Gaming and Leisure Properties Inc (GLPI) 2014 Q2 法說會逐字稿

Greetings and welcome to the Gaming and Leisure Properties second-quarter 2014 earnings call. At this time all participants are in listen only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Kara Smith from ICR. Thank you, you may begin.

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties second-quarter 2014 earnings call and webcast. The press release distributed earlier this morning is available in the investor relations section on our website at www.GLPROPIMC.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 Legation 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 assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP financial measures contained in the companies 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'd like to turn the call over to Peter Carlino. Peter?

Thanks, Tara.

Let me also add Steve Snyder, Senior Vice President of Development, and Desiree Burke our Chief Accounting Officer so that we are prepared -- oh yes Brandon Moore, Brandon almost forgot about you out on the West Coast -- in nice and lovely weather. So I guess you are gone but not completely forgotten.

We are pleased to join you all this morning. I must say it's different for us coming out of and operating environment to have such predictability quarter to quarter.

I guess I'm happy to report that we have we have achieved our predictable earnings for the quarter. And we do remain engaged still, and I suspect we'll get questions about our Meadows transaction, along with some other things that keep us busy here as we look to the future.

On balance, I think we feel pretty positive about what's happening at GLP. With that why don't we go directly to questions as I suspect you'll hit every topic that we'd be prepared to cover.

So operator why don't you open the floor to questions.

(Operator Instructions)

Our first question today is from Lisa Hendrix from Barclays.

Please proceed

Good morning. Thanks for taking my question. Bill?

Yes.

Good morning. Question for you on the rent escalator. Since Penn reported results that were better than the second-quarter guidance and slightly raised the full year, we were just wondering why you are excluding it this quarter when it was in the guidance for the first quarter?

Well, because we have reason to believe that the results through October, which is when the measurement period is, we're going to be just slightly below the 1.8. There is a chance that we could get to a better number, as I say, could actually beat that number. However, I think in the interest of being prudent, we are assuming that the escalator does not happen for our guidance.

I want to make clear, Bill, that we have no special information about any of that. We look, as you do, at what the performance is and make an objective judgment. But it's close, and I think that prudence suggests we should take that position

Well, in their guidance, they've assumed that there's no escalator. We're really taking their cue as well.

Okay, so that make sense. So there's been in the investment community a lot of banter about the potential for you guys to acquire I/O and the accretion of that potential or prospective or hypothetical transaction. Just wondering about that. I know in the past you've talked about how you're really not looking at portfolio transactions. But I just want you to address it again, just given the accretion of it. And also, I know with I/O comes a lot of properties in Iowa. So just one wondering if that would still be a gating factor for you.

Well, the latter part is a very easy answer. I don't think any of us here would be anxious to own a property in Iowa. Not to say we would not because one never says never. But, obviously, it's not a very stable place to do business.

Felicia, I think you've heard this answer many, many times over a whole lot of years. We look at everything. We've looked at IO; we're looking at other stuff. There's nothing, nothing remotely to announce on that though. But, you know, it's in play.

I think, as I've said before, we get up every day and look at the world and say -- What opportunities do we have? And that certainly has been among them in the past, and who knows. But that's as close an answer and as honest an answer as we can give you right now. We look at a lot of stuff. In fact, we look at just about everything.

Okay. I'll leave it at that. Thank you.

Our next question today comes from Cameron McKnight from Wells Fargo.

Please proceed with your question.

Good morning. Thanks. Peter, just wondering if you could give us an update on the search for operators at the Meadows; and in particular, what sort of parties are you having discussions with? Are you seeing private equity come into the mix? And are you running a strict or formal process with a defined closing date?

Well, it is a formal process. But let me ask Steve Snyder to talk about it because that's his day-to-day focus

Sure, Peter, thanks.

Hello, Cameron. How are you?

The answer to your question is we are evaluating a number of alternatives as the operator for the Meadows. As we disclosed in the press release, we've put forth our application through our taxable REIT subsidiary to be the operator. In the event that that is not successful or does get delayed beyond the closing window that we've got with the folks in Las Vegas, you can assume that we've touched base with a very broad population of prospective operators, private equity existing operators, multi-property operators, et cetera.

