Gaming and Leisure Properties Inc (GLPI) 2014 Q1 法說會逐字稿

Greetings and welcome to the Gaming and Leisure Properties quarter earnings call. At this time, participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, the conference is being recorded. I would like to turn the conference over to your host, Kara Smith. Mrs. Smith you may begin.

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties' first quarter 2014 earnings call and webcast. The press release distributed earlier this morning is available in the investor relations section of our website at www.glpipropinc.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Examples of forward-looking statements include those related to revenue, operating income, financial guidance, as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates and the company has no obligation to update any forward-looking statements in the future.

We encourage listeners to review the more detailed discussions related to the forward-looking statements contained in the Company's filings with the SEC and the definitions and the reconciliations of non-GAAP financial measures contained in the Company's earnings release.

On this morning's conference call, we are joined by Peter Carlino, Chairman and Chief Executive Officer; and Bill Clifford, Chief Financial Officer of Gaming and Leisure Properties Inc. Now I would like to turn the call over to Mr. Peter Carlino, Peter.

Thank you very much. Good morning to you all. And welcome to our first, actually our first full-quarter presentation. I must say, as we sat here thinking about the presentation, it is quite different for us to not have a lot of operations to talk about. But rather just numbers that are pretty straightforward and clear and happily in line with what was projected.

With me, as has been our practice over the years, is Bill Clifford of course, Desiree Burke, looking around the table, Brandon Moore, Steve Snyder, Curt Magleby, and all here to answer questions if you have any.

Obviously, things are in line with what we imagined. I am going to let Bill talk briefly about a couple of points he might highlight. And thereafter, again, as our practice, we are open for any questions you may have. Bill.

Thank you, Peter. Probably just two items that I would highlight for people's benefit, relative to what has been reported and certainly deviations from our guidance.

The first component is, in our guidance, we had incorrectly assumed on the fully diluted share count that the E&P dividend would be based on a weighted average basis reflecting the data, the payment of the dividend. Where in fact, the fully diluted share count is counted from the very beginning, basically back to last year.

So what that did was, the per share information that was in the guidance is different than what was in our last press release. However, what we thought it would be more informative, is to help people understand how we did on a per-share basis. Giving effect to the correct calculation of the share count.

The other item that I would highlight is in our adjusted EBITDA line guidance was $3.6 million A little bit over $3 million higher then it should have been, because that was not taking into account the dividend payments to employees which properly gets reflected in adjusted EBITDA.

Those are the two items that I think are probably the most significant, in terms of where we are different from guidance. Other than that, as you can see, adjusted funds from operations were off by $100,000. That is about as close as I will ever expect us to be, going forward. With that, I think we will open up the floor to questions.

Thank you. We will now be conducting a question and answer session.

(Operator Instructions).

Cameron Mcknight, Wells Fargo.

Good morning. Thanks very much. A question for Bill. I noted that the 2% escalator is in your 2014 guidance. How confident are you that the escalator will apply at the end of this year, in light of PENN's recent guidance?

I am no longer am the beneficiary of getting the detailed information, daily basis information that PENN has. There is no doubt that the rent escalator, we are right on the cusp. I thought about whether we pull out the million dollars that it would affect this year or not. And decided to leave it in, simply because I think it is too early in the year to expect that won't happen.

I take some interest, for instance, that, obviously the first quarter was a really tough quarter. I know, as they said on the call, they talked about some poor results for a few weeks in March and April, which was basically the genesis for the reduction of the guidance.

I think we will wait until we get out to the end of the second quarter, which at that point in time, we will be passed to the weather impact and some of the calendar issues around Easter. And clearly, if they perform in line with what their guidance is, then I would expect that the 2% escalator would be a risk.

Having said that though, I think there is some hope for the future in that, I think, when the two properties in Ohio open up, that will help their ratio going forward. Assuming that the properties perform as well as I believe they will perform. That may mean that we may or may not have an escalator for this year, but then there is a good chance we would be back up over the 1.8 in the following year, again, assuming that things stabilized.

It is without a doubt a little bit troubling where regional gaming trends have been for the last several quarters. I think at this point, we are a little bit passive on this side of the table. We're just going to have to wait and see with the rest of you.

Okay, great. Thanks.

