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Edited Transcript of MGP earnings conference call or presentation 5-Nov-19 5:30pm GMT

Q3 2019 MGM Growth Properties LLC Earnings Call

Las Vegas Nov 18, 2019 (Thomson StreetEvents) -- Edited Transcript of MGM Growth Properties LLC earnings conference call or presentation Tuesday, November 5, 2019 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andy H. Chien

MGM Growth Properties LLC - CFO & Treasurer

* James C. Stewart

MGM Growth Properties LLC - CEO

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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

* Daniel Scott Adam

Nomura Securities Co. Ltd., Research Division - Research Analyst

* Greg Michael McGinniss

Scotiabank Global Banking and Markets, Research Division - Analyst

* John G. DeCree

Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research

* John James Massocca

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

* Jordan Maxwell Bender

Macquarie Research - Analyst

* Omer Nathan Sander

JP Morgan Chase & Co, Research Division - Analyst

* Richard Allen Hightower

Evercore ISI Institutional Equities, Research Division - MD & Research Analyst

* 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

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Presentation

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Operator [1]

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Good morning, and welcome to the MGM Growth Properties' Third Quarter 2019 Earnings Conference Call. Joining the call from the company today are James Stewart, Chief Executive Officer; Andy Chien, Chief Financial Officer. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the call over to Mr. Andy Chien.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [2]

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Thank you, operator. Good morning, and welcome to the MGM Growth Properties' Third Quarter 2019 Earnings Call. This call is being broadcast live on the Internet at mgmgrowthproperties.com, and we have furnished our press release on Form 8-K to the SEC this morning.

On this call, we'll make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC.

During the call, we'll also discuss non-GAAP financial measures when talking about our performance. You can find the reconciliation and GAAP financial measures in the press release, which is also available on our website. Finally, please note this presentation is being recorded.

I will now turn it over to James.

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James C. Stewart, MGM Growth Properties LLC - CEO [3]

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Thank you, Andy. I'd like to welcome everyone to MGP's Third Quarter 2019 Conference Call.

First, we're happy to report that the third quarter reflected yet another opportunity for us to execute on our strategy of sustainably growing our dividend to create long-term value for our shareholders. This quarter, we increased our dividend for the ninth time, representing a 32% increase since our IPO. We're proud to report that current total shareholder return since our IPO in April of '16 is 87%, which continues to exceed the return one would have earned in the NASDAQ 100, the S&P 500 or the RMZ over the same period.

Second, I'd like to comment on what we're seeing in the M&A markets. I believe there continues to be a significant amount of potential real estate transaction volume residing in the gaming industry and the broader leisure entertainment and hospitality sectors.

During the quarter, we've continued to actively explore transaction opportunities and have had a number of conversations with potential sellers and third-party operators. We remain committed to our growth strategy and a disciplined allocation of resources and capital. Our priority remains identifying and executing on accretive transactions that will enhance our ability to return value to our shareholders and increase our AFFO and dividend over the long term.

I'd now like to discuss the recently announced sale and leaseback of the real property of Bellagio with Blackstone. This transaction was announced at the lowest cap rate ever paid for an integrated gaming resort of 5.78%. Since we went public 3.5 years ago, our belief has been that our 13 well-diversified integrated resorts and market-leading regional assets would benefit from cap rate compression and draw interest from institutional real estate capital sources for this type of asset.

I am convinced that the pricing premium achieved in the Bellagio transaction will cause the value of our real estate to increase as investors realize the fundamental growth, value and stability of the cash flows generated by our portfolio. The gaming resort sector is still in the early stages of becoming a true institutional class of real estate, and this transaction is another step in that progression.

The deal also highlights the robust market for high-quality Las Vegas Strip assets, validates the value of our unique high-quality portfolio and further endorses our acquisition strategy of focusing on premier market-leading assets.

For example, MGM National Harbor is the top-earning asset in the entire Mid-Atlantic and sits in the midst of Washington, D.C. The Borgata is the leading asset in Atlantic City. MGM Northfield Park is Ohio's highest property by gaming revenue and MGM Grand Detroit continues to be #1 in Detroit in terms of gross gaming revenue.

