. I -- look, I appreciate the repetition of the information. I hope that's constructive we sort of all repeat ourselves for a living a little bit.

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Operator [23]

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Our next question is from Barry Jonas from SunTrust.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [24]

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Would love to get your thoughts on another REIT reportedly interesting -- interested in gaming assets.

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [25]

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Barry, it's Steve. Listen, any institutional investor, whether they are an investor in public securities or in private real estate, that looks at our asset class and sees the underlying value of the asset class and makes an informed decision that they see an opportunity to deploy capital there should over time help us compress the cap rates on our business such that it enhances our buying power.

So at the end of the day, everybody starts panicking, oh there's another entrant here. Well, first of all, when there's a corner CVS that's up for the bid, there are probably 100 bidders. When there is a casino up for the bid today, there's 3 or casino style real estate, there's 3 and maybe they'll be 4 with some folks out of Kansas City dabbling, it remains to be seen. But I think, anything that brings attention to the asset class and lends credence to the institutional quality the cash flow that these leaders produce is over time a good thing for us at GLPI.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [26]

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But let me highlight that -- and we did a report, we had unearthed that, Matt, again, a couple of years ago looking at the experience of non-gaming people buying in the gaming sector. It is a wasteland of huge loss of people who thought it would be fun, kind of cute to get in the gaming business. Isn't this exciting? And look at the results. I mean -- so as they say, there's a lot of dead bodies lying out there for folks who've tried to get into this space and done some stupid things.

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Matthew Demchyk, Gaming and Leisure Properties, Inc. - SVP of Investments [27]

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I'd also add to Peter's point that there are hurdles that make entry uncomfortable, especially in the majority of the limited license jurisdictions that we find most mispriced and that typically means going through the licensing process for the management team and the Board members. In addition to that, it is clear that when you've got an institutional cash flow trading at a significant discount to all other institutional cash flows, it's inevitable that you're going to have other folks validate those cash flows. But the reality here is that our management team has something like 95 years I did this math of collective gaming experience. And that means better relationships, better operational understanding, better underwriting capabilities than anyone. And our goal is not to do the most deals, but to do the best deals and we're structured to do that regardless of the number of competitors.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [28]

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Great. And then just on Casino Queen. I think you're clear in terms of limited exposure. But is there a scenario where you would take over operations and maybe put this in the TRS?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [29]

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Barry, we are exploring all options.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [30]

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Got it. Okay.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [31]

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Listen, we're laughing with you. Very cryptic, but pretty clear, Steve. Thank you.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [32]

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Okay. Last one for me. Just on the guidance range. So just to be clear, the difference between the high end and the low end, that's all escalators? Or is there anything else around Ohio or anything else in there?

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Steven Ladany, Gaming and Leisure Properties, Inc. - SVP of Finance [33]

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No, it's all escalators, Barry. It's pretty straightforward math.

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Operator [34]

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Our next question is from Thomas Allen from Morgan Stanley.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [35]

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So when you bought the Tunica assets, you obviously paid a lower price than any other -- gaming retransaction that's happened. Have you looked at it -- assuming the revenue goes away on that it impacts the 5-year reset, have you looked at what the new -- what like the implied multiple is? I think the original -- the going-in multiple was 9.2x. Have you thought about what the new multiple would be?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [36]

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Yes, again, Thomas, Penn made a conscious decision that it appeared that they were performing at an EBITDA-neutral level. They made the decision to close this facility, recognizing that they have 2 others in the market. I believe, and you'll have to ask Jay and the operating team at Penn, I think they're very optimistic that they will capture most of the revenue from the closed facility at the 2 facilities that remain open. And I am certain, they expect to enhance margins market-wide with 2 properties compared to the 3 that they've been performing at historically. So there is no impact, first of all, on our lease income currently. Your question is at the 5-year reset for variable rent, which will not be until 2023 at this point in time, do we believe Tunica will have an impact on the variable reset? The resorts casino in Tunica is, I'll say this, it's really immaterial, it's relatively modest. I would not expect that to drive the outcome of the variable rent reset in Q4 of 2023 in any way, shape or form.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [37]

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Okay. So worst-case scenario, it probably went from like a 9.2 multiple to still sub-10x multiple, I'm guessing?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [38]

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Yes, absolutely. Absolutely.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [39]

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Okay. And then just in the press release, you highlighted that -- you added some new language here, highlighted that you may -- "we simultaneously pursue transactions for assets owned and operated by entrepreneurs." That entrepreneur comment kind of stood out to me. Can you just talk about like the underwriting thought process by partnering with entrepreneurs versus one of like the more institutionalized operators?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [40]

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Go ahead, Matt.

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Matthew Demchyk, Gaming and Leisure Properties, Inc. - SVP of Investments [41]

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I mean, I think the key thing is to break it into pieces. The first thing, we look at the operational competency of the operator and we try to ascertain how well they'll run the operations. And then separate from that, we do have to consider the things we've brought up. So ideally we have a master lease, ideally we have credit enhancement. There's also a market exposure question that we need to kind of consider. And we need to risk adjust all those factors to come up with what the appropriate multiple on pricing would be for any transaction. And the other piece of it is to consider any potential future business that we could do with the tenant and how that could be structured and how we should value that as well. So it's kind of a holistic consideration with all those attributes. But all things considered, I mean given our starting point, it's important to us to balance the credit enhancement strength of our public tenants with also potential growth vehicles and best potential partners that could be larger companies in the future.

