Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this conference call is being recorded today. August 1, 2024. [Operator Instructions] I will now hand you over to Samantha Gallagher, General Counsel with VICI Properties. Samantha, please go ahead.

Ed Pitoniak:

Thank you, Samantha. Good morning, everyone. As you may have figured out by now, I enjoyed putting my thoughts together for VICI's earnings call. I try to share through these opening remarks, not only what we've done, but what we're observing and learning from the marketplace. I may not always succeed in sharing anything genuinely fresh, but at the very least, I don't want my opening remarks to become repetitive. When I began putting these thoughts together in early July, the risk of repetitive remarks was high given that, until a couple of weeks ago, for REITs generally and net lease REIT specifically, not a lot had changed since last quarter's earnings call when I spoke of the big tech investing party that we REITs hadn't been invited to. In Bank of America's most recent fund manager survey, Michael Hart net showed that fund managers were underweight real estate at a level equal to and not being since the great -- the depth of the great financial crisis. Then came a welcome CPI print and REITs have begun to come back that we believe can endure. Before you hear from John and David, and before we field your questions, let me say a few words about the principles that guide us in a REIT marketplace like the ones we've been living through for a while now. We start by asking ourselves is what we're going through, whether for all REITs generally or net lease REIT specifically, cyclical or secular in nature. There are REIT sectors that have secular issues right now. Office is an obvious example of a sector with negative secular trends. Data centers is the obvious sector with positive secular trends. We strongly believe that experiential real estate is another real estate category with positive secular trends as evidenced by research recently published by McKinsey showing that indexed back to 1959, the share of consumer discretionary income spent on experiences has grown to an index level of nearly 160, while the share of consumer discretionary income spent on things has shrunk to less than 75. Capitalizing on positive secular trends is fun, addressing negative secular trends, not so much. Positive cycles for REITs are fun, negative cycles for our specific REIT sector not so much. But it's always key to remember that cycles begin and cycles end, almost always driven by factors that are beyond the control of a REIT management team and Board. In a period of lagging stock performance, driven by cyclical factors, it can be tempting for REIT management teams and boards to start deviating from the REIT's long-term goals and strategies in hopes that the deviation can somehow overcome the cycle. At VICI, we strive very hard not to deviate. Here's the strategic principle we strive to stay true to in all cycles. We dedicate ourselves to investing in experiential buildings that meet these three fundamental quality factors. Location quality, in other words, well located in markets that have sound fundamental demographics and economics. Asset quality, meaning designed and built to serve the distinct needs of experiential businesses that have high economic dynamism and economic durability. Operator quality, meaning occupied by an experiential operator that has high economic energy, ingenuity and expertise, and a strong balance sheet and credit profile. With every investment we make, we, of course, seek accretion as measured in AFFO per share. But that is not the only accretion we seek and measure. With every investment opportunity we evaluate, in addition to AFFO accretion, we ask, is a given investment opportunity accretive to asset quality. Is a given investment accretive to tenant diversity and tenant quality? Is a given investment accretive to geographic and potentially categorical diversity and quality? Finally, can it give an investment be accretive to balance sheet quality and, potentially, our credit ratings? We have not and will not grow for growth's sake, if that growth doesn't continuously improve the quality and intrinsic value of our portfolio and balance sheet. We will not, as some of our net lease peers do, tell you we spend x hundreds of millions of dollars and y percentage cap rate to generate z dollars of new rent, but then never tell you into what we invested that amount of money. We will tell you what we invest in so that you can know what you own. The very good news is that our business development team, led by John Payne, is identifying and developing opportunities to meet our broader accretion criteria. And with that, I'll turn the call over to John. John?

David Kieske:

Thanks, John. Based on balance sheet, liquidity, results and our updated full year guidance, which we are very excited about. As we work on the right side of the balance sheet, we are constantly focusing on VICI's balance sheet quality, bringing our leverage further down within our range of 5 times to 5.5 times, diligently working with the rating agencies to improve our credit ratings over time and ultimately lowering our cost of capital, balancing the right long-term leverage for the company, all while ensuring we have the dry powder to continue to fund accretive growth for our owners. In terms of dry powder, as of today, we have approximately $3.2 billion in total liquidity, comprised of $347 million in cash and cash equivalents, $566 million of estimated proceeds available under our outstanding cohorts and $2.3 billion of availability under our revolving credit facility. In addition, our revolving credit facility has an accordion option, allowing us to request additional lender commitments of up to $1 billion. Subsequent to quarter end, we sold 4 million shares and received approximately $115 million under our forward sale agreements. These proceeds were used to partially fund the Venetian capital investment John mentioned earlier. In terms of leverage, our total debt is currently $17.1 billion. Our net debt to annualized second quarter adjusted EBITDA, excluding the impact of unsettled foreign equity is approximately 4.4 times -- excuse me, 5.4 times, within our target leverage range of 5 times to 5.5 times. We have a weighted average interest rate of 4.36%, taking into counter hedge portfolio at a weighted average 6.6 years to maturity. Touching on the income statement, AFFO per share was $0.57 for the quarter, an increase of 5.9% compared to $0.54 for the quarter ended June 30, 2023. We are very proud to deliver this continued consistent growth to our owners. 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, and we have the highest net income margin in the S&P 500 as noted in an article published by Barron's during the month of July. Our G&A was $15.8 million for the quarter, and as a percentage of total revenues, it was only 1.6%. This continues to be one of the lowest ratios in not only the triple-net sector, but across all REITs. Turning to guidance. We are raising our AFFO guidance for 2024 in both absolute dollars as well as on a per share basis. AFFO for the year ending December 31, 2024, is expected to now be between $2.35 billion and $2.37 billion, or between $2.24 and $2.26 per diluted common share. Based on the midpoint of our updated guidance range, VICI expects to deliver year-over-year AFFO per share growth of 4.7%. As a reminder, our guidance does not include the impact on operating results from any transactions that have not closed, interest from any loans that do not yet have final draw schedules, possible future acquisitions or dispositions, capital markets activity or other nonrecurring transactions or items. And as we have mentioned in the past, we reported noncash CECL allowance on a quarterly basis which was its inherent unpredictability leaves us enable forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of productivity on our equity investments and evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

Caitlin Burrows:

Well, thanks for the update on the plans to not execute options that you have this year. I guess just as you think bigger picture, on deals you might do going forward and the options that you might create, does the way that this one ended up kind of working out or turning out, and your decision-making process have any impact on, I guess, how you structure options in the future, what the details might be, how far in advance they are? Anything like that.

John Payne:

Yes, it's a very good question. I do think it's important. I heard my comments were broken also a little bit. But it is important to understand that this was a strategic decision really based on capital allocation and portfolio management at this time. We have great conviction with opportunities that are in front of us that will further our tenant and geographical and category diversity. And as we continue to look at opportunities and we negotiate put calls or renegotiate [Indiscernible], we'll think about the length of those and the appropriate times of those. Again, it's important to understand that we have great conviction to continue to grow the business around the world.

Ed Pitoniak:

John?

Operator:

And our next question comes from Barry Jonas from Truist Securities.

Ed Pitoniak:

John, do you want to take that once again?

Ed Pitoniak:

And Barry, I'll just add that -- Barry, I'll just add that pretty much by definition and by logic, the dollar percentage will always tend -- whether domestically or internationally, the dollar percentage will very much favor gaming investment given the magnitude of the assets and the capital required to acquire them.

Ed Pitoniak:

Yes. So Barry we -- as John talked about in his opening remarks, we are just great believers in the Las Vegas ecosystem, which is obviously got ganing at its center. But as we see with really almost each passing quarter, the amount of innovation that's going on in terms of the broadening and deepening of Las Vegas experiences truly makes it like no other place on earth. We obviously have a lot of exposure to Las Vegas right now as a percentage of our annual base rent. But we would -- we are and we will be very comfortable and continuing to invest incremental capital, much the way we did with the Venetian investment in Las Vegas, because it is, is truly one of a kind destination in the world. And that has implications, obviously, for putting incremental money into the assets we already own, with the Venetian, with our Caesar asset, and especially, obviously, given magnitude of MGM assets we own, particularly at the South end of the strip that's seeing more and more demand drivers. And then in addition to that, as you alluded to, we do have a vacant land that, over the coming years and decades, obviously represents further potential to invest capital and broaden and deepen our exposure to Las Vegas.

Wes Golladay:

I know you target full cycle investments with high-quality partners, but there has been some pockets of weakness in the consumer. Has this led you to change how you're looking at the current acquisition pipeline?

Wes Golladay:

And then you do have a highly predictable business model, but you have the Caesars lease coming up in November. It does have a variable component. That's a little bit harder to model. Could you maybe put some goalposts on that, how we should think of that?

David Kieske:

Yes. Thanks, Wes. It is a good question. We're entering lease year 8 with Caesars. Hard to believe it's -- we're getting the lease year 8. So it seems like yesterday we started this company. But November 1 will be the start of that year and there does -- start of that lease year and there does become a variable component and a base component. And we are -- the way that the calculation runs for the Vegas lease, 80% is based, 20% is variable for the regional lease, it's 70% based and 30% variable. It's based on a comparison of net revenues for years 5 through 7 versus year 0 through 1. We are still collecting the data of Caesars because the calculation period actually runs through September of 2024. But based on what we're seeing, it should be relatively neutral to no impact to our escalation in November 1, 2024.

John DeCree:

Maybe one on your decision today to say that you're not going to move forward with Centaur. So I thought you may have had until the end of the year to make a decision, and so we certainly can appreciate being decisive and looking at your pipeline. But curious if you could talk a little bit about why make that announcement today with still maybe several months ahead to consider that?

John DeCree:

And that's probably but the last question from us get us on Centaur, although there's been many over the last 8 months or so. So I appreciate that. Maybe bigger picture, in terms of underwriting gaming assets today, so a lot has happened. We've talked about some of consumer trends. We've looked at where some recent deals have gone out. And just kind of curious if your -- any updated thoughts on how you think about full 4-wall coverage kind of cap rates in the gaming space now. There's a little bit more strict in how you think about 4-wall coverage and kind of where you think cap rates are going. And I know kind of every asset and transaction is a little different, but just high level, would be good to kind of get any kind of thinking on broad strokes.

Operator:

Our next question comes from Nick Joseph from Citi.

Ed Pitoniak:

John?

Nick Joseph:

And then just as we look to November, I'm just curious if there's any legislative issues on any ballots that you're watching that could be important for regional gaming.

John Payne:

We all take that -- yes, I'll take that, Ed. We continue to look not only, I think you mentioned regional gaming, but I think we're looking all over the world where there are changes happening to the good, and I guess it could be to the bad, but where are there going to be opportunities to deploy capital with new tenants and new locations, possibly in new categories. And there are some places around the world that are going through quite a bit of change that we're better understanding. We'll continue to watch opportunities in the United States as well. Every year, I think you know the state of Texas and the state of Georgia, state of Kentucky often come out with some form of gaming. And then obviously, with online sports betting, which is spread across the United States, there will be other states that think about that. And usually, in some deals, they talk about the bricks-and-mortar casinos. So not specifically, but we stay in touch to see if there ultimately will be some opportunities for us to invest. And then I'll finally say, we continue to monitor New York, where that process continues to proceed into 2025. And we'll have a better understanding when 3 licenses will be awarded and to whom they are awarded.

Operator:

And the next question comes from Haendel St. Juste from Mizuho.

Ed Pitoniak:

Yes. I'll let John take the second part of that. On the first part, the cap rate is perfectly fine cap rate. As we look across our array of investment opportunities and as we contemplated potentially investing more than $2 billion of capital or close to 5% of our total capital, we, again, wanted to be relentless in our scrutiny as what would this be the highest and best use of our capital both on a cap rate basis and the associated accretion, but also on the key, if you will, nonfinancial accretion factors of tenant diversity, geographic diversity and those secondary factors. So the cap rate by itself was not the gaining issue. And then I will turn it over to John for his thoughts on midwestern gaming.

Ravi Vaidya:

How large do you forecast the experiential credit solution strategy to become? And we noticed you have a couple of deals with Great Wolf here over the years, how important is that as a defense and entertainment option in this recessionary environment?

David Kieske:

Yes. Thanks, Ravi. Roughly, our credit book today is $2.2 billion, it's 4% to 5% of total assets, and we feel good in and around that area. We developed a credit book as a way to broaden our means and to expand our relationships. And you've heard us talk about, at the end of the day, our capital is relationship capital. And the credit book allows us to develop new partnerships, develop new relationships, ultimately through some of the deals that have call options at our discretion. But along the way, we learn about new segments and new businesses, and we've learned things that ultimately we may not like, we -- our loan gets repaid and we move on. But if we learn things we like, we continue to want to grow in those areas through either real estate ownership or deepening the existing relationships. So it's been a very, very effective tool and it's been something we're excited about, and something that we continue to use in our toolkit as we expand both domestically and internationally.

Ravi Vaidya:

Sure. We've had a couple of deals with the Great Wolf over the years, I just wanted to hear your comments on how this is particularly defensive and important entertainment source as we go into a recessionary environment here where the consumer is stretched?

David Kieske:

Yes. In the broader indoor water park sector or, broadly, Gabe Wasserman is in the room here and he did our first white paper back in '18 when we started looking at indoor water parks and the economic vitality of these businesses. When the original Great Wolf went public back in '04, '05, it was Thursday through Sunday, Thursday through Monday business. Now it's a 7-day a week business. And we call them casinos without gaming, because of the economic leverage they have and the multiple cash registers they have, both with the water park, the family entertainment center, the food and beverage, the lodging. And as an example, Perryville opened just earlier this year -- last year. And within 3 months, it was exceeding its initial underwriting and ultimately went into the broader refi package. So these things open, they open quick and they open producing a lot of cash flow. So we're excited about that. And hopefully, there's an opportunity someday to own the real estate of some of these indoor water park businesses.

David Katz:

So a little bit of a different -- great, a little bit of a different kind of question for John, which is through our window past couple of days, we've seen a pretty consistent outlook shift to something more moderate or even down, specifically around leisure transient activities across hospitality. And not that it will impact your earnings stream imminently, but John, I assume in your travels, you have a finger on that pulse as well. I just would love a little bit of insight from what you're seeing and hearing through your window, please?

Ed Pitoniak:

And that -- operator, before we go to the next question, I'd just like to add to David Katz's question. In a time like this, where we could be potentially looking at a period of economic volatility as measured in consumer spending, it really highlights the value of dividend-paying stocks when it comes to reducing the volatility of the equity versus the volatility of the consumer economy. And that is why, again, we're so careful in what we investing because we want to make sure we're investing in assets and partner relationships that we believe very strongly can endure up and down cycles in consumer spending. We do not go seeking C guard but real estate, to use the old Benjamin Graham term. We are seeking real estate that we know can endure a cycle and cycle out and has positive secular trends, such that we can feel very confident in our ability to continually pay a dividend and steadily grow the dividend ideally at a rate that is equal to or exceed inflation.

Michael Herring:

My question on balance sheet. Your [Indiscernible] $2 billion in notes coming due in the first half of next year. How did that factor into the decision to not exercise those call rights, particularly as you look to potentially reduce your leverage and earn a better investment-grade rating?

David Kieske:

Yes. No, you touched on it, Ed. It's portfolio management around not exercising the book call. Michael, in terms of the balance sheet, we've got 3 maturities next year, February, May and June. And as you saw us actively and very successfully refi our 2024 maturity with a well, well, well oversubscribed refinancing that we did back in March, we're working and planning towards refi those maturities that, again, come due first part -- in the first quarter and then in late second quarter of '25. And then you saw our peer, GLPI, had a very, very successful refi or a debt offering 2 days ago. And being investment-grade rated, having a very deep liquid investment-grade credit profile accrues to our benefit. And we're -- we feel very good about our ability to refi those maturities and continue to extend and ladder our maturity profile. And ultimately, over time, my data the BBB curve, lowering our cost of capital being able to continue to compete for asset acquisitions across the globe.

Ed Pitoniak:

John?

Samantha Gallagher:

Yes, John, you did a great job. I think just to John's point, while we do have a number of different leases, all of our leases are mined. What happens in a change of control and have strong protections to ensure. And just as a reminder, we have gone through a change of control with one of our tenants already, where -- we see the Caesars Eldorado merger. So we feel very comfortable with how our leases are structured to address any change and control.

Jim Kammert:

David, was there anything in particular that led you to bump the guidance at this point? I mean the acquisition investing activity has been well disclosed and you don't include prospective activity and guidance. So I was just curious there are 1 or 2 factors that motivated to do it at this time?

David Kieske:

I mean, Jim, you touched on that. I think when we lapped our first quarter earnings call, the thing -- the funding timing and some of the -- how we were going to fund some of the announcements that we had previously made weren't finalized. And so as we talked about in our guidance, we don't project any unknown capital markets activities or any unidentified or unknown activities. So those announcements plus the continued funding through our loan book has led us to feel very confident about the increase in guidance and feel very good about achieving that guidance. And a lot of it came from the Great Wolf impact, which closed slightly after our earnings.

Ed Pitoniak:

Yes. It will very much predominantly be fee interested, Jim. And I think one thing you can expect is that as we continue to allocate capital it will be on a cadence that is not necessarily as heavily weighted to one single investment, as would have been the case with the Indiana assets. Again, that -- just to reiterate, that would have been almost 5% of capital into one deal. And I do think as a REIT from both a return and a risk management point of view, we will always be very happy to achieve a sustained and sustainable capital allocation cadence, which, again, will be principally in gaming and principally fee over time.

John Kilichowski:

Kind of going back to the embedded growth pipe, maybe if we can jump down to the experiential side following the comments of Heros and Caesars. I'm just curious, and I know that these are a little less pressing in terms of time line, but how are you thinking about the call options for Canyon Ranch and Cabot and home field to market retail?

Samantha Gallagher:

Yes -- no, thanks, Ed. Just as some may know, when we follow and we talk about the Cabot relationship, they continue to expand their global portfolio. We're excited about that and we're excited about our opportunities in the future to exercise our call rights. No changes in our commitment there.

Ed Pitoniak:

David?

Operator:

Our next question comes from R.J. Milligan from Raymond James.

Ed Pitoniak:

R.J., Good to hear be from you. That was not a deciding factor by any means. Obviously, we are aware, we're aware of the perception of overhang on the stock, and that was obviously -- it felt like a more significant factor through much of Q2 and even into the first couple of weeks of Q3 given the general state of the REIT equity market. But no, that wasn't a deciding factor and are deciding to announce it now. Again, the real driving factor was just to make sure everybody understood we've made a decision. And we're comfortable -- very comfortable announcing the decision. Very comfortable that we have very compelling other opportunities to allocate capital. And again, I would just go back to the point of our desire -- and we won't achieve it every time, but our desired capital allocation and capital funding strategies are based on being sustained and sustainable. We obviously spent a good number of our early years doing very big deals that had very big funding requirements, that generally needed to happen all in one day. And as VICI matures and as we achieve a sustained and sustainable cadence in AFFO growth, we want that to be driven by a sustained and sustainable cadence in both capital allocation activity, i.e., acquisitions and funding.

Ed Pitoniak:

I'll turn that over to David. But before I do, we obviously want to take care that the market never develops VICI ATM fatigue. And with that, I'll turn it over to David for any further color he wants to add.

Operator:

The next question comes from Dan Guglielmo from Capital One Securities.

Ed Pitoniak:

David?

Gabe Wasserman:

Dan, thanks for the question. So we're very and thoughtful with our underwriting. Even though those certain investments are structured as mezz and preferred equity, we're very thoughtful about where our attachment point is and our last dollar. Looking at the operating history of the property kind of future underwriting projections and strength and sophistication of the sponsor, so that all goes into our underwriting. We have quarterly investment loan reviews, where we're working at the property performance and discuss it as a management team. And then in terms of contractual rights, if there's something that went sideways in the macro economy, generally, that wouldn't allow us to have funding. But we certainly have protections under all of our loan agreements, that the borrowers have to meet certain conditions precedent in order for us to fund.

Operator:

Our next question comes from Chad Beynon from Macquarie.

Ed Pitoniak:

John?

Operator:

And this concludes today's question-and-answer session. I would now like to hand over to Edward Pitoniak for any final remarks.

Operator:

And this concludes today's conference call. Thank you for joining. You may now disconnect your lines.

Operator:

Good day, everyone, and thank you for standing by. Welcome to the VICI Properties First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, May 2, 2024. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

David Kieske:

Thanks, John. It's great to speak with everyone today, and we greatly appreciate your time. Starting with our balance sheet, as Ed mentioned, in the first quarter, we successfully -- I'll say, very successfully executed our first refinancing of the $1.50 billion May 2024 notes that came -- that would have come due yesterday.

Operator:

[Operator Instructions] The first question comes from Caitlin Burrows at Goldman Sachs.

Edward Pitoniak:

John, do you want to start?

Edward Pitoniak:

I would only add, John, and Caitlin, good to hear from you, that obviously, depending on the outcome of the New York gaming licensing process, were the MGM asset in Yonkers, which we own the real estate of, to gain one of the full licenses, that would obviously be an opportunity for us to invest substantial capital in the recreation of that asset.

Edward Pitoniak:

David?

Operator:

The next question comes from Anthony Paolone from JPMorgan.

Edward Pitoniak:

Yes. Tony, good to hear from you. The starting point is that, over time, we are obviously solving for blended yield on our investments. When we have the opportunity to put capital into an asset as rarefied as The Venetian and still maintain an accretive spread, to the point of your note, not a vast accretive spread and not our targeted blended rate of return. But if we can match an investment like The Venetian with investments, whether acquisitions or property or lending investments that give us more substantial yields, more substantial spreads, we feel, on a net-net basis, we're creating a lot of value for shareholders.

John W. Payne:

Tony, I don't think that's necessary. It's funny. First of all, it's funny we still call them the Centaur assets. It is Harrah's Hoosier Park and Horseshoe Indianapolis. We do the same the same thing. But no, Tony, I mean we're going through the process with the appropriate Indiana regulatory agencies. And should we elect to execute this option, we will make sure that we follow all the rules and the regulations. But to your question about timing, really no position on that other than we're going through and spending the appropriate time with those agencies.

Barry Jonas:

I was curious, how deep is the pipeline for additional partner property growth investments? And then I guess, as we think about those investments like Venetian, how should we think about the potential for those ROI improvements converting to sale leaseback at some point?

David Kieske:

Just under that. That's right.

Edward Pitoniak:

And Barry, before we move to your second question, Samantha wants to clarify an assumption that you made in your question that, in fact, isn't quite right.

Barry Jonas:

But do you have a chance, I guess, to -- I think like if you look at the predecessor MGP, there are instances where they acquired an additional improvement and that drove increased rent. Does that opportunity exist, just so I'm sure I understand?

Barry Jonas:

Okay, okay. Understood. And then just quickly as a follow-up, curious as you're looking at deals if the competitive environment is the same or if you're seeing kind of any new spaces at those parties, as it's called?

Operator:

Our next question comes from John DeCree from CBRE.

John W. Payne:

Ed, do you want me to take that?

John W. Payne:

Yes. John, so let's talk a little bit about all the different areas of Las Vegas. So today, we have an incredible amount of assets in -- on The Strip. We have 10 assets on the Las Vegas Strip that we're very excited about. Where we do not have any investments yet, where we see potential for growth is in the regional market of Las Vegas and in the downtown market of Las Vegas. So you could see VICI continue to grow in the Las Vegas market, and it could be on The Strip, but it also could be in these other areas. And those are great segments of the business that we simply don't have real estate or partners yet along the way.

John DeCree:

Got it. Maybe a high-level follow-up for whoever wants to take it. It's kind of an observation first that a lot of the casino industry, your partners and others' preference for development or project CapEx right now. We see that with The Venetian. Interest rate volatility is probably a part of the answer to the question, but why do you think we've seen more capital deployed in existing properties or new development relative to M&A, assuming your kind of cost of capital as a financing source for casino industry participants is still pretty competitive? So we would think M&A could still be a logical option yet we've seen kind of all developments. So just curious if you guys have a view why that might be other than maybe just interest rates.

