Gaming and Leisure Properties Inc (GLPI) 2015 Q1 法說會逐字稿

Greetings, and welcome to the Gaming and Leisure Properties first-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kara Smith of ICR. Thank you. You may begin.

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties' first-quarter 2015 earnings call and webcast. The press release distributed earlier this morning is available in the Investor Relations section on our website at www.glpropinc.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 and 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 definition and 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. Also joining are Steve Snyder, Senior Vice President of Development; Desiree Burke, Chief Accounting Officer; and Brandon Moore, Senior Vice President, General Counsel and Secretary. Now I'd like to turn over the call to Peter Carlino. Peter?

Thank you very much, and good morning, everyone who has joined us this morning. We are, of course, pleased to report a solid quarter. And I must say, as we sat here thinking about this call, we struggled with the same thing we're still adjusting to, and that is what to say in the triple net REIT business when the check has arrived as expected. Happy to report that PENN appears to be doing very well, so our underlying revenue looks quite safe and secure. So we've had a good quarter.

We obviously expect some questions about the Pinnacle statement this morning. Essentially we have said what we're going to say, in our public release. I would say that we do remain engaged, that our objective is much the same as it was when we first came public with the notion, and that we're focused on creating a balance. And I emphasize that word -- transactions that would be good for Pinnacle shareholders and good, of course, for our shareholders. So that remains our objective. If and when we have something further to report, we will let you know. Back to operations. Bill, do you have any comment at all, just a couple of notes?

No, I think -- listen, I think results are very much in line with what we expected. We do have a little bit -- obviously we have some extra expenses reflecting our legal expenses around both the Pinnacle transaction, as well as The Meadows. That's really about the only thing that I think is really of note in the quarter, but we'll take any questions anybody has on that -- now, I guess.

Brandon, any comments?

No.

Okay. Well, then, we'll, operator, open the floor to questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Steven Kent with Goldman Sachs. Please proceed with your questions.

Hi, good morning. Since we can't talk too much about the other transaction, which we won't mention -- can you just talk, Peter, though, about other opportunities away from gaming? On and off, you've talked about this. How do you start down that process? Have you started to hire key people? I just want to understand what to expect over the next couple of years.

Well, a couple of years is a long stretch in just about any business. As a public Company, I think quarter to quarter. So we're focused on what we're going to be able to deliver in the near-term. Obviously thinking about the forward-term. The answer, quite candidly, is that we're giving that very little thought right now, unless and until we run the table on all the opportunities in gaming. We have, as I think we said last quarter, looked at a couple of things in the general leisure business that have been brought to us.

And look, cash is cash, and cash flow that's reliable is perfectly acceptable to us. But we're not seeking out non-gaming opportunities. We've looked at a couple. If they had made sense, we would have pursued them. But frankly, we're seeing real opportunity on the gaming side, and I think we should stick to our knitting, unless and until we have to go elsewhere. But we're a long way from that right now.

Okay. And then just as a follow-up, upside incentives on the lease payment front. If you had to put a number to it, how strong would you need the overall regional markets to perform to really start to see some of that? Do you have to get back to a certain period of time, a 2006-2007 period? Or is it a percentage of growth from currently depressed earnings -- depressed results?

Yes, we don't need much for us to continue to receive improvement in the rent stream, relative to the escalator. We just need PENN EBITDA, rent ratio, to be north of 1.8 times, modest improvements either on the revenue side or on the -- obviously, their margins. Either one of those would ensure a continuing escalator. So we're right on the cusp. I think we're at 1.79, something like. I mean, 1.7-something, rounded up to 8, but of course, it has to get to 8. So from that perspective, we see the escalator as being completely doable.

We're encouraged by what we're seeing in regional gaming trends. I think, as I've said on a number of times, and [hopefully] it was on the last call, we're really looking at the second quarter to give us a really good handle on where we think regional gamings are going.

Out there in the five-year period, it's fairly easy. Another component to the rent is variable component relative to the land rent, which is at 4% of revenues. That one's pretty easy; it just goes right up against the test of where we were when we spun out the Company.

So I guess going back says we need to get back to 2013 levels in order for there not to be an adjustment. Obviously, depending on where revenues are relative to 2013, obviously better revenues is more rent, and less revenues would be less. But again, even that's going to be somewhat normalized by the fact that it's a five-year period. So we've still got several more years to go before we really can get a good handle on exactly what will happen with that rent reset.

