U.S. Markets closed

Edited Transcript of VICI.N earnings conference call or presentation 1-May-20 2:00pm GMT

Q1 2020 VICI Properties Inc Earnings Call

May 21, 2020 (Thomson StreetEvents) -- Edited Transcript of VICI Properties Inc earnings conference call or presentation Friday, May 1, 2020 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Andrew Kieske

VICI Properties Inc. - Executive VP, CFO & Treasurer

* Edward Baltazar Pitoniak

VICI Properties Inc. - CEO & Director

* John W. R. Payne

VICI Properties Inc. - President & COO

* Samantha Sacks Gallagher

VICI Properties Inc. - Executive VP, General Counsel & Secretary

================================================================================

Conference Call Participants

================================================================================

* 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

* David Brian Katz

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

* Jay Bradley Kornreich

SMBC Nikko Securities America, Inc., Research Division - Research 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

* Richard Allen Hightower

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

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Smedes Rose

Citigroup Inc, Research Division - Director & Senior Analyst

* Spenser Bowes Allaway

Green Street Advisors, LLC, Research Division - Analyst of Retail

* Stephen White Grambling

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Thomas Glassbrooke Allen

Morgan Stanley, Research Division - Senior Analyst

* Todd Jakobsen Stender

Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded today, May 1, 2020. I will now turn the call over to Samantha Gallagher, General Counsel of VICI Properties. Please go ahead.

--------------------------------------------------------------------------------

Samantha Sacks Gallagher, VICI Properties Inc. - Executive VP, General Counsel & Secretary [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2020 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI properties website at www.viciproperties.com.

Some of our comments today will be forward-looking statements within the meaning of the Federal Securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should, guidance, intend, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.

During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2020 earnings release and our supplemental information.

Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; and Gabe Wasserman, Chief Accounting Officer.

Ed and team will provide some opening remarks, and then we will open the call to questions.

With that, I'll turn the call over to Ed.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Samantha. Good morning, everyone, and thanks for joining us.

Here is what is foremost at this time for us, and that is that we hope that all our stakeholders are weathering this crisis as best as can be hoped. Our hearts go out to any who have been stricken by this virus and to the hundreds of thousands of U.S. gaming industry employees who have been furloughed for the past few weeks. To those stricken, we wish a speedy recovery, and to those who have been furloughed, we wish for reopenings to come soon and come safely. We held our last earnings call on Thursday, February 20. And in my opening remarks, I focused on the ways in which VICI's relationships have fostered the building and bettering of our REIT. I talked on that call about our relationships with gaming operators and asset controllers, our creditors, our own people and, of course, you, our stockholders.

Today, about 2 months after our last earnings call, I want to talk about another critical VICI relationship, and that is our relationship to reality. The essence of our relationship to reality is this. We don't deny reality. We don't fight reality. We manage our business so that we make the best we can of reality. Reality has changed a lot since our last earnings call to the point where reality can feel sort of unreal. Here's what we know with real certainty. 28 of 28 of our assets are closed. Here is what we do not know with any certainty, when our assets will all reopen and what the recovery pace of our tenants' businesses will be. There are many different scenarios for when our assets could reopen and many different scenarios for what the recovery pace of American regional and Las Vegas gaming could be. We are modeling all those scenarios and digging deep into what the implications of each scenario could be for VICI and for our tenants. But it's too early to commit to any strategy that only works if a certain scenario prevails because we don't know which scenario will prevail. We are working and will continue to work day by day, week by week, month by month with our tenants to determine how we best mutually navigate this crisis, which may ultimately mean supporting our tenants during the short-term in ways we believe will benefit us over the long term.

But there is one strategy we've committed to and have, in fact, been committed to since day 1 at VICI, and that's to be prepared for heavy weather and scenarios that heavy weather may bring. The one strategy that works for most varieties of heavy weather is a liquidity-focused strategy. A strategy that centers on already possessing and having ready access to cash that's sufficient to meet the company's fundamental financial obligations for a prolonged period of heavy weather. Our cash position is supported by the way we run our business. The low G&A, high margins, high flow-through of revenue growth to profit growth, strong cash retention driven by a payout ratio at the lower end of triple net REIT standards.

As our CFO, David Kieske, will make clear later in this call, VICI's liquidity position today is a position we will work to preserve every day going forward. I've talked about what we know and what we don't know, the outlook for reopening and recovery. But let me close out these opening remarks by turning to what we strongly believe. We believe we own high quality, well-located real estate that is and moreover will remain mission-critical to our tenants. We believe that our tenants are in a business, gaming, that has proven its deep and enduring consumer appeal over decades, and through February 2020, American casino traffic, revenue and profit were at their highest levels in recent years. American gaming is a consumer sector that did not come into the COVID-19 crisis with preexisting conditions. And while we don't know what the pace of gaming recovery will be post-COVID-19, we believe that there will come a time in the future when consumer demand for the gaming experience will return to prior levels. All of this is to say that because of the long-term durability of gaming as a consumer experience, we believe strongly in the enduring value of gaming real estate.

VICI's owners, you, our stockholders, own this fundamentally valuable real estate, and we believe strongly that the value of your real estate will endure long past the passing of this crisis.

With that, I will turn the call over to John Payne, our President and Chief Operating Officer. John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [4]

--------------------------------------------------------------------------------

Thanks, Ed. Good morning, everyone. To start, the first quarter of 2020 remained productive for VICI. On January 24, we closed on the acquisition of JACK Cleveland Casino and JACK Thistledown Racino and a sale-leaseback transaction with JACK Entertainment. We paid a total of $843 million and added $65.9 million of annual rent to our portfolio through a master lease, which represents an attractive 7.8% cap rate for urban real estate in Ohio.

Just last week on April 24, we and our tenant, Caesars, announced the disposition of Bally's Atlantic City for total proceeds of $25 million. Not only will we receive approximately $19 million of the gross proceeds from the sale, but we will retain ownership of the Wild Wild West Casino area and Sportsbook, which will be folded into our Caesars asset and importantly, there will be no change to the existing annual rent under the master lease with Caesars. This transaction helps balance our geographic diversification as we work to complete the acquisition of Harrah's Atlantic City and it's just another example of how VICI works constructively with our tenants even in this current environment.