John DeCree:

Yes. I guess it's probably more amongst the strategic buyers of your partners, buying and selling, which would maybe pull you in as a financing source. So the casino industry developing and investing in properties rather than acquiring. It seems like we're in a different part of the cycle. Presumably, if we saw more M&A amongst your partners, that would create more opportunities for you as well.

David Katz:

And I wanted to just get your take on some of the non-gaming initiatives and pursuits. Obviously, they're exciting in terms of TAM. But can you just talk about the -- how you view the durability, the long-term durability of those asset classes such as Bowlero or Canyon Ranch, et cetera, and how that compares with your initial core in Las Vegas?

Bennett Rose:

John, I wanted to follow up with something John said and you -- I think you said in your opening remarks that in the regional market, revenues are being driven by the middle and the high end of the market. And my question is, is that kind of always the case? Or are your operators starting to see some weakness with a lower-end consumer? And do you have any concerns about that, I guess, as you sort of think about the portfolio overall?

Bennett Rose:

Yes. No, absolutely. I just -- it sounds like maybe it's more of a strategic goal from the operator side. And just -- we're just hearing on other calls, there just seems to be a sense that maybe consumers are starting to pull back a little bit. There's some weakness in different leisure segments. So I'm just kind of curious if you guys had insight there.

Edward Pitoniak:

John, do you want to take that? Or do you want Samantha to take that?

Samantha Gallagher:

Yes. As you know, obviously, we wouldn't comment on any of our operators' sale transactions. But to the extent they were to sell an operating business, we obviously retain the asset and would enter into a lease with any transferring of that asset.

Operator:

Our next question is from Daniel Guglielmo from Capital One.

Edward Pitoniak:

I wouldn't say, Daniel, it's so much about particular assets or even particular geographies. But I do think it goes back to the question Smedes asked a moment ago, which is what kind of behaviors you're seeing for consumer segment and their income and their spending power. And I do think one of the more -- one of the elements of cognitive dissonance right now is this disparity between lower-income consumers and higher-end consumers and the degree to which you are seeing some degree of stress and/or at least less liquidity for these lower-end consumers than you might have a year or 2 ago when we were seeing the benefits of so many of the stimulus plans that came out of COVID.

Daniel Guglielmo:

Great. Yes. I appreciate the detailed response, and that makes sense. And then just real quick around some of the development financing in the loans and securities bucket. I'm sure you all talk with those teams on a regular basis. Can you just give us an idea if there have been any recent headwinds or tailwinds that you're hearing about from them?

Operator:

The next question is from Michael Herring from Green Street.

Edward Pitoniak:

Sure. Yes, Michael, good question. John?

David Kieske:

Michael, it's David. One of the things you should look at is the Venetian press release that they put out yesterday where they, ahead of a 25th anniversary of the asset this Saturday, actually, where they have laid out extensive value enhancement plans well in excess of $700 million actually. So it's just a little bit of timing on their side as they work through the initial $400 million this year. They've got a lot of things in the hopper and things that they've already done. And then just a bit of as that all comes together, what their pace of potentially drawing that incremental $300 million, where that falls in and how they use that capital going forward.

Operator:

The next question comes from Greg McGinniss from Scotiabank.

David Kieske:

Greg, I can start, and John can maybe chime in. Yes, potentially, there could be more than $700 million that comes out of our agreement here. The original $1 billion announcement back in 2022, we modified that as the team worked through and got in under the hood, so to speak, of the asset and realize what they wanted to do or what they want to undertake. So there's some tweaks to the original agreement on our side. And as Ed just laid out, the announcement that The Venetian put out yesterday has up to $1.5 billion or their plan is to invest $1.5 billion into the assets. So there could be incremental capital. But what we've documented and announced with our great partners at Apollo and Patrick and team and Rob into The Venetian is this incremental $700 million investment today.

John W. Payne:

Yes, Greg, I think you should hear that we like these opportunities. And as Ed just pointed out a few minutes ago, there aren't many REITs that have this unique lever to pull to grow. I mean there aren't many REITs that are going to say, "Hey, we're going to put $700 million into an asset." There are some REITs that can't even say I want to put $700 million into my whole portfolio. We're talking one of our 93 assets. So we like this opportunity to help our partners grow, and that's one of the uniqueness that VICI has that we have the -- and we were talking earlier, we can go to M&A. We can help buy other assets, but we also have this lever that we've been talking about for years that is coming to life today with The Venetian.

David Kieske:

No -- sorry, the first part of your -- around the draw schedules, Greg? I mean we still feel really good about our guidance -- sorry, go ahead.

David Kieske:

Yes, it's immaterial if there were any, so we feel really good about our guidance range where we sit here today.

Ronald Kamdem:

Just 2 quick ones. Just first, just looking for some qualitative comments starting with the annual letter about sort of higher rates and the impact of activity, just as you've seen sort of this recent spate of movements on the rate front, just qualitative comments on what that's doing to the pipeline, where the decisions are taking longer and so on and so forth, or if anything's falling out?

Ronald Kamdem:

Great. And then just the second question, just staying on the pipeline, is there sort of more activity on the gaming side, non-gaming side, all of the above? Just any sort of color there would be helpful.

Edward Pitoniak:

John?

Operator:

Okay. We have no further questions on the call. So I'll hand the floor back to Ed for the final closing remarks.

Operator:

This concludes today's conference call. Thank you all very much for joining.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, February 23, 2024. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward B. Pitoniak:

Thank you, Samantha, and good morning, everyone. I'll start this morning with a few words about 2023 VICI accomplishments and the way forward. John Payne, will share our 2024 growth approach, and David Kieske will discuss our 2023 financial results and our 2024 guidance. Last night, we announced final 2023 AFFO per share of $2.15 representing year-over-year per share growth of 11.8%. VICI's 2023 AFFO growth will likely make VICI one of the 2023 income growth leaders among the 29 S&P 500 REITs that report AFFO per share. There are 30 S&P 500 REITs overall, representing approximately 90% of the U.S. REIT equity market capitalization at year-end. VICI's 2023 growth is largely the result of work we did in 2022, forging new relationships and new investments in both gaming and non-gaming both property acquisitions and property credit investments. I'm proud of our 2023 AFFO per share growth, but I'm also proud of what the VICI team did in 2023 to continue to produce growth for 2024 and beyond. Our investment activities in 2023 produce growth in our portfolio quality, geographic diversity, tenant diversity, and income. Indeed, when it comes to 2024 income growth, as David will discuss in a moment regarding our 2024 guidance, we expect our projected 2024 AFFO per share growth should put VICI well into the top half of the S&P 500 REIT 2024 AFFO per share growth table. It wasn't easy to produce future growth in 2023. It was tough to navigate in 2023. Most days in 2023 and frankly most days in 2024 so far remind me of my days living and working in Whistler, British Columbia, where our very challenging coastal mountain environment could result in days so foggy and whited out that we describe such days as skiing inside a milk bottle. But even amidst this low visibility, the VICI team kept pioneering in 2023. We invested in new geographies, including three new countries, and through our Bowlero acquisition in U.S. non-commercial gaming states such as Texas, California, and North Carolina. We invested in new categories such as family recreation and youth sports. We expanded our partnerships with pilgrimage brands like Cabot and Canyon Ranch. We acquired the primary leasehold interest in New York's incomparable Chelsea Piers. Through our position as the leading owner of real estate on the Las Vegas Strip, we continue to work with our Las Vegas partners to capitalize on Las Vegas' leadership position in global entertainment and hospitality. I strongly believe VICI's investment in Las Vegas is one of the most compelling investments in the current global commercial real estate investing landscape. As we set out in our earnings release last night, in 2023, we announced and closed $1.8 billion of capital acquisitions and investments within the year. Note that these figures do not include the $2.8 billion closing of our Mandalay Bay MGM Grand joint venture in early January 2023, which we announced in early December 2022, including our assumption of the remaining $1.5 billion of CMBS debt. A fundamental importance, our 2023 investing in gaming and non-gaming was accretive. Our announced 2023 capital investments were made at a blended initial unlevered investment yield of 7.7%. Our 2023 investing was also balance sheet enhancing. We funded this $1.8 billion of investment with approximately $1.6 billion of cash and equity and only about $200 million of incremental debt, achieving an equity-to-debt funding ratio on that investment activity of 8:1, demonstrating our commitment to our long range net leverage target of 5.0 times to 5.5 times net debt to adjusted EBITDA. As we look ahead within 2024, despite the continued cloudy macroeconomic conditions and outlook, we begin 2024 with approximately $1.2 billion of cash and forward equity resources to deploy into continuing accretive growth. Needless to say, in a macro environment of constrained capital conditions, we believe our capital resources can and will be attractive to gaming and experiential operators who want to grow and/or need liquidity. Finally, in 2024, we will continue to build a portfolio of quality. You've heard me say before that I believe VICI is the pioneer in bringing Class A real estate to net lease. By Class A, we mean real estate of great scale, great quality and high mission criticality. And VICI enables investors to own Class A real estate within the strong economic transparency and integrity of the net lease model. What we can, must, and will do is continue to enable existing and potential VICI investors to understand fully the scale, quality and mission criticality of our Class A real estate. To that end, we are proud to announce that we're launching today the VICI Properties photo book, a digital coffee table style book that brings to life the magnificence of the real estate owned by VICI. You can view this book online at our website, www.viciproperties.com. And I thank Hayes Honea of our team for her great work in producing and publishing this book. I strongly encourage you to give this book a good viewing. If you're a VICI shareholder, I believe the book will give you great pride in what you own. And with that, I'll now turn the call over to, John.

David Kieske:

Thank you, John. It's great to speak with everyone today and we appreciate your time. I want to start with our balance sheet. 2023 exemplifies the continued discipline we have maintained over our six plus years of existence by ensuring that we allocate capital accretively, have a balance sheet and liquidity profile designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. During the year, we raised over $1.6 billion in forward equity. In January of 2023, we raised approximately a $1 billion in gross forward equity proceeds at a $33 price per share. Those proceeds were used throughout the year to accretively fund our transactions. We utilized our ATM program throughout 2023 raising $643 million in gross forward proceeds. That amount includes $390 million which was raised in Q4 through the sale of 13.2 million shares via the forward and remains outstanding today. And subsequent to year-end in Q1 2024, we sold 9.7 million shares raising $306 million in gross proceeds under our ATM via the forward. This brings our total outstanding forward equity to just under $700 million bolstering our overall liquidity. Currently, we have approximately $3.5 billion in total liquidity comprised of $523 million in cash, cash equivalents and short-term investments as of December 31, 2023, $696 million of proceeds under our outstanding forwards and $2.3 billion of availability under the revolving credit facility. In addition, our revolving credit facility has an accordion option allowing us to request additional lender commitments of up to $1 billion. As we begin 2024, we believe we're extremely well-positioned to navigate the current environment and do not need to raise any incremental capital as we sit here today. In terms of leverage, our total debt is currently $17.1 billion. Our net debt to fourth quarter adjusted EBITDA annualized for a full-year of activity from our recent acquisitions and excluding the impact of unsettled forward equity is approximately 5.5 times within our target leverage range. We have a weighted average interest rate of 4.35% taking into account our hedge portfolio that we utilized in connection with our April 2022 inaugural investment grade offering in a weighted average 5.9 years to maturity. As of December 31, we've entered into a series of forward starting interest rate swap agreements ahead of our May 1, $1.05 billion bond maturity, which has an aggregate notional amount of $500 million. This portfolio has an effective treasury rate of 4.04%. Just touching on the income statement, AFFO per share was $0.55 for the quarter, an increase of 8.8% compared to $0.51 for the quarter ended December 31, 2022. For the full-year 2023, AFFO per share was $2.15 an increase of 11.8% compared to $1.93 for the full-year 2022, and as Ed mentioned, making VICI one of the leaders across the S&P 500 REITs. 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 and our margins continue to run strong in the high 90% range when eliminating non-cash items. Our G&A was $15.3 million for the quarter and as a percentage of total revenues was only 1.6%. This continues to be one of the lowest ratios in not only the triple-net sector but across all REITs. Turning to our guidance. And as you saw in our release last night, we are initiating AFFO guidance for 2024 in both absolute dollars as well as on a per share basis. AFFO for the year ending December 31, 2024 is expected to be between $2.32 billion $2.355 billion or between $2.22 per share $2.25 per share. Based on the midpoint of our 2024 guidance, VICI expects to deliver year-over-year AFFO per share growth of 4%, very attractive starting point as we begin 2024. And just 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 non-recurring transaction or items. And as we've mentioned previously, we record a non-cash CECL allowance on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments in evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

Anthony Paolon:

Yes. Thank you. Good morning. I guess my first question is just whether or not you could put some dimensions around your deal pipeline right now, either whether it's skewed somewhere geographically, size and maybe yields?

John Payne:

Tony, you can hear from Ed's comments. He spent some time in Las Vegas recently, which I have as well. You asked a question about what sectors and I also think what locations. We obviously have been spending a lot of time in Las Vegas. We're very proud of our partners' success there and it looks like 2024 is going to be a great year as well. And as you heard from my remarks, we continue to look at different target sectors whether in wellness and indoor waterparks, pilgrimage golf, family entertainment center. We made our first investment in youth sports, which we like the mixed use of youth sports. So, I continue to spend my time with my team and really the whole company looking at a variety of these and checking the boxes of which ones could make for long-term investments. And there are some sectors that we don't talk about that we've kind of checked off the list that says this is not right for our capital at this time. But we shouldn’t confuse that the casino business continues to be real focus of our company and one that we are just can't be more proud of the operators and what they've done in ‘23 and what we see in ‘24.

David Kieske:

Yes. Tony, there's no implied use of proceeds or drawdown. There's a little bit of impact from treasury stock dilution in the ultimate share count, but that's the only impact.

Anthony Paolon:

Okay. Understand. Thank you.

Barry Jonas:

Hey, guys. Good morning. Wanted to start with the, the Caesars center call option. Can you maybe just walk through different considerations as you're thinking about exercising it and specifically timing of that? Thanks.

Barry Jonas:

Got it. Got it. And then, Ed, maybe just more a higher level question. You've done deals with tribes, native American tribes on commercial land before, but I was hoping you could talk more about the puts and takes with doing some type of deal structure in tribal land. There's clear risks there, but it's something banks and debt investors have been able to overcome. And, I think it's a sizable market with clear financing needs? Thanks.

John Payne:

But Barry, you touched on, we've been really excited to build relationships with three tribes in the commercial sector and it's something that we can continue to talk with them and other tribal partners that we've gotten to know to see could there be an opportunity to help them grow on their nation's land. But we have primarily been focused with our partners on the commercial sector and we'll continue to study that opportunity because as Ed said, we saw the study of the report that came out as well.

Operator:

Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open. Please go ahead.

John Payne:

Yes. Good morning, Caitlin. Very good question you asked. No question that we continue to meet with our 13 partners currently in gaming and non-gaming and talk about how our capital can help them grow over the coming years. And as Ed alluded to, the boxes that are in I shouldn't even call them boxes in Las Vegas, the amazing resorts we own with partners in Las Vegas could provide with a lot of opportunity in the relatively near future and in the coming years as those partners look to grow whether that's in hotel rooms, new restaurants, new attractions. Ed mentioned obviously the sphere where that sits on our land. We weren't involved in the building or they're not our direct tenant. But we see that as a pillar of growth for our company over the coming years, not only in Las Vegas, but in our regional assets because there are large regional assets whether that's the MGM assets in National Harbor or in Detroit, there are opportunities to grow as well. And then I think your second part of the question is, are we looking to continue to expand our tenant roster? And the answer is, absolutely. Me, my team, Ed, David, Sam, anyone else in the company is out, forging new relationships to see if there's new sectors or new companies that we can use our capital to help them grow. So, I wouldn't be surprised if you see some new operators or new tenants in our roster over the coming year.

Caitlin Burrows:

Got it. No. That makes a lot of sense. And then maybe just back to the pipeline a bit. You guys were active with both sale leasebacks and lending over the past 12 or so months despite a quiet CRE transaction market. And I know you mentioned how you're sober to the current situation, but you guys continue to invest in ‘23. So, I was wondering if you could give some more detail on the pipeline today, maybe size, mix, and how that makes you think more specifically, maybe, like, the first half of ‘24 activity could end up being or what that could be like?

Caitlin Burrows:

Okay. Thank you.

Ravi Vaidya:

Hi. Good morning. This is Ravi Vaidya on the line for Haendel. Hope you all are doing well. Just noticed that the mezz lending and construction financing is becoming a larger proportion of your capital deployment strategy. How should we think about the sizing of that relative to your broader acquisition pipeline, and how are you underwriting those return requirements, and how that's changed over the last, six to 12 months? Thanks.

Edward B. Pitoniak:

And then to go back to the first part of your question, it will always be a minor percentage of our assets under management and we will use it to forge relationships. We have an example obviously right in front of us of using lending to establish a relationship with Chelsea Piers that led to the acquisition of the primary leasehold interest in December. So, we will use it both as a strategic tool to develop relationships and a strategic tool to create a steadier cadence to our capital allocation. We're very proud of the fact that we got capital out the door every single month in 2023. And I can tell you in our early years, there were whole quarters that went by where we did not get capital out the door, given what was true back then, which was that the nature of our capital allocation was big and lumpy, tied to big lumpy gaming acquisitions. So, it is a tool that can generate growth and return on a very steady basis. It is a strategic tool to forge relationships. And again, given some of the spreads we've been able to achieve in recent years, it is very lucrative, very accretive in driving earnings growth. And again, we're about creating earnings growth that others may not be able to achieve if they're not as energetic and pioneering as we have been both in terms of how we grow the business in terms of asset classes and through the use of our balance sheet.

Edward B. Pitoniak:

Yes. Well, as I said in response to Barry, obviously, 7.7 is not as attractive as when it was struck a few years back when the call agreement was struck a few years back. And it will be a call opportunity. We will be excited about executing if it's an accretive opportunity and if it's not an accretive opportunity. If in fact there would be a dilutive opportunity at 7.7, we would not do it.

Operator:

Our next question comes from Chris Darling with Green Street. Your line is open. Please go ahead.

Edward B. Pitoniak:

Well, yes, Chris. So, the rent coverage, by virtue of the current call agreement is set, but, it is a subject to discussion, and one we have and would like to continue to explore with Caesars, such that on an overall basis, they and we are at rent coverages that everybody feels really good about for decades to come.

John Payne:

Yes, Chris, it's John. As when we made the announcement a few months ago, we talked about spending a couple of years studying the youth sports business and we learned a lot in that process. We've also found an amazing partner in Homefield. We announced our first opportunity with them in the Kansas City area and they're building not only the youth sports facility but connected to a Margaritaville Resorts. That's one of the things, I think you'll continue to see is if we place other investments into the youth sports spaces, having numerous cash registers, not just having the fields to rent or the stadiums to rent, but also having connected to one operator who controls the restaurants, who controls the hotel rooms and controls the sports fields. So, this is a $110 millionish initial investment with Homefield. We've not announced any further development not only on that site, which does have opportunity to expand over time, but also other sites around the Midwest or the United States. But as with any partner that we've talked about whether that's with casino partners or with Cabot or Canyon Ranch and now Homefield, we hope that it's not just our only investment with them and we purposely took so much time to study the business to find the right partner to grow.

Operator:

We now turn to Greg McGinniss with Scotiabank. Your line is open. Please go ahead.

Edward B. Pitoniak:

Yes. So, you are right, Greg. If we're partnering with an experiential operator that's not public, the tenant financials are not crystal clear in the same way they're not crystal clear across a whole lot of net lease portfolios. And at the end of the day, we obviously have to exercise our fiduciary responsibility to the greatest degree possible in ensuring that the fundamental business is very, very supportive of the rent and the way in which our operating partners manage their balance sheets and liquidity is also of a strength that ensures that they won't be in positions where they're unable to meet the rent. We've got a very rigorous underwriting practice. We obviously can take advantage of history in many of the categories, experiential categories that we're investing in. And again, at the end of the day, it's up to us to make sure that they are of a strength, that's going to enable them to weather whatever should come their way. But I will also emphasize that our key criteria, our first of four criteria in evaluating all investments, gaming and experiential widely, is that the businesses be of lower than average cyclicality versus consumer discretionary at large, which we think is another risk mitigant when it comes to ensuring that they can cover the rent through thick and thin.

Edward B. Pitoniak:

Well, last dollar exposure is obviously one of the key criteria and ensuring that our last dollar exposure is at a level whereby if we did end up owning the asset that the operating economics are such that at the last dollar exposure level that we would be lending at, we're still in good shape.

Greg McGinniss:

Okay, thanks. And just a final one for me. And I'd like to preface this question by acknowledging the great work that John and his team have done so far. We know that you've added some great members to the investment team as well. But given your sector low G&A, how do you balance that shareholder friendly expense line versus investing in a larger acquisitions team that could maybe help source and underwrite more investment opportunities?

Greg McGinniss:

Okay. Thanks you, Ed.

Nick Joseph:

Thanks. I want to get your kind of commentary or thoughts on performance thus far for Fontainebleau. It seems like mainstream media has been favorable on it, but there's also local articles on some management changes there. Just wondering how performance is it?

Edward B. Pitoniak:

Yes. And Nick, you've given me the opportunity to vent a little bit about how utterly weary I am around the negativity of so much of the media coverage, which regularly gets proven to be way overly negative. Oh my God, this sphere is going to be a disaster. I was in the U.K. earlier this week. I was struck by how many people wanted to talk about this sphere because they'd either already been or they're determined to go. And again, media coverage around that, oh my god. Oh, F1 is going to be a disaster. Well, guess what? It wasn't. The drivers loved it. The teams loved it. It was an amazing weekend of business for our operating partners. So Super Bowl, again, just a phenomenal event for Las Vegas and for the NFL. So, I absolutely agree with you. Some of the press coverage has been quite negative, but we know the people involved, we know how hard they're working, we know how challenging what it is that they've set forth for themselves to open an unaffiliated property on the strip. And yet again, that asset is utterly magnificent and they're doing the right things to bring business to it over time. And with the backing of Coke, you can be sure that the backing is strong enough that they have the patience, but moreover the firepower to make this work in due course.

Edward B. Pitoniak:

Nick, are you talking about cap rate variability across various experiential asset classes?

Edward B. Pitoniak:

Yes. I don't know, John and David, I don't know that we've seen a tremendous amount of variability across asset classes. We're obviously not seeing a tremendous amount of trading. And yet you obviously saw with our unlevered 7.7% yield for the $1.8 billion we put out the door in 2023, that we have obviously been able to acquire income at higher yields. I would have a tough time generalizing, but David and John, I don’t know if you want to add.

Nick Joseph:

Makes sense. Thank you.

Jim Kammert:

Good morning. Thank you. Obviously, VICI is going to remain very much a gaming focused investing and operating company. But you mentioned that you vetted thoroughly some sort of other verticals didn't pan out, which is all logical. But could you quantify, do you think that your total addressable market or investment opportunity set for new potential verticals continue to expand? Just trying to figure out if your overall catch basin is sort of winnowing or widening? Thank you.

John Payne:

Yes. Definitely widening. As there are a few that we're saying, hey, we ultimately not right for us today, there's other opportunities that come about that we study, learn who the operators are, we learn where their locations are, we spend time with them. So, no question the funnel is getting wider.

Jim Kammert:

Okay. Thank you. And one small item, it's been in the press that there is some tax dispute underway at MGM National Harbor. It's obviously an important asset for VICI. But would that have any details around that and would it have any implications for you as landlord? Thank you.

Jim Kammert:

Okay. Thank you.

Operator:

Our next question comes from Wes Golladay with Baird. Your line is open. Please go ahead.

John Payne:

Yes, Wes, it's John. It's nice to talk to you and probably a question for our great partner in Hard Rock on timing, but I think they've as you've probably been following the story, they acquired the operations of the Mirage a little over a year ago from MGM and have been operating, but have also been out getting approvals and designing the opportunity to change the facility from the Mirage to the Hard Rock Las Vegas. As it pertains to timing and budget and construction and that it's probably something that they'll lead that charge. But we, of course, as the owner of the property are excited to watch that asset get repositioned over time. It's obviously an amazing asset for a long period of time, but I think everyone would think of Hard Rock Las Vegas would do great on that site.

