VICI Properties Inc. (NYSE:VICI) Q2 2023 Earnings Call Transcript

VICI Properties Inc. (NYSE:VICI) Q2 2023 Earnings Call Transcript July 27, 2023

Operator: [Abrupt Start] a detailed discussion of the risks that could impact future operating results and financial [indiscernible] results, prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and our second quarter 2023 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and or counterparties discussed on this call, please refer to the respective company’s public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Moira McCloskey, Senior Vice President of Capital Markets, and 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 Pitoniak: Thank you, Samantha, and good morning, everyone. We’re excited to talk this morning about our Q2 2023 results featuring a year-over-year AFFO per share growth of 11.9%, which we believe will be among the higher growth rates for S&P 500 REITs for Q2 2023, and yet at one of the lowest price to earnings growth ratios, PEG or PEG plus yield ratios among the S&P 500 REITs. For the course of the call, John will share with you what we’re doing strategically to continue our growth, and David will give you details on our liquidity position, our Q2 2023 results and our updated earnings outlook to year-end. I will now spend a few minutes on the exciting news we shared last night with the announcement of our significantly expanded growth partnership with Canyon Ranch, a legendary and leading brand in the place-based wellness sector.

Indeed, I’m excited to say that the VICI team is conducting this call from Canyon Ranch Lennox in the beautiful Berkshires in Massachusetts. The key elements of our expanded Canyon Ranch partnership are BG making an up to $150 million preferred equity investment in the Canyon Ranch operating company to support the expansion of the Canyon Ranch operating and digital platforms as well as enhancements to the Tucson and Lenox assets. VICI also intends to provide approximately $150 million of mortgage financing secured by Canyon Ranch Tucson and Canyon Ranch Lenox to refinance Canyon Ranch’s existing CMBS debt. With this refinancing serving as a bridge to enhancing VICI’s embedded growth pipeline by specifically allowing for VICI’s conversion of its existing purchase options on Canyon Ranch Tucson and Canyon Ranch Lenox, which are converting to call rights, whereby VICI can elect to acquire the real estate assets of Canyon Ranch Tucson and Canyon Ranch Lenox in the coming years, subject to certain conditions, with Canyon Ranch continuing to operate the assets under long-term triple net leases.

This also includes VICI’s previously announced commitment to provide up to $200 million of development funding for Canyon Ranch Austin, which is scheduled to open between 2025 and 2026 with a call right to own the real estate upon stabilization. And finally, the joint development of a strategy of identifying and potentially acquiring conventional resorts that have conversion potential to new Canyon Ranch resorts with Canyon Ranch operating the resorts and VICI owning the resort real estate under a long-term triple net lease. Canyon Ranch has nearly 45 years of operating history. It serves a highly affluent clientele that invest vigorously through all cycles in medical and holistic life enhancement experiences and services. With only 2 established destination resort locations, we believe Canyon Ranch is positioned to significantly expand its clientele and its geography domestically and internationally.

We are investing in Canyon Ranch to help fund and energize that expansion gaining through our partnership the opportunity to fund the acquisition and integration of new Canyon Ranch Resorts. Under the leadership of CEO, Jeff Kuster, the Canyon Ranch team is poised to grow its brand reach and network breadth, both programmatically and geographically. And of all the elements of our expanded partnership with Canyon Ranch, John Goff, Canyon Ranch’s [indiscernible] and I are most excited about network expansion in the years ahead. Both John Goff and I believe that the conventional resort sector could see elements of distress in the next few years, less to do with operating performance and more to do with refinancing constriction. As we have pointed out in our transaction deck, which can be found at www.viciproperties.com, more than $37 billion of resort and hotel CMBS financing will come due from 2024 through 2028.

And I should point out that, that’s only a fraction of the overall mortgage financing on U.S. hotels and resorts during this period. We believe that within those billions of dollars, our resorts that could meet Canon Ranch’s conversion criteria. The conversion of a conventional resort to a Canyon Ranch Resort has the potential to be transformative thanks to the capital and operating dynamics of the Canyon Ranch economic model. The Canyon Ranch model centers on maximizing the guest experience of space, indoors and out, and maximizing the guest experience of time through Canyon Ranch’s holistic wellness and life enhancement offerings. This maximization of experiences leads to a revenue intensity within the Canyon Ranch model that surpasses the economic intensity of a conventional resort, potentially giving Canyon Ranch and VICI competitive advantage in acquiring and realizing value out of resort locations meeting our criteria.