We do expect to wrap it up within the next couple weeks and should have an outcome that we are prepared to announce in that timeframe.

Okay, great. Thanks very much.

And then this is a follow-up, Peter or Bill. Are you able to offer just some brief or general thoughts on gaming industry revenue trends across the country right now? Have we seen some stabilization, or you think things are still a little uncertain or choppy?

Cameron, you see what we see; and we see what you see. From our point of view, we are not remotely concerned about stability of our earnings. But as one looks at the broader world of regional gaming, it is not very exciting. Not a lot of good news. I think that things have somewhat stabilized. But it seems to be month to month, quarter to quarter. Let's see what surprises will emerge.

Speaking just for me; Bill may have a different point of view. I don't wake up every day thinking -- Wow, the gaming business has taken off again, and it's wonderful. It's okay, and some markets are doing very well. But you know what's happening and some others. It's gotten very crowded.

The world has changed. And I don't think people, as I think Bill could well point out -- and I think as several companies, including Penn, have pointed out in their recent call -- the lower end of play, the $100 and less theoretical player, is not back. They're not healthy.

And we are doing fine at the upper end, but not doing well -- that's at least what we are seeing -- at the lower end. Who feels good about what's going on in the United States today? These are not good times.

Now, the world is not coming to an end. We are not panicked, and the gaming business ultimately will settle out. But I don't think these are wonderful times.

They're not a disaster, but they're going nowhere at moment. That would be my assessment.

Bill?

I would agree with that. To a certain degree, we have much more limited visibility than when we were with Penn because we've only got two properties. One of which is in Maryland; the other one is in Louisiana. Both properties are in -- well, certainly, Baton Rouge is in a highly competitive, although we're starting to anniversary and get to some kind of normalization in Baton Rouge relative to what's happened with the market and having too many boats in one market, or too many casinos.

Now, relative to Perryville, we've got Baltimore that's getting ready to open here at the end of next month. And we clearly expect that to have an impact on our property at Perryville. Now, keep in mind we've reflected that inner guidance looking forward. And we don't see any indications, quite candidly, that there's anything that's going to be different than what we've expected to happen when the property opened. So we've known about it for years, that it was coming; so it's hardly a surprise.

But the reason I make these points is it does tend to color a little bit our ability to analyze what's going on even within those two markets because of the changing competitive landscape in those markets. So it doesn't gives great insight into Middle America, so to speak, across the rest of the United States in terms of what's happening in regional gaming

So what we do is we have to do the same thing you do, which is take a look at just big picture revenue trends across the country. And in Canada, they're not great. But we are hopeful that as you look out each month to month that there are anomalies.

Obviously, we had the bad first quarter with the weather, especially across the Midwest and into the Northeast. All that bad weather probably translated into a little bit of improvement coming out of the bad weather. And then we ran into the problem -- or I think everybody ran into the problem -- that schools and stuff were extended. That certainly was a big problem in the Northeast, where all those snow days caused schools to extend their graduation dates. And so what was always a bad first couple weeks of June turned into probably, my guess, a bad three or four weeks in June.

We will see where July goes. We are going to be as anxious as anybody else to look at the results. We certainly look at some of the stuff that's public. And, obviously, the period right around the first week of July was, for those states that were reporting on a weekly basis, pretty encouraging. We will see going forward.

I think we take a measured approach going forward. And we certainly don't expect any robust numbers coming out of gaming in the second half of the year. Our expectation is pretty much a continuation of what we've seen over the last several years.

Yes, and I might add too, we are looking forward to Penn's' two racetracks opening in Ohio. I sense, looking at reaction to Penn's statements about those two tracks, that there seems to be some skepticism. Because I gather, or it is the case, that some properties are not performing as well as had been expected.

I think we share a great deal of enthusiasm for those two properties because, Steve, you were very much involved at the time in securing those properties. The locations are outstanding, some of the best in the state in distinct markets, which I don't think people quite recognize. So we are pretty optimistic about those two properties from our point of view.

Anything you want to add?