David Kieske:

Wes, it's David. We will focus on continuing to access the unsecured market and extent our maturity tenure and increase the overall size of our investment grade basket those are legacy and MGP high yield note, so moving those to unsecured investment grade notes benefits our overall credit complex for the long run.

Operator:

Now turn to Daniel Guglielmo with Capital One Securities. Your line is open. Please go ahead.

Edward B. Pitoniak:

And, Dan, you're talking about, how is the competitive landscape of lending, evolved over the last few years?

Edward B. Pitoniak:

Yes. Well, obviously, we're looking at a period over the last couple of years in which conventional bank financing has definitely diminished as a source of funding for experiential placemakers and operators. And at the same time, obviously, you've seen the upsurge of private credit of which we are part. And I would say that in many cases, we are being invited in to the funding opportunity because of our track record in experiential and the endorsement that our underwriting process brings to a project that we choose to be involved in. We obviously look at them really rigorously and we again, I would say, we get invited in a lot to processes as opposed to having to scour the landscape, and throw our hats in the ring.

John Payne:

Dan, nice to talk to you this morning. I'll just go back to our assets in Las Vegas and I don't know how you're describing big hitter. But, if there are opportunities for us to continue to invest in assets that we already own and help the operator grow with accretive new projects, I'll consider that being a big hitting because I'm not sure there's a better place in the world to invest in right now than Las Vegas. Obviously, we've got a portfolio there, but there are some amazing assets Ed referred to the Venetian that has a lot of footprint to continue to be developed. So --

Daniel Guglielmo:

Great. Thank you.

Jake Kornreich:

Hey, thanks so much. Good morning. As you look to expand the non-gaming segment, should we continue to expect loans on the relatively smaller side for you as a way to step into longer term relationships? Or would you be willing to take kind of a larger bite into either the real estate or debt and a new asset type in a much bigger way, say, over $1 billion?

Jake Kornreich:

Okay. I appreciate that. And then just a quick follow-up on, I guess, the leverage. You're now at 5.5 times, which is in your, 5.5 times range. So, should we expect new transactions to be funded, I guess, with incrementally more debt capital at this point? Or do you intend to continue to over equitize new deals and get that leverage further down?

Jake Kornreich:

Okay. Thanks very much.

John DeCree:

Good morning, everyone. I've been looking up for almost an hour here and I think only one mention of F1. So, Ed, to kind of go back to your sports triangle, in Las Vegas, and you guys have some land, near the [F1 Paddock] (ph). And, you talk about this every once in a while, but curious your thoughts on professional sports, stadiums, that type of investment, and maybe specifically in the context of Las Vegas given, all the development around professional sports that we're seeing there and your land and partners?

John DeCree:

Very good. Thanks. And maybe just one, since a lot of people are asking me, is the photo book going to be available in hard copy?

John DeCree:

[Indiscernible]

Operator:

Yes. This concludes our Q&A. I'll now hand back to Edward Pitoniak, CEO for final remarks.

Operator:

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Operator:

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the VICI Properties Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 26, 2023. I'll now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward Pitoniak:

Thank you, Samantha, and good morning, everyone. The third quarter of 2023 is a quarter most REITs are happy to be done with. The REIT Index in Q3 2023 was down 8%, swinging negative for the year after not a great year last year, and October has only continued a negative trend. But while the REIT stock marketplace didn't have a great quarter in Q3 2023, the key question to ask is what a given REIT did in Q3 and now in October to improve its business for the future. At VICI, our answer to this question has a number of elements to it. We played offense selectively. We played defense. We capitalized on certain current conditions. We prepared for potential future conditions. We increased our dividend effective with Q3 2023 and an annualized rate that well exceeds forward inflation expectations and continued rate of dividend growth since 2019 and that is 3x greater than the largest net lease REIT over the same period. And if there has ever been a period in which one should value a solidly covered and solidly growing dividend, that currently exceeds the 10-year rate. This is it. Finally, in a year in which REIT earnings growth has generally been difficult to come by, VICI's AFFO per share earnings in Q3 grew 10.7% year-over-year. VICI announced within and subsequent to quarter-end, about $1.1 billion of new capital commitments. While most of you have seen the strategic and economic merits of these investments, we know there are some of you who feel that we should have left that capital in a stockpile. Some of you feel understandably that volatility is too high and visibility is too low. We agree volatility is high and visibility is low. And with the market movements of especially the last few weeks, we are sober and cautious about what the market conditions for capital allocation could be from here for how long, no one knows. But I can tell you that we continue to have high conviction about the commitments we've recently made with Century, with Canyon Ranch and now with Valero. These commitments represented immediately accretive investments in real estate that should have positive impacts on 2024 earnings. These commitments also represent investments in relationships that can and will be the answer in future years to, okay, now that things are back to normal, how are you going to grow, VICI. Again, none of us know when the all-clear signal will sound, but it will in some way and REITs that continue to invest in relationships we'll be best positioned to resume growing when market conditions and values have stabilized. That's what we at VICI did in the recovery out of COVID. Our situational readiness put us in the position to acquire the Venetian and MGP, investments that are a key driver of our 2023 earnings growth, and we made these investments and many other would be made [technical difficulty] hadn’t been fully readying themselves for recovery. We have been able to undertake our recent investments because of the astute and agile work of Moira McCloskey and the VICI Capital Markets team. Going back to our nearly $1 billion overnight equity raise in early January 2023, VICI has opportunistically raised a total of approximately $1.3 billion of forward equity in 2023, giving VICI a cost of funds for our recent investments to drive the immediate accretion of which we've spoken. We also made defense this past quarter. During Q3 and subsequent to quarter-end, we played defense by using close to $1 billion of equity in cash and only about $55 million of debt to fund our new capital commitments demonstrating our commitment to our long-range leverage targets. David Kieske and the VICI Finance team also played defense by adding a further $200 million of swap protection since Q2 in anticipation of our 2024 refinancing of $1.05 billion of the legacy MGP 5.625 notes giving us a total of $450 million of swap protection. And while we did all this, our tenants continue to demonstrate the vitality of their businesses, as John will speak of momentarily. I'm very proud of the work the entire VICI team did this quarter against a volatile and difficult backdrop, the VICI team working within one of the lightest G&A loads of any S&P 500 REIT continue to create a culture of excellence and resilience that I'm confident will serve VICI's stakeholders well for years to come no matter what those years bring. With that, I'll turn the call over to John Payne for an operating and transaction marketplace update, and John will then pass the mic to David Kieske, who will give our financial and guidance update. John?

David Kieske:

Thanks, John. It's great to speak with everyone today. The VICI team takes pride in what we've accomplished in 2023, acknowledging the year is not over, but the results we posted last night and last week's Bowlero announcement are exemplary of those accomplishments, as Ed said, we are improving the business, which should benefit VICI and you as shareholders as to 2024 and beyond. Highlighting the transaction we closed last week with Bowlero and we have spoken to many of you about, the deal was immediately accretive to our AFFO given we had prepared by raising forward equity for the transaction many months earlier generating an attractive spread to that cost of capital. From an economic standpoint, the deal is very attractive. But as John mentioned, it also builds a partnership with a market leader that we and the Bowlero team believe will grow together in the future. Subsequent to funding this transaction, we have approximately $3 billion in total liquidity, comprised of approximately $430 million in cash, $250 million of estimated net proceeds available under our forward sale agreements and $2.3 billion of availability under the revolving credit facility. In terms of net leverage, net debt to annualized Q3 adjusted EBITDA is approximately 5.7x. We have a weighted average interest rate of 4.35% accounting for our hedge portfolio and a weighted average of 6.1 years to maturity. Then as we prepare for our first bond refinancing in early 2024, we have entered into forward starting interest rate swap agreements with an aggregate notional amount of $450 million to date. Touching on the income statement, AFFO per share was $0.54 for the quarter, an increase of nearly 11% compared to $0.49 for the quarter ended September 30, 2022. Our results once again highlight our highly efficient triple net model the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue, and our margins continue to run strong in the high 90% range when eliminating noncash items. Our G&A was $14.4 million for the quarter and as a percentage of total revenues was only 1.6%, one of the lowest ratios in the triple-net sector. During the quarter, we increased our quarterly cash dividend of $0.415 per share or $1.66 on an annualized basis, representing a 6.4% year-over-year increase. Then turning to guidance. We are updating and increasing AFFO guidance for 2023 in both absolute dollars as well as on a per share basis year ending December 31, 2023, is now expected to be between $2.17 billion and $2.18 billion or between $2.14 and $2.15 per diluted common share. Based on the midpoint of our updated guidance, VICI expects to deliver year-over-year AFFO per share growth of 11%, one of the highest expected growth rates across all REITs. As a reminder, our guidance does not include the impact on operating results from any 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 transaction items. And as a reminder, we do record a noncash CECL allowance on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. With that, Elliott, please open the line for questions.

Anthony Paolone:

All right. Thank you, and good morning. My first question is we all could see kind of how your capital costs have changed over the last few months. But maybe can you give us a sense as to how you see your operators, capital costs changing and whether or not sale-leaseback has become more or less competitive over the last few months.

Anthony Paolone:

Okay. Thanks. And then just a follow-up. You'd mentioned your operators putting a lot of capital into the assets. And I know you have the property growth fund to help with that if they so choose to participate. But would you all reinvest post this if they decided they wanted to pull some of their capital out? Or do you see yourselves just limiting it to being involved in the projects as they're happening.

John Payne:

Yes. Tony, just to level set here, Tony, the capital that I went through in my opening remarks is being put in by the tenant, not by VICI at this time, just to - and I think that's what you were asking. The other point of the question is if there's opportunities for us to help them with larger projects in this property growth fund would we do that? We would be thoughtful in our analytics behind an investment, and we talk to our partners all the time about how they're thinking about growing their businesses and is there an opportunity for us to deploy incremental capital for incremental rent. And we do that on an ongoing basis.

Anthony Paolone:

Got it. Yes, that's what I was asking. So I understood, John, that those items you were listing those capital costs were being funded by the operators already. And so yes, it was a question of if you would go in later if they decided, hey, look, we put this in, and we may want some of that back. Would you help us with that?

Anthony Paolone:

Thanks.

John DeCree:

Good morning, everyone. Thanks for taking our questions. Ed or John, maybe we could talk a little bit about the Bowlero transaction and the cap rate that you've got to there. It's a little tighter than what we've seen in some of the last regional gaming cap rates show up that. I'm wondering if you could kind of speak to how you're looking at caps for family entertainment versus gaming and maybe more regional gaming than Vegas realizing Vegas is a bit of a different animal and other experiential real estate that you're looking at as well.

John Payne:

Yes, John, I just mentioned you asked about other categories that we're looking at. Obviously, we've already placed investments in indoor water parks, wellness with Canyon Ranch, Pilgrimage Golf, we made an investment in family entertainment center, as you said, with Bowlero. But we continue to spend some time looking for opportunities to develop long-term partnerships in wellness, leisure, recreation, some entertainment sectors and some sports sectors as well. And I think it's important. The final thing I'll just add is it's not an either or it's not a pay, you're looking at gaming, and that's what we're just focused on. And you're looking at wellness and that's what you've spoken on. We've got the capacity now to constantly look for these unique opportunities to place investments over time, as Ed mentioned in his opening remarks.

John Payne:

It has not changed, but you hit on the sphere with what an amazing entertainment venue that was added to Las Vegas and sits on our land. It is truly - there's no entertainment venue like it, not only in the United States, but probably the world. But this is a category that we have looked at. We continue to study. We clearly have not made an investment, and we're trying to better understand the long-term economics and viability of certain projects. But boy, the sphere is amazing, John, if you get the opportunity, you should go to an event there.

John Payne:

Thank you, John.

Haendel St. Juste:

Hi, there. Good morning. Thanks for taking my question. I wanted to follow up on the questions on Bowlero, but more from me how you're thinking about value creation and capital allocation and risk holistically in the current environment. In the past, you talked about seeking a minimum 100, 150 basis points spread as an investment hurdle. I guess I'm curious if that's still the case in today's environment, or would you perhaps want to seek more?

Edward Pitoniak:

I'll just add, Haendel. We've had a few questions along the lines of, well, geez, could you have used that money to buy 9 and 10 cap assets? And our answer to that would be today and especially during the period in which you were gestating the Bowlero deal, we don't see any really good real estate occupied by really good operators trading at 9 and 10 caps right now. The day could come when they do, but that day is not here right now. And in the meantime, with this capital volatility that we see, we will be very, very careful in recognizing that not only is the cost of capital volatile on a day-by-day basis, that has implications for any deals that have long gestation periods. So we will have to particularly take care any kind of deal making that requires longer gestation periods to account for the fact we do not have capital cost certainty by any means, and won't necessarily have it until the day we decide to do a deal, which means we will take great care in deciding to do anything against these market conditions.

Edward Pitoniak:

Yes. So you're right. Technically, that -- these do represent our first direct investments, immediate ownership of nongaming real estate. What we should point out, of course, is that through our ventures with Cabot and Canyon Ranch, we have contracted for call rights that give us a direct path to real estate ownership in the future. So it happens to just be a difference between the nature of our acquisition of real estate potential acquisition of real estate with Cabot and Canyon's Ranch versus the immediate acquisition with Bowlero. And certainly, in this case, you had an operator with a very compelling opportunity to grow, a very compelling opportunity to put sale-leaseback capital to work, which led to our immediate acquisition of the real estate itself.

Operator:

Our next question comes from Ron Kamdem with Morgan Stanley. Your line is open.

Edward Pitoniak:

Yes. I'll turn it over to John in a moment, Ron, and good to hear from you. I do think one of the key characteristics of bowling is that it is a low barrier to entry experience, but it is an experience that you can get better at. And that's in contrast to some other experiences that can take place within the family entertainment sector, where people might do it once or twice, and they go, okay, fun. I've done that. I don't need to do it again. And Boeing is at its very heart recreation. And if you want to get philosophical about it, you can say, it goes back to our most ancient human urges to aim at a target and strike a target. And people tend to get pretty excited when they strike targets. And that energy exists within bowling. It's a recreational energy and not a passive energy. So we think that, that has resiliency aspects to it that are at the heart of why bowling has endured in various warrants for literally hundreds and hundreds of years, whether outdoor on lands or indoors and buildings. But I'll now turn it over to John, who can give you more color on how we develop that relationship. John?

Ronald Kamdem:

Great. And then just -- my second one was just staying on the pipeline of deals and so forth. So obviously, the tenure is much higher than I think most anticipated. And I'm just wondering, like when that happens, like how does that pipeline sort of evolve? Like do conversations stop? Do they pick up? Just trying to understand like what -- how is that pipeline evolving and conversations that you're having as PPR repricing capital?

John Payne:

Yes. Ed, you described it very well. We're constantly looking for opportunities to have conversations, learn more about certain sectors and businesses that we're not experts on today, develop long-term partnerships. But that doesn't mean we transact at this moment of uncertainty. It means that we're preparing for the time when they hopefully go from defense to offense and look at opportunities that we understand the sector of the company and we develop that relationship. So a little bit of a different time than the past couple of years, but we still are working to find opportunities for the long term.

John Payne:

Thank you, Ron.

David Katz:

Hi, morning everyone. Thanks for taking my question. Just one more on Bowlero and this is not intended to be a leading question in any way, but I know you do a lot of homework around the business and the underlying real estate. I wonder if you could just talk about the durability of that real estate value, what kind of it requires relative to the other stuff that you've acquired so far? And just sort of give us a picture of that long-term value durability, please?

Edward Pitoniak:

David, I'll just add to this. You and I talk a lot about my old days, way back in ski resort operations. And what I learned back in ski resort is to fall in love with businesses that respond that respond intensively and quickly to capital investment and management focus and intensity. And the difference between this and the ski business is you can make a great capital investment and operate the heck out of the business. I mean it doesn't snow you or. And what I love about this business is that it's very responsive to the investment of capital. You invest capital and you get pretty much an immediate consumer response it's also a business that responds really well to management intensity. And again, Tom Shannon and the Bowlero team are very, very trued at investing capital and know how to manage the P&L every single line, top, middle and bottom lines to drive -- to use that management intensity to really transform results through the transformation of the experience.

David Katz:

Thank you.

Todd Thomas:

Hi, good morning. So first question, Ed, maybe, John, it sounds like the company may slow down on investments in the near term until visibility improves, which would make sense. But the ongoing conversations that you are having as you look to keep the lines open, with new and existing relationships on potential opportunities. Do you expect to see investment yields increase sort of commensurate with the increases in capital costs across industries?

Todd Thomas:

Okay. That's helpful. And then I guess within that context of sort of looking at potential investments, can you provide an update on the call right agreements and sort of current thinking on Hoosier Park and Horseshoe, Indianapolis, the potential timing there and how you're thinking about potential capital raising that might be required to the extent something were to happen there?

David Kieske:

Yes, Todd. And those who have been with us since the beginning, in the early days, we had call rights at a 10 cap. And as we talked about then, we said we'd use those to layer into our growth when the pipeline may be slower or there may be less opportunities in the marketplace. And we take the same approach with the call rights in Indiana. That runs till the end of next year, end of 2024, and we just have to call it by the end of 2024. So as we look into the future, we'll be very disciplined with where our cost of capital is, but also very kind of methodical about how we layer in into our future AFFO growth.

Todd Thomas:

All right. Thank you.

Greg McGinniss:

Hi, good morning. Looking at the future opportunities with Canyon Ranch or Bowlero, is finding the incremental investment contingent upon the operator? Or is your team working with them to help find some opportunities. And then also for any potential ROFOs or investments, those cap rates will be negotiated in real time. So can we assume maybe those would be 50, 100 basis points higher than where you've invested previously?

Greg McGinniss:

And I guess in looking at those potential Canyon Ranch opportunities, is there a around the balance size on a per asset basis that they're looking at in terms of making investments? Obviously, that will change based on cost of capital and expect -- but just trying to understand the size of the assets they're looking at.

Greg McGinniss:

Okay. And just a final one for me. may not have an answer on this one, but have you guys been in talks with MGM about their perceived likelihood of receiving the license at Empire City and your potential investment there? Any updates?

John Payne:

Yes. We -- well, first of all, MGM has been a great partner since we were able to acquire MGP and those assets. And obviously, the New York process is going on right now. There's some who believe, as you said, that the two current racinos will get two of the three licenses. And should MGM be one of those, and they're looking to build that business, and we see an opportunity to use our capital to build and get incremental rent. We'll absolutely talk to the partner about that. So we'll just have to see grain how this process plays out over the coming years.

Operator:

Our next question comes from Smedes Rose with Citi. Your line is open.

David Kieske:

Smedes we studied -- as you heard us say, we studied the business in the company for a couple of years now. And the their ability to go into an asset with very low 4-wall coverage and transformed that asset into very high 4-wall coverage, gives us a lot of conviction in the business. And then obviously, with the master lease and the corporate guarantee that we get out of the -- incremental protection we get gives us a lot of comfort. So that's the area that we target, how kind of high 2s, 4-wall coverage, low 3s and then obviously, the corporate guarantee. And they're a growth-minded operator who understands the merits of a sale-leaseback model and ensures that they have the capital available to grow their business and the way shapes or forms that they want to do and they want to size the rent in a way that gives them protection to make sure that they're creating and benefiting from all the upside that they generate, given their business model and the economics that they do produce.

David Kieske:

Yes, Smedes, just to hit on your first point. I mean the leverage ticked up quarter-over-quarter really good cash went down, right? If you look at our supplement quarter-over-quarter debt only went up $55 million. That was the fund of Century Canada asset and cash went down $230 million. As Ed talked about the equity and the cash out the door to fund the acquisitions that we closed during the quarter. So really a de minimis move in leverage Look, in terms of Moody's, it's a continual education and it's just -- it takes time, all right? We've been around for six years. We're educating the agencies on the gaming net lease model educating Moody's in particular, on gaming tenants. And as we've talked about, I think with many of you in the past, they took our rating up two notches when we did our inaugural investment grade offering back in April of 2022, we've been in touch with them consistently, and we will -- for an agency to make a move, it often takes an event. So we're hopeful in the coming months or a period of time, there will be an acknowledgment of the sanctity of our cash flows and an upgrade coming. And it's -- there's really no real kind of black and white trigger. It's a little bit of just do what you say, say what you do and continue to prove the merits of your business model, which we have been very, very diligent and working hard at.

Operator:

Our next question comes from Chris Darling with Green Street. Your line is open.

Edward Pitoniak:

Yes, Chris, good to talk to you. I think the honest answer would be, we don't know. The most recent trade in big box gaming, obviously, was a realty income investment in Bellagio, where I believe it took place at -

Edward Pitoniak:

5.2% cap rate. So exactly to your point. There's not a lot of the real estate categories covered by Green Street, where you're seeing those kinds of cap rates right now, perhaps outside of industrial and maybe data centers. So there is resilience there. But beyond that Bellagio investment, I don't think we have a lot of data to point at. But I do think, going back to what John has been saying, about the vitality, especially of Las Vegas, where so much of our capital is invested. There's really no other place on or like it. And it may sound a bit trivial, but I'll point to, for instance, PINK, having just performed last week at Allegion announcing, I want a residency in Las Vegas, and I want it now because she's recognizing as a global artist that Las Vegas is the place for global artists to situate themselves right now because of the drawing power that Las Vegas has on a global basis. So you're seeing a resiliency of economic activity that should constitute some degree of resilience of value that you're not obviously going to see in a lot of other sectors where you are facing either secular headwinds or supply-demand imbalance.

Chris Darling:

Appreciate all the thoughts. That’s it for me.

Operator:

We now turn to Nate Crossett with BNP. Your line is open.

David Kieske:

Yes, Nate, it's David. It's a yes. I mean we've been very vocal and committed to getting leverage back to our 5x between 5x and 5.5x net debt to EBITDA Obviously, we ticked that up a little bit with the MGP acquisition and the agencies acknowledged that and understood we would work very hard to get that leverage back down and we've kind of exceeded the pace that we originally told the agencies in the summer of '21. And then in terms of our 10-year money, we do have a maturity that comes due May 1, 2024, the window opens on February 1, 2024. We talked about, as we've mentioned collectively, we have $450 million of notional forward starting swaps out there. We've been legging into a hedge policy to get ahead of that refinancing. That 10-year money today spreads somewhere 2.20, 2.30, give or take, 10 or 20 basis points over the 10-year. And so as we sit here today, with a 10-year 5, that's kind of low to mid-7s capital. But we'll assess the market is that a mix of 5, 7 or 10, is it all tens - we do have access to the term loan market that a lot of REITs do not have access to. So we'll be very focused on ensuring that we extend the tenor, but also take advantage of the kind of the best pricing and the best laddering of our maturities as possible.

Nate Crossett:

Okay. That's helpful. Maybe just one more on the Bowlero. I think it's about maybe 10% of their portfolio. Have they given you any indication how much they would be willing to do over time, just trying to like size the potential opportunity here?

Edward Pitoniak:

Yes. And I can't remember the exact numbers. So hopefully, David or John might, Nate. But the thing to keep in mind is that Valero is the market leader in a remarkably unconsolidated category with Valero owning - do they even own 10% of the category, I think they own 10%. So their opportunity to continue to roll up assets can transform the assets, transform the experiences and transform the economics is where the future growth between Bowlero and VICI will take place And again, thanks to a basically a right of first offer. What amounts to an exclusive financing partner restate financing partnership, that we'll enjoy with them for the next eight years.

Operator:

We now turn to Chad Beynon with Macquarie. Your line is open.

Edward Pitoniak:

Yes. And I will point out as someone who carries both the Canadian Passport as well as U.S. passport, we have expanded internationally. Canada is another country and we're very proud to be invested there. And John and Kelyn and the business development team continue to research international markets as overall real estate marketplaces and then the categories of interest the experiential categories of interest within those markets. And again, those are situations where we will make sure to take the time and take great care to make wise investments given that they need to be based on deep knowledge of the market before we ever commit capital.

Edward Pitoniak:

I think, Elliot, that will wrap things up, correct?