I believe our growth opportunity with Canyon Ranch is a generational opportunity in multiple senses of generational. Wellness is a secular growth trend that is multigenerational in its consumer profile and generational in terms of its secular outlook and growth opportunity. And Canyon Ranch Resorts are real estate built to last for generations. At VICI, we invest in partnerships and real estate assets that will preserve and grow value for many generations to come. As you look across the spectrum of S&P 500 REITs, ask yourself is the real estate of high-quality and generational durability? And does the real estate enjoy the benefit of cultural and demographic tailwinds that will sustain and grow the value of the real estate for generations come?

With VICI, I believe you get high-quality enduring real estate occupied by operators serving multiple generations of customers for generations to come. We believe our expanded partnership with Canyon Ranch is a superb example of this value proposition. With that, over to you, John Payne.

John Payne: Thanks, Ed. Good morning, everyone. Ed makes an excellent point on the quality enduring aspects of VICI’s portfolio. Our tenants continue to prove their operational excellence and their ability to innovate and evolve their business. And importantly, for VICI, their assets as well. The results that continue to come out of Las Vegas speak to our tenants’ operational quality and the operating credit, which we believe accrues to the value of our real estate. I will touch on Las Vegas in the gaming sector shortly. But I wanted to emphasize the type of portfolio we have built and that the team continues to build at VICI. These characteristics are a core focus of our strategy as we meet potential partners in gaming and nongaming experiential sectors, both domestically and internationally.

To recap our second quarter and subsequent activity, VICI continued its international expansion into Canada with our announcement of the acquisition of 4 gaming assets from Century Casino in Alberta. We also closed on the acquisition of the Rocky Gap Casino Resort in Maryland this week, again with Century Casinos. Our partnership with Century is a great example of the type of operators we look for as the relationship is a win-win for both businesses as we grow together. Canyon Ranch also exemplifies the type of growth-minded partner with operational excellence and place-based wellness. As as described earlier, we are very excited to deepen and expand the relationship into the future. Growing with our partners as they look to enhance and expand their businesses is a core component of our strategy as we develop and deepen our relationships across gaming and the non-gaming sectors.

This approach helps VICI continue to grow a more visible pipeline into our future with operators we value and we trust. It also allows VICI to build a portfolio of assets with each partner that we believe can meaningfully impact VICI’s growth over time. In the gaming sector, we continue to be impressed by our tenants. They exemplify the operational excellence we seek to find as we expand into other sectors. In what other sector right now, can you find a headline that reads “Another all-time record result, but in line with consensus.” Las Vegas has remained at or near all-time highs in terms of margins and results and is continuing to see record traffic. Regional casinos are performing well as the high-value consumer segment remains quite healthy.

We continue to see many domestic real estate opportunities in gaming, including in markets where we do not currently own assets and as the industry expands its footprint into new areas of the United States. We also remain focused on international opportunities with the team traveling the globe this year, meeting new potential partners. As VICI’s brand has ascended the funnel of opportunities has expanded in both gaming and non-gaming. We’ve added resources to meet the expanded funnel of opportunities. And as always, we work closely with our advisers and those in the VICI network to help force multiply our ability to create and evaluate opportunities. For nongaming, we are intensely studying various sectors at a category level and operating level and at an asset level.

Notably, in the family entertainment and sports categories, we’re moving past the evaluation stage and into constructive discussions on how VICI’s capital can fit best with our growing relationships. As you know, our relationships at VICI are at the heart of our success, and they take time to cultivate as we aim to find the best solutions that meet the goals of both sides, especially in an ever-evolving economic and capital markets environment. We’re excited about how these relationships are developing. The VICI team has been hard at work this year, building relationships and opportunities for a pipeline of growth across multiple sectors and geographies in the years to come. We are focused on partnering with best-in-class growth-minded operators with whom VICI can continue to grow our high-quality and generational real estate portfolio.

We worked tirelessly to deliver results to our shareholders, evidenced by the last 5.5 years. Now I will turn the call over to David, who will discuss our financial results. David?

David Kieske: Thanks, John. I’ll keep my remarks brief as we want to leave as much time for everyone’s questions, but I do want to touch on our liquidity and our updated full year guidance. We are constantly focusing and at times obsessing on the balance sheet as we work to bring our leverage back down to our target range of 5 to 5.5x, while ensuring we have the dry powder to continue to fund accretive growth for our shareholders. We are diligently working with the agencies to improve our credit ratings over time, lower our cost of capital while balancing the right leverage for the company. At quarter end, we had approximately $4 billion in total liquidity, comprised of approximately $740 million in cash, $870 million of net proceeds available under our forward sale agreements and $2.4 billion of availability under the revolving credit facility.