These are just a few examples within our regional portfolio while here in Las Vegas, we believe we have the best-looking and best-performing assets for each class of customer that they target. I believe the low cap rate paid for Bellagio will ultimately be reached and surpassed by the value of our portfolio.

We also have the added benefit of cross-collateralization, apparent guarantee, industry-leading net rent coverage and attractive annual escalators across our entire portfolio.

Blackstone is obviously a very knowledgeable investor in global real estate and through this deal, meaningfully increases its existing Las Vegas Strip exposure, representing multiple billions of dollars of capital now put to work in gaming through their ownership of The Cosmopolitan and now the Bellagio real estate, both properties within an easy walk from many of MGP's iconic Las Vegas Strip assets.

This transaction also highlights the strength of MGM Resorts as a superior tenant with its substantial cash flow generating power. MGM's recently announced domestic net financial leverage target of approximately 1x by the end of 2020, underscores its commitment to building a fortress balance sheet, which only strengthens the value of our rent stream and our master lease guarantee.

I will now turn it over to Andy to discuss our financial results.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [4]

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Thanks, James. I will now provide some highlights for a few items in our third quarter financial results. We recognized $219.8 million of rental revenue on a GAAP basis or $236.5 million on a cash basis. Net income was $68.6 million, AFFO was $173.1 million or $0.59 per diluted operating partnership unit. Adjusted EBITDA was $232.6 million. G&A expenses for the quarter were $4.5 million. Also in the third quarter, our dividend increased to $0.47 per share, which represents $1.88 on an annualized basis and its ninth dividend increase since our IPO.

During the quarter, we continued to take advantage of the favorable interest rate environment. We entered into and/or modified and extended in total $700 million in interest rate swaps. As a result, we've lowered our weighted average fixed interest rate as of September 30 to approximately 1.7%. And with these swaps, 93% of our debt is currently fixed.

Our net leverage for the quarter is 5.1x, resulting in decrease in pricing for our term loan A, revolver and unused fee. These balance sheet actions provide us significant savings and increase cash flows that can be used to return value to shareholders as well as meaningfully -- meaningful capacity complete future transactions accretively.

With that, I'd like to turn it back over to James.

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James C. Stewart, MGM Growth Properties LLC - CEO [5]

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Thank you, Andy.

Operator, we'd like to now open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Joe Greff of JPMorgan.

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Omer Nathan Sander, JP Morgan Chase & Co, Research Division - Analyst [2]

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Omer Sander on for Joe. You had $9.9 million in property transaction targeted in the Q3, relatively sizable amount. Can you talk about this? Presumably, this relates to deal flow in your due diligence? Specifically, how much of what you were looking for in the 3Q relating to this $9.9 million is still warm in the Q4? I guess in other words, how much of this relates to Bellagio and Circus Circus versus MGM Grand and other transactions? And how much of this is away from MGM Resorts?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [3]

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As far as property transactions, that's a noncash charge as we go through the property portfolio from an accounting standpoint. It's not related to any expenses that we incurred during the quarter and it's purely just an accounting charge. And so it's not really transaction activity or the like at all.

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Omer Nathan Sander, JP Morgan Chase & Co, Research Division - Analyst [4]

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Okay. And then in general, I guess, for acquisitions. Can you remind us the minimum AFFO per share accretion? And how perceived asset quality factors into this math? I guess would you buy something that is barely accretive, if you like the quality of the real estate?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [5]

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We don't provide a target as far as dollar or percentage accretion for any given deal. What we do say is we like those transactions to be accretive. And every transaction is different. Our balance sheet is different at any point in time. And each transaction needs to be look in isolation.