Turning to our tenants and the outlook of the gaming industry. Unlike many other REITs who have hundreds of tenants, we currently benefit from only having 5 tenants. And we continue to have active dialogue with each of our tenants during this unprecedented time. We collected 100% of our rent in April, and with respect to the outlook for May, we believe all rent will be received this month. Many of you have asked about our diversification strategy on prior calls, specifically as it relates to investments outside of gaming. We have been very thorough in our evaluation of other sectors and have not made an investment to date by design. We believe this measured diligent approach has benefited our investors given the current environment. While we'll continue to evaluate the investment characteristics and overall attractiveness of other sectors, we will remain intensely focused on gaming as we believe, at the right time, gaming will yield opportunities for VICI to continue to grow accretively.

In addition to our tenants, I am spending time with other casino operators to best understand the potential reopening time lines across the industry. As Ed mentioned, every commercial casino property across the United States remains closed, and at this time, we're not yet aware of a definitive time line for reopening. As many of you know, in normal times, the gaming industry operates 24 hours a day, 7 days a week, 52 weeks a year, and operators have extensive experience developing, communicating and executing detailed operational plans. This energy, expertise and rigor will be key to reopening safely, successfully and profitably. We are firm believers in the resilient, enduring nature of the gaming industry. The game industry has an extremely loyal customer base and has proven its resilience through challenges in prior economic cycles. As Ed noted, gaming did not suffer from any preexisting conditions heading into this pandemic. In fact, January and February of this year were among the best months many properties have experienced in decades, and we believe customers are eager to return to our facilities, particularly at the local level upon reopening.

While we do not know exactly what tomorrow brings, we believe that the importance of our assets will only increase in the months and years ahead, given the mission critical nature of the asset to the operators, the revenues collected by the states from gaming tax, and the total jobs the casinos create in their respective communities. We retain a strong liquidity position as David will discuss, and we stand ready to support our tenants to the extend absolutely necessary in ways that create value for VICI over the long term. And lastly, with respect to the Eldorado transaction, Eldorado stated in their press release last Friday morning that they continue to remain intensely focused on closing the transaction with Caesars. We stand ready to close on our portion of the overall transaction as our financing is complete, which David will discuss.

Now I'll turn the call over to David, who will discuss our financial results and balance sheet.

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

Thanks, John. Before I discuss our financial results and balance sheet, let me take a moment to express my sincere gratitude to our accounting, asset management, finance and legal teams for all their efforts and relentless focus closing the quarter remotely during this pandemic, truly a remarkable effort. I'd like to point out that we added an additional schedule to the back of our earnings release, which breaks down our cash revenue by lease and the corresponding noncash adjustments in order to tie to GAAP revenue as presented on the face of our income statement. We also disclosed this breakdown as well as other detailed financial information in our quarterly financial supplement which is located in the Investors section of our website under menu heading Financials.

For the quarter, total GAAP revenues in Q1 '20 increased 19.2% over Q1 '19 to $255 million, while total cash revenue in Q1 '20 was $257.6 million, an increase of 21.8% over Q1 2019. These increases were the result of adding $44.1 million of rent during the quarter from the Greektown; Hard Rock, Cincinnati; and the Century acquisitions which closed in 2019; and the JACK Cleveland, Thistledown acquisition and related loan which closed on January 24, 2020.

AFFO was $180 million or $0.38 per diluted share for the quarter. Our G&A was $7 million for the quarter and as a percentage of total revenues was 2.8% for the quarter, which is in line with our full year projections and represents one of the lowest ratios in the triple-net sector. Our results once again highlight our highly efficient triple net model as flow-through of cash revenue to adjusted EBITDA was nearly 100%.

Beginning January 1, 2020, we adopted CECL, a new accounting standard, which required us to estimate and record a noncash provision or allowance for future credit losses relating to all existing and any future investments in direct financing and sales-type leases and similar assets. CECL is applicable to us as we account for our investments as finance leases, which are subject to the new accounting standard as opposed to operating leases like our gaming REIT peers, which are scoped out of the standard. We have historically determined that our leases effectively have 35-year durations given the mission criticality of the assets to our tenants. This lease duration and other factors lead to our leases being classified as finance leases for accounting purposes. The CECL allowance is derived from estimated probabilities of lease default and any resulting losses over the full life of the leases, inclusive of all extension options. The impact of the COVID-19 pandemic has caused this allowance to increase in the first quarter of 2020 to reflect the current economic environment. This resulting noncash allowance is recorded through our statement of operations, impacting net income and FFO, but is excluded from the calculation of AFFO due to its noncash nature.

In the first quarter, the noncash allowance related to CECL was $149.5 million drag on net income and a $0.32 drag on net income per share. I'd like to again make the point that this is a noncash allowance, and as such, there is no impact to AFFO and AFFO per share.

Moving on to the balance sheet and capital markets activities. On January 24, 2020, we amended our credit agreement, which reduced the interest rate on our Term Loan B from LIBOR plus 2% to LIBOR plus 175 with a LIBOR floor of 0%. On February 5, 2020, we closed on a $2.5 billion unsecured notes offering comprised of $750 million of 5-year notes at 3.5%, $750 million of 7-year notes at 3.75% and $1 billion of 10.5-year notes at 4.125%. We placed $2 billion of the net proceeds into escrow pending the consummation of the Eldorado transaction, which amount is subject to a special mandatory redemption if the Eldorado transaction does not close. The remaining $500 million of the proceeds were used to retire the 8% second lien notes, which were redeemed on February 20.

On February 7, we sold 7.5 million common shares under our at-the-market equity program for net proceeds of $200 million. Our total outstanding debt at quarter end was $6.9 billion, inclusive of the $2 billion of unsecured notes currently held in escrow with a weighted average interest rate of 4.19%. The weighted average maturity of our debt is approximately 6.9 years, and we have no debt maturing until 2024.