Edward Pitoniak:

Yes. Thank you, Elliot. Thanks, everybody, on the call today. We really appreciate you being with us, and we wish all of you the best during this very, very volatile time. It is a time we will get through. And again, we thank you for your time today.

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.

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?

Operator:

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

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.

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?

Operator:

Our next question comes from [indiscernible] with Evercore.

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.

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.

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.

John Payne:

Ed, can I add something to that to David...

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.

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?

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.

Edward Pitoniak:

John?

Operator:

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

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.

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.

Operator:

Our next question comes from Barry Jonas with Truist.

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.

Edward Pitoniak:

John?

Operator:

We now turn to Wes Golladay with Baird.

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.

David Kieske:

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

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.

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?

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.

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.

Edward Pitoniak:

Ron -- weyou start, John, and I got an added point I wanted to make.

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?

Operator:

Our next question comes from John DeCree with CBRE.

Edward Pitoniak:

John?

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?

Operator:

Our next question comes from Greg McGinnis with Scotiabank.

Edward Pitoniak:

John?

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.

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.

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.

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.

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?

Edward Pitoniak:

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

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.

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?

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?

Operator:

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

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.

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:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, May 2, 2023. I'll now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward Pitoniak:

Thank you, Samantha, and good morning, everyone. Let me start today by telling you how I tend to spend my Saturday mornings espresso in hand. First, I grab the FT, the old-fashioned print edition, to see what Katie Martin has to say about the state of the equity and credit markets in her Long View column. Katie can be very funny. But the long and short of it is that the market participants she's quoting these days aren't having a lot of fun. Then I might grab my iPad and catch up on any of Rob Armstrong's unhedged FT columns that I fell behind on during the prior week. Rob's response to current and prospective market conditions is rather Hamlet in character

David Kieske :

Thanks, John. 2023 started off with several very exciting transactions. Our ability to move quickly and close these acquisitions at the start of the year as a result of the liquidity we have maintained and balance sheet that we have built over the years in an effort to be nimble and act on attractive opportunities as they come before us. We will continue to focus on the balance sheet as it is important to ensure that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. As John mentioned, we closed on the acquisition of the four PURE Canadian gaming assets in Alberta, Canada, the 49.9% interest we previously did not own in the MGM Grand/Mandalay Bay JV. And we purchased $85 million of senior secured notes issued by Hard Rock Ottawa LP. This is an exciting transaction for VICI as we partnered with a large financial institution to provide Hard Rock with a complete financing solution for the redevelopment of what will become the Hard Rock Ottawa in Canada. In addition, we announced a $287.9 million construction loan for the development of a Great Wolf Lodge, which sits on land owned by the Mashantucket Pequot Tribal Nation next to the Foxwoods Resort Casino. This transaction represents our fourth loan with Great Wolf for a total capital commitment of approximately $550 million to support Great Wolf's development pipeline. In January, we re-bolstered our liquidity raising approximately $965 million of available net equity proceeds through the sale of 30.3 million shares via forward sale agreements. On April 4, we physically settled 3.2 million of these shares for net proceeds of approximately $101.5 million. As we sit here today, we have approximately $3.9 billion in total liquidity, As Ed mentioned, this is comprised of approximately $650 million in cash, $859 million of net proceeds available from the January forward sale agreements and $2.4 billion of availability under the revolving credit facility. In terms of the leverage, our total debt is currently $17.1 billion, which reflects the consolidation of the full $3 billion of CMBS debt that encumbers the MGM Grand/Mandalay Bay JV. Our net debt to adjusted EBITDA is approximately 5.7x today. We have a weighted average interest rate of 4.34%, taking into account our hedge portfolio and a weighted average 6.6 years to maturity. Turning to the income statement. AFFO was $528.6 million for the quarter, an increase of 73% over Q1 2022. AFFO per share was $0.53 for the quarter, an increase of 18.6% compared to the $0.44 for the quarter ended March 31, 2022. As a reminder, the disparity between our overall AFFO growth and AFFO per share growth is due to an increase in our share count, which increased primarily from equity raise and shares issued to fund our acquisition of the MGM Grand and Mandalay Bay JV this quarter and to consummate our acquisitions of MGP during Q2 and the Venetian Resort during Q1 of last year. Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and 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 reaffirming 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 expected to be between $2.115 billion and $2.155 billion or between $2.10 and $2.13 per diluted common share. 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 schedules, possible future acquisitions or dispositions, capital markets activity or other nonrecurring transactions. As a reminder, we recorded noncash CECL charge on a quarterly basis, which due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. With that, Elliott, please open the line for questions.

Anthony Paolone :

My first question relates to your discussion around building relationships for the future pipeline. And so I was wondering if you can comment on whether or not there's a certain type of deal size that's emerging as a sweet spot for the different things you're looking at or even a region perhaps in the world where sort of the deal flow seems to be pointing.

John Payne :

Do you want me to take that?

John Payne :

We can hear you, Ed.

John Payne :

Yes. Tony, I won't go into specifics about the relationships we're building. We are studying the industry, countries around the world. But I just use -- we've been asked since we started the company about when we look at something that's the size and how small. I mean, I'll just use the example of a Century gaming, we did one deal. We then announced the deal in Maryland with them. And we're just -- hopefully, over time, we'll continue to build that relationship. So we really think that there are times that a smaller deal by itself may "look small," but over the lifetime of a partnership or a relationship, that will get larger. And so we are chalking up miles, meeting folks face to face and traveling the world to find opportunities for our company and for our shareholders that are accretive.

John Payne :

Well, that would have been an easier question back 5 years ago, I think, Tony, when we were just looking at gaming opportunities domestically. We could probably take the rest of the call as we look at different sectors. But I'll let David talk about how thoughtful we are in understanding our cost of capital and getting spreads when we're making investments or creating term sheets. But we're looking at a wide variety of sectors, countries in gaming and non-gaming. So David, do you want to touch a little bit on that as well?

Operator:

Our next question comes from Smedes Rose from Citi.

Edward Pitoniak :

And Nick, good to hear from you. By traditional sorts of capital, are you referring to the debt and equity financing available to the asset controller?

Edward Pitoniak :

Yes. So clearly, a lot of the experiential landscape is made up of operators who tend to be high-yield credits. And as you well know, the high-yield market has been really quite dormant for quite a while now, going well into -- well back into last year and continuing into this year. So the access to credit is somewhat limited and the cost of it obviously has widened. And the cost of equity for many of them has at best on sideways. So as we look at the maturity walls that many debtors are facing 2024, 2025 and onward, we do think, as we talked about in the past, that we can be a virtuous source of funding through sale-leaseback structures when it comes to either refinancing debt or perhaps even more compellingly financing expansion for good operators who may have expansion opportunities, roll-up opportunities in the next few years should other operators come under any kind of refinancing pressure.

Edward Pitoniak :

David?

Operator:

Our next question comes from David Katz from Jefferies.

Edward Pitoniak :

Yes. Well, we'll turn it over to John just to reiterate the strength we're seeing in gaming. But we can say, for example, that our partners add businesses like Cabot, like Canyon Ranch, like Great Wolf are seeing -- continuing to see very, very strong demand. Some of it, David, is obviously the COVID pent-up demand factor still exercising itself. But as you've heard us talk about in the past, we also believe we're seeing the evidence of the secular trends we've talked about at VICI, which is aging baby boomers moving into years in which they have more leisure time and millennials moving into family formation, which is obviously benefiting a business like Great Wolf. So I think, David and John, it's fair to say that our non-gaming operators are feeling everybody is confident in their outlook as we are hearing and seeing in gaming. Correct, John and David?

David Katz :

Understood. Appreciate it. And as my follow-up. Just reading this morning and following very closely, some of the more regional lenders out there that account for, according to some of the press, 80% of commercial real estate mortgages. Is there any strategy or a way for you to approach and position yourselves to participate productively and pools of smaller deals or anything like that, given the circumstances, is there some opportunity for you to get in there and become an alternative lender?

David Kieske :

No, I think you touched on it perfectly. I echo that, that we are seeing opportunities to potentially lend capital. But when we think about our strategic lending book, we want to ensure it's with the right partners where it could lead to future growth opportunities. And I think at the regional level, less opportunity for us. But look, that will trickle up to the bigger banks, right? That will have an impact on JPMorgan's and the BofA's and the Citi's lending across the board, and so that could create opportunities for us around the experiential categories.

Todd Thomas :

First question, David. You mentioned that the company's incremental cost of debt today, I think, is around 6%. You said your cost of equity capital continues to improve and is in that range, depending on how you look at it, and the stock is up nearly 6% year-to-date, so that's improving. Does that change the way that you think about capitalizing new investments, vis-a-vis, rising debt costs in the near term?

Todd Thomas :

Okay. And then as you look ahead at all of the various investment opportunities and different sort of categories and industries that you're underwriting relative to your cost of capital, do you expect that the spread that you're investing at will improve as you look out at the pipeline over the next few quarters relative to sort of the spread that you've locked in on more recent investments here over the last couple of quarters?

Operator:

Our next question comes from Barry Jonas from Truist Securities.

Edward Pitoniak :

Yes. Barry, I'll take that at the start and then David can add in. I would say that our confidence around funding development internationally, it needs to be basically in line with the confidence that we need to have to fund development domestically. We've added caveats that if it is international, we need to have even more compensating factors in place to compensate for the risks associated with currency and tax. But at the end of the day, we're really underwriting the credibility and the credit of the developer/operating partner. So again, whether we're talking about Europe, Japan or other jurisdictions, we won't, by any means, say, April I know we won't do it. But the underwriting will have to be even that much more rigorous. David, I don't know if you want to add to that?

Barry Jonas :

That's great. And then just as a follow-up. John, I appreciate the comments on the consumer and your tenants. But MGM did talk last night about seeing maybe more growth at its luxury properties. I'm just curious if you're seeing consistent trends from a coverage perspective across your portfolio? And then maybe to what extent does this or any other dynamic influence your M&A strategy?

Edward Pitoniak :

Barry, I'll just add on to that. Yes, Barry, I was just going to add to that. Clearly, you're seeing across so many consumer sectors the strength of luxury. Based where we are in Midtown Manhattan, our neighborhood effectively feels like it's being taken over by LVMH. And that's simply because there is so much spending happening globally in these luxury categories, and it's one of the reasons our partners like Cabot and Canyon Ranch are doing so well right now being luxury brands within their respective categories of destination golf and wellness.

James Kammert:

When you think about looking into these other experiential real estate sectors, is it fair to say that there might be fewer providers of capital in debt equity side such as VICI compared to other mainstream real estate. I'm just curious if that gives you a little bit of an advantage in terms of risk adjustment and how you structure the lease, et cetera, for the benefit of VICI.

John Payne :

Yes. You nailed it, Jim. That's exactly right. In many of these areas, whether it's in health and wellness, youth, collegiate, professional sports, certain forms of family entertainment, we're the first ones that have come to them with a thoughtful approach about how our capital could help them grow in many different ways. And so we literally spend two, three, four different meetings a day explaining who we are, what we've done, how we can help them. And again, to our opening remarks, it doesn't mean a transaction has to happen at the first meal we have together. It's about building a depth of incredible operators and real estate that over a period of time, we can hopefully transact and build a partnership. But you've hit on it where there just haven't been a lot of others that have taken on this task because it's not easy work and it takes a lot of time and effort and calls and e-mails and all of that. But we're happy to do it because we see the incredible amount of white space, as Ed noted.

Edward Pitoniak :

Yes. Well, maybe I can offer Canyon Ranch as an example, Jim, whereby when we began talking with John Goff and the Canyon Ranch team back in early 2022, the conversations they principally been having when it came to growth capital or with private equity partners. And what they were concerned about with those private equity partners was, number one, the cost of the capital, given the cost that PE funding partners tend to assign to their own capital; and number two, the investment horizon of perhaps only 5 to 7 years. And so when Canyon Ranch looked at our offering and looked at our -- both our cost of capital and the fact that we want to be their capital partner forever, it was a pretty compelling alternative to conventional private equity.

Wesley Golladay :

I just got a quick question about the VICI Property Fund. Do you expect more of those projects to kick off in a recessionary environment, being that Vegas is so strong? And more in particular, the focus I have on the question would be The Mirage project that was recently approved with the guitar on the Strip?

John Payne :

Yes. Good to talk to you, Wes. The Mirage project that the Hard Rock team is taking on is spectacular. I think we've seen the footage of it, not only the guitar tower, but the refurbishment of the whole properties. And you'd have to talk directly with the hard rock team, but I think you hear from them, they're thinking through different ways that they can finance the project with organize sits on our land and to our building, and we'd love to be a source of financing for that project longer term as they think through the details of it. And the fund in general, we've talked to many operators whether throughout our 11 tenants is how we can help them grow with larger projects on our existing assets or how we can help monetize certain assets and help them buy someone else. So we continue to have those conversations as well.

Edward Pitoniak :

John?

Operator:

Our next question comes from John DeCree from CBRE.

David Kieske :

Yes, John, good to talk to you. Caesars repaid that loan actually yesterday, $400 million principal. It doesn't change the footfall. We actually extended the outside date to 2028 when we could call the Caesars Forum Convention Center. This is all part of Caesars deleveraging. So that continues to make our tenants stronger, and we're happy to get that capital back. And then the total commitments, I don't have that right in front of me, but I'm happy to follow up with you or Gabe, if you have that handy. Otherwise, John, we can follow up with you.

Operator:

Our next question comes from Haendel St. Juste from Mizuho.

Edward Pitoniak :

John?

Haendel St. Juste :

That's helpful. And yes, I should have made that distinction there. And one more. You read that MGM recently was approved to build Japan's first casino in Osaka. I guess, given the relationship there, what's the likelihood of your interest in getting involved? And what sort of risk premium perhaps would you require?

Operator:

Our next question comes from Ronald Kamdem from Morgan Stanley.

David Kieske :

Hey, Ron. It's Dave. Ron, it's David. Good to talk to you. In terms of guidance, we just have our base escalation. So 2% for Caesars, 1.5% for some of the other tenants. We do not make any assumptions around CPI bumps or other potential economic changes, if that's what you're asking. And then in terms of the balance sheet, we're actually 5.7% today since the cash that came in from Caesars yesterday. So we're 5.9% at quarter end. That was just due to a little bit of a lower cash balance at quarter end. And then that's trending to kind of about 5.6x, 5.5x by year-end based on where we see the business trending.

Edward Pitoniak :

Yes. So I think when it comes to theme parks generically, Ron, what's appealing about them is what's, frankly, appealing about our large Las Vegas assets and frankly, a lot of our large regional assets as well, which is their big complex physical plants with big complex P&Ls that have high economic productivity in relation to the capital value of the asset. And we believe that theme parks tick the four boxes that we look at in any investment category we're looking at, which is lower than average cyclicality for consumer discretionary at large. Theme parks are very often an affordable luxury in times of recession. Not unlike ski resorts, which I used to work in. There is generally an absence of secular threat since people are not generally building rollercoasters in their backyards or having Amazon deliver them to them. There's a healthy supply-demand balance. People are generally not building a theme park. And then finally, number four, they've obviously proven their durability over, frankly, more than a century, going back to the big exhibitions and fairs of the late 1800. So a lot to recommend the category. John and Kellan and the team continue to work on getting to know the players, their needs or their capital needs and opportunities. And we'll hopefully some day be able to invest in that category.

Chris Darling:

I recognize that VICI is focused really on growing accretively. But I'd like to better understand how you evaluate the long-term profile of some of your existing assets. So can you talk a little bit about how you think about that aspect? And then when you look across your regional gaming portfolio, are there any markets or assets that maybe you're less comfortable owning for the long term?

John Payne :

Yes, Chris, it's a very good question. And as Ed touched on, we constantly talk to our tenants, our operating partners about optimizing their portfolio. And as Ed alluded to, we -- since we started VICI five years ago, we've had a tenant come to us, [Reno] track in Louisiana that said, "Look, this doesn't fit our portfolio. You own it." And we've worked together to sell the asset. There's been other situations where the tenant want it out, but we wanted to keep the real estate and buildings, and we've transferred and found another high-quality tenant. So we'll continue to do that throughout our lives running this business. And if there's a tenant that doesn't want to be in the business, we should work with them either say, "Hey, let's sell this over a holdco or let's just find another tenant that wants to run the business." The other thing we do is continue to look in markets to diversify our portfolio. With cities, what states are we not currently in, in gaming as an example, where we'd love to own real estate and there's many markets throughout the United States we are not in. We have 50 properties today, but there is a lot of opportunity in markets we're not in. And then there's other markets where, boy, it would be nice to have another asset, and we continue to do that. So very good question. It's something that's top of mind that we have with our tenants, and we'll continue to optimize our portfolio over the coming years.

John Payne :

Yes, they just got approval. They'll be opening a temporary facility at that asset run by Caesars. It's also in a partnership with our other partners, the Eastern Band, the Cherokee Nation, they're partners there as well. And so we do have conversations with Caesars about a variety of things. Could that ultimately -- would that ultimately be an asset we would be interested over time if the ownership wanted to monetize the real estate in the buildings? Yes, we would be very interested in that. And so we first look and get it up and running, get it stabilized, be incredibly successful, And there's a time that, that conversation, we look at.

Edward Pitoniak :

Yes. Well, thanks for your time today, everybody. I'll go back to what I stressed on our last earnings call back at the end of February, and that is when you take the midpoint of our guidance for AFFO growth for 2023, which is 10%, combine that with our dividend yield, which is currently around 4.5, a little higher than that, you get 14.5 points of potential total return. And I would just compare that again to what you're seeing in REITs generally and even more generally, the S&P 500, which is certainly not shaping up to be a year combining 10% earnings growth and 4.5% dividend yield. So with that, we'll thank you for your time today and look forward to seeing you again in late July. Bye for now.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Fourth Quarter and 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, February 24, 2023. I'll now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward Pitoniak :

Thank you, Samantha, and good morning, everyone. We're excited to talk to you this morning about our results in 2022 and our outlook for 2023. John will also give you color on our operating environment and business development activities. I'll start by talking about VICI's first 5 years. A couple of weeks ago, we reached the 5-year anniversary of VICI's IPO. I want to thank every single VICI team and Board member for the incredible work they've done over this 5-year period, enabling VICI, among other things, to become the first REIT to go from IPO to S&P 500 inclusion in under 5 years. And I want to thank all of our operating partners in and outside of gaming for the amazing work they do in making our buildings, places a great experiential and economic value. In February of 2018, the time of VICI's IPO, I don't think any of you would have been very excited if I told you that the ensuing 5-year period from VICI IPO through year-end 2022 would be a period in which the S&P 500 Index would generate cumulative total return over that period of 48.5% or that their RMZ REIT index would generate cumulative total return of 27.9%. I want to emphasize those are not annual total return figures. Those are cumulative over the entire period. And that's exactly what the S&P 500 and the RMZ REIT indices produced in cumulative total return over that period. Over that same period since our IPO, VICI produced for its shareholders cumulative total return of 109.7%. I'll repeat that, 109.7%. This cumulative total return by VICI beat the S&P by more than 2x and beat the REIT index by nearly 4x. Over that 5-year period, no other REIT in the S&P 500 produced cumulative total return superior to VICI, zip, zero, none. Since 2018, VICI has produced an AFFO per share compound annual growth of 7.7% and a quarterly dividend per share CAGR of 7.9%. If we look at 2022 by itself, we see another year in which VICI produced significant outperformance. VICI was the only S&P 500 REIT that produced positive total return in 2022. And VICI's 2022 13% total return generated 31.1 points of outperformance versus the S&P 500 index overall and 37.5 points of outperformance versus the RMZ REIT index. Our stockholders have received the outperformance they've deserved over the last 5 years and in 2022, given the support they have been given VICI throughout our 5-year history of portfolio growth and balance sheet upgrading. What we're most excited about is the opportunity to continue to create value for our stockholders. In a moment, David Kieske will lay out for you our 2023 AFFO guidance. I don't want to steal all of David's thunder, but once David has shared that guidance with you, I encourage you to compare VICI's 2023 guidance to consensus 2023 S&P 500 earnings forecast which are generally trending between very low single digits and negative single digits. Compare VICI’s 2023 guidance to what you are hearing from other REITs, especially other S&P 500 REITs, which is generally 2023 AFFO growth guidance in the low single digits. And once you have made that earnings growth comparison, I encourage you to make a comparison between VICI’s multiple on 2023 AFFO and the 2023 AFFO multiples of other S&P 500 REITs. Once you've made those comparisons, I believe you'll find that VICI offers what we believe to be one of the more compelling 2023 price earnings growth or PEG plus yield ratios that you will find among all S&P 500 REITs. To help you along in that calculation, I'll give you this starting point. The AFFO growth represented by the midpoint of our guidance, plus our dividend yield as of yesterday, equals 14.5%. Compare that 14.5% figure to what other S&P 500 REITs are offering in 2023 AFFO growth, rates plus dividend yields, and I believe you will see VICI standing out. Finally, I'll give you one more comparison. With consensus estimates of S&P 500 2023 earnings per share growth running at 1% and the current S&P 500 dividend yield running around 1.6%, the combination of current estimated earnings growth and dividend yield would be 2.6% for the S&P 500. The combination of VICI's midpoint AFFO growth and our current dividend yield would be over 14%. With that, I'll turn it over to John for his remarks. John?

David Kieske:

Thanks, John. I want to start with our balance sheet. 2022 demonstrated the continued discipline we have maintained over our 5-plus years of existence by ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. This focus provided VICI with continued access to the capital markets throughout 2022 to support our growth and just to recap a few highlights from the year. In April, we achieved our goal of an investment-grade credit rating as both S&P and Fitch rated VICI BBB- allowing us to raise $5 billion of investment-grade debt across a series of three, five, seven, 10 and 30-year tenures to fund the acquisition of MGP. VICI's ability to access the 30-year tenure was a first for a first-time investment-grade REIT issuer, and we are thankful for the support we received from our credit partners in this transaction. In June, we were added to the S&P 500 Index, marking the fastest time line a REIT has been added to the index from IPO to inclusion, deepening our access to equity capital. In November, we raised $575.6 million of net equity proceeds through a 19 million share forward sale agreement. We utilized the ATM throughout the year, raising equity very efficiently for a total of $696.6 million in net proceeds through the sale of 21.6 million shares via forward sale agreements. Those amounts include $208.3 million through the sale of 6.3 million shares via forward sale agreements that occurred in Q4. Then subsequent to year-end, in January, we raised $965 million of net equity proceeds through a 30.3 million share forward sale agreement, which remains unsettled today and available to fund future transactions. Currently, we have approximately $3.8 billion in total liquidity comprised of $426 million in cash, cash equivalents and short-term investments as of December 31, 2022. We have the $965 million of net proceeds from the January forward sale agreements and $2.4 billion of availability under the revolving credit facility. As a reminder, in January, we drew down CAD 140 million or approximately USD 103 million under our revolver in connection with our PURE Canadian gaming acquisition. We will look to term out this revolver draw in the future. In terms of leverage, our total debt is currently $17.1 billion, which reflects the consolidation of the full $3 billion of CMBS debt that encumbers the MGM Grand/Mandalay Bay JV. Our net debt to adjusted EBITDA pro forma for a full year of activity from our recent acquisitions is approximately 5.7x. We have a weighted average interest rate of 4.4%, taking into account our hedge portfolio and a weighted average 6.7 years to maturity. Turning to the income statement. Total GAAP revenues increased 100.9% year-over-year to $769.9 million in Q4 as a result of the transformative 2022 acquisition activity John mentioned. AFFO for the fourth quarter was approximately $488 million or $0.51 per share. Total AFFO in Q4 increased approximately 75% year-over-year, while AFFO per share increased approximately 15.5% over the prior year. Just as a reminder, the disparity between overall AFFO growth and the AFFO per share growth is due to an increase in our share count, which increased primarily from the equity raise and shares issued to consummate our acquisition of MGP during Q2 and our acquisition of the Venetian Resort during Q1 of last year. Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue. Our margins continue to run strong in the 90% range when eliminating noncash items. Our G&A was $15 million for the quarter and as a percentage of total revenues was only 2%, one of the lowest ratios in the triple-net sector. Turning to guidance. We are initiating AFFO guidance for 2023 in both absolute dollars as well as on a per share basis. AFFO at year ending December 31, 2023 is expected to be between $2.115 billion and $2.155 billion or between $2.10 per share and $2.13 per diluted common share. Our guidance reflects the full year of 2022 closed acquisitions as well as the acquisitions we completed in January, the PURE Canadian Gaming acquisition and the acquisition of Blackstone's 49.9% stake in the MGM Grand/Mandalay Bay JV. Additionally, the per share estimates reflect the impact of treasury accounting related to the pending 30.3 million forward shares sold in January of this year. 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. And as we have discussed with you in the past, we recorded a noncash CECL charge on a quarterly basis which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments evaluating our financial performance and ability to pay dividends. With that, operator, please open the line for questions.