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Operator [6]

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The next question comes from Nick Yulico of Scotiabank.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [7]

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This is Greg McGinniss on with Nick. James, how should we be reading into comments from the MGM call, that it's apparently more than likely MGP is going to participate in the MGM Grand deal? Does this mean like a 100% ownership of Propco? Or is it possible that a deal could be split among multiple investors? Could you also maybe comment on timing of a potential deal? I know that might be difficult.

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James C. Stewart, MGM Growth Properties LLC - CEO [8]

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Thanks, Greg. Well, as you know, we are -- our policy is not to comment on specific transactions. And I think the MGM call outlined pretty clearly sort of how things are progressing along. In terms of structure, one of the great skill sets that resides within MGP is an ability to creatively structure and analyze multiple different transaction types and quickly. And so as we think through optimal structures in any transaction, whether we -- how exactly we fund the deal, how exactly we bring it in, what -- the specific terms around it, we're always looking for creative ideas around how that can be structured such that it's the most possible enhancement to our AFFO dividend stream and shareholder value. So I would say not just with a deal -- potential deal around the MGM Grand, but around any transaction, we're always open and looking for ways to transact in such a way that maximizes value.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [9]

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So is it fair to say that how you've maybe got Propcos in the past is not necessarily how you'll be funding deals in the future?

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James C. Stewart, MGM Growth Properties LLC - CEO [10]

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No. I would say, that has always been the philosophy of the company. And it's dependent on many things that are, to a large degree, outside our control, such as interest rates, debt environment, stock valuation, receptivity of stock investors to issuance and so on and so forth. So to date, we have done them in a particular structure that we think makes the most sense for our shareholders, and that may be the structure going forward or it may not, depending on what the specifics are of the deal.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [11]

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All right. That's fair. And then just a follow-up here. Could you talk about any other particular investments you're looking at, either casino or otherwise? We're particularly thinking about The Cosmopolitan, which seems like a nice opportunity to work with MGM and solidify controls, 2 miles of the Las Vegas Strip?

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James C. Stewart, MGM Growth Properties LLC - CEO [12]

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Greg, I think you're going to have to jump from research on to the banking side. The -- it's a very, very active time in the market on both the gaming resort business as well as the nongaming resort and leisure business. So we're busy. We are looking at a lot of different types of opportunities and anything that fits our general criteria and is accretive to AFFO and value, that's something we want to do.

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Operator [13]

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The next question comes from Carlo Santarelli of Deutsche Bank.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [14]

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Andy, James, whoever wants to kind of take a shot at this. But obviously, the Bellagio transaction and the Blackstone structure, the lease structure and some of the terms and tenants that went with that was different than I think what we've seen in some other transactions. Obviously, your relationship with MGM, some of your peers with their tenants. Was there anything in the structure of the lease and how it was set up? Do you guys feel like is something we could see you incorporate going forward in transactions?

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James C. Stewart, MGM Growth Properties LLC - CEO [15]

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Yes. I would say there are certain things that we liked about that lease, there are certain things that we would prefer within our own type of lease. And again, any transaction that we do is so subject to the property, the timing, the seller, the operator and so on, it's hard to say with specifics exactly what we would do or not. But there are definitely certain components of that lease that I found attractive and I'm not going to go into any details of them. But things that we thought were creative, good ideas that could be beneficial for us to look at in the future.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [16]

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Great. That's very helpful. And then just, Andy, in terms of your remarks earlier, you talked a little bit about gaming and broader leisure and hospitality as being 2 avenues, not entirely different than comments you've made in the past. But have you noticed anything in the nongaming arena that's kind of changed in terms of how you've looked at it historically or how others in this industry have looked at kind of outside of the gaming sphere historically?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [17]

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I would say in terms of the nongaming assets, it's been pretty consistent. Obviously, we stay in touch with the bankers, the brokers, et cetera. They're all looking at potential transactions like a sale leaseback to us. From a lodging standpoint, there's still a larger management fee lodging a restructure out there, but leased assets are in the market, and we have seen those. So I think it's been pretty consistent, and we continue to evaluate those opportunities.