Subsequent to quarter end, we settled approximately $190 million in shares under our forward sale agreements to fund the closing of Rocky Gap. In terms of leverage, net debt to annualized Q2 adjusted EBITDA is approximately 5.6x. We have a weighted average interest rate of 4.34% taking into account our hedge portfolio and a weighted average 6.4 years to maturity. Turning to the income statement. AFFO per share was $0.54 for the quarter, an increase of nearly 12% compared to $0.48 for the quarter ended June 30, 2022. Our results once again highlight our highly efficient triple-net model given the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue. Our margins continue to run strong in the high 90% range when eliminating noncash items.

Our G&A was $15 million for the quarter and as a percentage of total revenues was only 1.7%, in line with our full year expectations and one of the lowest ratios in the triple-net sector. Turning to guidance. We are updating AFFO guidance for 2023 in both absolute dollars as well as on a per share basis. AFFO for the year ending December 31, 2023, is now expected to be between $2.13 billion and $2.16 billion or between $2.11 and $2.14 per diluted common share. Just to reiterate, based on the midpoint of our updated guidance, VICI expects to deliver year-over-year AFFO per share growth of 10%, one of the highest growth rates across REIT brands. And as a reminder, our guidance does not include the impact on operating results from any announced but unclosed transactions, interest income from any loans that do not yet have final draw structures, possible future acquisitions or dispositions, capital markets activity or other nonrecurring transactions or items.

And as we’ve discussed with you in the past, we reported noncash CECL allowance on a quarterly basis due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused and — as we believe AFFO represents the best way of measuring the product — productivity of our equity investments in evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

Q&A Session

Operator: [Operator Instructions]. First question comes from Anthony Paolone with JPMorgan.

Anthony Paolone: Congratulations on Canyon Ranch. But — my first question is actually on Bellagio and news around that, that was out around the quarter. Can you just maybe give us your view on how you would think about a transaction like that or the appetite to do something of that nature?

Edward Pitoniak: Yes. Tony, I’ll start and John and David can chime in as they wish. I want to answer that question at the level of general principles. We take great care in how we acquire and that care manifests itself in us not attempting to buy what we can accretively pay for. And so we evaluate every situation on the basis of can we create value for our investors straight out of the gate. Our net lease model is a model in which the yield we get at the outset is the yield we’re going to live with. I mean, we’ll obviously — we can obviously get rent escalation over time and increasing yields based on that. But we are not a category where we can go in and accept a dilutive yield going in on the basis of having an underwriting thesis of asset management that’s somehow going to magically transform a dilutive yield into an accretive yield. So we are very careful and very humble in understanding what we can and can’t do, and that guides our investment decision-making.

Anthony Paolone: Okay. And then just one question on Canyon Ranch and the pref into the operating platform. Is that something that is currently going to make money, either from a cash flow basis or even from an earnings point of view? And then just also how you thought about making an investment into one of your partners operating platform as we think about could that happen going forward and more frequency?

Edward Pitoniak: Yes. So I’ll take the second part of your question and the first, and then David can answer the first part of your question. In terms of will we be doing a lot more of this? I would say generally, no. I wouldn’t rule it out, but I think there’s idiosyncrasies, beneficialty of syncrasies to the Canyon Ranch situation, Tony, that gave us high conviction, this was the right thing to do in this situation, investing in the Canyon Ranch operating platform. Insofar as as we look across experiential sectors, we’re particularly intrigued with the degree to which wellness is a globally magnificent business in terms of its economics and its scale. As we pointed out in our transaction deck, McKinsey estimates that wellness as manifested in the Canyon Ranch model is a $1.5 trillion global industry.

And yet, we think it’s one of the least consolidated experiential sectors, especially in relation to its magnitude globally. And so we believe Canyon Ranch has a growth opportunity, a unique growth opportunity that deserved a unique solution in terms of VICI providing growth capital into the operating platform in this particular situation. And then David, do you want to take the first part?

David Kieske: Yes. Tony, I mean, it goes to Ed’s comments around, it’s a holistic solution where we obviously provided the pref and then we’ll fund the loan here in the not-too-distant future. But it all goes to the the opportunity that Ed and John talked about on CNBC last night that this was a much greater opportunity than just the pref. The pref itself is accretive to us. It does make money. We funded $90 million yesterday, and we will kind of a delayed draw funding schedule that will happen over the next 3 or 4 quarters. So it’s a phenomenal tool to be partners with the organization and grow together.

Operator: Our next question comes from [indiscernible] with Evercore.

Unidentified Analyst: Small technical question. David, what is implicit CPI in your guidance for the balance of the year? What are you assuming on lease escalations, I guess, on a blended basis?