Okay, thank you.

Thank you.

Our next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch. Please proceed with your question.

Hi, good morning, everyone. Thank you for taking my question. Peter, I'm going to try one on the comments regarding Pinnacle. There is one sentence in here -- you said that you're impressed with the results that they continue to achieve. And I'm curious if that is particularly over some of the near-term as it relates to Lake Charles, just given some of the sentiment around that? Or is there anything you could point us to in terms of what exactly you're impressed by? That would be real helpful.

Well, if I had something proprietary, I probably couldn't share it anyhow. But no, I think, generally, coming off a very strong quarter, we feel good about the asset base that they have. They've got some exceedingly attractive assets, and performance has been good. Bill, do you want to take a whack at that?

Listen, I think the performance that they've shown, especially around their margin improvement, as well as their top-line levels, has generally been broad-based across all of their properties. Certainly Lake Charles has absolutely done incredibly well.

We're not naive enough to realize that the verdict is not completely done there. But certainly what you've seen to date has been incredibly impressive, at least from my perspective. I think they've done a great job with their property and their results, and their margins. When you look over the last several years, and even the most recent quarters, I think there's nothing -- I would say that they've done a bang-up job operationally.

Great, I appreciate you guys answering that. And then my second one would be, to switch gears, is there anything you could give us -- and I appreciate that it's also in litigation -- but on the latest for The Meadows, and the chance that, that could actually work out amicably?

Brandon?

At the present time, the court has delayed Cannery's motion to dismiss, which was originally scheduled to be heard tomorrow on the 5th, to July 22. And at the present time, we are engaged on active discovery on both sides of the fence, on The Meadows transaction. And that's really where that stands. I think as it makes its way through the court system, we're patient, and we're going to find what we see in discovery, and we'll see where we are.

Great. Thanks, guys.

Thank you.

Our next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Good morning, guys. Peter, Bill, the question is, as you're still out there looking at -- I assume, looking at other potential transactions, can you give us an update in terms of, are operators a little bit more willing to talk to you? And are multiples a little bit more attractive than they were, call it, four or five months ago?

I don't think anyone is any more or less willing to speak with us. To make this kind of judgment to spin out your real estate is not a minor choice. It's kind of a once-in-a-lifetime choice that you get to make. It's great for shareholders, as we witnessed with PENN. It's a terrific move to enhance value for shareholders. But it's not one that any company is going to take lightly.

So these things will never move overnight. I mean, we don't get phone calls begging people to come out and see them, and suggest they want to spin off their real estate. I'm being somewhat facetious. But as you can imagine, these are very complex transactions, and not taken lightly. That having been said, there's still potential. I think I mentioned that earlier. We're satisfied that there's a future here, and we're going to continue down that path unless and until we find that perhaps there isn't. But right now we're very optimistic.

Okay. I'm going try to ask a question I don't think you're going to answer. But could you comment on -- your good friends at PENN made a pretty big transaction on the strip. One of the questions we get a lot is, is that an asset that you would potentially be interested in working with the PENN folks with?

I think it's safe to say we're anxious to work with PENN on any transaction that makes economic sense to them and to us. For the moment, they have found another means to do that. And I think it's terrific, for all the reasons that I think we recognize that PENN has wanted to be there for a long stretch of time.

I actually believe that this is the right property, at the right price, at that time right time, and should be terrific for them. But, again, they're going to function in their best interest, and I guess it didn't include us on this round. But we're still there, ready, willing and able to participate when and if asked.

I'd just add, in fairness, the property as they acquired it has really low levels of EBITDA. And therefore, entering into a separate lease transaction on that unique property would have been incredibly difficult to accomplish, in any event.

Who knows where their growth opportunities are? I can't speak for them, but there still may be opportunities down the road for them, after they've improved the results. Which I have every confidence that they will, both on the margin side, as well as being able to drive revenues. That down the road, it could make an enormous amount of sense to do a transaction.

There's been no discussions to do that. And maybe this is all wishful thinking on my part, but I do think that the opportunity for us to potentially get involved with them on that asset is still out there and a possibility.

Great. Thanks, guys, appreciate it.

Our next question comes from the line of Joseph Greff with JPMorgan. Please proceed with your question.