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James C. Stewart, MGM Growth Properties LLC - CEO [18]

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Just to jump in with one last thought on that, Carlo, is I would say, starting maybe 9 months to a year ago, there has been a consistently increasing tempo with other potential real estate owners, asset owners or operators wanting to talk with us about potential transactions across a consistently widening circle of type of opportunity.

So I think the company's success in our arena, right, the sort of net lease gaming resort field, isn't lost on a number of other players. And we're starting to be looked to more and more and more by our operators as a potential source of deal flow and transactions and funding.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [19]

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Great, James. And just to kind of tie it up, you're saying the reverse inquiry aspect has kind of increased, meaning you're being approached more frequently by those nongaming partners, potential partners?

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James C. Stewart, MGM Growth Properties LLC - CEO [20]

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Yes, definitely.

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Operator [21]

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The next question comes from Daniel Adam of Nomura Instinet.

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Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [22]

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So last week, MGM seemed pretty convinced that you guys would really only be interested in acquiring "quality" assets. Of course, we could all debate what they meant by quality, but reading between the lines, their comments seemed to suggest your pipeline was skewed maybe more towards Strip assets. I guess would you -- would you agree with that characterization? Or are there also maybe some regional assets perhaps that don't involve MGM that are also in the pipeline?

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James C. Stewart, MGM Growth Properties LLC - CEO [23]

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Quality of asset is certainly not limited to Strip assets in any way, not even that -- by no means is that how we view things. That said, there are a number of quality Strip assets. But if you look at the 5 large transactions we've done, 3 of which came from outside sellers and 2 of which came from within MGM, the 3 assets that we bought from outside sellers have all been really the powerhouses in that market.

And for us, quality is a combination of building quality, fit and finish such that the asset has an enduring value that will go to the full 30 years of our lease and have a meaningful value after that; the ability to offer multiple types of activities within the resort, which gives you a broader, more diverse customer base than if you're just offering one activity. One thing that we have generally shied away from is just smaller properties that are primarily offering a slot machine experience. We prefer something that offers many more types of activities inside. It brings more people, brings more sources of revenue, more sources of profit and becomes iconic and critical to the city within it operate -- within which it operates.

So we have purposefully focused on what we think are those types of assets, market leaders, very high quality, very great fit and finish. And we think that over time, we're going to be consistently rewarded for that because those types of assets are always in demand. So it's not just Strip, but it certainly isn't ruling out Strip. It remains as it is, but we like to focus on more the higher quality stuff.

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Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [24]

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Okay. That's super helpful. And then I guess my other one. Also last week -- so Jim alluded to a half a dozen or so bidders on the Bellagio real estate deal. A half dozen would mean that at least 2 more players and are currently, that we know of, in the gaming REIT space, including Blackstone were interested in that deal. And so I guess my question is, are you seeing any changes in the competitive landscape versus, say, what you were seeing 3 months ago?

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James C. Stewart, MGM Growth Properties LLC - CEO [25]

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I've thought for a long time, we've thought for a long time that the market will come to appreciate more and more and more as time goes on, the strength of the cash flow generating power of these assets and their value over time. And I'm not at all surprised that we have brought in more competitors and, frankly, for one, welcome the added interest in the space because we're sitting on more luxury-integrated resort real estate, gaming resort real estate than any company arguably in the world, and we think it's going to bode very well for us as time goes on.

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Operator [26]

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The next question comes from Jordan Bender of Macquarie.

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Jordan Maxwell Bender, Macquarie Research - Analyst [27]

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So last week, MGM noted that the 17.3x is something that they probably couldn't have got earlier in the year or even last year. And you mentioned that your real estate will hopefully pass that 17.3x eventually. In the conversations that you've been having, have you seen the multiples start to increase maybe towards that 17.3x over the last couple of months?