Just as a follow-on, for Peter or Bill. Could you restate, in broad terms, your expectations on potential acquisition volume, likely sellers, potential addressable market, some of the points that you have addressed before?

Well, let me take a second at that. I had thought of saying, in my opening remarks, I highlighted that these calls are uninspired relatively speaking, because we don't have large operations to talk about, good or bad. And it is simply, the numbers are the numbers. And that everything that you would really want to know about, are all the things we can't tell you. (Laughter)

That is the problem. Beyond saying that, we are very, very actively engaged in many initiatives, at various places in the country and are highly focused on our mission. There is really nothing, anything else that we can tell you until we can tell you.

That is kind of a frustration. We know what you all would like to have. We would certainly like to be able to tell you more. But we are fully engaged in attempting to build this Company along the lines that we said we would, and believe me, we are.

Great. Thanks very much.

Do you want to add anything to that.

No, there is not a lot to add. I do remain comfortable and confident that we will get the transaction done this year. I don't know if we will get it closed this year, but I do believe we will get something done this year.

We certainly have enough, we are certainly talking to enough people to estimate that something will come through. But, as Peter said, we really can't announce anything until it is time to make the announcement.

Perfect. Thanks a lot.

You're welcome.

Shaun Kelley, Bank of America.

Good morning.

I just wanted to stick with the acquisition landscape and ask the question in a different fashion. Any sense that the current operating environment that you see in regional gaming has changed the willingness of sellers to engage, or potential sellers I should say, to engage in discussions with you? I mean, obviously, if people believe this is a cyclical blip, are they going to want to sell off of numbers that are currently as low as they are? In general, our sensor operators, they still believe a lot of the issues or headwinds they may be facing are cyclical rather than structural?

Let me say this. The hundreds of gaming properties, independent gaming properties as well, around the United States. There are many reasons why people sell.

Sometimes driven by financial need or partners that need to say goodbye to each other. There is a long list of stuff. And we believe that will always be there. Steve, do you have an opinion?

I think the answer to the question, Shaun, is there is nothing from a macro standpoint. There is nothing from an industry specific standpoint, that lead us to conclude that the amount of opportunities is any different now then it was 90 days ago. So if the question is, are regional guys retrenching, rethinking evaluations? We have seen no reduction in conversations that would indicate that.

That is exactly what the question was. That is helpful.

And then, I guess my second question to turn back to fundamentals, as we think about some of the puts and takes in guidance as obviously, the Iowa situation. You know, which you may be passive in and may not be able to comment on. I'm not sure that is being driven by you or PENN or both.

The question is really, are there any remedies? Obviously that has come out of your guidance. Are there any remedies that you may have to reinstate that? Or to actually still return to a favorable outcome in that market even though it has come out of your guidance at this stage?

Look, the true answer for GLP is pretty simple. We are completely out of that situation because the licensee is PENN.

And while I remain chairman of the board at PENN, I really am not, as is required, remotely involved in the day-to-day there. Obviously, the tone of what they are doing over there is much the tone that I had set.

The behavior of the Iowa racing and gaming commission is outrageous, illegal, really beyond description. It was appalling, and I have been very forthright in saying that. What has come out of that, which is interesting in Iowa, is that a preliminary, and Brandon correct me if I'm wrong, ruling from the Court seems to say that the licensee is actually the charity. That they are the folks who control the license. And though the casino companies put up the money, if I get this right, that is very nice, but the real control rests with the charity, which is something that we would not have contemplated.

I think that is right, Peter. I think it is far from decided, but that was clearly the suggestion in the last court ruling that we saw in that case. So, I think there is probably more to come in Iowa. But that was certainly the last suggestion.

Yes. So, look. My encouragement for PENN, even as chairman, would be simple. You take this as far as you can through every venue, state, federal. Take it to the gosh darn Supreme Court, do that. But, this is such an outrage, such a theft of property, that it makes me apoplectic to even talk about it. My hope and expectation is that the PENN folks will do everything and anything to fight this to the last breath, period.

What the outcome is going to be? Look, it is a local court. I will be very honest with you. I don't mind saying on a public call, what happens in a lot of these states, you get home towned. It is amazing to me how tough it is to find justice in somebody else's state. And the twisted judgments that some courts will come to to make an outcome go the way they want it.