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Operator [42]

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Our next question is from Shaun Kelley from Bank of America

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [43]

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Maybe just to stick with the same kind of -- the same thing as the last question. We obviously see, I think, pretty liquid market as it relates to the interest in the cost of capital for all of the gaming REITs and as was referred to as well maybe some other non-gaming triple nets looking to get into this space. But what's the appetite right now you're seeing from the opco side? Because I think in some of the transactions that some of us know are being contemplated out there, we struggle a little bit with a really deep bench on some of the operator side just given some of the same challenges that present, the barriers to entry being the licensing and all the things that you guys know well from your time as operators. So can you just comment on that, are you guys seeing appetite from any new or incremental parties that could be interesting here, that those of us in the public markets may not be as familiar with?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [44]

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Yes, we looking at each other. I mean, it's still a pretty small crowd. There is no doubt about that. And I will say, is there are some states where certain companies are maxed out. So what you have to look a little bit more selectively at who's left and who's left standing. It's going to be interesting in the next couple of years. I think I said 5 or 6 years ago that we'll eventually have 5 major gaming companies, maybe fewer when the smoke settles down the road. It's a consolidated industry, a very mature industry from the days we first got involved. So I mean, if your point is that the selection of operators is narrow, I kind of have to agree that's the case.

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [45]

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No, it is -- to Peter's point, Shaun, it is a shortening -- it is a list that shortens itself every calendar year it seems. But then you see folks like the Seminoles stepping into Cincinnati, you see the Tribal interest that is going to be stepping into Bethlehem, Pennsylvania. There are a number of nontraditional -- let me say it this way, nonpublic operators that do continue to remain interested in and do continue to deploy capital into the gaming space.

So I'm not worried that our list of potential tenants is too finite to facilitate our continued growth by any stretch of the imagination.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [46]

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And then just the other area I wanted to touch on maybe was obviously, the company's name being Gaming and Leisure Properties, we've heard a little bit more going on, on the leisure side as we look out there and some names being -- starting to be thrown around there. So can you just talk about broad activity levels on things that would be non-gaming? Or is your plate pretty full just by sticking with the knitting on the gaming side right now?

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [47]

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Look, I mean, I think, we'll always be primarily focused on gaming. We look at various leisure things, a whole host of things almost from the day we split these companies. It's been an ongoing process. The problem is finding something that has the stability, longevity and certainty of the kind of cash flow we get in the gaming world is very, very difficult. We're looking at horizons that -- in gaming that we expect to be here 20, 30 years from today. There aren't a lot of businesses where you can say the same thing with any real certainty. So we look, and I suspect that somewhere down the road, we'll find another place to be. I think it's almost inevitable if we want to keep this company growing. But for the moment, we haven't seen a better opportunity than what we've got in hand.

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Operator [48]

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Our next question is from Joe Greff from JPMorgan.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [49]

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Most of the things I wanted to ask have been addressed. But I have 2 quick ones for you. With respect to the Tunica closing, obviously, it doesn't impact the rent but it impacts the numerator in the rent coverage. If we were to go back over the last 4 quarters, what would that sensitivity and rent coverage be if we 0 out the property-level EBITDA related to that asset.

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [50]

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Joe, it's immaterial. As been commented on by Penn National, they made the conscious decision to close the facility because it was, I think they have stated publicly, EBITDA-neutral or very modest. So in terms of any negative impact from either the variable rent or the coverage and therefore, our ability to realize escalators. I would hope long term that this is a decision that's being made with an expectation, as I said earlier, to improve market-level margins in Tunica across the 2 remaining properties and should be portfolio enhancing for us even though it is really a small component of what we do with Penn.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [51]

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Great. Okay. And then another sort of relatively nonessential but smaller question is. With respect to the guidance, you mentioned the change versus the last quarter as relates to Penn's Ohio casinos. Can you just quantify that amount? How much of that relates to weather in 1Q versus anticipation of performance there in the 2Q to 4Q?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [52]

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I would have to leave that, Joe, to the Penn guys to address. And I think they touched on it briefly in their call.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [53]

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Okay. And but -- and then the rent impact to you then versus a quarter ago?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [54]

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A quarter ago or year-over-year...

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [55]

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Just the guidance today versus in February.

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [56]

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The guidance in the quarter, it ended up being about just short of $1 million in negative impact.

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Operator [57]

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Our next question is from John Massocca from Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [58]

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So most of my questions have already been answered as well, but on a detailed level has there been any progress on making kind of regulatory headway towards getting Lumière on a true lease or to kind of finding a suitable substitution property?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [59]

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John, as you know, Lumière has a mortgage under it to its first anniversary. It's got a note that matures on its second anniversary. We have had some discussions with our tenant, with our operating partner, Eldorado, about the various alternatives that are available. There has been no material progress. When there is, rest assured you will hear from us.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [60]

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Okay. Understood. And then do you have any power as the landlord to kind of influence the assignability of a lease and therefore, who a tenant is -- who your tenant can -- can sell their operations to? Both with regards to maybe Casino Queen specifically, given the current situation they're in and then maybe more broadly across the portfolio?

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Steven T. Snyder, Gaming and Leisure Properties, Inc. - Senior VP & CFO [61]

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Yes, we do. Each lease has different successor tenant stipulations built into it. Some are straightforward hurdles -- I wasn't going to say simple hurdles, but straightforward hurdles with respect to licensing, with respect to operating history, with respect to size and scale and scope. Because obviously, we're much more concerned with a Boyd successor, an Eldorado successor than a Casino Queen successor. But each lease has its own unique set of standards and stipulations for a successor tenant.

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Operator [62]

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This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

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Peter M. Carlino, Gaming and Leisure Properties, Inc. - Chairman, President & CEO [63]

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Well, if that's it, we thank you all for dialing in today. I hope it was helpful, and we look forward to seeing you next quarter. Thanks, again.

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Operator [64]

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