As of March 31, our net debt to LTM EBITDA was approximately 5x in our stated range and focus of maintaining net leverage between 5 and 5.5x. This includes the impact of the restricted cash that sits in escrow. We currently have approximately $1.3 billion in liquidity, comprised of approximately $310 million in cash on hand and $1 billion of availability under our revolving credit facility, which is undrawn. In addition, the company has access to approximately $1.3 billion in proceeds from the settlement of the 65 million shares that are subject to the forward sale agreements entered into in June of 2019. Between the proceeds from the equity forward agreements and the $2 billion of unsecured notes in escrow, we have $3.2 billion of capital earmarked for the closing of the Eldorado transaction.

As noted in the press release we put out on April 16, 2020, given the economic uncertainty and rapidly evolving circumstances related to the COVID-19 pandemic, together with the implementation of the new CECL accounting standard which significantly impacted net income, we withdrew our previously issued 2020 guidance and are not providing an updated outlook at this time. As many of you know, our guidance does not include acquisitions that have been announced but not yet closed. We believe this approach to guidance is prudent and responsible, though it has typically resulted in a material difference between the range we provide and consensus estimates, which do include pending acquisitions. Accordingly, we will evaluate the overall structure and usefulness of guidance going forward.

Finally, as it relates to the dividend, during the first quarter, we paid a dividend of $0.2975 based on the annualized dividend of $1.19 per share. Our AFFO payout ratio for the first quarter was 78%, slightly above our long-range target of 75% as a result of the June 2019 equity offering.

With that, operator, please open the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question will come from Smedes Rose from Citi.

--------------------------------------------------------------------------------

Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [2]

--------------------------------------------------------------------------------

I just wanted to ask you about some of the language in your more recent filings where you -- in the context of your leases, you talk about ongoing dialogues with your tenants. So I'm assuming that rent deferrals or concessions are kind of not on the table at this point. But could you talk about some of the things that you are considering or what you might need to work with them on to help them through this time?

And then my second question, you talked about liquidity a little bit. And is there a point where you would consider paying a portion or all of your dividend in stock or combination of stock and cash?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [3]

--------------------------------------------------------------------------------

Yes. Thanks, Smedes. It's good to hear from you. John, why don't you take the first part of the question regarding how we approach tenant discussions, and then David can address the dividend funding question. John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [4]

--------------------------------------------------------------------------------

Yes, Smedes. As I said in my opening remarks, one of the advantages we do have, we have 5 tenants and not hundreds of tenants. So as you can imagine, we are actively engaged in discussions with our tenants, not only about our leases and potential modifications, but really about their business, what they're seeing, how they think they're going to ramp. And we've had a variety of asks from our tenants based on a variety of potential scenario as it relates to the openings and time lines and ramps. And currently, right now, as you know, you follow the space, there's not real clarity about exactly when these assets are going to open and then there's a variety of models that we run on how they're going to ramp. So as you can imagine, the tenants are beginning to ask. Some of the asks have included partial rent or relief or deferral of rent, but there are other temporary lease modifications like CapEx spend that could help our tenants preserve cash. So we're looking at this holistically. It is important to realize that we think that value needs to be traded for value. And we do think that this is a temporary problem. So temporary problems need temporary solutions. And so that's how our discussions continue to go. They've been productive. And hopefully, we'll continue to have greater visibility in the next day or in weeks of when the assets will open and then we'll get a better idea of how the assets will ultimately ramp. So Ed, I'll turn it back to you.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [5]

--------------------------------------------------------------------------------

Yes. David, do you want to address the dividend funding question?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [6]

--------------------------------------------------------------------------------

Yes. Thanks, Smedes. I hope you are well. Look, as most people know, or as you know, we set the payout ratio very low from day 1. We've always had a targeted payout ratio of around 75%. Obviously, we're a little bit above that given the equity offering from last June. But part of the reason we set the payout ratio low is to be able to weather all storms and to maintain the dividend. And we're obviously in a hell of a storm right now and so we're relentlessly focused on maintaining that dividend. And as we work with our tenants, we feel confident that we will be able to maintain that dividend as we sit here today. We have the liquidity to maintain that dividend. I think, Smedes, part of your question was, would we consider paying some of that in stock. If needed, we might evaluate that option, that would not be our first choice. But if things continue on and we don't know what tomorrow brings, that's something we might evaluate. But at this time, as we sit here today, we're very focused on maintaining that cash dividend.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Your next question will come from Carlo Santarelli from Deutsche Bank.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Guys, obviously, you -- with the deals that you did, both the equity and some of the capital markets transactions in preparation for the acquisitions that you guys have closed on and plan to close on, you've left yourself in a very nice liquidity position. As you think about the balance sheet and going through these upcoming transactions, whenever it is that they close, you still, it seems, have a pretty good buffer of cash. And I guess my question is, is there anything that you guys could consider in terms of maybe some creativity around how you put that cash to work in the short term? Whether that is cash needs to potentially support some of your tenants or cash needs to go out and kind of look to be a little bit more aggressive on the M&A front as one could surmise that there will be other assets out there that are in need of some form of capital markets help or liquidity?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [9]

--------------------------------------------------------------------------------

Yes. Carlo, I'll start on that. And good to hear from you, Carlo, and hope you're well. I just want to start by actually recognizing David Kieske for his leadership on that -- the bond financing we did in late January. I remember talking to David in early January going, "Really? You really want to go that soon?" And he said, "Yes, I want to go that soon." And God bless us that we did, when we did. You may have seen that Netflix, which is obviously a pretty good credit these days, went out to raise money last week and they still couldn't reach our benchmark on our 5-year. So anyway, again, thanks, and thanks to David for that.

In terms of how we think about use of our cash, Carlo, the general approach we're taking right now, and it's an approach we really dug into with our Board yesterday on our Q1 board meeting is an approach that we define as situational readiness. At this point, given the uncertainty reopening, given more over the uncertainty of ramp back, we have to be ready strategically and economically for the broadest possible array of some situations or scenarios. And that array ranges from the highly, highly defensive on one end to the highly offensive on the other. And at this time, we really can't pre-commit to being highly, highly defensive or highly offensive because it's, again, too early to tell. But if things start to show green shoots, if we see the consumer coming back, if we see the assets reopening and producing good results, you are absolutely right, our liquidity position puts us in a position where we can make the jump into offense potentially before others because, again, thanks to David's leadership on our balance sheet, we've got a totally undrawn revolver and we have that ample cash that you referred to. But at this point, what we really like about our position is it makes us situationally ready for the broadest array of situations from, again, the extremely defensive to the highly offensive.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

The next question will come from Rich Hightower from Evercore.