So I am being very forthright and direct. What happened in Iowa, or what is happening, is a disgrace. So that is it. You got the tone that I feel about it. And I presume and hope that PENN will carry on in that spirit. Is that an answer?

I think that is pretty clear.

My last question would just be, I didn't see if your name was on the list of possible parties in New York. But you may not have had to submit if you were not going to be the licensed party. I was curious on your views of that market. You have discussed the idea of kind of back stopping some greenfield developments through GLPI. So, wondering how you might approach or think about the New York opportunity.

Yes. The New York opportunity, obviously, is pretty challenging right now to figure out. Because people have been surprised by the locations. Why? I don't know. But there are some folks upstate that didn't expect things to be quite as close to Manhattan, as some of these 22 applicants that have presented.

I think the situation has to flesh out a little bit. The license applications themselves are due June 30. We have had conversations with multiple parties.

I would say, stay tuned to see where we end up in support of any applicants from a financing perspective. But there is, obviously, 60 days at this point before some of that will clarify itself.

Great. Thank you very much.

Thomas Allen, Morgan Stanley.

Good morning.

Just following up on the prior question. Are there other greenfield opportunities you are looking at? And, I read recently that you bid for Florida property, but I think there was some extenuating circumstances. Can you give us some more color on that?

Thanks.

Sure. We were partners with Mohegan Sun, who was going to be the operator. And we participated in an auction, where the existing creditors, credited bid with what was due them. And they prevailed. At a price that I thought was an incredibly rich price. Obviously we have gone as far as we felt comfortable. And basically, they demonstrated an undying desire to own the property and operate the property. And my understanding is that they plan to close today, assuming that all goes according to plan, they will be the happy operators of the Miami Highlight Facility. I think, there is certainly an evaluation there.

The reality is, as we looked at that property, we did not see the types of upside that would be required to support a purchase price that was north of where we were going, or north of where the bid went. And so, you know, unfortunately, at some level, we ran into someone who had a view on evaluations that were far in excess of what we thought the property is worth, or what the Mohegans thought the property is worth, to be more accurate.

Okay.

And I think your first question was, do we look at Greenfield? Yes, look, my answer is the same as it has probably has been and was in the PENN days. And that is simply that, if it is out there, you can bet we are looking at it. Period. You can just write that one down.

That we are very actively engaged between all of us at this table. And especially Steve, Kurt, Bill, all of us are very attuned to what is going on around the country. We are poking around everywhere. And with every possible mix of things.

Relative to Greenfield, we are certainly interested in Greenfield and areas where we see great growth potential. I don't think we are going to be, certainly not interested in doing Greenfield in Tunica, Mississippi or Atlantic City.

So obviously there are certain markets, new markets that come up. Something like New York, Boston, you know, certainly areas in Massachusetts would be interesting. Any new state that has new jurisdiction, where it gets authorised, we would be very interested in participating.

More mature markets where returns are really very compelling, we probably wouldn't be interested.

That actually brings me to an interesting point. Did you look at the Caesar's Tunica transaction or property? Did you look at any of the AC properties that have closed?

You wouldn't get us to step anywhere near the properties in AC that have transacted. (Laughter) So I can tell you that, that is absolutely not the level of property that we would be interested in at GLP. The Tunica property, a similar situation is that you have got to look at the market, recognizing an oversupply.

There may be a couple of properties in Tunica that we might be interested in. They would, obviously, have to be the leading properties within the market. But buying anything that is on the verge of closing, or on the verge of extinction, is not something that you will see GLP get involved in including the property traded.

Final question. There appears to have been, that there may be some shareholder activism around some of your traditional peers, during a similar opco propco spin, as you did. Any thoughts on the likelihood of you seeing competition? And how that could impact how your deal volume is going forward? Thanks.

Listen. Every company has its own issues to deal with, relative to trying to follow the footsteps of what PENN did. Anybody who thinks it is easy, is confused. I will just leave it at that.

And obviously, I don't want to start. One, I don't have the intimate knowledge to really opine on each individual company's outlook for getting there. I know there are going to be roadblocks. We had roadblocks that we had to overcome as far as the PENN transaction. We worked through those. It was a three-year process.

Obviously, there is a road map now, which would be helpful to the other companies trying to follow us, in terms that they probably will be able to short-circuit that process a little bit. But I don't think this is something where you're going to find somebody who is just starting the process today and finishing up by the end of the year. I think that is an incredible exaggeration.