David Kieske: Yes, Jim, we just assume the base rates. We don’t — if we had a crystal ball, we would predict CPI, but we don’t have a crystal ball. So for [indiscernible] it’s 2%, some of the regionals, it’s obviously 1.5%, but it’s just the base rates in guidance.

Unidentified Analyst: Great. what you do with that. And then perhaps just for John, quickly, you mentioned if you’re adding resources. You said to study new verticals. And I mean, could you just elaborate a little further on that? Is that people or new — what does that mean, I guess? And then what’s the cost of that potentially?

John Payne: Yes. We’ve been adding — it’s a great question. We’ve been adding — I think we brought on a new Chief Investment Officer a little over a year ago, and we’ve been adding staff under David and Aaron’s team to get a little deeper in the segments that we’ve been studying. And it’s important to do that. There’s only so many places I could be and so many things that a few of us could study. We realized we needed to bring on some resources to be more productive.

Operator: Our next question comes from David Katz with Jefferies.

David Katz: As we think about this growth beyond gaming in vehicles that are not the same kind of lease structures you have, right, loans, et cetera. Obviously, the risk profile on those are a bit different, but you’re getting paid for that risk. If you could just update us or talk through how you think about that risk and the payment for that risk, it would be helpful.

Edward Pitoniak: Yes. So I think when it comes to VICI’s credit activities, we do, as you suggested, David, we take great care in the underwriting. I think one of the key elements of our underwriting is that when it comes to absolute bottom line risk, it would be an asset we would be very happy to own if we ended up needing to own it, okay? We don’t want to lend against stuff we would never want to own. That for us is absolutely existential. And obviously, we want to make sure we’re putting money behind not only a really good asset, but a really good operator in whose credit we can be confident whether they are developing or operating. So in this particular time, I would also say that it is a very accretive deployment of our capital insofar as the overall real estate transaction market continues to be really depressed in terms of activity.

I believe the last month that was reported on it was down about 60%, 70% year-over-year. So credit does give us an opportunity to deploy capital accretively in a period in which the transaction market is still somewhat stalled, especially based upon would-be sellers and would-be buyers not having high conviction around what assets — how assets should be valued.

John Payne: Ed, can I add something to that to David…

Edward Pitoniak: Sure.

John Payne: Just because we’ve been talking a lot about nongaming, I think we’ll probably continue — it shouldn’t be lost that we continue to travel the world in studying gaming assets. You shouldn’t take that — a lot of the conversation is about these great new partnerships that we’ve formed in the experiential sectors that somehow we’ve lost sight of how great the casino business is, we are continuing to do that and and put resources to studying unique opportunities all over the United States and the world.

Operator: We now turn to Smedes Rose with Citi.

Smedes Rose: I just wanted to ask, it looks like the Venetian Palazzo is going to unionize, and I’m just wondering, I know it probably doesn’t change your rents, but do you think it meaningfully changes the tenant’s coverage ratios as they move to that more structured workforce?

John Payne: Look, it’s hard for us to quantitate that. That’s probably a question for the operator. But I will remind you, and you know this well, and you’ve heard me say this many a time, whether the business is up 5%, 10% of the business is down 5%, VICI and its 5.5 years has collected 100% of its rent from all of its operators. So this is an operator decision that the Pallo team made, and I think they feel very good about the workforce there.

Edward Pitoniak: And Smedes, let me just add, while generally, we do not, for very good reasons, disclose asset level 4-wall rent coverage or EBITDAR, EBITDA before rent, the Venetian did go before the Nevada Gaming Board back in November and did disclose at that time what they expected to achieve for 2022 EBITDAR at the resort and they disclosed they are on track for $650 million of EBITDA before rent. And you know that in our first year, we were collecting $250 million of rent. So there is a lot of coverage at the Venetian.

Smedes Rose: Yes. Okay. Yes, fair enough. And then you just mentioned that the — it sounds like there’s a little more clarity on the family entertainment and sports area that you’re exploring. I mean is that something where you would be — you would hope to have an announcement in that arena sometime over the course of this year? Or you just — just wondering if you could just follow up a little bit on those comments.

Edward Pitoniak: John?

John Payne: Yes, Smedes, I — clearly, I can’t predict when we’re going to make announcements. I think it’s 2 sectors that were kind of past, a, are we interested in and that we’re in the evaluation stage and then how can we structure or be constructive in using our capital to help family entertainment companies or sports category companies grow their business. I really can’t tell you exactly when there will be a deal or if there’ll be a deal. I just wanted to reiterate that we are digging a little bit deeper in those 2 sectors right now.