--------------------------------------------------------------------------------

Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [11]

--------------------------------------------------------------------------------

Just a follow-up, I guess, on that last question. As we think about longer term, maybe with respect to the external growth prospects for this sector, to the extent that you are having those sorts of discussions right now with potential sellers depending on their situation, do you detect an extra sensitivity around maybe layering on the added fixed cost of a lease to an operator's capital structure? Do you think more equitized capital structures will be the norm going forward? And then maybe as we think about how coverage ratios and everything along those lines will change just in the context of greater uncertainty, obviously, no one runs a business with a 0 revenue outlook, but just that added level of conservatism as we think about the potential rent revenue that could be out there. Does that diminish kind of in light of what's happened?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [12]

--------------------------------------------------------------------------------

Yes. It's a really good question, Rich. And I think the answer could be very complex and fairly variable based upon the situations of each operator. I think one point you make is absolutely right. I think you could see for both operators and REITs, a more conservative approach to balance sheet management and cash flow. I think in the hedge fund -- after this lexicon, the term lazy balance sheet is not going to get used for a while here. I think companies will generally get rewarded for being conservative. I do think where gaming REITs could have appeal to gaming operators who still own a critical amount of property is that we can be another form of capital. I think you can presume their equity is going to be quite expensive. Their debt has gotten more expensive. To the extent that we can provide another form of permanent capital at affordable prices, that could be appealing, especially when combined with the fact that our capital does not bring with it any kind of bullet maturity. And I think anybody right now who is facing any kind of bullet maturity is in probably a pretty high state in nausea. And we are a form of capital that does not bring that kind of anxiety with it.

--------------------------------------------------------------------------------

Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [13]

--------------------------------------------------------------------------------

Yes. I think that makes a lot of sense. And then just a quick sort of modeling question. I know you've got some time before the coverage test on the Caesars leases and certain other leases before those tests kick in. But I think on the 2 Penn leases, those come up in year 2, do you care to sort of ballpark where we are maybe with respect to getting those escalators by that time?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [14]

--------------------------------------------------------------------------------

John and David? David?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [15]

--------------------------------------------------------------------------------

Yes, Rich, it's David. I hope you're well. The 2 leases you're referring to are obviously, Margaritaville and Greektown. Margaritaville reset earlier this year, 1/1/20, and we got that escalator. We're coming up on year 2 of Greektown. We closed that in May of last year. So June 1 of this year will be the reset or the -- yes, the reset, excuse me. And we are in discussions with Penn around that, and likely that reset happens just given the performance of the asset.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Your next question will come from Stephen Grambling from Goldman Sachs.

--------------------------------------------------------------------------------

Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

--------------------------------------------------------------------------------

I guess my first is for John. I guess, given your experience as an operator, how would you generally think through cash needs to reopen some of these properties and how cash generation or breakevens might change in an environment where there's just lower occupancies due to social distancing?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [18]

--------------------------------------------------------------------------------

Well, to remind you, I'm a recovering operator. So you can only take what I say with -- that I've been there. Look, I think that -- I've got great confidence in these operators. It reminds me of the time Churchill said, never let a good crisis go to waste. And what I mean by that is this is something that no one would ever wish upon an industry or a country, but these operators have now had a few weeks without operating business to think about how they reopen them in new ways. And I think what you're going to see is, obviously, there's going to be restrictions on whether that's mask or social distancing restrictions. But there are also, as those pass over time, different ways of how the companies think about operating the business. So to answer your question, I think that will -- in the short term, when revenues aren't going to be the way they were in 2019, you're going to see some margin differences in those performances. But I think over a long period of time, you're going to see those businesses come back. And the teams are laser focused. The operating teams are preserving cash, ensuring they've got the right amount of cash in the cage, not too much, not too little. And we'll just have to see, again, how these businesses ultimately ramp.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [19]

--------------------------------------------------------------------------------

Stephen, if I could just add a little more color to that as a fellow recovering operator, in this case, skiing and golf in my case. When you're an operator, your 2 main inventory items are the utilization space and the utilization of time. The social distancing strategies that our operators undertake, as John has spoken of, they will obviously reduce space utilization at one time. But we were talking to one of our operators the other day, and it's an example of how energetically and rigorously gaming operators think about the management of their 2 key inventory items, space and time, that they're taking a very innovative approach to how they manage the utilization of time and have identified segments in the day where specific customer demographics will be given a specific invitation to come at a specific time of day. And thus, while the overall space utilization may be somewhat lower, you could potentially get higher utilization of day parts than you had previously because of the customers' willingness to adapt their behavior in order to safely visit and enjoy the casinos.

And again, I take a lot of encouragement and -- well, not solace. But take a lot of encouragement on how our operators are thinking about how they're going to manage their businesses in that respect. And we are seeing the example close to home. As you know, within our TRS, we own 4 golf courses, 2 of which are going to reopen tomorrow. And in Southern Indiana, our tee sheet is full for the day, and we're selling tee times based on social distance practices, right up until the 4:00 time slot. And any of you who've ever been in golf course operations know, it's usually very tough to book the 4:00 in the afternoon time slot. And it's an example of how I think the American consumer will adapt their behavior in order to enjoy what they really want to enjoy.