Anthony Paolone :

First question is for David, I guess. In the past, you guys have been really good at matching your investments with the debt and equity needed to complete them. As you kind of think about '23 and looking forward, just what's the appetite to either reduce leverage or look out further on the horizon and address future maturities just to give yourself room as you think about what you may buy next.

Anthony Paolone :

Okay. And then just a follow-up. As you speak with tenants and think about things like Property Growth Fund and more capital being invested in the assets, any change in the dialogue, either tapping the brakes because of the economic uncertainty or capital markets? Or just generally, what are those conversations like today? And have they changed?

John Payne :

Hey, Tony, good to talk to you this morning. We're fortunate to have tenants right now that are doing extremely well. I think those on the phone who follow the gaming industry are watching the results coming out of Las Vegas, in particular, or if they're not all-time records, they're close to all-time records. So we continue to be thoughtful in our conversations with our tenants, and they continue to look longer term about how they grow their business, and we're there to have those conversations and hopefully be part of their growth plans with, as you mentioned, our Property Growth Fund.

Steve Sakwa :

Maybe sort of following up on the line of question as Tony had. I'm just curious, Ed, and John, like how are you thinking about the world today maybe versus six to nine months ago? And just how are you thinking about underwriting changes and potential issues down the road. Has that sort of colored your view on kind of yield expectations or how you think about coverage ratios or business lines that you may want to go into?

Steve Sakwa :

Okay. And then maybe circling back on the international deal in Canada. I'm just curious as you kind of look at the landscape and you sort of just look at the opportunities out there. I guess, are you seeing more opportunities internationally today? Or do you see more -- I assume the U.S. market is a bigger market, but if you kind of size it, do you see better opportunities outside the U.S. today or inside?

John Payne :

Yes, Steve, good to talk to you this morning. I'd say a little bit is we've gotten more mature as a company, and we talked to you all before about adding resources to our organizations, which then allows us to go out around the world and look at opportunities. I wouldn't say there's better opportunities internationally than domestically. I'd simply say we're able to learn more about different countries and the opportunities that are out there right now. As Ed started out this answering this question, we're being very thoughtful in anything we do right now in our underwriting. But again, we've got resources now that allow us to go and look all over the world for opportunities, not only in gaming, but in certain experiential sectors that we really like.

David Kieske :

Yes, Steve, that end of your question has the key, right? What's the currency risk and what's the tax leakage and then underwriting a yield that makes sense to take that into account. And we did that with the PURE Canadian transaction. And as John mentioned, we're learning about other parts of the globe and where our capital can make sense. I mean it's and then where we can efficiently structure transactions that work for both sides.

Smedes Rose :

There was an activist proposal earlier around Six Flags that brought you guys in the mix. And I know you're probably not going to comment on that deal specifically at that proposal. But I'm just interested would you be interested in sort of theoretically big picture in that kind of owning theme park land or real estate? And how would you think about underwriting that versus maybe some of the other asset classes you're in?

Smedes Rose :

And then I was just wondering, John, I mean, it sounds like obviously, Vegas is all go, go go, but I mean are you hearing maybe just a little more specifics around sort of regular sort of leisure visitation versus return of corporate groups or any kind of thing you're hearing on your tenants kind of on the different drivers of business?

Operator:

Our next question comes from Barry Jonas from Truist Securities.

David Kieske :

Yes. Barry, I can start, and John chime in with anything I missed. But look, we went in -- we've looked at this asset over a period of a number of years, and I think it's a phenomenal asset and even better backed by the equity support of the Koch Industries. And then the Soffer organization, we’ll have the vision and get it open towards the end of this year. So there's nothing formal in terms of our relationship in terms of a path to real estate ownership. But when you act as good partners, and you'll help support other partners' objectives. That leads to more opportunities and just the size and scale of industries and everything that they have and the size of their real estate book, especially focused in leisure and hospitality, we think there could be more things to come in the future, and we're excited to partner with them and be involved with that project.

Edward Pitoniak :

John?

Operator:

We now turn to Wesley Golladay from Baird.

Edward Pitoniak :

Yes, Wes, thanks for the question. David is best equipped to answer this. And I don't think David heard it quite clearly.

Wesley Golladay:

Yes. I mean we currently model say, around 8% or so, but I don't know if those are set at the time you mentioned the deal, at the time of the closing of the transaction, and there's always a future opportunity. But I don't know these rates are already locked in and when they can plan the project around a certain yield. Or do you get the scope of the project and then you set the terms?

Edward Pitoniak :

And related to that, Wes.

Edward Pitoniak :

Go ahead. Go ahead, Wes.

Edward Pitoniak :

I was just going to say, needless to say, the pricing of capital right now is an exercise that is not easy to carry out. Obviously, having a forward view of the cost of capital in the future and then pricing our capital to a borrower or a partner. It's not an easy exercise. And go ahead, Wes.

Edward Pitoniak :

Gabe?

Operator:

We'll turn to John DeCree from CBRE Securities.

Edward Pitoniak :

Yes. David just covered the ears of Samantha Gallagher, RGC. Yes, John. Well, we -- okay, so to be really forthright, if 5 years ago, if you had said, okay, I want your prediction for the next 5 years ahead, I would not have predicted what we had done. We always had a conviction that we had a wonderful opportunity to institutionalize the real estate asset class that had not really yet been institutionalized. And we think so much of the story of this first 5 years, so much of our outperformance, 2x the S&P 500, 2x the NASDAQ. I probably should have mentioned that as well as hot as the NASDAQ was during much of that period, crazily hot at times. The NASDAQ performance over that 5 years was dead on the S&P 500 performance, and we beat them both by 2x, right? So as we look ahead, we certainly cannot base our strategy on continuing that kind of outperformance because to base our strategy on that kind of outperformance might involve -- would likely involve taking risk, so we're not sure we should take in terms of creating and sustaining value for our investors. So what you'll see us do over the next 5 years is continue to grow categorically, continue to grow geographically, do accretive deals be willing to over-equitize in the way David spoke of at the beginning and answering Tony's question and just make sure that we never put the value we've created together with our investors at risk. One of the great benefits. Or I shouldn't say one of the great benefits. One of the great drivers of our outperformance over the first 5 years is we never went backward for sustained periods. We obviously had volatility as everybody else did over that 5 years. We never went backward and stayed there for a long time. And we don't want to start doing that in the next 5 years. So I think you'll see us be disciplined in how we allocate capital. And in order to do that, we'll be disciplined in how we underwrite. And always look to learn from REITs who have succeeded in doing what we want to attempt to do. So whether it's a Prologis in terms of how they've grown internationally, whether it's great ideas and how you grow categorically. Like full marks to Sumit and the Realty Income team for the deal they announced this week on Plenty. Like that kind of deal making on the part of our peers really inspires us because it is evidence of how to think creatively and innovatively in developing into new categories. So I think that's what you can expect of us over the next 5 years, John.

John Payne :

Yes, John, a very good question. But it's not new to VICI, right? I mean part of what we're proud of is that we've taken the time to go talk to all the operators inside the gaming industry and hopefully, over the next 5 years and most of the experiential companies whether you're big, whether you're small, whether you're private, whether you're public, we take the time to understand how they're trying to grow their company. And is there a possibility for us in our form of capital to help them grow. And so that won't change as Ed just went through the next 5 years and what won't change. I think that's this curiosity that we have as a business development team to get to know it may be a small company, and it may be a small deal, but we're hoping that over the course of our time together with them, we take a small deal and we make it bigger, we help a small company become larger. And you're going to continue to see that. You've seen it since we started the company, and I think you'll continue to see us do deals with smaller private companies. And I believe you'll see us continue to do deals with large public companies, and that will allow us to continue to grow our business as we expect.

Ronald Kamdem :

Great. Just maybe a couple of quick ones from me. The first is just on the AFFO growth, almost 10%, which is pretty impressive compared to some of the other triple-net peers in the sort of flat to 3% range. I was just wondering if we could sort of get a breakout of organic versus external growth of that number. So how much of that is being driven by sort of the inflation escalators versus some of the acquisitions that were done in '22?

Edward Pitoniak :

But -- and Ron, if I understand your question right, there is no question that the rent escalation that kicked in, in November for Caesars, and I believe it's January for Century definitely plays a role in generating that 10% AFFO growth. But to David's point, we obviously have -- toward the end of this year, we've only underwritten base level rent growth. We do not presume any kind of -- we do not make any CPI assumptions for forward rent, if that's of any help. And we don't include any unclosed acquisitions, just to be clear or on loans that do not have fixed draw schedules yet.

Edward Pitoniak :

John, you want to start?

Daniel Valoy:

John, I think you covered it well. I mean we've talked about some of the opportunities that we look at within gaming and that ranging from anywhere from $40 billion to $50 billion of potential transactions. That's not an all-encompassing blue sky numbers. Those are opportunities that we think are actionable at some point in time. But as we've talked about a lot here, the universe of opportunities is growing, especially as we look internationally, as we continue to study and explore other experiential sectors. So it's difficult to give you a single number right now, Ron.

Operator:

We'll now turn to David Katz from Jefferies.

Edward Pitoniak :

Well, as a starting point, David, and I'll turn this over to John in just a moment. As a starting point as a REIT, you can be confident we will perpetually raising equity. But we will be perpetually raising equity for years to come as all good growing REITs do to fund accretive growth that benefits all shareholders. And that's been our track record to date. It's evidenced by the kind of AFFO growth per share we're producing in 2023 and have on a compounded basis since our beginning in 2018. But again, so we will raise equity when the opportunities are there to do so. And we will raise equity to fund accretive acquisitions. In terms of the pipeline, I'll turn it over to John because we obviously have opportunities like the Indiana assets in our future. John?

Edward Pitoniak :

Hey, David, if I could just add one more thought...

Edward Pitoniak :

Yes. David, if I could add one more thought in relation to this, and it's something we haven't talked about on this call. But when it comes to being a growth-oriented REIT and when it comes to being a REIT, that will likely continue to access the capital markets, there is really no question in our minds and don't think there should be any question in anybody's mind as to the advantages of scale when it comes to access to the capital markets. And I think what you could see over the next few years is an increasing bifurcation or a barbell effect emerging across the American REIT landscape, where great advantages accrue to the biggest REIT with the most compelling value-creation stories because their access to capital in large volumes will be highly superior. You'll always have the small REITs that can produce significant growth in their early years. But the problem is you can reach a no-man's land of what we'll call mid-cap REITs, where it's really -- it's tough to access capital and high volumes and it gets a little bit tougher to produce material growth year-over-year-over-year. And we think at the scale we're at now, as I believe, the ninth largest REIT in the RMZ, it definitely brings advantages when it comes to access to and cost of capital. And sorry, I'll turn it back to you for your next question, David.

Edward Pitoniak :

We definitely worked on that, and we think there could be solutions down the road. In the near term, and I'll turn it over to John, our greatest excitement is helping them grow either off of tribal land or adjacent to tribal land. John?

Operator:

Our next question comes from Todd Thomas from KeyBanc.

Edward Pitoniak :

I would say, Todd, that our interest in nongaming hasn't diminished at all even amidst this lack of visibility around the consumer economy because of our strong conviction around the secular tailwinds of experiential businesses. We have seen with COVID, finally, starting to leave the landscape that what had been in place for the prior 10 years or so, 15 years prior to COVID, which was the increasing consumer preference for experiences over things, has definitely reasserted itself. And we don't think that, that's going to diminish. We think the aging of the baby boom into their prime leisure years, we think millennial family formation. Those are demographic waves, together with this increasing preference for experiences over things, is going to give experiential operators across a number of spectra really compelling growth opportunities and very strong economic performance, almost no matter what cyclicality looks like.

David Kieske :

Todd, it's David. Good to talk to you. I mean as a net lease REIT, obviously, we're a spread investor, and we have to ensure that we receive an appropriate spread for the risk of the investment and to factor the location and the asset, the tenant, the business and taking that all into account in our underwriting. And the last part of your question there is spot on, right? And you've heard this from other net lease REITs, right? There's still a bid-ask spread for a lot of folks in terms of what they think the asset is worth and what we can actually acquire that with an appropriate rent coverage and generate an attractive return -- attractive risk-adjusted returns. So I would tell you we're being more diligent in terms of underwriting the business, the proof of concept, the longevity of concept, everything that we've talked about since day one of this company. Is there an enduring experience the consumers are going to go to over time. And so we're spending more time and going deeper on some certain sectors where we think there's some opportunities and larger growth opportunities going forward in those sectors.

David Kieske :

So we expect that to be wide. I mean we always want to generate 100 basis points to 150 basis points spread to our cost of capital. It's kind of what we set as a preliminary benchmark, now that can be higher at times or it can be lower at times depending on the quality of the asset, the operator or a riskier asset and riskier operator or locations in the country.

Jay Kornreich :

I guess I just want to start with a follow-up on the Fontainebleau Las Vegas that will be a great asset. And I guess providing construction loans is a riskier and higher return investment option that you had typically endeavor in. So just I'm curious if you saw this as more of a one-off opportunity? Or if you see providing casino and hotel construction loans as more of a path towards growth in the future?

Jay Kornreich :

All right. And then I guess just on the non-gaming side with some of those partners that you just mentioned, that are quickly growing and they're looking for capital kind of fund that expansion. Do you have a sense of just how large that potential pipeline is in the U.S. for these types of quickly expanding non-gaming the platforms that you feel comfortable investing in?

Edward Pitoniak :

And Jay, thank you for that question, Elliot. I think we will close things out now. And I'll just -- for those of you who haven't heard enough about VICI today, as just flash across the screen on CNBC, I will on Mad Money in the night, in case you haven't heard enough. And with that, thank you all for your time today and really appreciate your attention to VICI and we're very excited about the value creation opportunities we have ahead of us. That's it for now. Thank you.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 28, 2022. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Ed Pitoniak:

Thank you, Samantha and good morning everyone. The third quarter of 2022 for VICI was a quarter of both realization and continuing activation. By realization, I mean that in Q3 2022, we realized the full magnitude and impact of our growth activities in 2021. And by activation, I mean that we continue to create incremental capital allocation opportunities for VICI, especially in non-gaming. The key benefits realized in Q3 2022 included growing our revenue by 100% versus the same quarter in 2021, manifesting the full impact of our acquisitions of the Venetian and MGP; growing our AFFO by 83% year-over-year; growing AFFO per share by 8.5% year-over-year; announcing a dividend increase of 8.3%, giving VICI a dividend compound annual growth rate of 8.2% since our emergence in October 2017. Our key growth activities in Q3 and early Q4 included announcing an additional $186 million of financings within our partnership with Great Wolf Resorts; announcing our $203.9 million acquisition of Rocky Gap Casino Resort; announcing a $200 million real estate financing partnership with Canyon Ranch. In 2022, we have invested in relationships with high-quality partners operating in high-quality experiential segments. Our year-to-date capital allocation commitments, the ones I just mentioned, plus our Cabot investment announced in June 2022 are expected to generate a going-in weighted average unlevered yield on investment of approximately 7.4%, as this nearly $710 million of capital is deployed over time. Before I turn the call over to John Payne and David Kieske, who will talk about our outlook, growth activities and financial results, I want to say a few words about our new partnership with Canyon Ranch, which we announced just last week. When we announced our new partnership with Cabot Golf back in June, you heard me talk about our belief in the power and moat qualities of what we call Pilgrim’s experiences, many experiential categories, especially those with strong elements of expertise and/or knowledge accumulation are parameatal in shape. And at the apex of these pyramids are the purest rarest realizations of that category’s experience. These are experiences that tend to attract within that experiential category, the most valuable and loyal clientele, able and willing through all cycles to pay a premium for the purest realization of the experience to which they are devoted. At VICI, as real estate investors, our thesis is a simple, and we believe, powerful one. Places of pilgrimage are places of great value. We want to and we are investing in these places. Cabot creates and operates golf resorts that represent pilgrimage experiences in golf. We are proud and excited to partner with Cabot on the creation of Cabot Citrus Farms. It’s our next pilgrimage destination and we believe we can partner on many subsequent opportunities with Cabot. Of us note as well the Las Vegas Strip is also a pilgrimage destination for people seeking Apex experiences of all kinds. I was just there this week. It is the busiest place on earth. In the experiential category of wellness and personal performance, Canyon Ranch has been, is, and I believe will be for decades to come, the market leader, creating an operating resort that represents a definition of pilgrimage experiences and wellness. The Canyon Ranch brand was born in 1974. For nearly 50 years now, Canyon Ranch’s clientele has traveled to Canyon Ranch Resorts to make the most important investment they can make, an investment in themselves, in the betterment of their lives, body, mind and spirit. The Canyon Ranch clientele, in order to make this investment and trust themselves to the Canyon Ranch team, an active trust that the Canyon Ranch team takes with existential seriousness. Under the leadership of Chairman and Principal owner, John Goff, a legend in American real estate investing through his creation of Crescent Real Estate and CEO, Jeff Kuster, formerly North American Head for Ralph Lauren. Canyon Ranch has built a wellness and humid performance team of great strength and authority. This team includes by way of example, a former U.S. Surgeon General, a former Head of Sports Medicine Research and Innovation at the U.S. Olympic Committee; a former Head of Physical Therapy for the U.S. Women’s National Soccer team; a former strength coach with the Philadelphia 76ers; a nationally renowned behavioral therapists; physicians who have pioneered integrated and lifestyle medicine fields; former Chef Dietitian at the U.S. Olympic Committee; and a Harvard Divinity School appointed spiritual innovator. The Canyon Ranch clientele is able and willing to pay through all cyclicals premium for the experiences and life improvements they obtain at Canyon Ranch. As many of you know, I have worked across ski resorts, heli ski resorts, beach resorts, golf resorts and now casino sorts. I can tell you, based on my experience that the Canyon Ranch capital and operating economic model, is among the most compelling and productive I have seen in revenue intensity per dollar of capital invested, in margins and in the returns on invested capital. Canyon Ranch, we believe will benefit greatly for decades to come from highly positive demographic and cultural tailwinds. The growth opportunities for Canyon Ranch are manifold both domestically and internationally and we are very excited to be Canyon Ranch’s capital partner funding this growth. You can hear John Goff speak of the role he sees VICI playing in Canyon Ranch’s growth. If you watch the Mad Money segment that John and I did with Jim Cramer on October 17. That clip can be found at our website, www.viciproperties.com. Finally, we are particularly excited about our first investment with Canyon Ranch, because it enables us to invest capital into and ultimately gives us the opportunity to own high-quality real estate in one of America’s most dynamic metropolitan areas, Austin, Texas, a region that, at least for the foreseeable future, we cannot invest in through gaming. Let me now turn the call over to John Payne, who will talk about our outlook and growth activities. John?

David Kieske:

Thanks, John. We are clearly in a volatile macro environment where ongoing inflation and rising interest rates are not only dominating the financial news, but also factoring into the transaction market requiring buyers and sellers to adjust to a market backdrop we have not seen in many years. As John mentioned, VICI turned 5 years old on October 6. And since our inception, we have been disciplined in maintaining a positive spread to our cost of capital. So even in an environment where the 10-year treasury rate is north of 4%, a rate that many younger investors have never seen in their lifetime, VICI is focused on maintaining discipline in everything we pursue. We are fortunate that we have built a balance sheet to weather these turbulent times with no floating rate debt, no maturities until 2024 and ample liquidity to deploy capital accretively with leading operators like we did with Century, Great Wolf and Canyon Ranch since the second quarter. In terms of VICI’s liquidity and balance sheet, as of September 30, we had approximately $4.7 billion in total liquidity, comprised of $726 million in cash, cash equivalents and short-term investments, $490 million of estimated net proceeds available upon settlement of our outstanding forward sale agreements, $2.5 billion of availability under our revolving credit facility, and $1 billion of availability under the delayed draw term loan. During the quarter, we sold approximately 3.9 million shares with an aggregate value of $135 million after fees under our ATM program. All of the shares were sold subject to a forward sale agreement and as such are not reflected on our balance sheet. In terms of leverage, we ended the quarter with total debt of $15.5 billion, inclusive of our pro rata share of the BREIT JV debt. Our net debt to adjusted EBITDA pro forma for a full year of rent from the MGP transaction is approximately 5.8x. We have a weighted average interest rate of 4.4%, taking into account our hedge portfolio and a weighted average 6.9 years to maturity. Turning to the income statement, as Ed mentioned, we doubled our GAAP revenue year-over-year, a feat we are very proud of and I want to thank the entire VICI team for all their efforts in delivering this growth. AFFO for the third quarter was approximately $471 million or $0.49 per share. Total AFFO in Q3 increased 83% year-over-year, while AFFO per share increased 8.5% over the prior year. As a reminder, the disparity between overall AFFO growth and AFFO per share growth is due to an increase in our share count which increased primarily from the equity raised in shares issued to consummate our transformative acquisition of MGP during Q2 and our acquisition of the Venetian Resort during Q1 of this year. Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue, and our margins continue to run strong in the 90% range when eliminating non-cash items. Our G&A was $12.1 million for the quarter and as a percentage of total revenues was only 1.6%, 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 2022 in both absolute dollars as well as on a per share basis. AFFO for the year ended December 31, 2022 is expected to be between $1.682 billion and $1.692 billion or between $1.91 and $1.92 per diluted common share. Our updated guidance reflects the uncapped CPI lease escalation of 8.1% that VICI will receive under our Las Vegas master lease and regional master lease with Caesars, effective for the lease year beginning on November 1, 2022. Additionally, the per share estimates reflect the impact of treasury accounting related to the pending 15.3 million forward shares sold under our ATM program during Q2 and Q3. As a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions, capital markets activity or other non-recurring transactions. As we have discussed in the past with you, we record a non-cash CECL charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO-focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. With that, Megan, please open the line for questions.

Anthony Paolone:

Thank you and good morning. I was wondering can you talk about just your efforts to look at investments internationally and how that’s coming on and also just your appetite around that given what happening around the world?

John Payne:

Sure. Good morning, Tony, how are you? Nice to talk to you. So it’s definitely been something that we have been focused on for the past couple of years, you’ve heard us talk about this that we’ve grown, obviously, domestically in our first 5 years, but we always have positioned the company to grow internationally and we’re spending time not only in the casino sector but also in the experiential sector outside the U.S. and study in markets where we think we would like to own real estate, and we’re in the middle of that process and understanding the underwriting and understanding the countries where we would own real estate and their laws and we’re right in the middle of it, Tony. Nothing to announce at this time, but it’s of interest for us to grow internationally.

Operator:

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is open.

Ed Pitoniak:

Yes.

Ed Pitoniak:

Yes. It’s a good question, Steve, and good to talk to you. I would say we’re seeing opportunities on both sides. I would say the private side, though, to your, I think implicit point is probably even richer fishing ground right now. And that has to do really with the state of the credit markets. As most of you on this call know, bank credit, especially to real estate credits has effectively dried up and I was reading the transcript as the Blackstone call last week, which I always do because if you don’t listen to what John Gray is saying at any given time, you’re missing an opportunity to pick up a lot of intelligence, and I thought it was telling the degree to which John was emphasizing to read it, they believe a lot of their real estate capital allocation in the near to midterm is going to be credit-focused. And you’ve seen that from us as well. I would say that we’re at a point in the cycle where would be sellers have still not gotten the memo that the world has changed radically. And as an indication of how radically the world has changed, I’ve been trading e-mails with Mark Streeter at JPMorgan, the IG REIT credit analyst, and he sent me these graphs of the volatility of credit. And if those were EKG, that patient would be in a world of hurt. And then I saw last night from Hartnett that U.S. treasury performance this year is the worst since 1788 when the United States of America was a funky little startup. So the state of the credit market is, to your point, Steve, like it’s tough if you don’t have access to capital. And as David just emphasized, we’ve got over $4 billion of liquidity. We’ve got almost $1.3 billion of effective cash, and we are very excited to put that to work. We will put it in both with private operators and public. And in some cases, it will go into credit in the near to midterm with conversion to real estate ownership in most cases. in order to, frankly, capitalize on the fact that we have capital when a lot of other people don’t.