Operator: Our next question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas: First question, Ed, your comments in response to a previous question, the company is very focused on AFFO growth and investing on an accretive basis relative to your cost of capital. But how do you weigh asset quality relative to the initial yield and AFFO accretion that an investment may generate? And is there a situation where you could justify making an investment that commands a lower initial yield, but maybe meaningfully improve portfolio quality and it’s relatively NAV neutral, but again, may weigh on the company’s AFFO growth initially?

Edward Pitoniak: Yes. It’s a really good question to ask, Todd. And the way we think about it is that we absolutely do recognize the value of quality. And we can find ourselves in situations where we’re willing to accept a lower yield on the highest quality real estate. We still want it to be an accretive yield. We can’t accept a dilutive yield in the name of quality. But at the end of the day, we are solving for a blended yield across our investment activity. And so if we can buy great real estate at a thinner but still accretive yield, and match that with an investment in good real estate at higher yields and end up with a blended yield that creates real value for our shareholders, that’s how we are, and that’s how we will run the business.

Todd Thomas: Okay. And then are you able to — and apologies if I missed this, but are you able to disclose a little bit of detail around the pricing for the preferred equity investment and the mortgage financing announced with regards to the Canyon Ranch?

David Kieske: Yes, Todd, it’s David. Good to talk to you. We aren’t giving out specific deals similar to how we’ve kind of operated in the past around the competitive nature of capital out there and the relationship nature of this capital. It’s — as I just talked about, it’s all guiding towards a blended yield that’s accretive to our cost of capital. So we feel good about the investments.

Edward Pitoniak: We do. And Todd, this is a great way of elaborating on the first question you asked. I mean we are sitting here in a mansion in the Berkshires. It is the definition of high-quality real estate built to last for generations. And you can be confident that when you put all this together, we are achieving accretion for our shareholders.

Operator: Our next question comes from Barry Jonas with Truist.

Carlo Santarelli: Congrats on the deal with Canyon Ranch. Maybe this is for Ed. But longer term, what would you like to see the mix of rent between gaming and nongaming tenants?

Edward Pitoniak: Yes, Barry. I wish we had a really — well, actually, I don’t know if I wish that we had a really exact answer. The truth is we don’t have a highly exact answer. It will very much obviously depend on what we’re able to source globally in gaming and non-gaming. I do think the math is such that you can be confident gaming will still be the lion’s share of our rental given the magnitude of economics that come out of gaming assets domestically and internationally. And we would not put an arbitrary line across our rent roll to say, okay, this much needs to be gaming, this much needs to be nongaming. We’re not going to manage in terms of those kinds of numbers, we’re going to manage in terms of achieving accretion and value and quality growth.

Barry Jonas: Understood. And then just as a follow-up, as I guess we think about the pipeline of gaming opportunities, you could kind of put it in 2 buckets or probably more, but for one, there are operators that you’ve worked with out there and have good relationships and opportunities for follow-up deals. But then there’s also a number of large operators who really haven’t done much sale leaseback or any. I’m curious to get your thoughts on the path or the catalyst from here to get some of those players over the fence.

Edward Pitoniak: John?

John Payne: I mean, we are following the same plans that we have since we started the company is continuing to build relationships, like you said, with our existing operators, and meeting the operators that we’ve not been fortunate yet to do business with, educating them on how our capital can work, how we can help them grow, once we’re partners, how we can use a property growth fund to help them grow, traveling not only domestically as we started the company, but now as you can see, we’ve been in Canada and acquired some real estate in Canada, and we’re traveling the world to find other unique opportunities that are out there. So it’s just about building relationships and letting them know that should there be a time they want to monetize their real estate or they want to acquire another company or an asset that we’re there to be a good partner.

Operator: We now turn to Wes Golladay with Baird.

Wesley Golladay: I just want to go back to the Canyon Ranch opportunity. You did mention there’s a lot of room for growth, both domestically and internationally. I guess maybe looking at maybe the next 5 to 10 years, how big can this get? And what do you think is an average acquisition volume price? Would $100 million unit be a good estimate?

Edward Pitoniak: I don’t think you’d be far off, Wes. You’d be in the ballpark. There’s an optimal size for Canyon Ranches. Generally, I think John Goff and Jeff Kuster and the team would tell you generally between 100 and 150 rooms. And obviously, the room count is only part of the equation. Obviously, the facilities that go around the rooms are what really differentiates Canyon Ranch. But you did hear John Goff on CNBC last night, expressing his ambition that this be a $2 billion relationship in — within the coming years. And we’re very happy to hear him say that. And I do think when you look at this as a $1.5 trillion global industry that McKinsey estimates is going to grow at a compound rate of 5% to 10% a year for the years to come.

