Gaming and Leisure Properties Inc (GLPI) 2016 Q4 法說會逐字稿

Greetings and welcome to the Gaming and Leisure Properties fourth-quarter 2016 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Danielle Guterding. Please go ahead, Danielle.

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties' fourth-quarter 2016 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 definitions 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. 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 the call over to Peter Carlino. Peter?

Good morning, everyone, and welcome to our year ending call. First, I'd like to say that as we think about this past year, it's been a highly transformative, terrific year for Gaming and Leisure Properties. We have built, I think in a very short order, a terrific company. We had great results. And we remain pretty motivated, as we look ahead, to what we think we can do with this platform over time.

As usual, not a lot of moving parts to report. The numbers kind of speak for themselves. Obviously, there's a high degree of predictability in this business.

I can tell you that we remain focused in looking at new opportunities, always, always, always with caution in mind. If you've followed us for many years, you understand that it's never hubris or ego, it's all about what can make sense in building value for shareholders. That is our first, second, third and total motivation.

With that, I'm going to turn it immediately open to questions and see what we can -- see what you folks would like to know, so go ahead. Operator?

Thank you.

(Operator Instructions)

Felicia Hendrix, Barclays.

Hi. Good morning.

Hi, Felicia. Good morning.

So Penn just said on their earnings call that they're not going to hit their escalators this year. So that would affect you in November, right? When you -- because it's a year backwards. And I know it's only one month, but is that contemplated in your guidance?

Yes. Our guidance does not have any escalator for Penn, which would take into effect -- actually two months, November and December.

Okay, November. Okay. That's good. And then just bigger picture, we all have more clarity now around the Caesars restructuring then. I'm just wondering how you're thinking about opportunities coming from the CEOC OpCo PropCo transaction.

Boy, the quick answer is it's impossible to know, Felicia. You can imagine that we stay very, very, very close to that situation, but have allowed it to play out as it has, since we'll have to see where all the chips fall, if I can use that pun. And then we'll see. Bill, do you have a thought about that?

I would just add that I think they've put out, probably the most telling thing which indicates that they're on track is the fact they put out an 8-K indicating that they got their PLR from the IRS. We haven't seen the PLR. But candidly, I'll be honest and say I'm impressed that they were successful at getting that through with some of the, what I thought were, would've been some challenging aspects to that request. But obviously, the PLR is done and congratulations to them.

In terms of an opportunity for us, I think that's going to be on hold for a while. Certainly, with the amount of momentum they have and the direction that they're going in and their full-speed-ahead progress relative to getting, coming out of the -- given the plan approved and going through the regulatory process, I think our opportunities are pretty limited in the interim. And I think most of our opportunities will avail themselves, if there are any opportunities, once they've completed their transaction, which I understand they're targeting for June, with an outside date of the end of the year.

So I think they have a lot of work to get done between now and then. I'm not going to give any commentary as to the feasibility of their deadlines or their dates. But clearly, they're moving forward and we're going to continue to stay vigilant -- not vigilant, that's not quite the right word but we're going to continue to pay attention and offer, certainly be willing to be helpful, if there should ever be an opportunity for us to get involved.

Yes, sufficiently vague. Look, they're going to end up with a very highly levered product in the hands of a lot of people who aren't going to want to hold that product. So who knows? That's the quick answer, who knows?

You know that we'll be alert. Because as the crumbs fall off the tree, we'll be there to pick them up. So that's about all we can say.

Okay. And just one more. And I know you guys just hold the real estate, but do you have any comments on the Meadows? Their performance in the quarter according to the data that comes from the state was lower than we expected.

We don't know.

Honestly, we're a little bit -- we have to wait for the Pinnacle earnings release and whatever commentary they're going to give on that. And certainly, it'd be inappropriate, even if we had a comment or had information to share that at this point, given that it's their operations and their property. So I'm going to have to beg off on that one.

Okay. That's fair. Thanks a lot.

Let me throw in this. My conversations with them more broadly have been that they're very pleased with the acquisition and are making some significant improvements and feel really good about it. So I'd be shocked, frankly, if we get to their call and we don't hear something along those lines that they're quite happy with it.