--------------------------------------------------------------------------------

Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

--------------------------------------------------------------------------------

Great. And then not to beat a dead horse, but with the stock trading where it is, it seems like the market or investors are expecting some kind of relatively permanent rent reduction. I guess, are you considering or how are you thinking about permanent amendments, such as rent coverage floors or just an outright change in leases at this point?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [21]

--------------------------------------------------------------------------------

David?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [22]

--------------------------------------------------------------------------------

Yes. Stephen, hope you're well. And to use a business full answer, it all depends, right? It's tenant by tenant specifics and what the individual circumstances are. I think you heard John say, could it be a form of temporary liquidity to bridge them through a period of back to Carlo's -- or back to the question around what's cage cash and what are the operating needs for the couple -- next couple of months. We do benefit from the fact that we do have liquidity. So could we buy additional assets from our tenants? Could we provide some form of true liquidity versus trading an asset for rent -- deferred rent? And I guess it would -- it comes down to, as John said, making sure that we trade value for value. The unique aspect about this sector is that these are mission-critical assets for these tenants. And unlike the broader triple net sector where a lot of tenants are just walking and not paying -- not going to pay rent and may not ever come back given the licenses, given the importance of the assets to the tenant, to the employees, to the states and the tax revenues they generate, the tenants need to maintain these boxes and need to stay in these boxes. So we will find ways to help support our tenants, if needed, but we're still in the early stages here as we sit here, May 1, and the outlet for opening. It's still a little bit unclear, but there's some green shoots out there.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Your next question will come from Todd Stender from Wells Fargo.

--------------------------------------------------------------------------------

Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [24]

--------------------------------------------------------------------------------

Just on the theme of cash and the cage. Obviously, visibility when states will reopen remains unclear. But can you speak to what states -- what else they can do to lower the barrier to reentry, modify or loosen regulations? Heard about cash in the cage, but anything else that you can think of?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [25]

--------------------------------------------------------------------------------

John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [26]

--------------------------------------------------------------------------------

Yes. I mean I think you're thinking about this correctly. Again, we are not the operator, our tenants are, but we stay in contact. And I think you're thinking about it right and that these operators are going to these states and saying, look, this is unprecedented time, we don't know yet exactly the demand from our consumers when we first open up. Are there some things here that can help our liquidity position? That ultimately, over the next month, 2 months, 6 months, year, we'll get back to "normal operations." So I don't have the specifics. Cash is obviously one that's been, but there are other regulations that are put in place over time. Remember, many of these regulations in these states were created 20, 25 years ago and made sense. I do think that there will probably be a push over time to continue to find new ways to make it more efficient for the property. So I don't have any specifics, but I'll tell you, that is what the operators are doing, are pushing the state to find ways that they can have some temporary solutions to this unique situation.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Your next question will come from Thomas Allen from Morgan Stanley.

--------------------------------------------------------------------------------

Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [28]

--------------------------------------------------------------------------------

Can you just talk a little bit more about the Bally's Atlantic City transaction and kind of how you got to the results that you did?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [29]

--------------------------------------------------------------------------------

Thank you. Yes, good to hear from you, Thomas. John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [30]

--------------------------------------------------------------------------------

Yes. I mean this is a discussion -- I mean, we announced it, as I said, on April 24, as we continue to look at that market. As you know, Thomas, we will be acquiring as part of the Eldorado deal, Harrah's Atlantic City. We saw this unique opportunity to kind of decrease our position there, where at the same time, the Wild Wild West Casino and its Sportsbook will be rolled into Caesars. So not all of the real estate or the asset is being sold. And it also was a negotiation that allowed our rent out of the non-CPLV lease to remain the same. And we just saw this as a unique opportunity to make that transaction. And for those reasons, thought it was good for us to do that.

--------------------------------------------------------------------------------

Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [31]

--------------------------------------------------------------------------------

I guess, do you have the expectation that your tenant income will go down because of it, and hence, you wanted to get some incremental cash to defer that? Or how did you get to the $19 million calculation?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [32]

--------------------------------------------------------------------------------

Yes. Splitting of the -- go ahead, David.

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [33]

--------------------------------------------------------------------------------

All right. Thomas, it was similar to the Reno transactions where we split the proceeds 75-25 with Caesars that we announced at the end of -- at the beginning of this year. Similar proceeds split, roughly 75% of the total consideration went to VICI's landlord and Caesars as operator.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

And your next question will come from John Massocca from Ladenburg Thalmann.

--------------------------------------------------------------------------------

John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [35]

--------------------------------------------------------------------------------

I know we've kind of belabored this point a little bit, but just given some of your commentary on prior questions, I mean, is it fair to categorize your view of negotiations with tenants that you would prefer some kind of asset -- asset exchange or asset for liquidity exchange to the traditional deferral that maybe we're seeing more of in kind of the retail-oriented net lease space?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [36]

--------------------------------------------------------------------------------

John Payne?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [37]

--------------------------------------------------------------------------------

Yes, I think that's the way you should think about it. I think it's important to understand also how we -- for us that it's May 1 today. The clarity on when the assets are going to open is not great. Hopefully, in the next week or so, we'll get greater clarity. And then how these assets ultimately ramp is not real clear. I mean, you can see there's numerous scenarios run by every operator and buy up. So it's important for us to continue to see how this ultimately is going to play out. But your description is exactly how we've been thinking about it is that these are temporary issues. There needs to be temporary solutions. And those temporary solutions have to have value for value trade. And that's how -- that's a quick way of our overview of our philosophy.

--------------------------------------------------------------------------------

John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [38]

--------------------------------------------------------------------------------

Very helpful. And then switching gears a little bit. As we kind of enter what might be a more challenged environment for kind of Las Vegas and the Las Vegas Strip market. How does that change maybe philosophically the way you look at your ROFRs there? Does it maybe make it more attractive because you might be able to potentially get into a property at a lower basis? Or with a little more uncertainty, would you potentially think about not executing on those if the opportunities arose?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [39]

--------------------------------------------------------------------------------

Yes. I'll turn over to John Payne in a moment, John Massocca. But I think our starting point would be that while Vegas may indeed recover somewhat more slowly than the region, over the long term, we have no -- there is no flagging of our conviction that it is one of the world's great destinations. But John Payne, I'll turn it over to you. Some more color?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [40]

--------------------------------------------------------------------------------

Yes. I think, Ed, you started out answering the question perfectly. I mean, we are long-term investors of real estate. As you all know, as David opened up by saying, we look at our leases over 35 years. This is -- this pandemic has been just awful and unprecedented. But we do think that it is temporary. Now whether temporary is months or temporary is a year or 1.5 years, we'll have to wait and see how that ultimately plays out, and I sure can't predict that. But it doesn't change our long-term view of Las Vegas and our long-term view of the very limited amount of assets that are on the strip in Las Vegas. So we still think that, that is a community and a destination that over the long-term will continue to perform. And we'll continue to evaluate opportunities there, whether that's in the short-term or in the long term. So I hope that gives you some visibility of how we're thinking about it.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Your next question will come from David Katz from Jefferies.