We do think, again, that the Canyon Ranch brand has growth opportunities not only in North America, but internationally as well. And the other thing I just wanted to say, Wes, is that we — and it goes back to the question Barry asked — the second question, Barry asked that John answered. And that is the way in which we initiate partnerships. We don’t initiate transactions so much as we initiate partnerships. There’s no question that if Canyon Ranch had wanted to sell the real estate to a conventional hotel REIT, they would have gotten amazing pricing, amazingly low cap rates for real estate of this prestige and quality. But the reason we’re doing the deal we did is because we took a holistic approach from day 1 at understanding Canyon Ranch’s business and its overall capital needs and ended up coming up with solutions that go way beyond your standard real estate transaction.

Wesley Golladay: Got it. And then maybe one for the balance sheet. I did notice you settled some shares and you just carrying the cash balance. What do you thinking there?

David Kieske: No, as we settled 6 million shares, about $190 million to fund the Rocky Gap transaction that closed 2 days ago.

Wesley Golladay: Okay. But you still have like about $700 million, I guess, you want to carry a larger cash balance maybe over the near term?

David Kieske: The cash on specifically, right. That’s a result. Remember, we got repaid on the Caesars Forum Convention mortgage back on April 1. So that elevated the cash balance a little bit, but — so this obviously gives us additional liquidity and dry powder to continue to grow.

Operator: Our next question comes from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem: Just quick ones. So all the leverage at the end of the quarter at 5.6 came down nicely. Where does that trend to at the end of the year? And sort of the corollary to that is maybe what’s the updated thoughts on the — who’s your park in Horseshoe in Indianapolis? What are some of the things you’re looking at to potentially move on that?

Edward Pitoniak: David will take the first part, Ron, and John will take the second.

David Kieske: Yes, Ron, I appreciate your notice on that. I mean it will continue to trend down to the 5.5 range, maybe just slightly north of that. But as I stated in my remarks, right, we’re very focused on getting sub-5.5 and continuing to improve our credit profile.

Edward Pitoniak: John?

John Payne: And Ronald, as it pertains to the 2 wonderful assets in Indianapolis, the owner of the assets and the operator Caesars continues to do a fabulous job adding capital to the facilities, implementing the table games that the law passed a couple of years ago and growing that business. We continue to monitor that — those 2 assets with them. We do have a put call agreement with Caesars that last until the end of December ’24, and we continue to evaluate that opportunity.

Ronald Kamdem: Great. My second one is just — I think with $26 million, $27 million of student loans payments starting. When you talk to the operators and so forth, is that something that they’re thinking about as a potential headwind and so forth?

Edward Pitoniak: Ron — weyou start, John, and I got an added point I wanted to make.

John Payne: No, go ahead, go ahead, and then I’ll jump in.

Edward Pitoniak: Yes. Ron, it — Moira and I were talking yesterday or the day before about the magnitude of infrastructure spend that’s going on right now in the U.S. Moira, I don’t know if you have the figure handy, but there is so much economic growth and so much job growth, really good job growth associated with the magnitude of infrastructure investment that’s going on in the U.S. right now that I would definitely look at the impact of student loan repayments being perhaps even more than offset by the economic vitality that’s coming out of the infrastructure spending that’s going on right now, and especially among the workforce that does have a higher propensity to game. So I think on a net-net basis, we’d be pretty optimistic as to what the economic vitality in the U.S. over the coming year to or more could mean for experiential broadly and gaming in particular. John, I don’t know if you want to add to that?

John Payne: No, Ron — and Ed, I was just going to add about Las Vegas. I mean we continue to get a large percentage of our rent coming out of the operators in the buildings in Las Vegas. Every day, I seem to open up an article and read this morning. I don’t know if you saw this, Ronald, but all-time record June at the airport in Las Vegas, 48% growth in international business. So the industry in Las Vegas and the regional continues to see solid consumer acceptance and growth in many of these locations.

Operator: Our next question comes from John DeCree with CBRE.

John DeCree: Maybe big picture, Ed or John, you kind of addressed part of this a little earlier in some of the talent that you’ve hired recently. But as you push into new verticals and expand your tenant base, new categories, what are some of the challenges that you face or are facing as you grow in this direction. I kind of ask in the context of some of the early day challenges you’ve had in the casino space with educating investors or even just educating operators into using your source of financing. So curious kind of what you’re facing now as you keep pushing.

Edward Pitoniak: John?

John Payne: Yes, John, nice to talk to you. I actually wouldn’t describe them as challenges. I’d describe them as being quite fun, particularly in the experiential sector where there hasn’t been a lot of companies like ours, taking the time to explain how our capital can help these experiential companies grow. And it is, for me, having resources and folks around me that we’re out again, traveling the world and spending time with these very unique and interesting operators, whether that’s in health and fitness, whether that’s in the events business or the many of the other things that we continue to explore, it has been really gratifying to explain how our company and our capital and help them grow. So I wouldn’t as I describe it as a challenge. I just describe it as a way of we’re helping them understand the different ways we can become partners.