Absolutely. We looked at Ohio. We agreed at Penn to pay some pretty substantial relocation fees around those two assets because we felt strongly that the locations that we were moving into do provide an opportunity to expand the market and will not have the same kind of impact that some of the recent openings that we've seen.

So we view that as a plus and not too far away. So hopefully that covers it.

Okay, great, thanks for the update.

Thank you.

Our next question today is coming from Thomas Allen from Morgan Stanley.

Please proceed with your question

Hello, good morning. We and others may be reading too much into this. But in the prepared remarks, you wrote that you're actively in discussions with several parties interested in exploring transactions, which is more than what you wrote last quarter.

Is it fair to say that volumes of discussions have picked up over the last three months or so? And has there been any change in who the interested parties are?

I think that we are engaged enough in a couple situations that we are satisfied that if we had nothing else on our plates at the moment, that would be just fine. You know how it goes. There is no certainty to any transaction. But we are not asleep here day to day.

None of these things get done until they get done. And as I have been fond of saying, any fool can make a bad deal. Making the right deal is what focuses us. And I think it is safe to say -- I hope better or worse from your point of view -- we'd rather make no deal then make a bad deal. So we stay focused on the goal; that's growing accretive earnings and building our dividend base. It's as simple as that.

So we are very focused. We've got some things we are looking at. And until we have something to say, we really have nothing to say.

Thanks. And then earlier, you gave some helpful color on Iowa. But just thinking forward on Illinois, there have been a number of proposals tabled there for expansion of gaming sites in that state. What do you think the chances are that something passes there finally? And would you still be interested in you know more properties in Illinois? Thanks.

Look, as a landlord, we would be interested in properties almost anywhere so long as the credit is good -- maybe even Iowa. And that's not a smart answer. I think that essentially our risks are different than that of an operator. So, yes, we would certainly look forward to that should that occur.

I can tell you, I used to say doing business in Illinois is like doing business in Zimbabwe. It's a very unstable place over the years. Been a very difficult operating environment for operators. Largely because of the caprice with which they operate. I mean, you just don't know where they're going.

But in fairness, more and more states, it seems, have sort of adopted that kind of model. So looking at that for a very, very long time, whether they're going to--

Steve, do you have a point of view? Because we are not focused on that anymore.

We just don't have, Thomas, the same insights that we had at Penn because we don't have the lobbying teams around the country that Penn has. I will tell you, just from the things that we hear from operators in Illinois, including Penn, this has been almost the length of our collective careers. This discussion has always been out there.

Whether or not this is the year, this is the session, that something happens or doesn't happen, we just don't have a good crystal ball into that.

I will tell you that we don't believe that if Illinois passes what they're doing that the State of Illinois is going to see very much accretion to their gaming revenues. And in fact, given their progressive tax structure, I'd expect the State would actually see fewer tax dollars than they have today.

But that doesn't mean the politicians will do the rational thing. A lot of times these laws get passed on special interest efforts. And clearly, there are a number people in Illinois who think that there's a wonderful opportunity if they were simply allowed to have gaming. But I think in the larger interest of the whole state of Illinois, I can't imagine the license would be a positive development, especially from a taxable revenue perspective.

That's exactly right. I think there is more than sufficient gaming in Illinois. And a lot of states I think are awakening to that. I know Pennsylvania has looked at that. That's an ongoing discussion here in this state. But a general recognition in the legislature that, you know, maybe enough is enough.

So that's today. We will see what tomorrow brings. But Bill is right. Because of the marginal -- that's a very good point though. I hadn't thought about that, but you're right. Because of the margin, progressive tax rates that they have there, cutting it off the top from a lot of these operators only means it goes away. So that's a very good point. Anyway, there's our thoughts about that.

All right, thank you

Thank you.

Our next question today is coming from Steve Wieczynski from Stifel.

Good morning. Peter, if I go back to your release and the commentary you did make about having active discussions, maybe if you can elaborate a little bit more. Those discussions that you're having, are those being initiated more by you or more being initiated by other operators? Or is it a combination of both sides?

I think it's anything and everything. People calling us; us pursuing certain people. That's a more limited and targeted effort.