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James C. Stewart, MGM Growth Properties LLC - CEO [28]

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I would say that if you go back to our IPO to now, and if you -- and then you can even go back to earlier times when you had really only GLPI focusing on resorts such as these, there has been a consistent increase in the value, the multiple paid for the real estate, but also a commensurate increase, even greater increase, in the trading valuations of these stocks. So it's not so much. It's almost impossible to call a trend over like a 3-month period. But I think if you look over the longer haul, as these -- the valuations of our own companies have increased, the valuations of the private market have also increased. So yes, there's been a consistent increase in value.

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Operator [29]

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The next question comes from Rich Hightower of Evercore.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [30]

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So I just -- I couldn't help but observe the commentary on the pipeline and the breadth and the quality sort of available that's out there and potentially on the comm -- the commentary sounds pretty similar to kind of what you guys said last quarter. So I'm wondering, is there anything in particular that seems to be holding up timing on some of those announcements? Is it sort of a funding gap among the gaming REITs? Is it something else that relates to the timing there? Anything that we should be aware of?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [31]

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No, I would say that these transactions take a long time. They're big transactions. They have financing, negotiations, just negotiations between buyer and seller, lease negotiations, et cetera, they just take a long time. So there's nothing in particular that I'd point out that's any different than any other quarter for us.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [32]

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Okay, that's helpful, Andy. And then Andy, I want to go back to maybe some of your quick comments in the prepared commentary on MGP's cost of debt. And I'm just wondering, as we look at the credit statistics for MGM going forward and their leverage targets and so forth. How much of that improvement do you think eventually will be imputed to MGP's cost of debt sort of in this virtuous circle way of thinking about things? Is that a realistic expectation for the way we think about MGP going forward as well?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [33]

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I certainly think so. I certainly hope so. In terms of -- to the extent there's credit rating improvements for any tenant, there should be improvements then to the lease quality and as we look across the space at all companies -- all net lease companies, right, credit quality is an important aspect. You don't get the asset back for a number of years and the payments in between are dependent on the company that's paying it. So if there's improvement there on an MGM front and they've communicated a target of 1x financial leverage by the end of next year, that credit rating improvement should flow through to us and the value of the cash flows that's being paid as cash rents on a monthly basis improves as well. So we think that, that would [enter] to our benefit.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [34]

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Okay. But specifically, you wouldn't say there's any sort of tangible evidence of that so far?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [35]

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Well, the transaction has to close. And then I think the agencies will do their work from just a rating standpoint, but just over the past -- I mean it's really been a week, shares have done well, debt's traded well. So yes, for a small sample set, yes.

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Operator [36]

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(Operator Instructions) The next question comes from Thomas Allen of Morgan Stanley.

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

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Most of my questions have been answered. Just a quick question. Did you tap into the ATM in the quarter?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [38]

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Yes, we did. There's -- we utilized the ATM during the quarter. Our Q will be posted in a couple of hours here, so you have details in there.

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Operator [39]

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The next question comes from John DeCree of Union Gaming.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [40]

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James, I think in response to an earlier question, you talked about the quality of real estate casino assets, both on the Las Vegas Strip and outside of Las Vegas. And I was curious if you had a view on valuation or cap rate compression between Las Vegas Strip and some of the stuff you might own in the regional market, specifically Bellagio Center Strip, iconic asset. Do you ultimately see kind of valuation for high-quality assets regardless of location converging? Or do you have a view of the Strip where regional would be a preference for additional investors, institutional investors?

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James C. Stewart, MGM Growth Properties LLC - CEO [41]

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It's a really interesting question, John. And I would say, one of the unique characteristics of the gaming resort business in general is the unique nature of each individual market. You have a market in Las Vegas, which obviously is world-famous, draws a huge number of customers, daily flights -- every day -- frequently from multiple cities in China, daily flights from Oslo, daily flights from London, et cetera, et cetera. So you have that characteristic, sort of the corner of Main and Main here, right? However, as you go through the United States and you look individually at each individual market, there are also absolutely fantastic jurisdictions in large, multifaceted cities with lots of different types of industries and growing populations, which have casino resorts as well.