John DeCree: Fair enough. And maybe a little easier of a question. Going just back to the Bellagio, potential opportunity as an example. Do you — how do you consider owning whole or part of an asset? I think there was some discussion to me that maybe it would only be a partial sale or a minority stake. Is that — would that be a consideration or how that factor into a decision for investment from VICI, whether it’s the Bellagio or any asset that you make in the future?

Edward Pitoniak: Well, John, one of the strategic motivators for doing the deal we did back in late November, early December, was to consolidate what had been a joint venture with MGM Grand Mandalay Bay. So generally speaking, while we do not rule out joint ventures, generally speaking, we are obviously going to prefer complete ownership of our assets, both in gaming and non-gaming. Again, we’re not absolutely dogmatic, but it is our preference, and I think there is significance and meaning in the fact that our most recent deal in Las Vegas was the consolidation of what had been a joint venture, not the creation of a new joint venture.

Operator: Our next question comes from Greg McGinnis with Scotiabank.

Greg McGinniss: John, I appreciate your commentary on the fact that you’re kind of globetrotting here trying to educate and find new investment opportunities. Are you able to provide any context in terms of maybe with the investable global gaming market is, so meaning like the total number of assets that you’d even be willing to buy globally because I know you’ve talked specifically about certain countries you’re willing to invest in. But just curious in terms of potential investable dollars.

Edward Pitoniak: John?

John Payne: Yes. I don’t have the specific numbers right now, Greg. We continue to work on that and look across, as you mentioned, all the different countries where we potentially could place investments. But I don’t have a specific number for you right now.

Edward Pitoniak: Greg, I’ll just ask given your representatives of Scotiabank, I’ll give you a little Canadian data, and that is that the absolute size is not always as important and meaningful as per cap size. And so as an example, the GGR in Canada, the commercial GGR in Canada is about $12 billion a year, and that compares to combined Las Vegas and regional commercial GGR in the U.S., if I believe, $70 million to $80 million. So on a per capita basis, with Canada having about 1/10 of the population of the U.S., obviously, Canadian show a higher propensity to game. And so that’s 1 of the 3 real characteristics we look at as we evaluate gaming globally. It’s not only the absolute size of the market, but the propensity of the game and the degree to which gaming is woven into the consumer economy in those countries.

Greg McGinniss: Okay. And then I guess just on domestically, what are your thoughts on Downtown Las Vegas? Are owners there just thus far resistant to sale-leaseback financing? Or is there just no need there?

John Payne: I wouldn’t say that, Greg. I would say that, as you’ve heard me say a couple of times on this call, we’re continuing to build relationships, we’re continuing to educate how our capital can work. I think you’re asking about is that a market that we would have interest in owning real estate. There’s some fabulous operators in the downtown market of Las Vegas that we are not currently partners with that we’d love to be partners with not only on the assets they have in Downtown Las Vegas, but also is there a way that we could grow with them all over the United States or even the world. We’re also not in the regional market of Las Vegas, where we’d like to own real estate over time. So some of these, as you’ve seen in our first 5 years, some of these happen quickly. Some of these deals move fast and others. It’s — we take the long game here. We get to know the owners. We get to know the operators and hopefully, over time, a deal will come our way.

Greg McGinniss: And just a final one for me. Just given the house view on the health and wellness sector, should we expect to see investments with other operators outside of Canyon Ranch?

Edward Pitoniak: I would say that we’re very much focused on Canyon Ranch given their market leadership and their growth opportunity, Greg. I mean we obviously wouldn’t rule out other investments along the broader wellness spectrum. I mean, in a way, somewhat see that already with — Great Wolf as I think, John, you’ve put it. Great Wolf is kind of like Canyon Ranch for kids.

Operator: We now turn to Nate Crossett with BNP Paribas.

Nathan Crossett: The slide in the deck that showed the CMBS maturities over the next few years, your potential to partner with Canyon Ranch to reposition. How many locations have you kind of identified that are real candidates for this? Have you guys gone through that process already? Just trying to get a sense of the sizing.