But I think, Steve, it's pretty active

No, we view ourselves as a resource for this industry. And those conversations are both inbound as well as outbound. I wouldn't say that there has been any noticeable change in directional flow of information over the course of the last 90 days by any stretch of the imagination

You what is interesting to me is how often we've been contacted -- I think I can generally say that -- in some of the new markets for new properties, development properties, where we are looked at as a source of funding, which we would approach with some enthusiasm and have.

Okay. And then, Peter, this is kind of a higher-level question. But if you were back as an operator, do you still think in this environment -- does it still make sense to be investing in properties in some of these markets where we've seen returns go lower and lower. How would you think about that today versus five years ago, seven years ago?

It's market to market. Just tell me the market; tell me what the competitor said; what are the threats in the future; and I'll tell you whether we put money there. You see Penn putting money into the playing racetrack. That's going to be a very, very, very nice transaction for that company. And there are numbers of places where this could be very, very good.

It really is market to market. People haven't stopped gambling. The world hasn't come to an end. I really think I need to emphasize that enough. It really is, just as some markets are getting crowded.

We had a monopoly at Penn at Charlestown for many, many years. And when all the smoke settles and all these places open and a whole lot less revenue rolls into that wonderful facility, it's still going to be a great facility. And it's still going to do big-time numbers. But nothing is forever. And again, I just can't underscore this enough, it's market to market.

I think any combination of us on this phone call would gladly pony up our own cash to put a property in certain places in New York. Or I could go down a long list of places. It might not be New Jersey, but there are places, and lots of them, where you can still generate a very good return.

The other part to that though, in fairness, is capital spend. You can't lose sight of the fact that there seems to be still a lot of people floating around in this industry who just are willing to spend almost anything without any regard to return. And our goal always was at Penn to generate the greatest amount of revenue, providing of course a quality property, but for the least amount of investment. And I don't think there were a lot of people better than we at that.

Part of it is spending discipline. And I'm not going to criticize a few properties being built right now. But I could probably rattle off five or six right now where people are about to spend foolish amounts of money unnecessarily, but God bless them. This is America. They can do what they want.

That is a long answer to my view that, no, there is still plenty of opportunity out there. One has to just be smart and selective.

Okay, great, thanks for the color

Thank you.

Our next question today is coming from Joe Greff from JPMorgan Chase & Company.

Please proceed with your question.

Good morning, everybody. I have two questions. One relates to your earlier comments about the Meadows transaction. And one of the alternatives is putting it in the taxable REIT subsidiary. Would that be something that you would only do on a temporary basis, or is that something that you would look to do on a permanent basis if none of the other alternatives pan out?

And then related to that, my second question. And based on your interactions and discussions to date with partners across the spectrum, is it more difficult or more complicated to sell an operating asset? Or is it more difficult or complicated to buy a real estate or real estate asset with operations?

I'm going to let Bill to do that. I think I've talked enough for a while.

So give me a breath, Bill

Relative to the Meadows and the TRS, strategically we have no interest in being a long-term operator of the Meadows. And there are some items that will come out that you'll see when we file the Q relative to the sales purchase agreement relative to the Meadows. There some deadlines that we have that we have to comply with. Should we fail to get -- and I don't think we will. Let me be really, really clear. I do not think we will fail at finding a tenant for the Meadows.

But if we did, as a backup plan, yes, we would take over the property for a period of time; and then, yes, we would seek out another operator. And the reason -- well, two reasons.

One is, we don't want to become an operating company. We want to be focused on being a REIT. And the other item is that when that asset sits in the TRS, it severely reduces our flexibility relative to doing another transaction or over the portfolio of transactions. Or should we somehow need to bring in operation into a TRS, we have limitations relative to how much we can have there. And so permanently putting the Meadows in there would cramp our flexibility going forward.

And I apologize I forgot your second question

The relative difficulties, or lack thereof, of selling an operating asset versus buying an asset.

There is a decent amount of complexity involved in all these transactions, from a tax perspective, in terms of how we acquire an asset without incurring substantial tax liabilities associated with that in terms of owing the federal government a lot of money on the difference between the tax basis of their land and building and what we are paying for it. So acquiring assets is complex.