Now there are some markets that are less vibrant and exciting to us. But as we look across the whole landscape, we think that there are many, many regional assets where we think the cap rate should not only be the equivalent of a luxury Las Vegas resort like a Bellagio, but could potentially exceed it. And I think if you look at -- I mean I'll cite one that was cited earlier. But if you look at National Harbor, which sits on the edge of the Potomac and overlooks a number of the monuments right in the midst of Washington, D.C., that is something that is a really unique asset that is going to be one of the gems for the whole Washington, D.C. area for dozens and dozens of years.

I would say the same thing with MGM Grand Detroit. There's no asset like it. It's absolutely fantastic. It's the site of choice if you have something going on in that city, and has -- shares many of those same characteristics.

So as it relates to cap rates between Vegas and the regions, I think it is too blunt to view them in that isolated format. It's really market by market, city by city, jurisdiction by jurisdiction, given the number of regulations, tax rate changes, et cetera, that -- tax rate regimes, et cetera, that overlay the operating environment to any one region. But I see no...

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [42]

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Asset by asset and tenant by tenant, too.

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James C. Stewart, MGM Growth Properties LLC - CEO [43]

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Right. I see no impediment at all to regional assets moving up to -- moving down to the same kind of cap rates that we're talking about for luxury Las Vegas real estate.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [44]

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That's helpful, James. Appreciate your thoughts on that subject. And then perhaps a quick follow-up. If there was some type of third-party interest in one of your assets, you own some of the probably most robust regional gaming assets in the U.S. right now, you've mentioned National Harbor and Detroit. If there was interests from a party like Blackstone, would you be willing and able to sell one of your properties out of the master lease, if it was at valuation metrics significantly attractive enough to you?

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James C. Stewart, MGM Growth Properties LLC - CEO [45]

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We certainly can. And we're in the -- our ultimate goals are to drive AFFO, dividend and shareholder value. So if something makes sense, we are more than able and would be very willing to transact like that with a caveat: it has to make sense for our shareholders over the long term and grow value sustainably.

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Operator [46]

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The next question comes from Robin Farley of UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [47]

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I just wanted to get your take on when we look at the 17x rent stream that the Bellagio rents sold for, do you think that the MGM Grand asset is of a similar quality, given the size and location? Just wanted to get your take on that.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [48]

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Robin, look, every transaction is different. Every tenant, every lease is different. It's hard to comment on something like that. And if you just look at where we trade, where other assets trade or other transactions are traded, they all have their own characteristics in terms of the aspects that I talked about. So each one will get priced accordingly. And obviously, we don't comment on transactions that we'd potentially be working on or not.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [49]

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Is it reasonable to conclude that since MGP was not involved in the Bellagio transaction that you weren't willing to pay a multiple that high for Bellagio? I mean I guess we can -- that's a reasonable assumption to conclude?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [50]

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We don't comment on transactions that we didn't do, per se. So I'm just going to leave it at that.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [51]

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Okay. I'm just trying to think about -- this will be my last attempt to get some color on this. When you're talking about features of the transaction, right, there are things that you liked about that structure and didn't like or I think you said a comment similar to that at the beginning of the call. Is there -- I don't know if you would assign some value in terms of like how many turns of rent to, if a seller is guaranteeing the loan for the buyer or anything like that, where you would say like when you look at the multiple, some of this is -- could be due to those factors versus purely rent stream?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [52]

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We look at all aspects of a transaction. And certain things have value, some of them detract from value. But we're going to hold those close to the chest, because we're going to be on one side of the negotiating table and somebody else is going to be on the other, and we'd like to keep those to ourselves.