--------------------------------------------------------------------------------

David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [42]

--------------------------------------------------------------------------------

Covered a lot of detail, but I wanted to just follow-up on CECL. And I did get on a minute or 2 late, so apologies if you've touched on this. But just thinking and recognizing that it is noncash and optical, and what it represents, how could we think about what that will look like a quarter from now, 2 quarters from now, 3 quarters from now on the assumption that we start to move down a road toward properties starting to open up? Is this kind of the one big shot for it and what we see is incremental from here? Is that how we might expect that to look?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [43]

--------------------------------------------------------------------------------

Yes, David Katz, good to hear from you. I'll turn it over to David Kieske in just a moment. But let me give you my perspective as a non-accountant, my perspective as an asset manager. And when CECL first came along, I will confess I went, "Really? We got to do that? Why?" But what I've come to appreciate about the CECL practice, if you will, is that it is, I believe, a valuable management tool when it comes to being situationally ready. What CECL requires us to do is, first of all, to look forward, which is always valuable in and of itself. And as we look forward at the credit quality, credit condition and operating performance of our tenants, the forecasted performance of our tenants, it requires us to be honest and rigorous about what the various scenarios could be. And it is a further tool in our toolkit to make us situationally ready for what may transpire in the coming period based on a reasonable and rigorous forecast. As to the volatility that CECL could bring in coming quarters and years, I'll turn that over to David Kieske.

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [44]

--------------------------------------------------------------------------------

Great. Thanks, Ed. David Katz, yes, as Ed said, CECL reflects the deterioration, especially in Q1 in the broader economy. It's not management's expectation for any losses in the current portfolio. It is simply an accounting standard. It's a noncash allowance. And if you look at note 6, Page 28 and 29 of our 10-Q, we've put some good disclosure in there around how CECL evolved over the first quarter. On 1/1/2020, we had to record an initial allowance. That was 2.88% of our total investment balance. That number, on a normalized -- normal economic environment should -- to answer your question, David, should move around 5, 10, maybe 15 basis points a quarter. Given COVID, given the downturn, it spiked up about 100 basis points this quarter. So that -- it's -- the model is all identifiable inputs, really around credit rating and the economic outlook of the economy. And so that's what drove the change. But once we get back to a normalized run rate, you're right, David, it should be much -- it will be less volatile and stay within a more of a stated range.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

Your next question will come from Barry Jonas from SunTrust.

--------------------------------------------------------------------------------

Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

I guess just at a high level, any color on how this crisis may change or, say, influence thoughts on how you structure deals in the future?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [47]

--------------------------------------------------------------------------------

Yes. I'll give you some first thoughts, Barry. Good to hear from you, and hope you're well. As I said in regard to what Rich Hightower asked about, I do think this whole experience will cause all of us to expand the rigor with which we account for extreme scenarios of performance or operating condition. And so I think there will be a lot of focus, obviously, on tenant credit quality as there always -- already was with us, and coverage and various lease terms and conditions that give us and the tenant comfort that even in the most dire times, we can each mutually survive and ultimately thrive. John and David Kieske, you want to add anything to that?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [48]

--------------------------------------------------------------------------------

No. I think you described it well. I think we'll -- I'd have nothing to add to that.

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [49]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [50]

--------------------------------------------------------------------------------

Great. And then I guess just a follow-up for me. Any color on golf operations? Just curious, any expectations on when that business could reopen and what the ramp could look like for that particular business?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [51]

--------------------------------------------------------------------------------

John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [52]

--------------------------------------------------------------------------------

Yes, I'll take that. As Ed mentioned, we're opening 2 of our courses today and 2 of our courses tomorrow. And Nevada just gave the go-ahead 2 days ago. So we've not had a lot of pre-selling there, and those will open tomorrow. Our course in Mississippian and our course in Indiana opened today. And as Ed mentioned, the tee sheets were quite full. So we'll continue to watch that. The operations, like we're seeing in other hospitality areas, are not full operations, meaning our club houses are not open, our food and beverage is not open. I think we'll have some really good visibility over the next 6 weeks. As we're able to start marketing to consumers in our destination courses in Las Vegas, we'll obviously be more focused at the time on locals. And in some of these courses like Cascata, which I'm not currently a golfer, but I know from golfers, that's a bucket list course that we'll price at a fee to allow locals to come out and play. So we should see some good demand to start getting that business up and running.

So to answer your specific question, I think we need a couple of weeks to better understand how it's going to ramp, but the early results, at least what we're seeing in Indiana and Mississippi, are quite encouraging.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [53]

--------------------------------------------------------------------------------

And Barry, what I would just add is that, while obviously the economic impact of this to VICI is not all that material, I think the greater meaning for us and perhaps for you as well is the pent-up demand to get out of the goddamn house that so strongly exists in America right now. I mean we're seeing it manifest itself on beaches, people just want to get out. And while we see data that measures public perception to safety and their willingness to go back out again, while we do see a high percentage of Americans rightly saying, they're going to be careful in how they return to leaving home. There's a lot of people who really, really want to leave home.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Your next question will come from Shaun Kelley from Bank of America.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [55]

--------------------------------------------------------------------------------

I'm not sure who this question is best for. But I'm just kind of curious, as we think about the reopening plan from the operator perspective. Just wondering if you guys have any thoughts about how like the -- which properties reopen by the operators could impact sort of the difference in coverages between sort of 4-wall properties and the broader corporate guarantee? So maybe just your broad view on sort of how does the corporate guarantee help you in the kind of -- in this type of landscape? And how could that fluctuate around the portfolio or impact operator decisions?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [56]

--------------------------------------------------------------------------------

Sure. David, do you want to take that?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [57]