Edward Pitoniak: Yes. So Nate, we’ve really just begun that process. But I would point out that for John Goff, he’s — he feels like he’s getting to do again what he did so successfully with Richard Rainwater in the early ’90s when they built Crescent Real Estate to a great degree out of the whole Resolution Trust wind-up and created an incredibly compelling resort portfolio within Crescent Real Estate by capitalizing on the distress in the market at that time. So we’ve — David has done some really good work already at beginning to develop inventories. I would say though that the filtering processes, which we’re going to really starts with what regions of North America is Canyon Ranch not in that it could really benefit from being in. And then from there, we look for resorts that would meet the criteria of Canyon Ranch within those geographies, regional geographies.

Nathan Crossett: Okay. That’s helpful. And I know you mentioned it’s accretive. I just — what can you say like how accretive? Like is it in line with your average spreads that you’ve been doing over the cost of capital, historically? I mean I know it’s sensitive, but is there any guidance there?

David Kieske: Yes. I mean Nate, good to talk to you. I mean, directionally, that’s accurate. Again, it’s $150 million. We funded a little bit $90 million this week to draw schedule that will future funding that they will pull down as they invest in the organization. So it’s directionally that’s in line.

Edward Pitoniak: And what I will tell you Nate, is that our blended yield for real estate of this quality is very compelling.

Nathan Crossett: Okay. That’s helpful. I mean, is there anything other than the $300 million that you disclosed that we should kind of expect in terms of capital deployment from this partnership this year? Like I know there’s a lot of puts and takes, but just trying to get a sense of what’s in…

David Kieske: And then the last October, we announced the $200 million with Canyon Ranch to help them build Austin. So that’s getting going. And as I mentioned in his comments, I opened in ’25, ’26 at some point. And so mean we had dinner with the Canyon Ranch team last night and they were extremely excited to embark on this journey of mapping and finding these assets. So nothing specific at this moment, but we very much hope there’s more to come in the near term.

Operator: We now turn to Chris Darling with Green Street.

Chris Darling: Related to Canyon Ranch, can you give us a sense of the historic cyclicality of the business there, maybe relative to traditional resorts or maybe the overall hospitality business? And then assuming you do exercise some of the call options there over time, what do you think is the right level of rent coverage relative to maybe your gaming portfolio?

Edward Pitoniak: Yes. So Chris, Canyon Ranch has been in operation for just about 45 years. And what they have shown through all cycles is a resilience that is far stronger than conventional luxury resorts. And so much of that has to do with Canyon Ranch being for so much of its clientele a ritual, not even just necessarily an annual ritual but in some cases, a quarterly ritual. So the commitment to Canyon Ranch on the part of the consumer is stronger than the purely discretionary commitment that you get in most luxury resorts, which I know you cover. And so based on that, we do not feel we need inordinately high coverage. And yet what is very comforting is the fact that the economic intensity of these properties does create economic headroom above the rent that gives us very, very great comfort in the level of coverage.

Chris Darling: That’s really helpful color. I appreciate it. And then maybe switching gears for a second question. When you announced Rocky Gap last year, rent coverage was pretty skinny at the time. I think it was about 1.7x, if I’m right. I recognize that property has been folded into the broader master lease Century now, but would still be curious to understand what current coverage levels look like, assuming you’re willing to share?

David Kieske: Yes, Chris, it’s David. Good to talk to you. And we did — we did set the coverage lower on Rocky Gap because it was going into a very healthy master lease. Century is a phenomenal operator, goes into these assets and improves coverage from where they were, which they did on the 3 pack that we originally bought with them back in 2019. So we can’t give out asset level coverage because they don’t give out asset level coverage, but it’s very, very healthy coverage coming out of those assets, and we’re excited to add that as well as the Alberta assets into that master lease.

Operator: Our final question comes from Dan Guglielmo with Capital One Securities.

Daniel Guglielmo: Just one for me. Ed, in February, you mentioned that the debt environment back then could result in the greatest advantages to some of the biggest REITs with access to capital. I know a lot has happened since then, but is that advantage playing out the way that you thought? And do you still see that as an advantage continuing for the next few years?

Edward Pitoniak: Yes. I very much think so, Dan. I think that could be true in both gaming and nongaming as I think I might have mentioned on that call, Dan. We look on a weekly basis on what the yields to worst are on on gaming and other leisure credits, and you’re still seeing yields to worse even with the recent tightening of spreads that make sale leasebacks a very compelling alternative when it comes to refinancing the debt that will come due in the coming years in both gaming and non-gaming.

Operator: This concludes our Q&A. I will now hand back to Ed Pitoniak, CEO, for closing remarks.

Edward Pitoniak: Yes. I just want to thank everybody on the call today, both the analysts who asked very good questions in all of our investors who are also on the line. We thank you for your time, and we’re excited to talk to you again in a few months. Bye for now.

Operator: Ladies and gentlemen, today’s call has now concluded. We’d like to thank you for your participation. You may now disconnect your lines.