Finding operators or tenants in terms of that -- what we're looking to sell is the FF&E and the gaming license -- that can also be complex. And there's generally a tax liability created there. But the flip side to that, which is a positive, is that there's a step up in basis relative to the FF&E and gaming license. So they can amortize that over a reasonable length of period. So it's really a timing difference versus a permanent loss associated with the land and building purchase.

Generally speaking, they're both hard. I think that the concept of buying assets and selling assets in this world we live in today is more difficult than it was when we were at Penn simply buying stock for an agreed on price, taking all the assets and liabilities. That was clearly a simpler transaction to execute -- if that answers your question.

Thank you very much.

Thank you.

Our next question today is coming from Shaun Kelley from Bank of America Merrill Lynch.

Please proceed with your question.

Good morning. Bill or Peter, I was just wondering if you could maybe start by giving us a little bit more color on the OpCo transaction itself for Meadows. What kind of buyer interest or potential buyer interest are you seeing? Is it strategic, is it financial, is it kind of a mix across the board? Have you been surprised by any set of people that are interested in possibly looking to acquire that?

I think I'm going to let Steve handle that. He's been the one quarterbacking the Meadows

Yes, Shaun, we talked about it a little bit earlier in the call. The interest was pretty expansive, and it wasn't unique to any specific type of buyer. The question came up about private equity as a candidate, yes; multi-property operators as candidates, yes.

So investor types as potential operators. It's across the spectrum. And as we disclosed in the press release, we are working to bring that announcement, that decision, to a closing relatively quickly. So I would say at this point, stay tuned

To elaborate, I think at one point we had almost 18 parties interested. We've whittled that down significantly to a very select group right now that we are working through negotiations with.

But we were very pleasantly almost surprised at the number of people that were interested. And the number of people who actually -- obviously, not everybody who expressed interest or signed an NDA turned out to do a lot of work. But a number of them certainly did do a substantial amount of work in the process.

That's helpful. I appreciate the incremental color.

And then following up, as we think about the prospects -- and not specifically for Iowa, but just how the mechanics of maybe a portfolio transaction would work -- do you have any thought or more developed kind of idea as to how you might handle the sale of multiple OpCo's if that were required?

Would you try, and do you think it will be beneficial to run -- and again, this isn't referring specifically to Iowa, just more your methodology as you approach a portfolio -- would you be most interested in trying to sell all of the operations to one party? Do think that would be simpler? Or do think that selling individual OpCo's would be the transaction that would maybe maximize the most value?

I think there's a combination. If you look at a portfolio, if it's a large portfolio or a small portfolio can make a difference. Obviously, if it's a small portfolio -- say two or three assets -- you would probably look for a single operator to take over. If it's a larger portfolio, we would look at obviously -- many cases there would be reasons why certain people couldn't take the entire portfolio, so you might need to break that up.

I think from our perspective, one thing we would look at is obviously getting these transactions is somewhat complex. And there's a certain amount of uncertainty that's associated with not knowing who your tenants are when you make the acquisition. In a perfect world, we'd much prefer to have the tenants identified at the point and time that we enter into the contract.

And I think that would be our goal going forward to the extent we can do that. There may be circumstances, similar to what happened at the Meadows, where we really weren't able to do that. But I think going forward, we'll probably push a little harder to have that resolved at the time of the purchase agreement.

And I guess just to follow up on that. Bill, how exactly would that work? Does that mean you would kind of partner during the process to have somebody in mind? Or would you bring them in as you're negotiating? How exactly would you think about trying to have that done at the time of announcement if that were the way it would work?

Well, the way we think about doing it is bringing somebody in while we're in negotiations for the acquisition and understanding. Because to do this on a tax efficient basis, there are a number of steps and reorganizations that you're required to get done. A lot of those have to get done prior to making the acquisition because you can't do those after the acquisition without adverse tax consequences.

So given that you're going to have to ask the company to reorganize itself prior to the acquisition, you probably would like to identify who's going to take those pieces. And then there are a number of different ways you can do this, and it gets rather complex. However, some of that might involve another party -- first the internal reorganization, and then almost simultaneous purchases of different components of the company.