--------------------------------------------------------------------------------

Yes. Thanks, Shaun. And as Yogi Berra once said, "It's tough to make predictions, especially about the future." So this is where we take comfort in the master lease and especially across the Caesars portfolio, which obviously has assets all across the country, Vegas and very, very good regional network. So we came into this north of 3x on a corporate coverage given the wholly owned assets in the Caesars portfolio, primarily on the Vegas Strip, that corporate coverage will come down, and nobody really knows where -- what the ramp will be or what EBITDA will be but the corporate coverage is key to us. And obviously, we have that with Century, Penn and -- we have the individual leases with Penn where we are -- [pay a pursuit] with GLPI and that corporate coverage. And then Hard Rock is also a corporate coverage. But given the investment-grade nature of that tenant, we feel very, very comfortable with that. And we have a corporate coverage on a smaller entity with JACK, very meaningful investment, where Dan Gilbert is one of the owners there. So we'll have to see. It's hard to take -- it's hard to predict the coverages will come down, but we don't really -- we don't have a good sense, as John talked about how this ultimately opens and ramps.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [58]

--------------------------------------------------------------------------------

And then my other question was just on the JACK portfolio specifically. Can you just remind us of what sort of the extra collateral or what is kind of -- what may be in that corporate guarantee beyond the obvious operating properties? That's it for me.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [59]

--------------------------------------------------------------------------------

David or John?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [60]

--------------------------------------------------------------------------------

Yes. I can keep going there Shaun and think of another -- entertain that one. Look, it's an entity called Rock Ohio Ventures, ROV. It owns 2 casinos, JACK Cleveland, JACK Thistle. JACK Cleveland actually sits within the Higbee building, which is part of ROV, Rock Ohio Ventures, as well has a garage next door and then some additional land right in that area. So -- I mean, that's part of the reason we ultimately did that loan to JACK because there's additional real estate collateral within that entity.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

The next question will come from Daniel Adam from Nomura.

--------------------------------------------------------------------------------

Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [62]

--------------------------------------------------------------------------------

So I was planning to ask a softball question, but because I'm so far down in the queue, I think I'll throw you guys a curveball. So my first question relates to the pending Eldorado transaction. When you guys weigh the benefits of deal accretion with the risks associated with the pro forma leverage and credit profile of the tenant, I guess my question is, does VICI necessarily even want the deal to close? And I fully recognize, of course, that the decision is in the hands at this point of the regulators and totally out of your control, but just curious as to how you guys think about it.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [63]

--------------------------------------------------------------------------------

Yes. I'll start, Daniel. Yes, we absolutely wanted to close. We think it's the best outcome for Caesars. We think it's the best outcome for VICI. We think the resulting company will have the best footprint, American gaming, the biggest, broadest regional footprint, the best CRM system in American gaming, which will now also put horsepower into the Eldorado assets. It will feed the best hub in the hub-and-spoke network in American gaming. You've got a great management team that we think is going to run the business very energetically, and moreover, is taking an approach to decision-making, accountability and operational energy that's very much focused out at the property level, which we think is going to be absolutely key in a time like this where as these gaming assets reopen and as they recover, each single asset is going to have to be intensely in touch with its own marketplace to make the best decisions for that marketplace, and that's very much the strategy that Tom Reeg has talked about since day 1 for the new company, but it's even more critical now. So yes, we're very excited. And when it comes to leverage, Tom Reeg has said all along that they will fiercely work to delever and derisk that company, and we take a lot of confidence in that.

--------------------------------------------------------------------------------

Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [64]

--------------------------------------------------------------------------------

Okay, great. I appreciate that color. And a question for John. I think you alluded to it to some extent in the prepared remarks, but I'm just wondering if your experience from the current crisis has altered in any way the company's appetite for diversifying into non-gaming real estate asset classes? That's it for me.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [65]

--------------------------------------------------------------------------------

John?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [66]

--------------------------------------------------------------------------------

Yes, we've talked about this quite a bit. I mean, as I said in my opening remarks and I've said throughout the -- any meetings we've had over the past couple of weeks is we've been very thorough in looking outside of gaming. And even before the pandemic, we have elected not to make any investments into assets outside gaming. I think right now, we're laser-focused on our tenants and the gaming industry, and we will remain that way. But I don't think, again, if we're talking short term, long term, I think in the long term, we'll continue to do our diligence on some areas that we have found interest in, but I wouldn't expect an investment outside of gaming in the relatively short term.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

Next question will come from John DeCree from Union Gaming.

--------------------------------------------------------------------------------

John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [68]

--------------------------------------------------------------------------------

Just one for me, and it's maybe a little higher level or conceptual. But when we think about kind of the trend evaluation here, which is obviously hard to discover, given casinos are closed. And on the other side of this, I think when we talked in the past about the cap rate compression story here, the idea was buy as much real estate as you can before the market realizes how valuable it is. And when I compare you guys to other REITs in the space, we still haven't seen a change in dividend policy from you or rent concession yet. We're in a 0 revenue environment from your tenants. So I'm kind of wondering how you think about the market's perception of your business as we kind of cross over on to the other side of this and your views. We've already saw some third-party interest from the likes of Blackstone and the casino industry prior to the pandemic. And do you think the sector becomes a lot higher profile on the other side of this, given what you've done or been able to do just so far with your tenants and the resilience that you've kind of proven so far?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [69]

--------------------------------------------------------------------------------

Yes. It's a very good question, John DeCree. And it is a time-will-tell answer to your question. I can tell you what I hope, and I hope that gaming as a consumer sector ends up coming through this whole crisis in relatively good shape versus other consumer discretionary sectors. I believe it will. I think if it does and -- it will help prove out the resiliency of our gaming real estate model. You're certainly seeing across many other real estate asset classes. Obviously, rent payment performance certainly does not equal what you're seeing in our gaming REIT sector so far. And I think you're also seeing what happens when a real estate asset class comes into a situation with pre-existing conditions as you're seeing, again, in so many other, especially retail-focused asset classes. So I'm hopeful that it is going to validate our model, that it will validate our values and potentially drive them higher in the future. But again, time will tell and is so dependent, obviously, on when we get reopened and how we recover.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

Your question will come from Jay Kornreich from SMBC.