Ed Pitoniak:

Yes. Well, clearly, Steve, we do need to be compensated for the risk that is associated with development. And I’ll just go back to the 7.4% unlevered yield for the nearly 700 some million of capital that we’ve deployed in Q2 and early Q3 and I think that 7.4% unlevered yield going in to give people comfort that we have been adequately compensated for our risk.

Ed Pitoniak:

Thank you, Steve.

R.J. Milligan:

Hey, good morning, guys. Certainly, appreciate your comments on cost of capital and maintaining discipline and certainly, the track record that you guys do only do deals that are accretive but I’m curious how you view your cost of capital today, how do you calculate it? And I guess given John’s comments that sellers’ expectations don’t always adjust with the changing cost of capital. Do you expect a pause on external growth on more of the middle of the fairway gaming assets while the bid-ask spread remains relatively wide?

David Kieske:

Sure. Great, R.J., it’s great talk to you. I mean one of the – we have this debate every day internally, right? When you see the 10-year moving 10, 15, 25 basis points, and obviously, the stock market is doing what it’s doing, hard to price a deal on a daily basis. So we look at – but we do look at the spread to our cost of capital. And right now, look, we’re getting 10-year pricing at 7%. So the $5 billion that we raised back in April, 5%, net adjusted at 4.5% with our hedge portfolio looks really, really good. But R.J., we’re going to always maintain the spread to our cost of capital. Obviously, our stock has held up well. Debt pricing is what it is. As Ed just touched on, we have $1.3 billion of liquidity that is on the balance sheet, which does not include the term loan or the revolver. Being cognizant that cash is not free and that there is an implicit cost of that cash, we are going to ensure that we continue to do the deals that we’ve done in the past, maintaining that spread. And your comment around kind of middle of the fairway deals, I think you’ll see more of the Rocky Gaps of the world were a little bit smaller deals and some of the large mega deals will probably take a pause for a while just given the uncertainty around kind of where the world is ultimately going. But we feel good about our pipeline. I think it’s busier than it’s ever been, and the dialogue is greater than it’s ever been but we’ve got to be relentless in ensuring that we can continue to deliver consistent accretion year in and year out for our shareholders.

Ed Pitoniak:

I was just going to say, R.J. And while obviously, the cost of debt capital has been incredibly volatile. And for most REITs, the cost of equity capital has been very volatile or just simply negatively trending. We are in a unique position where our equity on a relative basis, has held up so well with us having been the best-performing S&P 500 REIT year-to-date through September 30, and I’m guessing as of yesterday, we still are. So we do have a strength to our equity price or equity cost that on a comparative basis does represent competitive advantage. Back to you, R.J.

Ed Pitoniak:

John?

R.J. Milligan:

Thank you, guys.

Carlo Santarelli:

Hey, guys. Thank you. David, I was just wondering, as you think about the positioning of the balance sheet and obviously 5.8x pro forma today and likely to go down in the absence of transactions. How much does the current rate environment change the parameters that you want to operate within?

Carlo Santarelli:

Great. Thanks, David.

Wesley Golladay:

Hey, good morning, everyone. You guys are having a good success with follow-on deals. You seem to be in a good negotiation position with good relative cost of capital. But you did mention sellers are a little bit slow to adjust to pricing. Are you looking to potentially get some exclusivity rights to their expansion as a way to maybe bridge the gap on the pricing at this point?

Wesley Golladay:

Yes, I think what I was looking at is, yes, you look at – it looks like you have some – you get the initial yield, which is good, that may be a little bit slow to adjust but then you will have some kind of other value, whether it’s your embedded options, maybe an exclusivity. I was just wondering if there is anything more qualitative or more structural than an initial nominal yield that you may be able to get and it sounds like it’s just more based we’re just going to have this good relationship and it’s going to naturally lead to more deals, which is currently occurring.

Wesley Golladay:

Okay. Great, thanks for the time, everyone.

Operator:

Thank you. Our next question comes from the line of Richard Anderson with SMBC. Your line is now open.

Ed Pitoniak:

Yes. I’ll turn it over to David in a moment, Richard, and good to talk to you. Obviously, when we go into these relationships, we really – we work hard to make sure that our last dollar exposure is a level of last dollar exposure we’re very comfortable with, such that if we ever did have to step in, we’re stepping into a situation that at that last dollar level of exposure for us is very well protected and means that there is still a lot of value left in the asset. Beyond that, I’ll turn it over to David for his thoughts.

Richard Anderson:

Okay. And then the second question is the U.S. REIT model is largely a function of focused strategies. If you’re a hotel REIT, you’re a multifamily REIT and so on. You guys are more of the Berkshire Hathaway model and you are understanding that there is a shared knitting of pilgrimage – what I’m saying – I can’t pronounce that word for some reason this morning. But a common thread to them all experiential. You said just before you have a couple of dozen people working for you, how do you avoid pitfalls where one or some of these investments don’t quite work out. Are you – should we expect to see a substantial increase in people with experience in these individual asset classes and so on? I’m just curious how the overall entity will adapt as you expand your horizons and experiential real estate?

John Payne:

And Rich, if I can – this is John. If I can just add one other thing on this, it’s important to understand that when Ed and I started the company in October ‘17, we always position this REIT as an experiential REIT. In our first 5 years, we were more focused in the gambling space because we saw the opportunities there. But in the background, we were always spending time study in these different sectors that you now start to see investments that we’re making. So this is not a shift of our company strategy at all. It’s just you are starting to just see these new investments being made.

Operator:

Thank you. Our next question comes from Barry Jonas with Truist Securities. Your line is now open.

Ed Pitoniak:

John?

Barry Jonas:

Great. And then if I could just ask a follow-up. Do you think over time, gaming operators will or maybe should move to a full OpCo model? I mean I am assuming coverage is still the key question here, but curious if your thoughts here have evolved over time.

Barry Jonas:

That’s a great point. Alright. Thank you so much guys.

Operator:

Thank you. Our next question comes from the line of Todd Thomas with KeyBanc. Your line is now open.

Ed Pitoniak:

Yes. Todd, good to talk to you. And I will turn it over to David in a moment. I would say one of the benefits of having the amount of liquidity we have, the $4.7 billion that David alluded to, and especially the $1.3 billion of basically equity capital, we already know the cost of is that we have a relative degree of cost certainty. I want to emphasize relatively. We will not have an absolute degree of cost certainty that a lot of others with much lower liquidity just simply do not have at this time. But I will turn it over to David for his further thoughts to your question.

Ed Pitoniak:

Hey Todd. I just want to add to David’s remarks and I think it’s pertinent to your question. If you look at the total liquidity that David outlined for you, about $4.7 billion, that represents – that is an amount, I should say, equal to about 10% of our current balance sheet, our $45 billion of enterprise value. I don’t know how many other REITs out there have total liquidity equal to 10% of their balance sheet, especially if they are anywhere near as big as we are. And that really does represent the amount of firepower we have at a time when firepower is otherwise very hard – either very hard or very costly to achieve. The last point I would make is of that $4.7 billion of liquidity. And David, please correct me if I am wrong here, only $700 million of that $4.7 billion is actually currently on the balance sheet, the cash and the cash-like instruments that David referred to. The ATM proceeds and the delayed our term loan and the revolver, obviously, are not on the balance sheet because they all remain undrawn or unsettled.

Ed Pitoniak:

I will turn it over to David in a moment. But I think the fundamental issue that we are finding in anything that’s resembling a competitive situation in terms of a would be borrower or partner evaluating our credit is, I think we are a lot easier, a lot friendlier to do business with. David?

Ed Pitoniak:

And just to add to that, Todd. When we are in these lending relationships, we don’t see our partners to debt. We are not a GP that needs to pay our bills by seeing or would be credit partners to debt. And that not only makes an economic difference to them, it makes a relationship difference.

Operator:

Thank you. Our next question comes from the line of Greg McGinniss with Scotiabank. Your line is now open.

Ed Pitoniak:

David?

Greg McGinniss:

My apologies. Thank you. And then also, given your current cost of capital, does the high 7% call rate on the Indian assets, can you make sense to you today?

John Payne:

I talked about this a little bit earlier that we continue to watch this business grow capital from the operator. Caesars, the owner today, continues to go into the business. This call – this put call is active until the end of ‘24. So, we will continue to monitor the growth of the business. We will see the capital go in and we will determine the right time for this call option.

Ed Pitoniak:

Well, it’s – well, to be clear, Greg, it’s on the credit side right now with Canyon Ranch with a very clear path to own the real estate of Canyon Ranch Austin and also on real estate potentially in places like Tucson and Lennox and elsewhere that we can go together both domestically and internationally with Canyon Ranch. Obviously, we are most focused on the place-based dimension of global wellness. And I would say that based on the research we have done, one of the really appealing things about place-based wellness on a global basis is that the model from continent-to-continent is really quite similar. That’s in contrast to gaming. The U.S., Singapore, Macau are notable for having great real estate intensity to their gaming models, but that real estate intensity is not found to the quite the same degree in a lot of other areas around the globe. On the other hand, again, place-based wellness is really very much the same kind of concept as you go from the U.S. to, for example, Europe and the UK where there are many operators operating very much like Canyon Ranch at the high end with a good amount of real estate intensity.

Ed Pitoniak:

Yes. And I mean when you think about it, historically, think about the great European spot towns that started to become popular back in the 1700s. The spa tradition has centuries of history. And the modern spa experiences grew out of those more ancient traditions frankly, it goes all the way back to the enrollment. The – they were in the spa business, right. This is a business that’s actually now that they say it, it doesn’t go back century, it goes back millennia.

Ed Pitoniak:

I think that’s pretty safe. Anyway, thank you, Greg.

Operator:

Thank you. Our next question comes from the line of David Katz with Jefferies. Your line is now open.

Ed Pitoniak:

John?

David Katz:

Both you and I know they should consider it until they do, that it sounds like they are. Apologies, Ed, please finish.

David Katz:

Perfect. Thank you very much.

Smedes Rose:

Hi. Thanks. I just wanted to ask you, when you potentially have opportunities in smaller regional gaming markets where maybe they have refinancing issues coming up and you have – as we talked about, it’s a competitive cost of capital. But in a recessionary environment in smaller markets where potentially that demographic is more hit in a recession, do you think about how you underwrite your rent coverage in those? Would you expect to change that at all, or how do you kind of – I am just sort of wondering how you are sort of thinking about that as you look at these opportunities?

John Payne:

Yes, Smedes, it’s a very good question, and we spend a lot of time in all the different markets with all the different operators as we look at deals, understanding the market, understanding their segmentation of their customers, what they are seeing. I think you know this because you follow gaming. It’s a unique time for our tenants. We have spent a lot of time on this call talking about the market fluctuations. But in the gaming business right now, depending on what market and who you are talking to, some are having – continue to have record earnings. And almost all of the operators are seeing strong – continue to see strong business. So, we are very careful in whatever deal that we underwrite and understanding the market, the dynamics, the type of consumer, how far the consumer comes from, all of those things when we underwrite. And we will be careful as we look at regional markets in Las Vegas markets. But our tenants have done an amazing job in operating their businesses and continuing to grow them during this very unique time.

Ed Pitoniak:

It’s hard to tell, Smedes. Every deal is so specific whether it would be the geographic location, the asset is in, the nature of the asset itself, the tenant and its credit quality, I don’t know. I would be – I would have a tough time saying that cap rates within gaming have moved considerably up, which is implicit in what you are saying, given the market backdrop. I think it’s still a bit too early to tell, because I wouldn’t generalize the fairly limited amount of activity that we and GLPI have engaged in over the last few months.

Operator:

Thank you. I will now turn the conference back over to Edward Pitoniak for any closing remarks.

Ed Pitoniak:

Thank you very much again. In closing, we simply want to thank you for your time with us today. We believe we are really well positioned at VICI to continue growing our portfolio during what may be – well, no, what is a very uncertain period while driving superior shareholder value. Again, thank you and good health to all.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, July 28, 2022. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward Pitoniak:

Thank you, Samantha and good morning, everyone. Q2, 2022 was a quintessentially VICI quarter. A lot happened, a lot of continuing transformation as we worked to build VICI into one of America's highest quality and larger scale REIT. Here's a quick recital of Q2's highlights. IG, in late April VICI was elevated to investment grade credit status by S&P and Fitch, IG fundraise. In late April, we conducted our inaugural investment grade debt raise and that $5 billion raise was the largest debut and largest single IG debt raise by any REIT in history. It was a debt raise conducted in conjunction with the funding of our MGP acquisition that proved the continuing energy and agility of David Kieske and the VICI finance team. As the treasury swaps and locks that David and the team had put in place in late 2021 and early 2022, significantly reduced the net coupon of net debt. MGP closure. In late April, we closed on our acquisition of the real estate of 15 MGM assets, magnificent examples of Class A real estate, thereby adding about $1 billion of new portfolio income and initiating our new partnership with MGM, a partnership we believe can grow substantially in the years ahead. S&P 500 inclusion. In early June, VQ was added to the S&P 500 making VICI the first American REIT in history to go from IPO to S&P 500 inclusion in less than five years. Pilgrimage experiences. In June with Cabot Citrus Farms near Tampa, we announced what we believe will be the first of many capital and property partnerships with Cabot, a global leader in creating and operating pilgrimage resort golf experiences. Our third tribal nation partnership. In June, we also announced that Cherokee Nation entertainment gaming holdings will become in due course our new operating partner in Gold Strike in Tunica, giving us yet another dynamic partner to grow with. These accomplishments significantly strengthen VICI's growth resources, capabilities, and opportunities, but there's one other key Q2 accomplishment. And that accomplishment is the growth of our VICI leadership team. In early June, we added two very talented senior officers. Kellan Florio became our new Chief Investment Officer, Moira Mccloskey became our new Vice President, Capital Markets. Kellan significantly adds to our ability to grow VICI's relationships and transactional activity with asset controllers, especially across, excuse me, especially across non-gaming sectors and Moira significantly strengthens our ability to further develop and sustain our relationships with capital providers, both equity and credit. Additionally, in June, we established the VICI management committee to continue to broaden and deepen VICI strategic resources and reach. This committee of seven includes Gabe Wasserman, Jerry -- Jeremy Waxman, Danny Valoy, Elena Keil, Cameron Lewis, Kellan Florio, and Mario Mccloskey. The VICI management committee working with John, David, Samantha and me will play an integral role in developing and moreover ensuring the execution of VICI's cultural ESG portfolio and total return goals and strategies in the years to come. They will be integral to the development of our growth ideas and our growth relationships, and from the growth of our ideas and our relationships will come the creation of stakeholder value. In a moment, John will tell you more about our current growth activities, and David will talk about our financial results and our financial outlook. But first, let me say a few words about our current strategic outlook. As you will hear further from John, our operating partners are delivering outstanding operating results, especially along Las Vegas Strip, where we gather about 45% of our portfolio income, but you wouldn't know this from how the equity and debt of our public listed partners are trading right now. Granted trading values tend to be based on outlook rather than current performance and both the sell and the buy sides are understandably concerned about a possible recession in the quarters ahead. But let me offer these three points. Point number one, gaming consumer resiliency. As we have discussed in the past, the gaming customer has proven to be more resilient through both garden variety recessions, and full blown crises than just about any other discretionary consumer out there, that was proven through both the great financial crisis and throughout the COVID19 pandemic. Point number two. Gaming operator resiliency. A couple of you on the sell side have produced well reasoned analysis that show the gaming operators generally, and many of our partners specifically will be in very solid shapes in terms of both free cash flow and balance sheet strength, even under fairly draconian recession scenarios in the year or so ahead. Our operators are responsible -- responsive, and agile in dealing with changing conditions. Both gaming consumer and gaming operator resiliency give VICI confidence in our belief that a possible recession will not harm the credit quality of our operators. But in the meantime, and this brings me to my third point. There is absolutely no question that the relative attractiveness of VICI's capital to both our current and potential operating partners in both gaming and non-gaming has only strengthened in the last few months. With our investment grade credit status and our S&P 500 inclusion, VICI's access to and cost of capital has strengthened on a relative basis at a time when most experiential operators have seen their access to capital severely curtailed and the cost of any incremental capital significantly increased. As we've proved with our Venetian acquisition, VICI has the capability to move quickly and decisively in market conditions that may cause others to pause. Current and especially prospective market conditions could yield VICI, we believe highly attractive growth opportunities in the quarters ahead. And further the topic of growth, I'll now turn the call over to John Payne. John?

David Kieske:

Thanks John. I want to start with our balance sheet and overall liquidity available to VICI to fund future growth. To recap the second quarter events. On April 18th, VICI was upgraded to investment grade by S&P and Fitch, greatly broadening our access to permanent debt capital. On April 20th, we priced $5 billion of investment grade senior unsecured notes, executing the largest REIT investment grade bond offering ever. The blended cash interest rate for the notes was 5%, while the effective interest rate after taking into account our $3 billion hedge portfolio was 4.51%. On April 29th, we closed down the acquisition of MGP as well as the $5 billion bond offering. We used 4.4 billion of the proceeds to fund our redemption of a majority of MGM's MGP OP units. The remaining proceeds plus cash on hand were used to repay the outstanding balance on a revolving credit facility. The company also issued approximately $4.1 billion of aggregate principle amount of senior notes in exchange for and with the same interest rate, maturity date and redemption terms as notes originally issued by MGP pursuant to the settlement of the exchange offers and consent solicitations. Following the settlement of the exchange offers and consent solicitations, approximately 90 million of original MGP notes remain outstanding. In terms of leverage, we ended the quarter with a total -- with total debt of $15.5 billion inclusive of our pro rata share of the BREIT JV debt. Our net debt to adjusted EBITDA pro forma for a full year of rent from the MGP transaction is approximately 5.8 times. We have a weighted average interest rate of 4.38% taking into account our hedge portfolio and a weighted average 7.2 years to maturity. We have had many accomplishments in our short existence as a public company, but being added to the S&P 500 index on June 8th is a continued endorsement of our growth. As mentioned, VICI was the fastest REIT to be added to the S&P 500 index from IPO to inclusion. And we believe being added to the index will broaden our investor base and improve our access to equity capital. During the quarter we sold approximately at 11.4 million shares with an aggregate value of $367.4 million before fees under our ATM program. All of the shares were sold subject to a forward sale agreement, and as such are not reflected on our balance sheet. As of June 30th, with approximately $4.5 billion in total liquidity comprised of $614 million in cash and cash equivalence, $360 million of estimated net proceeds available upon settlement of our forward sale agreement, $2.5 billion of availability under the revolving credit facility and $1 billion of availability under the delayed draw facility. In July, the revolving credit facility was amended to permit borrowings in certain foreign currencies up to the U.S. dollar equivalent of $1.25 billion enhancing our financial flexibility. Turning to the income statement. AFFO for the second quarter was $430.1 million or $0.48 per share. Total AFFO in Q2 increased 67.9% year-over-year, while AFFO per share increased approximately 4% over the prior year. The disparity between overall AFFO growth and AFFO per share growth is due to an increase in our share count, which increased primarily from the equity raised and shares issued to consummate our transformative acquisition of MGP. At the end of Q2, the company has approximately 963 million shares of common stock outstanding and VICI OP has 12.2 million additional OP units outstanding held by MGM, which were received in the merger. A full reconciliation of the share count is included in our earnings release. Our results, once again, highlight our highly efficient triple-net model, given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong in a high 90% range when eliminating non-cash items. Our G&A was $11.8 million for the quarter. And as a percentage of total revenues was only 1.8%, in line with our full year expectations and one of the lowest ratios in the triple-net sector. We believe this represents the appropriate go-forward run rate when accounting for the increase in certain expenses related to the MGP acquisition I just want to touch on CECL or current expected credit losses, out of the $552 million non-cash charge we incurred in Q2, 80% or approximately $443 million was related to the initial allowance we were required to record upon entering into the MGM master lease. This allowance did reduce our GAAP net income for the quarter, but as previously noted non-cash CECL charges do not impact cash flow or AFFO. Turning to guidance. We are reaffirming AFFO guidance for 2022 in both absolute dollars, as well as on a per share basis. As a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions. The per share estimates reflect the impact of treasury accounting related to the pending 11.4 million forward shares sold from our ATM program in Q2. And as we have discussed, we recorded non-cash CECL charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and AFFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. AFFO for the year ending December 31st, 2022 is expected to be between $1.66 billion and $1.69 billion, or between $1.89 and $1.92 per diluted common share. With that operator, please open the line for questions.

Anthony Paolone:

Great. Thank you and good morning. My first question relates to your efforts outside of gaming. So, you have four of these experiential relationships going, can you comment on where you -- when we might see some of these convert into straight up property acquisitions and also do you see more of these, or these growing over the next 12 to 18 months?

Anthony Paolone:

Got it. Okay. And then, with regards to the equity raise in the quarter off the ATM, any comments on the planned usage there, or how should we think about doing it or, why you did it?

Edward Pitoniak:

And I think you can take it, Tony, as a sign of our confidence that we're going to have opportunities to deploy capital.

Edward Pitoniak:

Thanks Tony.

Steve Sakwa:

Yes. Thanks. Good morning. Ed, I'm wanted to circle back to your comments. You talked about sort of the downturn and obviously that doesn't really affect you, but it does affect the operators. And I'm just wondering if a pending recession or weakening fundamentals might actually spur more transactions in the near-term. And then I do have a second question. Thank you.

Steve Sakwa:

Thanks. And then the second one, maybe sort of along the lines of development, I know when -- we were talking over the last few weeks, densification opportunities along the Strip are opportunities. And sort of similar, we talked about the non-gaming and Cabot and doing lending into development, would you use a similar structure for opportunities on the Strip, or would you just wind up, you think purchasing those upon completion?

Steve Sakwa:

Great. Thank you.

RJ Milligan:

Yeah. Good morning, guys. So, security and investment grade rating, plenty of liquidity, stock is now trading near an all-time high. So, despite the macro uncertainty and volatility, it seems like the market's giving VICI the green light for growth. So, do you think it's time to get more aggressive on the acquisition front even more than you already have been? And why not call the Caesars assets now and lock-in pretty attractive accretion?

John Payne:

Yeah. RJ, good morning. You're giving me a heart attack already, RJ, for moving more than we've already -- more than we've already done. But look, RJ, I think your observations are good, but as good as we are doing right now, we need to continue to be disciplined in our approach to evaluating opportunities, and making sure we're meeting our investment criteria. I can assure you, and as Ed said in his opening marks, we've added resources to the development team. Not only our expertise in gaming, but we've added Kellan Florio as our Chief Investment Officer who is going to focus on non-gaming. So, more to come here, but we hear you and we're out there, turning over every rock of opportunity.

Edward Pitoniak:

John, do want to start?

RJ Milligan:

Thank You, guys.

Smedes Rose:

Hi. Thanks. Morning. I wanted to ask just kind of specifically about the billion dollars of funding commitments that you mentioned in your Q, that's coming from the property growth fund. And just given, more recessionary concerns, do you feel like your existing tenants may be more likely to kind of pull back on those funding commitments, because it's -- I guess it's initiated from their end, correct? And I'm just wondering if you have a sense that maybe the -- their appetite for investing maybe slowing a little bit, just given maybe the need to hoard capital, if you will. There's any kind of thoughts around that.