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Operator [53]

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The next question comes from John Massocca of Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [54]

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So there have been some recent transactions that have been completed, kind of on a same buyer opco-propco basis that have had more of an angle towards maybe a redevelopment or a repositioning of certain gaming properties. Kind of in light of that, at what point would you feel comfortable maybe purchasing properties that are undergoing, say, a repositioning or have kind of a significant CapEx element to them on a near-term, going-forward basis?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [55]

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For transactions for us that haven't yet stabilized, there's -- to the extent the seller is looking for some kind of monetization, we can evaluate it. It probably isn't a top choice for a seller nor for us just because nobody knows the eventual run rate cash flows to maximize proceeds for them or maximize the transaction size for us. But to the extent there's a unique situation like that, we can certainly evaluate it and underwrite something. But obviously, not our top choice.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [56]

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Okay. And then how does MGM's kind of stated intention to pursue an asset-light model impact your thinking about doing additional deals with them? I'm kind of thinking in, let's say, a post MGM Grand, post MGM Springfield world, doing something similar to like the Park NoMad transaction, but given the other transactions that are potentially in places, MGM goes to asset-light might impact corporate coverage?

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James C. Stewart, MGM Growth Properties LLC - CEO [57]

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Well, one of the things that I think people have maybe not focused on quite enough is the superior credit that comes from that strategy. And this is what I mean. They're going to do, if you run them sort of, as I think of an asset-light strategy through to its end game, the amount of capital that's going to come into the organization, it's going to be very, very significant. And they've already stated they're going to have a 1x financial leverage target.

Lease obligations, in my own opinion, are much, much better for an operator to have than interest, amortization and repayment obligations. The lease lasts for 30 years, which is a very long time. And the coverages are such that I think the operators are pretty safe in being able to pay it. And most of the entities that have gotten into trouble in the gaming operating side have found themselves in trouble, not due to an inability to pay sort of their ongoing quarterly payments to fund the business, but when they have a large debt maturity come due and the market has not -- is not in their favor.

So many of the very well-known troubled times in the business have come from the decline in business due to recession, combined with a lack of capital flow, which is almost inevitable it occurs in a recession, such that they can't get a refinancing. By putting themselves into a position of increasing lease obligations and decreasing financial obligations, the credit is much, much stronger.

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Operator [58]

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

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [59]

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I just wanted to ask briefly. You touched upfront on the sort of Blackstone and then a little bit about sort of deal creativity and some of the -- one of the things you bring to the table. There's sort of this prototypical transaction out there where you do a deal, you go out to the capital markets to raise debt and equity to finance it. But when you kind of start to play with the idea of private equity, my question is, are there sort of third-party equity partners out there that you think whether it's Blackstone themselves or other people that maybe awoken by the sizable cash flows in a low yield environment? Do you think there's an appetite out there for potential minority stakes in sort of public companies as a possible financing vehicle? And is that something that MGP would look at?

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James C. Stewart, MGM Growth Properties LLC - CEO [60]

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I think there has been. There's been a lot of interest and a consistently increasing interest in the industry from capital sources going back to even a decade ago. If you go back to the -- when we were in the mid-2000s, MGM Resorts itself brought in Dubai World as a potential partner -- as a partner, pardon me, both as a shareholder of the company as well as a 50% partner in City Center. So that was sort of the start of sovereign capital entering the business, and it's only increased from there. And I think the Blackstone transaction, it's high profile, and we're in a fast news dissemination world, will continues that whole progression along.

That said, as Andy mentioned, these transactions are big and complex, and there are many, many different decision factors that have to be worked out before one gets done. So one that's hit the tape and is highlighted, but it's not to say that there hasn't been, again, I would say, consistent drumbeat of increasing interest in the industry that we've talked about certainly on these earnings calls for 3.5 years and before that. So the industry is getting attention and its unique positive characteristics are -- they're going to continue to drive that.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [61]

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Got it, James. And then the -- like we've touched on this or in a few different ways, throughout the Q&A here. But just to be sort of more direct, when we think about transaction criteria, I think, Andy, specifically, you said you like transactions to be accretive, but that doesn't mean they specifically have to be. So maybe to put you guys on the spot a little bit as it relates to a bit of a red line. Can you do or are you willing to do a deal based on, let's say, the merits of whatever the transaction may be, the lease features, et cetera, the quality of the real estate relative to your portfolio that is actually dilutive upfront with the idea that, look, it's enhancing to the overall portfolio and/or better real estate and/or a better fee stream, the way it's structured? Is that -- or does it have to be accretive to dividend and AFFO to kind of do that deal?