We have always contemplated that there would be people who would be interested in joining our space. That is not something that we would be surprised about. We're certainly not surprised that they see what the success of the transaction we did. We fully expect that everybody is going to do their own research, in terms of whether they can accomplish the same thing.

I think we stay tuned. On one hand, I think it is actually encouraging that they are looking at it, because what that means is as they pursue their thoughts around trying to do the same thing we did, in terms of converting into a REIT. You know, it opens up the opportunity that they are going to start to realize that there may be an easier way to accomplish pretty much the bulk of the same goals, which is to increase evaluation and monetize the value of the land and buildings. And obviously, we would like to help them with that.

But obviously, they first need to do their homework. And they need to understand what the pitfalls are and what the traps are, and what the difficult problems will be as they try to accomplish that.

And then we will have, I think at some point in time, they will all want to take a look at the alternative in saying, well instead of doing all of that with all of the risks and all of the legislative potential risks in the future, is there maybe not a solution that could happen a little bit faster and quicker? And we will see where that goes. I see it as encouraging. I don't actually see it as necessarily bad news.

It's like threading a very, very fine needle. Which Desiree can very well attest to, because she has lived with these bizarre and often conflicting accounting requirements. And understanding the basis in all your property. I mean, I couldn't begin to describe it. We could, it would take another hour and a half to tell you just how miserable this is. And as they will discover.

It is a multi-year period at best, and we are going to have a runway uncluttered for a fair while. We have certainly confidence with that.

I take Bill's view that, look, that is tomorrow's problem. We don't have to worry about that today, or for a while. And who knows what the IRS is thinking about this and the treasury. There has already been proposals to stop this kind of thing. So who knows?

We maybe got in under a wire. But again, all of this is unknown. Can't worry about that. We always assume competition is around the corner, right behind it somewhere. Even if you can't see it.

So, that it is always move as fast as you can. Then they are going to have to catch you.

Good color. Thank you.

Carlo Santarelli, Deutsche Bank.

Good morning. I was just wondering if you guys could possibly present us with maybe a base-case timeline for how and acquisition discussion. How long it would take? How that process would work? And maybe if Casino Queen was the usual, that is fine as the answer.

So that we can think about when you engage in a deal, that both parties understand it is going to get done. What is the process from there in terms of timing?

I will describe a little bit about the Queen, how the queen went. I'm not sure it is typical.

What we have generally found is that you start a conversation where people explore the ideas. You give them some kind of -- you first have a verbal discussion, kind of a socializing idea. You then move to the stage of putting together on paper, something around what it would look like.

The other party goes off and thinks about it for a while. And then they come back and say, "Gee, would you give us a more detailed term sheet?" So, we give them a detailed term sheet.

Eventually they get to a point where they are prepared to move forward. Now, what was helpful with the Queen was that they were solving a particular problem with their covenants on their existing financing. And they, therefore, had a deadline that they were working towards. And because they had a deadline, that process was much quicker than it might otherwise be.

But I think all of those things take months. Each one of those stages takes weeks to months. It's not like those steps are going to have socialized, call the next day, send something in the following week, and start negotiations the succeeding week. It is a more lengthy process than that. (Multiple Speakers)

Look, a lot gets to the motivation of the property owner. Are they looking to remain? Are they looking to maybe cash out some partners? Are they looking to sell out right? Because we will look at that too.

In that event, we have to, well we could bring something into the TRS. We could do that. We can, if it is a more complex deal or one that involves multiple properties, we have to find an operator. We will find an operator. Whoever that may be.

In some cases, it could be a PENN. Could be. But PENN is conflicted in a lot of places for FTC reasons. So we are cultivating others. And that is a sincere and a pretty firm focus here.

So this could take any form at all. And all forms. And I think you will see, over the next couple of years, we will do every one of those kinds of transactions. Every one.

One of the things that does lengthen the process, is how good of an understanding does the potential seller have of their tax bases, in their assets, and in their entities? So, generally, what we are finding is, as we get a little bit more serious, all of a sudden, we end having to do some exploratory work around tax basis and structuring, which can tend to take a period of time.