Good morning, guys. I empathize with your earlier comment, Peter, about what to say on these calls. Asking the first question on this call, there's really not a lot more to ask. So I'll take a stab at a couple of things here. (laughter)

It's a struggle to think about -- what can we say? (laughter)

One, obviously Pinnacle and Meadows, I'm sure, are taking up a huge amount of your time. How warm are other potential deals right now? I'm presuming there's a huge back-burner in terms of your priority. But are there any other things that you're looking at, whether they're small or medium-sized?

And then part two of the question -- you mentioned in the press release that you guys were in productive substantive discussions with your friends at Pinnacle. Can you talk as to when those discussions or engagements started? And when they may have shared initially with you some of these tax basis data and information that you guys are going through? And that's all from me, thank you.

Joe, I'd like to say more, but frankly, I think it's best we do not. You can assume that conversations have been productive and encouraging, and add a few more adjectives if you like. But can't get into specifics right now, we just simply cannot.

And as to your question beyond that, as to what else is out there, how warm, hot, or whatever, I think I took a stab at answering that before. These are slow-moving kind of decisions. One plants a seed, has a conversation, and then stays at it over a period of time. But again, the frustration of these kind of calls -- we remain engaged, focused, encouraged, and all that other kind of stuff. But that's about all we can say at the moment. If that day comes that we feel differently, we'll let you know.

I think over the years, we've established a pretty good -- I hope -- a reputation for straight talk. We really never want to disappoint the people who follow us, mislead in any way. So we're pretty careful about what we say. But even the framework, though, I've created pretty-well characterizes the way we feel about it.

Thank you. Appreciate your comments.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.

Hi, everyone, thanks for taking my question. If you guys could speak more broadly about the context of how you think about acquisitions? Obviously I think most of us on the call remember during the PENN time, your mandate for how you think about returns and stuff.

But in the new role, has your level of accretion for potential transactions changed? And does it change based on the scope or size of the potential transaction?

If the question -- let me take a whack at it -- is would we do something stupid to make an important deal? The answer is absolutely not. We had to bring the same discipline to this business that we've brought for years to PENN. And I think I did say in my opening comments that what we're discussing would be very good for Pinnacle shareholders, in our judgment, and very good for our shareholders. And that is the essence of a sensible transaction. So, no, we haven't lost our senses.

Okay. And just -- sorry, Peter, no, I wasn't insinuating that. I was thinking more along the lines of the metrics with which you use to value accretion, so to speak.

Well, the metrics we look at is, we look at AFFO and FFO per share, post transaction. And those metrics haven't changed. I'm not going to give you -- listen, it will be accretive. We're not going to do non-accretive transactions, period. At least not knowingly. So therefore, that's probably about as far as I'm going to go.

Understood. Thanks, guys.

Thank you.

Our next question comes from the line of James Kayler with Bank of America Merrill Lynch. Please proceed with your question.

Hi, guys. How you doing?

Good morning. Great.

Just one debt question. When you're thinking about Pinnacle -- or any transaction, for that matter -- can you just tell us what your current view on the balance sheet is, what your leverage tolerance is? And importantly, how focused are you on ratings, one way or the other?

Well, we're very highly focused on keeping our balance sheet in a very solid position. The goal that we set out for ourselves originally at 5.5 times, we acknowledge that we're a little above that, working our way back down. In whatever transaction we do, we would never take our leverage higher than six, for sure.

And I think, candidly, we would expect to have a road map that in short order -- and not that we have a lot of free cash flow in post transactions, because the fact that we're dividending out 80% of our free cash flow. But with the 20% remaining, we would expect to have a transaction that would get us back to the 5.5 within a year or two of the transaction.

Okay, very good. That's all I have.

Thanks.

Our next question comes from the line of Felicia Hendrix with Barclays.

Hi, good morning.

Good morning.

Peter, just going back to the Tropicana, you might have answered this implicitly or in your other discussion about that property. But was that on your radar screen at all? Or because of the low level of EBITDA, it just didn't pass your different metrics (multiple speakers)

You mean at GLP, on our radar screen?

That's fair. When I say your, you're in different places. But at GLPI, yes.

No, not at all. It just doesn't fit, for the reasons I think Bill pretty-well stated. And obviously the subject never came up in any discussion with PENN. They didn't call and say what can you guys do for us? So no, not even a little.

Okay, helpful. And then this either for you, Peter, or for Bill, or maybe for both. I think what would be helpful for everyone to understand is, when you look at deals and when you get involved in different discussions, what are some of the biggest gating factors? Is it the tax basis issue? Are there other issues? What has consistently come up to be the biggest hurdles for you?