Got it. That's helpful. And then my final question would just be the kind of current or expected timeline for closure of the Meadows. I think you said before that's sometime in either first quarter or first half of 2015. But what exact window are you shooting for right now?

We have not modified that window at all. At this time, it's difficult to come up with a definitive answer because we are not 100% sure who the tenant is going to be. We don't know what their familiarity might be with the state of Pennsylvania in terms of how much work might be involved for the regulators to get comfortable with the tenant. So short of us knowing who the tenant's going to be, it's almost impossible for us to accurately predict when the transaction will close.

We still feel comfortable with that timeframe. That's why we've left it where it is. But once we get this defined, once we know who the tenant is, once they have gotten their gaming applications in, I think at that point in time we will have a better read. Even though, let's be fair, there is still to be a pretty wide window because a lot of times the approval process by the state regulators is contingent on what's in front of you relative to getting approved.

If they have staff -- obviously, they have a lot of staff -- but typically, the expertise required to do the transactions can be fairly limited inside an agency. And therefore, the workload may not allow for is as speedy of an approval as you might otherwise hope for.

Great, Well, thank you very much. Thanks for taking my questions.

Absolutely.

Thank you.

Our next question today's coming from Stephen Kent from Goldman Sachs.

Please proceed with your question

Maybe you could just talk about where the pushback is on deal volume in interest. And what I mean by that is, is it the seller's concerned that the multiple you're offering is too low? Or is it that they feel they need to get back to peak EBITDA as the economy improves? I just wanted to understand that dynamic there.

And then secondarily, Bill, you mentioned extended school calendar impacting operating results. And I didn't understand that given your customer base.

Let me take the first half of that. Did anyone say that we are getting pushback? I don't think that is a fair assumption. So don't assume it, period.

I'll let Bill --

The amount of activity is probably lower than I think most of us thought.

Yes, this is a one-at-time or a two-at-a-time kind of situation. That's all we kind of want to handle. If we come forward with something that is large enough, believe me, it is precisely what we want.

This is an M&A kind of business. That's what we are doing. And I don't think for the foreseeable future you're going to see a whole pile transactions rolling through, one a month. That's just not going to happen. These are very complex transactions.

My comments, Steve, I was only talking about the June month itself. We saw that in Perryville. Perryville had some bad weather this winter. Some of the schools were closed; they opened later.

And we clearly saw that internally that when June typically, when we compared year over year, the first two weeks were kind of okay. And then third week, we clearly saw a drop-off. And the reality is we believe that that was caused by the normal pattern of what you'll see when there's high school graduations and schools letting out and all the rest of it, is that the first few weeks of June are always tough -- end of May, first couple weeks of June. So that's all I was talking about.

The school year was extended. Maybe I didn't articulate that well enough. I just assumed everybody understood that many of the schools in the Northeast, the last day of school was extended by anywhere from 7 to 10 days in a lot of the jurisdictions across that were hit by all of the bad weather this winter

Okay, thanks

Thank you.

Our next question today is coming from Joel Simkins, Credit Suisse.

Please proceed with your question.

Good morning. Couple of quick questions here. What are your assumptions still on when or if we'll ever see another gaming REIT come to fruition? I know there has been a lot of speculation from some activists trying to push some of the existing C-Corp's. So that's question number one.

And question number two, I know, Peter and Bill, you have obviously been calling for the death of Atlantic City for a long time. We are finally seeing some capacity come out of the market. Some of these properties are at fire sale prices admittedly, with some real hair and questions about future profitability. Is are any remote interest in that market at these levels?

Relative to Atlantic City, our model requires them to be able to pay rent. So properties that can't generate an EBITDA aren't going to have anything left to pay rent with. So I think the most obvious answer from our perspective is that I can't imagine we'd be interested in very many properties in Atlantic City.

There are a few that we think will be healthy for the long term that we might be interested in -- no discussions on those properties. But for the bulk of the properties in Atlantic City, I think we'd stay very far, far away

Yes.

And then back to the other question on sort of when or if there could be another REIT

Another C-Corp? I have 100% confidence that the other companies that are out there are looking at it. And I don't know what conclusions they are coming to. I just know from our experience, it's an incredibly complex process. And it's incredibly time-consuming. And it requires a tremendous amount of focus.