--------------------------------------------------------------------------------

Jay Bradley Kornreich, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [71]

--------------------------------------------------------------------------------

I was just curious, if you somehow knew for sure that the Eldorado merger would close, would you still have suspended guidance?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [72]

--------------------------------------------------------------------------------

David, you can take that given that you don't guide on acquisitions anyway.

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [73]

--------------------------------------------------------------------------------

Yes, Jay, as I mentioned in my remarks, our guidance, which was $1.50 to $1.54 didn't include the Eldorado deal. So it was -- that's not related. It was really around the noise that the CECL allowance was creating in -- given the net income, obviously, is negative FFOs, the same as our net income, given there's no reconciling items between the 2 line items in our business, but obviously, an add-back for AFFO. So that was really what drove it.

--------------------------------------------------------------------------------

Jay Bradley Kornreich, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [74]

--------------------------------------------------------------------------------

Got it. And then also as it relates to the critical nature of casinos, I'm wondering if you or your tenants have had any conversations with state government about potential tax relief to support the gaming recovery?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [75]

--------------------------------------------------------------------------------

John Payne?

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [76]

--------------------------------------------------------------------------------

Yes. I can't tell you what every operator has done, we have not. But as I mentioned earlier in my remarks, if I was an operator, I know that some are -- they're digging into all the things that affect their P&L. And I'm sure there have been some discussions about temporary relief or reduction of taxes. I have not seen any state give those. But it wouldn't be surprising if there were those discussions, I just don't know if what the outcome and if there would be any change at this time. Obviously, the states are -- need those tax dollars because they're in a tough situation as well.

--------------------------------------------------------------------------------

Operator [77]

--------------------------------------------------------------------------------

Your next question will come from Spenser Allaway from Green Street Advisors.

--------------------------------------------------------------------------------

Spenser Bowes Allaway, Green Street Advisors, LLC, Research Division - Analyst of Retail [78]

--------------------------------------------------------------------------------

I just wanted to clarify something related to the CECL adjustments recorded in 1Q. I know you guys said that moving forward the adjustments will be -- should be less volatile. But as it relates to the reduced value of investments and leases on the balance sheet, is this line item able to be revised upward if the environment improves? Or is this a permanent reduction?

--------------------------------------------------------------------------------

David Andrew Kieske, VICI Properties Inc. - Executive VP, CFO & Treasurer [79]

--------------------------------------------------------------------------------

Yes, it's David. Spenser, I just hope you're well. No, it will reverse over time. It's -- one of the main drivers is the credit ratings of our tenants and a couple of the tenants were downgraded during Q1. So as those -- a lot of people know, agencies are quick to downgrade and it'll take some time for them to ultimately upgrade them. But as they do get upgraded and the economic environment improves, you could -- this will be reversed over time.

--------------------------------------------------------------------------------

Spenser Bowes Allaway, Green Street Advisors, LLC, Research Division - Analyst of Retail [80]

--------------------------------------------------------------------------------

Okay. And then just maybe one more, if I may. As it relates to your Vegas assets, when the closure mandates are ultimately like uplifted, do you guys expect that operators will open casinos all at once? Or do you think that we could perhaps see select openings on the strip, just due to the unique nature of nearby competition, potentially lower traffic, and then obviously, the higher cost of operating these assets?

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [81]

--------------------------------------------------------------------------------

Yes. Spenser, I'll have John answer that question directly in a moment. But before he does, I just -- I wanted to cite something you actually pointed out in a report you put out earlier this week, which is that California represents, I think, it was about 23% of visitation to Las Vegas. And I just want to say for the benefit of everybody, as we think about the recovery of Las Vegas, we need to appreciate the fact that Las Vegas, while it is an international destination, is a regional destination for the California gaming customer. And I would not underestimate the extent to which California traffic will bring a vitality back to Vegas that you would not have in a more isolated location. They are highly proximate to whatever it is, 30-odd million people. And I think that is going to be the benefit of Las Vegas. As to the way in which managers may choose to open properties in sequence in Vegas, I'll turn it over to John.

--------------------------------------------------------------------------------

John W. R. Payne, VICI Properties Inc. - President & COO [82]

--------------------------------------------------------------------------------

Yes. I believe for the operators that have multiple assets -- I believe that, in fact, MGM yesterday released earnings and I believe they talked about opening a few assets at a time. That wouldn't surprise me if that's the case in the Caesars network. They've not come out, obviously, with the plan because they don't know yet when they can open. But I think your thought process is right. As demand gets built up, supply will continue to open up. And hopefully, that will be quicker than longer.

--------------------------------------------------------------------------------

Spenser Bowes Allaway, Green Street Advisors, LLC, Research Division - Analyst of Retail [83]

--------------------------------------------------------------------------------

Okay. And yes, it's a great point on the California visitors. Really the point we were trying to make that, obviously, Vegas could recover faster than what some may assume just kind of based on those data points that some people might not be aware of.

--------------------------------------------------------------------------------

Operator [84]

--------------------------------------------------------------------------------

I have no further questions in queue. I'll turn the call back over to the presenters for closing remarks.

--------------------------------------------------------------------------------

Edward Baltazar Pitoniak, VICI Properties Inc. - CEO & Director [85]

--------------------------------------------------------------------------------

Thank you, operator. This is Ed. I hope all of you have found the call to be of value today, and maybe even a little bit entertaining. One of our owners texted me during the call to let me know he was pretty sure this was the first earnings call that invoked both Winston Churchill and Yogi Berra. So again, we hope you found the time of value. And let me just close by reiterating our thanks to all of you for being on today's call. With each passing week, we will learn more about what our collective recovery from COVID-19 will look like as a society, as an economy and as a gaming industry. And as the coming periods unfold, we will share our learning with you as we can and we insist that you always feel you can reach out to us whenever we can be of help to you. So now, you have our best wishes for good health. Thank you very much. Thank you, operator.

--------------------------------------------------------------------------------

Operator [86]

--------------------------------------------------------------------------------

Thank you, everyone. This will conclude today's conference call. You may now disconnect.