Yes, I think it breaks down into two pieces. There's no doubt -- well, there's probably three. The first piece is that the other side has to strategically decide that they're prepared to either sell the property as a whole, or split their property between their real estate and their operations. And that's a threshold issue before you really get anywhere.

The next piece, I would say, is -- and not necessarily in the right order of importance -- is, the tax consequences of the separation are an enormous amount of work. And an enormous amount of creative thought-process sometimes that's required to do that in a way that you don't destroy the benefits of the separation.

In other words, obviously buying somebody's land and building, and having an enormous amount of money owed to the federal government to get the transaction done, is so value-destructive, that sometimes it just simply can't work. You might start off thinking it can, but by the time you're done, you realize you really haven't accomplished anything except pay the -- not that every good American shouldn't pay more taxes, but that's really all you've accomplished.

Clearly, the last element is getting to an evaluation that everybody is in agreement on. Those are the three elements. That's not exactly rocket science, but --

No, but you guys have all had experience doing deals and wearing other hats in the past. Now that you're under this structure, it seems like the tax consequences are probably the hardest part. Is that fair?

Well, that's certainly the one that's the most challenging. The first one is fairly easy. It's just a mental state of mind, that someone has gotten their head around the concept of separating their real estate from their operating side. And then valuation is simply getting to a point where you come to a consideration that the other side likes. The tax component is without a doubt the most challenging, from just getting your heads around what it is and how much it is.

And there's another factor that we've talked about in the past. There are numbers of folks who want a holdco sale. They just want to sell the property. And as we've said before, the trick with that is to approach a transaction with a partner in hand. We have learned that, that is the only sensible way to do it, so you know what the outcome is when you head down that path.

And obviously in a holdco situation, there's tax implications. Because at some point, you've still got to have separate everything.

Right, correct.

Okay, that's helpful, thank you.

Thank you.

Our next question comes from the line of Tayo Okusanya with Jefferies. Please proceed with your question.

Yes, good morning. I just want to go back to the world of acquisitions. If we could get just a little bit more detail around pricing in regards to what you are seeing in the market? And generally, what kind of prices, whether that's an EBITDA multiple or a cap rate, that transactions seem to be getting consummated at?

Well, there hasn't been a whole lot of consummation going on, (laughter) so I think we will have some effect on influencing how that happens. Bill, do you want to opine?

Yes, I really can't. I hate to say this, but clearly, we started -- we initially had goals of 10. We've moved from that, obviously, even with previous public announcements. There's obviously, everybody -- I'm not insinuating that your question is trying to get to what we're paying for Pinnacle. But I don't know how I really answer that question, knowing what that answer is, and then think about how I answer your question, without getting awfully close to the same number. So I'm going to refrain from answering that question right now.

In the end, I repeat that we're looking for an accretive transaction to our shareholders, period. And one that our shareholders would be quite pleased with. At the same time, the balance is to make an offer and get to a place where the other side is equally happy. And that's going to be a transaction-by-transaction situation, because they're all different.

Fair enough. Thank you.

Thank you.

Our next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch. Please proceed with your question.

Hi, guys. I know some people are struggling to ask questions, but actually I had a follow-up. Which is, I was curious, Peter, for your thoughts on a separate situation. You're usually pretty generous in just telling what you really think. There's obviously an activist shareholder out there who has proposed a REIT structure for MGM. Since it's public and it's out there, I was just curious, at a high level, what your thoughts are for that REIT process? And also just for real estate on the Las Vegas Strip in general?

You know, Shaun, I don't think we're prepared to comment on that. We have enough on our plate right at the moment to keep us gainfully occupied. That is interesting. It could be an answer for those forks, but I honestly can't speak to them. We have not had any contact with MGM.

And in fairness, I'll just be up front, we have not spent any time truly digging into the details of their proposal, to understand the strengths or weaknesses of the proposal that's been put forward relative to MGM. Quite candidly we're happily sitting on the sidelines, and we'll watch with keen interest.

Very fair. Thanks, guys, I appreciate it.

Thank you.

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Well, thanks, everybody who have dialed in this morning. I hope our comments, brief that they are, have been helpful. And we would certainly hope to be back talking with you again soon with some positive things to say. So with that, see you next quarter.

Very good.

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