John Payne:

Well, I'm going to kind of -- sound like I'm repeating myself here, but Smedes, it's nice to talk to you this morning. I mean, if you look at Las Vegas right now, Smedes, just where there could be a lot of this capital deployed, in my opening remarks I talked about the growth in Las Vegas. In May, it was 41%. GGR up over 2019 and then the June numbers came out this morning and in June grew 23% year-over-year. So, again, we have to be aware of the macro conditions going on, but there are some markets such as Las Vegas that are seeing tremendous growth. The consumer continues to visit. In my opening remarks I talked about the record number of passengers declining in Las Vegas in the month of June. And so, if you are an operator and you have a facility in Las Vegas, you can see it is a town that is growing and there could be opportunities to deploy capital creatively. And as Ed mentioned in his remarks as well, or in his comments about Las Vegas, it is a town that we have 660 acres and we'd love to continue to grow there.

Edward Pitoniak:

The other thing I would add, Smedes -- the other thing I would add, Smedes, is that, we could be -- it remains to be seen that the velocity of which this will rollover. But we're -- you're beginning to see -- beginning to see the beginnings of rollover instruction costs. And I think, if we continue to see a more benign construction cost environment, it could obviously create a stronger green light for development.

David Kieske:

The gross was $360 million 7.04? Sorry Smedes. The gross number was $367.4 million and the net was $360 million. So, these were market fees.

Operator:

We now have the next question from Neil Malkin of Capital One Securities. Your line is open, Neil.

Edward Pitoniak:

Yeah. Kellan Florio is not on the call. So, John will answer this for you, Neil.

Neil Malkin:

Okay. Great. Thanks. And maybe Ed or John, I don't know, but other follow up question would be along the same vein is, when you do these exercises, looking at new types of business models to put a triple-net structure on top of, can you just quickly like outline or -- how do you think about the risk, and how do you adjust, protect yourself from like unknown risks, because it's a new industry? How do you think about alternative uses replacement costs? All of those things that obviously offer downside protection, if something unexpected happens to that segment.

Neil Malkin:

Okay. Okay. Thank you. I appreciate it.

Operator:

Thank you. We have the next question from Wes Golladay from Baird. Please go ahead when you're ready.

David Kieske:

Wes, this is David. Good to talk to you. I mean, I missed a little tail end of that, but let try to just address …

David Kieske:

Max. Thank you. So, well, it depends on the project. We are actively working with all of our tenants. They understand that, that we have the partner property growth fund and that we have the ability to invest into their assets, as we talked about on this call and this serves as an attractive source of funding for our tenants. So somewhat depends on the project. The Venetian, for example, we committed a billion dollar to the partner property growth fund, and that billion dollars could go into the -- or the continuation of the funding of the hotel that was stopped in 2008. It could go into some other expansion ideas and renovation ideas that the Apollo team has. And we hope that some of that may start later this year, but it's again, all up to our tenants and their timing. And then in terms of the deployment of that, the nice thing about the partner property growth fund, it's important that does not come all at once. If it's a new hotel tower or we take the Mirage where Hard Rock coming in and we've committed up to $1.5 billion, if they so choose to use that money, that's a 12, 18, 24-month redevelopment timeline where we get to -- going to deploy that capital on a monthly basis, not having to go to the market to raise large amounts of capital day one. So, it's a flow business for VICI, and attractive funding source for VICI. In terms of max size, that's -- we want to be cognizant of the development risk. At the end of the day, we are not the developer, but our capital obviously is going into projects that are being developed. And it'll depend on where that capital is, whether it's in gaming, non-gaming, if it's on the Strip or if it's regional. So, we're going to be cognizant of the total size, but right now I don't have a threshold for you. But we're going to -- we're excited to use it. We're excited to help our tenants grow.

Wesley Golladay:

Yes, Ed. You remind me F1. I'm looking forward to that as well. A real quick, speaking of sports, would VICI ever consider doing stadiums? I mean, company obviously has massive scale. Not anyone can do those. And it just seems like maybe an untapped market for you.

Wesley Golladay:

Great. Thanks for the time everyone.

Operator:

Thank you. [Operator Instructions] I would now like to introduce Barry Jonas from Truist Securities. You may proceed with your question.

Edward Pitoniak:

John, do you want to do that?

Edward Pitoniak:

The other thing, I just want to make sure, Barry, no one ever loses track of or sight of is that we are as excited about global gaming investment as we have ever been. And we believe our opportunities to continue to grow in American gaming and in international gaming -- represents our most exciting, compelling, large scale growth opportunity, but just want to make sure that does not get lost.

David Kieske:

Barry, it's David. Good to talk to you. As Ed alluded to, and as we talked about a lot, right, the gaming customer will always game. And one of the things that's going on in our underwriting more specifically is obviously there's been a ramp up in EBITDAR over the last -- post COVID. EBITDAR is much greater than it was in 2019 and before. And so one of the things that we're working with, anything we evaluate is what is the true run rate? What is -- where does the margin settle out? And I think, we're all comfortable that EBITDAR is going to be greater than 2019, but is it really going to be double or triple, or is it more, one in three quarters times or two times. And so, we're spending a lot of time with the operators on their belief of the future -- the market, and it all depends on the market, the asset and the opportunity. And in terms of credit quality, that's of us -- a big focus of us and with our master leases, our corporate guarantees and knowing the operators, the way that John and Danny and team know the operators we're able to underwrite the overall opportunity. And we talked about the acquisition environment. We continue to believe our ability to put points on the board here as we go forward.

Barry Jonas:

Great. Great. Thank you for that.

David Katz:

Hi. Good morning, everyone. Thanks for taking my questions. Ed, earlier on, I think I forget exactly how you phrased it, but in reference to Cabot, you talked about the possibility or the expectation that that is a relationship that continues to grow and broaden over time. Would you mind coloring that in just a bit? Cabot is somewhat new on our consciousness for those of us that aren't pilgrimage, golfers.

Samantha Gallagher:

Yeah. Thanks Ed. So, we are very excited about this partnership. And as -- if to the extent you have followed Cabot, they have opportunities and growth opportunities internationally beyond just the United States that we certainly would look at with them. If there's -- they've an asset in St. Lucia, they've just announced an asset in Scotland. And so, we think there's growth opportunities together there. And one of the things we love about what we've done with this transaction is we've created a template that we can really follow. So, as we discussed earlier on the call, this loan, because it is development, but it does convert into real estate ownership and we have the documentation already in place for that. So, we're excited to use that template to grow with them.

Samantha Gallagher:

Well, I think they have great expansion and growth opportunities. I can't speak for how many, but certainly we would love to walk along that journey together. And we've developed a really strong partnership. This was a relationship that we've been working on for at least 18 months before we signed the deal. So, this is now a very strong relationship between our two teams and we look forward to growing together.

Samantha Gallagher:

It should be Cabot links.com, but.

Samantha Gallagher:

It's the cabotcollection.com.

Edward Pitoniak:

Give us a call, David. Give us a call.

Ronald Kamdem:

Great. Just two quick ones for me. The first is following up on the non-gaming opportunities. Did a good job, giving us some examples of the verticals. But when you sort of put it all together in your mind, just how -- just broad strokes, how big do you think that TAM is as you guys are attacking that opportunity?

John Payne:

And Ronald, I'll just add that. If you had asked us this question last quarter, we've probably added two or three other categories that we're now studying. So, the TAM is going to continue to, to ebb and flow as we continue to find new categories that our capital could be put to work.

Edward Pitoniak:

John?

Ronald Kamdem:

Great. Thank you.

Spenser Allaway:

Thank you. Maybe just staying on the international theme. I'm just curious if you guys look at the Crown Resort sale in Australia, and could there be a potential to JV with a partner like Blackstone to eat some of the tuition costs that come with expanding abroad.

John Payne:

Yeah. Good to hear from you, Spencer. As you know, we never comment on specific deals that are out there, but I think you're asking us, are we aware of the Crown Resorts and do we like a market like Australia and would we partner with a company like Blackstone, which obviously we have in a couple different occasions in gaming and a non-gaming. So, the answer is, would we have interest in those areas? Absolutely. We think they're wonderful assets. We think that Blackstone is a great operator. But is there an opportunity for us today? I can't comment on that, but those are areas that we would've interest in.

Operator:

Thank you. We now have Jay Kornreich from SMBC. Jay, your line is open.

Edward Pitoniak:

Yeah. It's a good question, Jay. And the responsibility lies with us to explain the nature of the business we're investing in, the nature of the operator's business model and the credit worthiness of the operator. And we realize -- we own that responsibility and we'll exercise it very diligently. Obviously, helping people understand the gaming story was good training for what we need to be able to do and what we're responsible for doing in non-gaming. I will say, I think there's a bit of a mitigant, a positive mitigant at work, Jay, insofar yes, we have the obligation to help investors understand this new category, but with each new category, assuming we can convince them quickly that this is a category worthy of investment. It obviously also helps them answer the question, how does VICI continue to grow now that it's gotten so big? So, again, we won't shed the responsibility to educate, but we think with each new category we go in, we prove that there is a lot more we can do to continue to create value and growth at VICI.

Edward Pitoniak:

Yeah. It obviously needs to be accretive, Jay, that's absolutely the requirement. And I think that we're in a very interesting period right now. It's a period in which some people realize, it's not 2021 anymore, and other people haven't quite figured out it's not 2021 anymore. What I would say is that the marketplace of borrowers or those who need capital, has more quickly figured out that the world has changed. And with it, the pricing that goes with that change, and then there's others -- potential sellers, some of whom haven't really figured out, it's not 2021 anymore. So, it's really going to be highly circumstantial as to whether or not there's the potential to get a deal done. And it will only get done based upon mutual recognition that the world has changed and prices need to change accordingly.

Edward Pitoniak:

Thank you, Jay.

John Decree:

Hi, everyone. Thank you for taking my question and all the questions. Maybe I'd just piggyback on your last response there about how the world has changed and to revisit your earlier discussion on cost of debt, the yield to worst of your tenants and potential tenants. You've often get compared to debt capital, but your source of financing is typically more permanent than debt. And we've had a recent conversation about your partners and how they should consider their overall cost of capital, given the longevity of your financing. I'm wondering in this environment, if you've seen partners and perspective partners starting to compare your capital to their overall cost of capital, or are you still competing with just debt capital at this point, how has that kind of education process gone and has anything started to change given the current environment?

John Decree:

That's a good point. Ed thanks. I appreciate the additional color on that.

Operator:

Thank you. We have no further questions in the queue. I'd like to hand it back to Ed Pitoniak for some closing remarks.

Operator:

Thank you, all. That does conclude today's call. Thank you again for joining. You may now disconnect your lines.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, May 5, 2022. I will now turn the call over to Samantha Gallagher, General Counsel of VICI Properties.

Ed Pitoniak :

Thank you, Samantha, and good morning, everyone. Happy Cinco de Mayo. When we held our last earnings call in late February, we had just closed on our acquisition of The Venetian, one of the largest scale and highest quality single assets in American commercial real estate. As we speak with you today, we have just closed on our acquisition of MGM Growth Properties, MGP, one of the largest scale and highest quality portfolios of Class A real estate in American real estate investing. VICI's story over the last 14 months since we first announced our acquisition of The Venetian, is a story of transformation. We have transformed the scale of our portfolio, our tenant and geographic diversity and very importantly, the character and quality of our balance sheet. We've also become the leading real estate owner on what we believe is the most economically productive street in the world, the Las Vegas strip. In a moment, John Payne will talk further about the transformation of our portfolio, and David Kieske will talk further about the transformation of our balance sheet. But let me first spend a few moments talking with you about what's been proven about our business model over the last 2 years and how timely our current transformation may prove to be from both offensive and defensive perspective over a coming period of economic uncertainty. Over the last 2 years, COVID-19 proved the resiliency of VICI's business model because COVID proved the resiliency of our tenants' business models. VICI collected 100% of our rent in cash and on time throughout the COVID-19 crisis because of the operating excellence and operating liquidity of our tenants. Our operators have shown their ability to operate through thick and thin. The economic outlook for the next year or 2 may be murky, but we firmly believe that our operators' prepared their operating revenue, cost and liquidity models for whatever may be coming. What about our view on VICI's ability to continue to grow in the coming period? There are 5 key capabilities as we see it to growing as a net lease REIT in all cycles, including whatever cycle may be about doing 2. Number one, same-store NOI growth based on key lease terms regarding escalation and CPI protection; number two, internal funding capability based on cash retention; number three, the capability and opportunity to invest incrementally in existing assets and return for incremental rent; number four, the ability to source acquisitions when the frequency and intensity of asset marketing processes lessen; number five, access to investment-grade credit when high-yield markets may be constricted or costly. Let me say a few words about VICI's growth capabilities in each of these 5 areas

David Kieske:

Thanks, John. I'll start with our balance sheet. At the beginning of 2022, encapsulates the energy we have brought to transforming our balance sheet since VICI emerged in October 2017. We have discussed this relentless balance sheet focus with you over the last 4.5 years. We believe it is important to ensure that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners to -- deserve. Not to spend too much time on 2021, but is a good reminder of how we take the long-term view to safeguard our company. We raised a combined total of $5.4 billion of equity at the time of the announcement of The Venetian acquisition and shortly after the announcement of the MGP transaction. These equity offerings derisk the equity funding well ahead of closing on our $21 billion of announced acquisitions and allowed us to repay all of our secured debt last September. These actions set us up for success in early 2022 and for years to come. On February 8, we closed on our new $2.5 billion unsecured revolving credit facility and $1 billion delayed draw term loan, increasing overall liquidity with highly efficient bank capital. On February 23, we closed on the $4 billion acquisition of Venetian through the settlement of 2 outstanding forwards, bringing 119 million shares onto the balance sheet for total proceeds of approximately $3.2 billion. We also drew $600 million on our revolver, and used cash on hand to fund The Venetian. On April 18, VICI's debt rating was upgraded to BBB- by S&P and Fitch, greatly broadening our access to permanent debt capital. On April 20, we priced $5 billion of investment-grade senior unsecured notes, executing on the largest REIT investment-grade bond offering ever. The blended cash interest rate for the senior unsecured notes was 5%. The effective interest rate after taking into account our hedge portfolio, which was comprised of $2.5 billion in notional amount of forward starting swaps and $500 million in notional amount of treasury locks is 4.51%. On April 29, we closed on the acquisition of MGP as well as a $5 billion bond offering. We used $4.404 billion of the bond offering proceeds to fund our redemption of a majority of MGM's MGP OP units. Following the MGP acquisition, the company has approximately 963 million shares of common stock outstanding and VICI OP has 12.2 million additional OP units outstanding held by MGM that were received in the merger. The remaining proceeds from the bond offering plus cash on hand were used to repay the $600 million outstanding under VICI's revolving credit facility. In terms of leverage, we ended Q1 2022 with net debt to adjusted EBITDA of 3.6x. This highlights the fact that we significantly over-equitized the balance sheet ahead of the closing of the MGP acquisition, positioning our balance sheet to raise the incremental debt to complete the funding and bringing on the associated income with that transaction. As we sit here today, pro forma for the MGP transaction, we have total debt of $15.5 billion, inclusive of our pro rata share of the BREIT JV debt on a run rate net debt to adjusted EBITDA -- excuse me, on a run rate, our net debt to adjusted EBITDA is approximately 5.8x. We have a weighted average interest rate of 4.38%, taking into account our hedge portfolio and a weighted average 8.4 years to maturity. Just touching on the income statement. AFFO for the first quarter was $305.5 million or $0.44 per share. Total AFFO in Q1 2022 increased 19.8% year-over-year, while AFFO per share increased approximately 5.1% over the prior year. The disparity between overall AFFO growth and AFFO per share growth is due to an increase in our share count. Our fully diluted share count increased approximately 26.3% primarily as a result of the regular weight portion of the September 2021 equity offering, which added 65 million shares to our balance sheet, the settlement of the June 2020 forward sale agreement last September, which added 26.9 million shares to our balance sheet and the settlement of the March and September 4 sale agreements in February of 2022, which added 119 million shares to our balance sheet. Our results once again highlight our highly efficient triple net model given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong in the high 90% range when eliminating noncash items. Our G&A was $9.5 million for the quarter and as a percentage of total revenues was only 2.3%, in line with our full year expectations and one of the lowest ratios in the triple net sector. Turning to guidance. We are updating our AFFO guidance for 2022 in both absolute dollars as well as on a per share basis. As a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions, capital markets activities or other nonrecurring transactions. And as we have discussed in the past, we recorded noncash CECL charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. Our guidance incorporates the recently closed MGP acquisition, including the issuance of 214.5 million shares of common stock to former MGP stockholders and the $5 billion bond offering we executed subsequent to quarter end. We expect AFFO for the year ending December 31, 2022 will be between $1.66 billion and $1.69 billion or between $1.89 and $1.92 per diluted share. With that, operator, we ask you to please open up the line for questions.

Anthony Paolone:

Congratulations on everything you guys have gotten done recently. My first question is, just given everything that you've all done and getting past all that, what has it done to just the conversations you're having on future growth and opportunities? Has it expanded sort of your discussions and just increased the profile and stuff that you're looking at? And how are you organizing all those thoughts?

John Payne:

Sure. Well, Tony, thanks for the comments, and it's always nice to hear from you. There's no doubt, Tony, that we've changed quite a bit as a company from when we started the company back in 2017 just due to size, scale, scope, magnitude of assets, and it has got the attention of folks that I think when we started the company, did not know exactly who we were and what we were doing. So the funnel is definitely as wide as it's ever been for us. There are numerous opportunities. You've heard us talk about, obviously, gaming opportunities, we'll continue to pursue in markets where we want to own more real estate or we don't own real estate. And then there are a lot of companies that have noticed what we've done in the experiential space. You've heard Ed and David and myself, Danny, others talk about making real estate investments outside of gaming and in experiential and we've been in contact with. And so as Ed in his comments, we build relationships, and we build relationships that we hope turn into real estate ownership. And so we are organizing, we're meeting, we're traveling. We're doing all that right now, Tony. And we'll see how it plays into our growth, but we feel really good about the magnitude of opportunities that we see in front of us.

Anthony Paolone :

Got it. Okay. And then with regards to the opportunities to reinvest in the asset base, including things like the Mirage. Can you talk about timing and around maybe hearing more about a project like that? And also, just does anything in the rate environment or macro volatility change the thinking or prospects for some of those investments? Or do the trends on the ground there kind of win the day right now?

David Kieske:

Sure. We -- look, we're very cognizant of the macro trends, right? We were fortunate to get our bond offering off a couple of weeks ago just -- and execute what we were able to execute. Every day brings something new volatility with the Fed speak yesterday. So we're going to work to ensure that our partner property growth loan is ultimately what we're talking about here, delivers accretive returns. And that's -- I touched on that being able to invest in these magnificent assets of size, scale and complexity that rivals nothing other out there. We will make sure that the capital that we deployed generates an incremental return that's accretive to us.

Ed Pitoniak :

Tony, I just want to add one more thing. And that is that we -- often in the early years, we're often told by would be partners that, oh, I can borrow money cheaper than your money, VICI. And we are very humble about admitting. We are learning every day how to tell our story better. And what we've really focused on of late is helping people understand that our capital and the cost of it should not be compared simply to the cost of their debt, but to their blended cost of capital, accounting for both the cost of their debt and the cost of their equity. And even before we saw the recent widening of credit spreads and before we saw the recent multiple contraction of many operators across experiential both gaming and non-gaming, our cost of capital versus their blended cost of capital is already very attractive. It's only grown more attractive in the last couple of months.

Ed Pitoniak :

David, do you want to take that?

Operator:

Our next question comes from Spenser Allaway from Green Street.

Ed Pitoniak :

John?

Spenser Allaway:

Okay. That's great color. And I know you just mentioned, obviously, Vegas revenue has been strong, but just curious if in conversations with the operators, have you guys gained a sense of how regional and/or Vegas operating margins have held up with the inflation pressure?

Ed Pitoniak :

One point answer that Spenser that I'd like to add -- Spenser I was just going to say one more point I want to add on top of what John just rightly said, is that with all the focus on inflation, I think it's important to note that, obviously, we, VICI, enjoy superior CPI protection in our leases versus other triple nets. But I also want to make sure everyone understands that our tenants are in the business of nightly leases, and in some cases, even hourly leases, and that pertains to their ability to constantly reprice in respect to demand and in respect to inflation. And I think that, going back to John's point, is a key factor in ensuring they continue to produce all the margin dollars they can possibly produce given their ability based on nightly -- the lease business to constantly reprice.

Smedes Rose:

I wanted to ask just a little bit as you look at potential opportunities, are you seeing any change at this point in potential transaction cap rates just with the rising cost of capital, but kind of weighing that against the continued kind of institutionalization of this real estate space and improving operating trends that you pointed out? Or is it too soon to sort of see any meaningful changes?

Smedes Rose :

Great. That's interesting. I just wanted to switch gears, John, again, switch and go through the transcript of operators. But I'm just wondering, it sounds like the leisure customer is still very strong in Las Vegas. Do you have any thoughts on how the convention business is lining up over the next year or so, I guess, or however you think about it?

Operator:

Our next question comes from Barry Jonas from Truist Securities.

Ed Pitoniak :

I would say generally not. And if I guess at what might underlie your question, given that VICI has gotten so big, will VICI sort of establish a red line below which we do not go in terms of asset size or NOI. And I think the answer is no. Again, as a triple net REIT, we enjoy rent per asset that's up over $50 million. The average triple net store produces about $250,000 a year rent. We will always evaluate the materiality of a given asset not unto itself, but really as part of a larger relationship with whomever may either currently own and want a sale leaseback that asset or an operator with whom we partner in the acquisition of that asset. So we will be much more focused on the long-term growth potential of a given category or opportunity or partnership than we would on individual assets. And that's how we believe over time, we'll develop a more sustained and sustainable business model of deal flow.

Ed Pitoniak :

David, you want to take that?

Operator:

Our next question comes from Jay Kornreich from SMBC.

Ed Pitoniak :

David, do you want to take that?

Ed Pitoniak :

Jay, I will just add that a bit of wisdom that one of our most important and valuable Board members, who many of you know, Craig Macnab, one of the first adages he shared with us is that gentleman, the rent should be as low as possible. And we absolutely believe in that. We want our rent to be as low as possible in regard to the economics of the tenant's business because the lower the rent as a percentage of their economics, the more successful they will be, the better at credit they will be and the more willing and able they will be to occupy the building for a very, very long time to come.

Ed Pitoniak :

David?

Operator:

Our next question comes from David Katz from Jefferies.

Ed Pitoniak :

David, do you want to start? And…

Ed Pitoniak :

David Katz, I would just....

Ed Pitoniak :

Yes, David Katz, I was just going to add that when we look at retained cash as a capital source. We are very cognizant that is the shareholders' money and our obligation to produce a superior return and investment spread on the use of that cash is every bit as strong as it would be if we're going out into the market raising equity.

Ed Pitoniak :

Yes. I'd say, John, we're very confident of that. Are we not?

Operator:

Our next question comes from Greg McGinniss from Scotiabank.

Ed Pitoniak :

Well, Greg always been good to talk to you, and you definitely get the award at least so far for asking the questions that we can and will not answer on this call. I think John did a good job of describing what Tom Reeg was on record saying the other day, and I don't know, John, I think we just -- we leave it there.

Greg McGinniss:

Well, I figured, I had to shoot my shot there. But maybe as a second follow-up.

Greg McGinniss:

So separately then. So based on current inflation numbers, can you just give us some indication as to what's being -- assuming guidance for the escalators for the remainder of the year?

David Kieske:

Hey, Greg, it’s David. Similar to but not including unannounced acquisitions or dispositions or capital markets activities, guidance includes this, the base case escalators.

David Kieske:

It doesn't include any CPI, estimates around CPI because that's a guessing game, and so we can't predict the future. If we could, we'd probably be doing something else. So the base rate in the leases that's in the guidance number.

Ed Pitoniak :

And then Greg -- I was just going to say, Greg, the key period for CPI measurement for us comes in the early second half of the year, isn't that the right way to think about it, David?

Operator:

[Operator Instructions]. And our next question comes from John Massocca from Ladenburg Tallman.

Ed Pitoniak :

John and perhaps Samantha, you want to take that?