That's, fortunately from the Queen, they happen to be an ESOP, and so that information was totally irrelevant, because they didn't know any tax on a disposition of the land and building. But when you're dealing with an entity that has a tax consequence, you have to, there is some additional work that gets required, that can be several weeks or months sometimes, just getting a better understanding of exactly where they are at. So that is one of the obstacles to getting a transaction done quickly.

Great. Thank you for that color guys. Just quickly, at what stage, Bill, would you guys actually announce the transaction?

I know you said you might be able to announce something this year. And possibly not close it until next year. I'm assuming that, that delay will be the state approval process. Is there anything else I am missing in there?

We wouldn't announce the transaction until we had the signed purchase agreement. Obviously. Because the deal isn't until it is signed.

The timing is the required gaming approvals. Because, even a straight sale lease-back arrangement, it would be a financing source for the licensee that they would need approval from the gaming regulators for approval.

Queen was another situation where I was quite amazed at how quickly the state of Illinois was prepared to move on the transaction. Now it was obviously helpful that our transaction was fresh. All of the regulators certainly were up to speed on all of the issues around gaming leisure properties, and understood who and what we were.

And I think it was also helpful that the Queen was an employee owned situation, where they had a problem with their bank covenant. And I think the state of Illinois was very accommodating in terms of getting the approval somewhat fast tracked, versus what we would might have expected in normal circumstances.

So that deal was clearly quick. It is probably going to set the record for almost every deal we do, in terms of the timing. From the beginning to end.

I would say that is probably, the first one will be the shortest one, which is somewhat ironic. You would think if you do more deals, you would get better at it and faster, but there was just a number of pieces in that deal that just allowed it to get done a lot quicker than you might normally expect.

Great. Thanks guys.

Steve Wieczynski, Stifel Nicolaus.

Hello, and good morning. I want to ask a regional question, maybe a little bit differently. For Bill, with your TRS EBITDA unchanged still at $35 million, I guess I am a little bit surprised that has not gone down a little bit from where you gave guidance from last quarter. Was your guidance, Bill, pretty conservative for those two markets?

I don't know if it was conservative. I think it was, with the benefit of understanding where we were in the 1st quarter. You know, I would like to think we did a pretty good job. But who knows? It is still early. And I don't want to ring the bell of success on projections of where we are going.

But we had some pretty zirconian assumptions around cannibalization reflected in our guidance. And we have seen nothing yet, that would cause us to change that view. Given that we were pretty much in line with the first quarter, and we only have two properties, so let's not get too ahead of ourselves, in terms of our amazing ability to forecast.

The reality is that it is only two properties. They are both relatively small. One really didn't have, I mean it had some whether in Baton Rouge, but it is kind of hard to argue that it was really meaningful. And Perryville, they clearly had weather issues, as well.

I am taking the view, again, because it is not the predominant driver of our Company. I'm taking the view, let's wait and see what happens in the second quarter, before we start thinking about adjusting guidance either up or down.

Okay, got you. I think the answer to this question is going to be no. But Peter, in the past, you have talked about looking at non-gaming venues at some point down the road.

I assume that at this point, there is no change in terms of, there is still a lot of gaming stuff out there that you're looking at and the non-gaming stuff is well off at this point?

Yes. You know, I have said, just to put this in context that is clear, and what drives everything out here. One thing about being in the public world, if you care about your shareholders, and I think we do, especially since I am a large shareholder, as well, then you are challenged always to keep this machine growing.

We don't get a lot of credit, I think, for going out and buying a life care facility, however good or appealing that may be. I will probably say this many times. That we are going to stick very close to what we know easily.

But, look, in the end, the requirement is to grow. And we sort of run the table, and are satisfied at some point, a few years down the road, that we have kind of done it all you could see us do other things, because that is our responsibility to our shareholders. To keep growing. And do it smart.

Maybe an acquisition of a company in a different field, where we pick up a lot of whatever, including knowledge, by the way. Sure, because we are obliged to keep this machine growing. So that is our commitment. That is what we're focused on. But look, we are going to do, it is never easy, but I will say the easier stuff first. But I would never say never about something else. It's just not on the horizon right now.

Great. Thanks guys.

At this time, for closing comments, I will turn the floor back over to Mr. Peter Carlino.

Well, I wish we could say a whole lot more. I hope that well before year-end, we can announce something else that will give you and us some encouragement, but we are working hard. We will look forward to seeing you next quarter. Thank you.

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