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James C. Stewart, MGM Growth Properties LLC - CEO [62]

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Well, there's not -- I mean the devil is always in the detail. So I mean if you had something that was accretive within 6 months, but not initially, would that count as accretive? I mean there's little structuring techniques that one can do to make cash flows higher later or higher now or whatever. But generally speaking, we don't see a lot of advantage doing a transaction that isn't accretive to our shareholders. We don't -- we have very long-term leases. And accretion to AFFO and ultimately, the dividend is one of the core things that we focus on. So I think it'd be pretty unlikely to see us do some sort of stretch deal that hampers the income statement.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [63]

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Got it. And then last question would be, you kind of talked about playing out the MGM kind of view to its end game. We think about the same a lot given our coverage of both sides here. And one thing we're trying to think about is the potential eventual deconsolidation of MGP.

Obviously, I think there's a threshold of 30% as it stands today, where MGM would deconsolidate. Is there anything in structuring terms, is this a negotiable element that could change that where that threshold would actually go up, meaning they could deconsolidate earlier than dropping to 30%?

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James C. Stewart, MGM Growth Properties LLC - CEO [64]

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The B share that they own is something that can always be opened up and discussed between the 2 parties, but I would caveat that with saying the 2 parties have to agree to transact. So it's just a contractual deal that we have. And just like any transaction like that, anything can be opened up.

One of the things that I also would just mention on the deconsolidation angle is deconsolidation is an accounting provision. It doesn't make a difference to the economics of the business. And so I think although one can -- one thinks about such things, it's really just a portrayal of the cash flows that flow in and out of each entity, et cetera, and what the liabilities are as opposed to any real change to the economics.

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Operator [65]

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The next question comes from Barry Jonas of SunTrust.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [66]

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So look, clearly, MGM Grand is in play, but curious how discussions around Springfield are progressing given where that property is in its ramp.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [67]

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Springfield was to have the remaining ROFO along with Empire City. The ROFOs are things that we'll be discussing jointly with MGM to the extent it makes sense. And timing-wise, obviously with their own real estate committee overlay, there's many things to evaluate there. So we'll throw it into the mix and see what transactions come out. It all kind of depends on all parties coming to the table.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [68]

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Helpful. Okay. And then just a second question. I want to make sure I've got this correct. Is the right way to think about MGM's real estate committee analysis, did that essentially put you in a holding pattern or create an overhang to get deals done with third parties? And if so is that now -- I mean I would assume that's now removed?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [69]

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No, I wouldn't say so. Discussions with third parties continue, transactions we evaluate continue. These things take a long time. So there's no point putting something in a holding pattern to weigh on some other transaction. So we continue to work on those.

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Operator [70]

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This concludes our question-and-answer session. I would like to turn the conference back over to James Stewart for any closing remarks.

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James C. Stewart, MGM Growth Properties LLC - CEO [71]

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Thank you. I would like to leave you with some final thoughts. We continue to progress on executing our long-term business strategy and remain focused on creating a stable and growing income stream that we could enhance our disciplined acquisitions of quality assets.

Our rank continues to be protected by our MGM parent guarantee and their superior and improving credit profile. Our priority is to sustainably grow our dividend and create long-term value for our shareholders. We actively monitor the M&A market to identify assets that meet our criteria, and we are committed to being thoughtful with our allocation of resources and capital as we continue to explore opportunities, both within and outside of the gaming sector.

We believe that our iconic Las Vegas Strip real estate, our market-leading regional portfolio and the value of our diversified cross-collateralized pool of assets backed by our parent guarantee, our industry-leading net rent coverage, attractive annual escalators and a 6% yield, MGP is a very attractive investment opportunity and, in my opinion, the most attractive real estate stock that is available in the public markets today period.

Thank you for continued support of the company. We look forward to our next call with you all for our fourth quarter and year-end results.

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Operator [72]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.