And Penn National, when we did the transaction, was really ideally positioned to go to the transaction. We were at the right leverage primarily, as a starting point. We had some large investors, but they weren't massively large investors in terms of being able to solve for some of the related party tenant rules.

So those who have large internal interest, since they have to sell out of their own company, it's a (inaudible). God bless them. But some will not.

So there are those issues. There are a number of what I'll call very detailed kind of accounting tax basis analysis that is required to even start the process.

I think we touched on this earlier that we were a little bit fortuitous in that we'd done the Argosy transaction. And when we got ready to divest the Argosy property in Baton Rouge, we ran into some significant difficulties in calculating what our true tax basis was in. And it caused us back then to recognize that as we were going to continue to grow and expand as Penn, if we were continuing to do acquisitions, we recognized we'd be divesting assets. It might not always be the asset that we were acquiring. It could very well be one of our existing assets.

And so we went off in an endeavor to do what took us almost two years to basically go back through all of the transactions. Some of these were multiple transactions because we'd acquired companies who had acquired other companies would had acquired somebody else. And so by the time you unraveled or got through that whole process, understanding where you stood with the tax basis on your assets was a monumental task. And we had started that and had it completed before we ever started the REIT transaction.

So guys that are looking to go do that are going to find out that they're going to have to understand their tax basis. Otherwise, all of their analysis in terms of what their ENP purchases are going to be required, et cetera, they're not going to have a clue. And so they've got to do all of that work before they're even ready to figure out whether they can do a transaction.

So I'm not surprised, quite candidly, that nobody else has come out and done it. I admire the fact that unlike some of the other guys in different industries who have come out and announced that they were going to do a REIT conversion before they knew whether they could get it done or not and who were suitably punished for having gone down that path and failed -- that nobody in the gaming industry has made a premature announcement that they're going to pursue that.

Certainly the agitators are looking for it. But reality is, it's years before they're going to get the transaction done, in my opinion. Now, maybe they started a year and a half ago, which is when we made our announcement. I would expect, quite candidly, before they're ready to make their own announcement, it's probably another year -- assuming they can get there.

And I have no clue, absolutely no idea, where any company's status is and where they are relative to looking at trying to make this work. But I wouldn't expect to hear from anybody for at least another six months to a year, assuming they started the day we made our announcement.

It's not a cakewalk. It would be very, very difficult to describe outside of this room -- because Desiree is here, who is at the heart of all of this -- how incredibly difficult, painful, miserable, expensive, time-consuming, maddening -- just because of conflicts and IRS requirements and GAAP requirements. It is monumentally difficult.

So we sit here kind of -- not smugly, but smiling. If they can do it, God bless them. But I think Bill adequately said this is a very, very difficult process that most will not be able or willing to accomplish. So we will just have to wait and see.

Thanks, Peter.

Thank you.

Our next question today is coming from Carlo Santarelli from Deutsche Bank.

Please proceed with your question.

Hello. Just a quick one procedurally. In the event that you aren't able to identify an operator -- and this is likely to b a moot point in the coming weeks -- but in the event you're not, I presume then you would just traditionally, obviously, raise the capital through the equity markets using 5.5 times leverage on the Meadows' EBITDA?

That's correct. That's fair.

And then if you wouldn't mind, could you possibly maybe opine a little bit on geographically where you are seeing the most inbound interest in terms of potential deals?

Spread across the country. There doesn't seem to be any concentration. I think it's safe to say, as Peter mentioned earlier, those markets where people are taking capacity out -- whether it's Tunica or Atlantic City or Biloxi markets like that --suffice it to say, there's not a whole lot of volume of either inbound or outbound phone calls into those markets.

Great. So it wouldn't be then safe to assume that the markets that are the most distressed are quite possibly your most active right now?

No, just the opposite.

Great, that's helpful. Thank you

Yes.

Thank you. If there are no further questions at this time. I'd like to turn the floor back over to management for any further or closing comments.

Well, thank you all for tuning in this morning. We are working hard at this end, and hopefully we will have more to report over the next quarter. And we look forward to seeing you then. Thanks very much.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.