John Massocca :

Okay. And then in terms of the competitive set, you talked a little bit about public REITs in the marketplace. Have you seen any change in either private investors in casino real estate or maybe some of the kind of not publicly traded players that are out there, given some of the moves in cost of debt capital. I mean, has that competitive set changed at all? Any color there would be helpful.

John Massocca :

But I guess maybe over the short term, given what we've seen interest rate moves since the beginning of the year, has that demand change at all? I understand long term, you've seen kind of institutional capital gravitate towards this. Has some of that had to fade away because, frankly, their cost of debt financing has gone up?

Operator:

This concludes our Q&A session. And now I'd like to pass back over to Ed Pitoniak, CEO, for any final remarks.

Operator:

Thank you, everybody, for joining today's call. You may now disconnect your lines.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Fourth Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that this conference call is being recorded today, February 24, 2022. I would now hand the conference over to Samantha Gallagher, General Counsel with VICI Properties.

Ed Pitoniak:

Thank you, Samantha, and good morning, everyone. Before I start, let me just say on behalf of VICI that our hearts very much go out this morning to the people of Ukraine. Today, I want to begin the call by addressing two topics

David Kieske:

Great. Thanks, John. I want to start with our balance sheet. 2021 continued the relentless focus we have maintained over our four plus years of existence on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. This disciplined focus was rewarded during 2021 by

RJ Milligan:

Good morning guys. I wanted to maybe ask a bigger picture question, Ed. What do you think of Realty Income's entry in the gaming asset class? What does that mean for VICI? Obviously, adds more competition. But you have a new operator embracing the sale-leaseback model. Pricing sort of implies that your stock is undervalued, but maybe lower cap rates hurt spread in the future. How do you think about those different puts and takes?

RJ Milligan:

Thanks for those comments. And then my second question is just, can you be a little bit more specific on the expected timing of the closing of the MGP transaction? And then maybe, David, what you're seeing out there in the debt markets and expected pricing for the debt that's going to be issued?

Samantha Gallagher:

Sure. Just on timing, I'll just mention that we do continue to work through the process with all the applicable jurisdictions and [indiscernible].

RJ Milligan:

Thanks a lot.

Operator:

Thank you RJ. Our next question comes from Wes Golladay with Baird. Wes, your line is now open.

Ed Pitoniak:

Yes. I'll take the last part of that, and I'll turn it over to John in terms of our ongoing energy around growth activities. Yes, you did see Tom Reeg announced last week his intentions to bring an asset to market. And obviously, we will take full advantage of the opportunity we have to get that very full first look and to see what possible advantages the addition of another asset could have and the addition of other relationships. But I just want to emphasize the fact that given obviously, not only the volatility in the market, but what are the hallmarked practices of great capital allocators, as a good real estate capital allocator, you never want the answer to the question of why did you buy that to be, well, it was for sale, right? I want to focus on somebody who had a great adage, which is, spent every dollar of capital like it's the last one you have." So whatever the opportunities may be, we will only allocate capital if we feel versus our other alternatives, it is the best use of capital at a given time. And then in terms of our ongoing growth activities, I'll turn it over to John.

Wes Golladay:

Okay. And then there is a strong bid for the regional assets. Would you entertain recycling assets, selling some assets if they're sees opportunity was something you like? Or would you look to lean in a little bit of leverage, maybe go over your, I guess, I think you mentioned, Dave, at 5.5% on the high end is where you want leverage. Would you be willing to take leverage a little higher than that? I guess how would you fund it if you were to find something?

David Kieske:

Yes. Wes, I mean, we're going to look at alternatives that are in front of us. As it relates to recycling assets, I mean, that's not – we have recycled an asset in Atlantic City, asset in Reno, we just in our release, we sold Louisiana Downs. So potentially, there could be that opportunity. There could be potential JV opportunities. You've obviously seen MGP joint venture, some assets in the past. And then the attractiveness of a REIT and the ability to issue OP units that we are doing directly to MGM, GLPI is doing that to Cordis. So there's other avenues of equity. As it relates to taking leverage up, we're pretty disciplined with our dialogue with the agencies of our goal. We've gotten a path to take leverage up to six times. When you take leverage up and that's just financial engineering to drive accretion, and that's something that we strive to do. So we'll stay within our guidepost. But I think there's other tools in the toolbox that we can bring to the table to, as John said, pursue opportunities that we're in dialogue with.

Ed Pitoniak:

Thanks Wes.

Greg McGinniss:

Hey, good morning. So just curious, it sounds like Realty Income was able to get kind of Boston Encore deal without any competing offers. So had you previously tried to acquire this asset? And any thoughts as to why Wynn did not run a bid process on that location? And I guess do you think you would have been competitive at the 5.9% cap with no CapEx minimums?

John Payne:

I think we've already said it. Look, it's a great validation of the value of our real estate, right? I mean if you take National Harbor, there's an asset as good a quality, I'd even say it's better quality, right? And so the cap rate that's put on that asset really just the validation of what we've been talking about for four-years when we started this company.

Ed Pitoniak:

John?

Ed Pitoniak:

Greg, I would just add in regard to our property – partner property growth fund is that when the projects achieve the needed return hurdle and of course, our investments will be contingent upon them, clearly demonstrating that they can achieve that hurdle, we are in extremely attractive source of capital for our partners based on the cost of our capital. Because when the given investments can achieve the necessary hurdles, the cost of our capital should not be compared only to the cost of the debt capital of our partners. It really, given that we can, in many cases, alleviate them, the need for them to put in any incremental equity, the cost of our capital should be compared not again to the cost of their debt capital, but to their weighted average cost of capital, inclusive of both equity and debt. And on that basis, we become, again, a very compelling source of low-cost capital.

Ed Pitoniak:

John?

David Kieske:

Sure. Thanks, John. as you referenced, that put call started January 1 of this year. It runs to December 31, 2024. We can call those two assets at a 7.7% cap, or Tom and team can put them to us at an 8% cap. It's an LTM coverage ratio that was set at 1.3 times. Part of the reason we agreed to that within the broader funding of Eldorado acquisition at Caesars is that those assets will go into the regional master lease. And those are two very attractive assets, as John alluded to, and something that we'll assess how we sequence that into our growth and the cadence that we have internally with everything else going on over the period of time. But just given where cap rates have gone, we're very excited to potentially own those assets at some point here.

John Payne:

And I just want to add one thing to what David said that I don't want to make sure it's lost. We have the right to call this at a 7.7% cap. And there was a transaction that just happened in the regional markets for a 5.9% cap.

Operator:

Thank you, Greg. Our next question comes from Barry Jonas with Truist. Barry, your line is now open.

Ed Pitoniak:

John?

Barry Jonas:

That's really helpful. And then just as a follow-up, given the current macro environment we're seeing, I'm curious if that's impacted the timing or pace of any M&A discussions you may be having?

Barry Jonas:

That’s great. Thanks Ed. Thanks guys.

Operator:

Thank you, Barry. Our next question comes from Daniel Adam with Loop Capital Markets. Daniel, your line is now open.

Ed Pitoniak:

Yes. Daniel, always good to hear from you. I may have mentioned this on prior earnings calls, but one of the things I am struck by within gaming, generally in gaming real estate specifically, is we have not yet come up with a widely accepted hierarchy of quality classification, right? As many of you know, I used to work in the hotel sector, where there's a clearly accepted – well, there's a few clearly accepted hierarchies of quality, whether it's based on Star five, four, three, two so on and so forth, or whether it's luxury, upper upscale and so on and so forth. Well, that categorization does not yet exist in games. Really doesn't exist so much on the strip. And it definitely doesn't exist in regional. So if you were to try to impose a hierarchy of quality on regional gaming, there is a highest level of regional gaming asset quality that would include assets like Encore Boston, National Harbor, MGM Detroit Borgata, Beau Rivage, Caesars New Orleans, especially after the Caesars team puts in the capital that they're about to spend, Harrah's Atlantic City. There is this higher tier of assets, and Encore Boston has set a new benchmark cap rate for the highest tier regional assets. And usually, when the top category in an asset class establishes a new benchmark in terms of lower cap rates, there can and usually is a slip stream effect on the lower quality – lower categories of quality. So I guess maybe your implicit question, does Encore Boston create a slip stream not only for the highest end regional properties, which we will be the market leader in owning, but will it also create a upstream for other regional assets? And we believe it would because again, you look at the resiliency through COVID. If you look at the indispensability of the asset to the operator, you look at the barriers to entry, if you look at all of the classic real estate valuation metrics and frameworks, you have to concede these are really good assets, and they are woefully underpriced.

Ed Pitoniak:

David, do you want to take that?

Daniel Adam:

Okay. Great. Thanks so much guys.

Operator:

Thanks Daniel. Our next question comes from Smedes Rose with Citi. Smedes, your line is now open.

Ed Pitoniak:

Yes. Michael, it is a profound and extremely important question. It is one David and I especially have been wrestling with really going back to last fall, soon after we raised the equity for MGP, which we did use yesterday for The Venetian, but that's all because of the fungibility of cash. Yes, it's a profound question. And I would say that our strategy going forward, having done the transformative deals we've done, Venetian to a degree, but especially MGP is that having achieved the scale we've achieved, having in place some of the built-in growth elements that we do have, we really want to begin to develop more of a flow model. We want gaming and nongaming to achieve the cadence of deal flow that is both more sustained, simple. And accordingly, we want our fundraising activities to be, frankly, less gargantuan. You are absolutely right. It's been a slog since, well, especially since late summer. We actually won in late summer was pretty much the week of Labor Day, things will earn and then that happened to be we raised the equity for MGP. And we're glad we did it when we did Michael, and we do thank the Citi team for their help in doing so. And we realized that, that sheer amount of equity, $5.5 billion in 2021 did have a weighty effect on the performance of our stock. And we really appreciate the patience of our shareholders. We were very pleased to see the [indiscernible] how steady our core shareholders remain through the turbulence of Q4. And we're hopeful that, that is still prove to be the case here in Q1. Going forward, we do want to create a business model that is sustained and sustainable and lessens on these kinds of gargantuan equity raises. I hope that gets to the core of the question you were asking.

Ed Pitoniak:

Yes. So just to be clear, we do not need to raise any further equity for MGP. We have raised all the equity we need. We will be raising only debt. We will obviously have a share exchange on a fixed exchange ratio with the MGP shareholders, including MGM. So there's no equity further needs for MGP. And when it comes to a ROFR or any other opportunity, again, just to re-emphasize the point, we're very mindful of the fact that we need to consider every possible way of funding such opportunities if and only if they're compellingly accretive for our shareholders. And it will be our bias to not have to raise our grants to an amount of equity because we're very conscious of the fact that we need to give our shareholders understood broadly a chance to realize that revaluation that they deserve, and it will be easier to achieve if we do not go out into the market and raise a little ton of equity to use the technical term.

Ed Pitoniak:

Yes. We are looking at all those things. And maybe I'll just turn it over to David quickly, and he can talk about the way in which we are going to very strategically use the amount of retained cash that we will be building up given our payout ratio, David?

Michael Bilerman:

Great. And then just second topic just in terms of Encore and the Wynn. How do you it obviously was a negotiated transaction between Wynn and Realty Income? I think when you look in to Wynn's peak, you obviously hear the desire of them to have negotiated items that were very important to their enterprise. And obviously, Realty Income had to get what they want to get out of it. As you think about these leases, obviously, the Encore didn't have a CapEx requirement. It had bumps that were below 2% for the first 10 years. How do you think about the structure of that transaction, put aside the pricing because you've made your comments that you thought it validated and was rich from that perspective, setting a new mark for these regional assets. But how do you think about the individual key terms? And what are the critical factors for you as you continue to grow in gaming real estate?

Michael Bilerman:

Yes. And that's what I was just trying to get at, whether you're sort of non-negotiables in terms of when you go into these, what you're willing to accept and what you're not? It sounds like the CapEx side and a certain sort of growth rate given the longer lease duration are important variables for you. Is there anything else? Obviously, corporate coverage here was north of 2x, and that should grow given the performance of the asset. Just what are the other variables that are critical for you as you continue to embark down this road?

Michael Bilerman:

You said you had a cap on that though, don't you? There's a limit to that inflation protection?

Michael Bilerman:

Okay. All right. Thanks guys. See you in a week half.

Operator:

Okay. Our next question comes from Todd Thomas with KeyBanc. Todd, your line is now open.

Ed Pitoniak:

David, why don't you start with the time line and maybe Samantha step in with further process on MGP? David?

Ed Pitoniak:

Yes. Thanks, David. I think just as we get into hurdles, not surprisingly, we won't speak about individual processes with the applicable jurisdictions. But we do continue to work through all jurisdictions. And again, I just want to reiterate that we remain confident in the first half closing.

Todd Thomas:

Okay. Got it. And then regarding the future capital raising initiatives, the $4.4 billion of permanent debt that you expect to raise, can you just remind us we're you expect to be on leverage on a net debt-to-EBITDA basis pro forma the closing? And also to the extent that – sorry, but just also to the extent that a Caesars asset or something else does present itself in the near term, do you have capacity to execute on something ahead of obtaining an investment-grade rating and closing MGP? Or should we assume that until that transaction closes, that there will not be any potential investment activity?

Todd Thomas:

Okay. All right. Thank you.

Ed Pitoniak:

Thank you, Amber. And in closing, we want to thank all of you for your engagement with us this morning. As you can tell, we're very excited about our present situation, our near-term opportunities and our long-term prospects. And we look forward to chatting with you again when we report our first quarter results. Thank you, everyone. Bye for now.

Operator:

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, October 28, 2021. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.

Edward Pitoniak:

Thank you, Samantha, and good morning, everyone. The third quarter of 2021 was the most active and transformational quarter in our 4-year history at VICI. The highlight of our quarter of our year-to-date, of our history to date was our announcement on August 4 of our acquisition of MGP's market-leading assets and our new long-term partnership with MGM Resorts, who're one of the foremost leisure, hospitality entertainment companies in the world. Together with our March 3rd announcement of our Venetian acquisition, 2021 has been a step change year for VICI. So far in 2021, we've signed over $21 billion of transaction activity, giving us nearly $30 billion of acquisition activity in our first 4 years. And to fund that growth we have over the last 4 years, raised more primary common equity proceeds than any other REIT in America. We have a strong conviction that our energetic and execution-driven strategy over our first 4 years will, over the long term, create significant value for our equity and credit owners. We believe that there are 3 key factors that drive and validate our strategy. Factor 1, invest before others do. As an asset class institutionalizes, investing earlier rather than later, generally will yield opportunities to buy institutional quality assets at pre-institutional pricing. While other investors have begun initiating their mapping of the gaming real estate investment landscape, VICI and I should note, Blackstone have been busy buying great assets at unlevered going-in cash flow yields that are superior in both absolute and risk-adjusted terms than can be found in already institutionalized asset classes. This isn't to say that there aren't compelling investment opportunities still to be had in American gaming real estate. There definitely are as the sector's real estate is still not yet even 40% owned by REITs. But while others are getting starting on their homework, VICI has built market-leading proprietary ownership positions along with one of the most economically productive streets in America, the Las Vegas Strip. And VICI will also have built the largest and by far the highest quality regional portfolio in American gaming real estate once we close our MGP acquisition. Factor 2, invest when others are fearful or uncertain. We began our 2021 acquisition work in late 2020 when most real estate investors were still understandably unsure about leaving the harbor and going out on to the blue water to fish. Because of the COVID-19 pandemic, it was stormy in late 2020 and stayed stormy well into 2021. But at VICI we're willing to venture out onto the blue water because of our conviction that COVID have proven the durability of our asset class and the market-leading resilience of our operating partners. We've announced over $21 billion of acquisition activity in 2021 because of that conviction and in doing so, preempted any risk of being incomparable Venetian and the best-in-class MGP portfolio being bid to the skies when everybody was finally ready to come out onto the blue water with us. Factor 3, invest alongside great partners when given the chance. Many investors understandably questioned VICI's strategy when in late 2019 we announced our intention to support Eldorado's acquisition of Caesars with what ultimately became $3.6 billion of VICI Capital. We were constantly asked throughout 2019 and well into 2020. Can the Eldorado guys really achieve that $500 million of synergies, can they manage so much bigger an organization? Can they produce sufficient free cash flow and rent coverage? Will they have access to capital? Well, when we put our money behind Tom Reeg, Bret Yunker, Anthony Carano and the rest of the Caesars team, we are very confident that they would deliver, and you all know by now, without question, as they appear to have delivered far beyond everyone's expectations. Similarly, when earlier this year, we began competing for the MGP portfolio, our determination to win was greatly energized by our conviction that Bill Hornbuckle, Jonathan Halkyard, Corey Sanders and the MGM team are growing MGM into one of the most dynamic and innovative brand and operating platforms in the global consumer discretionary sector. Our nearly $30 billion of announced investments over our first 4 years have enabled us to partner with great operators across the U.S., not only MGM and Caesars, but also with Apollo on the Venetian, with Hard Rock, Penn, JACK, Century, The Eastern Band of Cherokee Indians, Chelsea Piers, Great Wolf and ClubCorp. All our current operators, every one of them is delivering top life performance in global leisure and hospitality right now. And the secular outlook for our gaming partners, if you're brighter, than one can find in almost any other category because of the audience expansion tailwind that sports betting represents. To repeat these 3 key factors that have driven our strategy in our actions, factor 1, grow fast in the early stages of institutionalization; factor 2, grow and others are uncertain, under willing or underfunded; factor 3, grow with great partners. VICI's activity in our first 4 years, driven by these 3 key growth factors distilled down to this. Before other institutional real estate investors are ready to do so, we've built a portfolio of Class A real estate of incomparable scale and quality and significant discounts to replacement cost and significant discounts to other institutional real estate categories of similar asset and income quality. And in doing so, we've created a network and partner relationships that will be a key source of growth for us for many years to come. Now to talk about our growth outlook, I'll turn the call over to John Payne. John?

David Kieske:

Thanks, John. I want to start with our balance sheet and highlight what was our most significant quarter in terms of advancing our long-term strategic financial goals. As you've heard me say, since emergence, we have maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. The initiatives we undertook in connection with the MGP acquisition further strengthened our capital structure and position VICI for continued year-in, year-out growth. And in connection with the announcement of the MGP transaction on August 4, we received extremely positive feedback from the rating agencies and just to read a snippet from the report that S&P released. The acquisition will improve VICI's scale and tenant diversity such that it could support a greater level of leverage at a higher rating if the company finances the acquisition with a mix of equity and debt that leads to pro forma leverage of about 6x or below and we could raise our rating to BBB minus. That's great news, and I will touch on leverage in a moment. On September 14, we completed the largest REIT common only equity offering ever, issuing 115 million shares of common stock at an offering price of $29.50 for aggregate proceeds of $3.4 billion. 65 million shares were sold via regular offering, raising $1.9 billion and 50 million shares are subject to forward sale agreements. This offering derisks the equity funding for the MGP transaction and positions the balance sheet to be below the leverage ratios dictated by the rating agencies to migrate the balance sheet to an investment-grade issuer. On September 15, we were thrilled to eliminate all outstanding secured debt in our current capital stack with a repayment of the secured $2.1 billion term loan. We used $526.9 million of proceeds from the settlement of the June 2020 forward sale agreement on September 9 as well as a portion of the proceeds from the September equity offering to repay the term loan. In connection with this pay off, we also settled the outstanding interest rate swaps, incurring breakage costs of $64.2 million. This one-time amount is reflected in interest expense for the quarter, reducing net income and FFO but is added back to arrive at AFFO. On September 27, we announced a successful early participation in the exchange offer and consent solicitation for the $4.2 billion of outstanding MGP notes. As a result, upon closing of the MGP transaction, the covenants under the existing MGP indentures will be aligned with the covenants, restrictions and events of defaults under the VICI indentures. Our outstanding total debt at quarter end was $4.8 billion with a weighted average interest rate of 4.1%. The weighted average maturity of our debt is approximately 6.3 years, and we have no debt maturing until 2024. And as of September 30, our net debt to LTM adjusted EBITDA was 3.1x. We currently have approximately $4.9 billion in liquidity, comprised of $669.5 million in cash on hand and $1 billion of availability under our revolving credit facility, which is undrawn. In addition, we have approximately $1.9 billion in net proceeds available from the March 2021 forward sale agreements and approximately $1.4 billion in net proceeds from the September 2021 forward sale agreements, which we intend to use to fund a portion of the Venetian acquisition. And since our formation just a little over 4 years ago, we have been relentless in our drive towards an investment-grade rating, and we believe the actions we took during the quarter should position VICI to be able to access the investment-grade market when we seek to raise the $4.4 billion of permanent debt required to redeem the MGM Op units at the time of the closing of the MGP transaction. Now turning to the quarter. We once again, continue to expand our partnerships outside of gaming by announcing a strategic arrangement with ClubCorp, an Apollo portfolio company related to Big Shot Golf. On September 15, we agreed to provide up to $80 million of mortgage financing to fund the development of 5 Big Shot Golf facilities across the U.S. As part of the arrangement, VICI will have a call right to acquire the real estate assets associated with any Big Shot Golf facility financed by VICI in a sale leaseback. In addition, we have a ROFO on future debt financing, Big Shot Golf -- and future financing Big Shot Golf seeks for any multistate development of their extensive pipeline of facilities. Over the past 2 quarters, we have announced strategic with leading leisure and hospitality operators and we believe our relationships with Apollo and Blackstone demonstrate our ability to forge mutually beneficial partnerships that enhance our diversification and growth prospects. We're thrilled to partner with Big Shots and expand our relationship with Apollo and continue to look forward to a great partnership with Blackstone and the team at Great Wolf Resorts. In terms of financial results, net income and FFO was $161.9 million for the quarter or $0.28 per share compared to $398.3 million or $0.74 per share for the quarter ended September 30, 2020. The year-over-year decline was primarily related to a $333.4 million one-time noncash gain upon lease modification that occurred in the third quarter of '20, a $79.9 million loss on extinguishment of debt and interest rate swap terminations in the current quarter and the $168 million noncash decrease in the Q3 '20 versus the Q3 '21 change in the CECL allowance. AFFO was $257.4 million or $0.45 per diluted share for the quarter. Total AFFO increased 12.9% over Q3 of 2020. And just as a reminder, our diluted share count includes the impact of treasury accounting during the period of time the forward sale agreements are in place. During the third quarter, the impact of treasury accounting on our diluted share count was approximately 15.7 million shares. We refer you to our press release where we have added 2 tables detailing our outstanding common shares and a reconciliation of the weighted average shares of common stock used in the calculation of earnings per share. These tables are on Page 6 of our release that was posted to our website last night. In terms of our dividend, on August 4, we declared a regular quarterly cash dividend of $0.36 per share, which is a 9.1% increase compared to the Q2 dividend. The Q3 dividend was paid on October 7 to stockholders of record as of September 24. And finally, we are updating our AFFO guidance for the full year 2021 in both absolute dollars as well as on a per share basis. As we have discussed, beginning in January of 2020, we are required to implement the CECL accounting standard, which due to its inherent unpredictability leaves us unable to forecast net income and AFFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. We expect AFFO for the year ending December 31, 2021, to be between $1.40 billion and $1.45 billion, representing an increase of $20 million in total AFFO from the prior guidance midpoint. Our revised 2021 full year AFFO per share guidance is $1.79 to $1.80 per diluted share, which is approximately $0.05 below the midpoint of prior guidance on a per share basis and is below the current consensus of $1.83 per share, which reflects certain analyst assumptions on the timing -- around the timing and closing and funding of the Venetian transaction, which are not included in our guidance estimates. The reduction in guidance reflects the dilutive effect of the addition of 26.9 million shares from the settlement of the June 2020 forward sale agreement and the 65 million shares issued in the September 2021 equity offering and a dilutive impact as calculated under the treasury stock method of the pending 69 million shares related to the March 2021 forward sale agreements and the pending 50 million shares related to the September 2021 forward sale agreements. And just as a reminder, our guidance does not include the impact on operating results from any pending or possible future acquisitions or dispositions, capital markets activity or other nonrecurring transactions. With that, operator, please open the line for questions.