Great. Thanks.

Joseph Greff, JPMorgan.

Good morning, guys.

Good morning.

I was hoping you guys can talk about, in your more recent discussion with sellers of gaming real estate, how the two issues of higher interest rates and the prospect of corporate tax reform impact those discussions.

I think we're just finding out now what that's going to mean. Look, our conversations with various people go on. But I think rationally, depending upon what the Trump administration actually does, or the Congress gets around to doing, I don't know. I'd be cautious if I were a seller.

Right. I think I would summarize it this way, which is that companies that we're thinking about doing a transaction with us relative to how they might do a recapitalization are effectively saying, well, we really need to understand what the new rules are relative to what the tax corporate tax rate is going to be, what the deductibility of interest is going to be, et cetera, et cetera. There's a number of things that are being bandied about in the public domain that may or may not come to be. And I think candidly, any prudent person would say, well, let me understand what the new ground rules are before we start continuing with transactions.

On the other hand, if there's, just like what we've probably said a number of times, is that if you have a seller who's motivated to sell or wants to do a transaction for reasons other than optimizing, or a great price, or taking advantage of tax situations, those sellers are still going to be willing to talk to us. Now obviously, that reduces the field dramatically in terms of the number of people that are where we can expect to get something done in the next several months. But I would expect that's probably true in a number of M&A transaction environments, in terms of people trying to understand what the implications of the revised tax code might be.

Good enough. Thanks, guys.

Cameron McKnight, Wells Fargo.

Good morning. Thanks very much.

Good morning.

Question for you, Peter or Bill. What drop is contemplated at Charlestown in the guidance, as you've thought about rental coverage for this year and the sensitivities around that?

We were just listening in on the Penn call, and we understand that they did disclose what happened for the two months in terms of the rent coverage at 1.68 times. I would caution people not to be too alarmed by that, because those are the seasonally two of the weakest months of the year. And every year, that two-month period versus the rest of the year is lower.

Our guidance is, we coordinate that with Penn. So our guidance ties into their guidance. And for good reason. The reality is, they have certainly all of the information. They have the day-to-day understanding of what's going on.

We get information, but we really get it at the public level. So short of us thinking, and I don't really want to -- first of all, I'm not in a position to comment on their guidance. But secondly, short of us feeling that their guidance is completely out of line, which I don't know how I would even come to that conclusion, based on the information I have, but short of that, it would be our expectation that our guidance will tie into what they're guiding. And therefore, having individual comments is a little challenging.

I take them at their word, what they had on the call, which is that Charlestown is doing really well since the opening of National Harbor and doing better than their expectations. I don't have information relative to how they've incorporated that out-performance into the outer months of the guidance. So I don't know if they've left that at what they originally expected the next 10 months to be or whether they've incorporated and seen some of their improvements, or better than expected results they've seen in the first two months, whether they've allowed for that in their guidance or not.

So I know that's a cop out, and I apologize for that. But the reality is we are, to a certain degree, reliant on their guidance. And candidly, short of us having better information, I think that's probably the most prudent approach for us to take relative to giving our guidance going forward.

I think they said they expect to the end the year somewhat better than what they've reported in those first two months. So we're expecting that they could, as we saw last year, have an upturn in December. Maybe not to 1.8 times, but [could set] a move well in that direction. And I think we're optimistic, or at least encouraged, that the next year, when everything comes together, that they're going to be closer, or they may be there. So we've haven't thrown in the towel on that yet. But Bill answered it perfectly, we obviously don't have that crystal ball.

Got it. Thanks very much. And just to circle back on your earlier comment, Bill, did I hear this correctly that since Caesars came out with their private letter ruling that conversations around deals have cooled off a little bit? Is that fair to say?

No. They're not related. In other words, the cooling of deals, to the extent that it's with structural transactions with corporations, is more related to the election of Donald Trump and the issues around what's in the public domain relative to tax reform. So that's that.

This Caesars thing is simply, or probably -- we're recognizing that with the momentum in their transaction, that we don't see -- we think that it's going to take them getting through their process before we would potentially have an opportunity related to the Caesars assets. And as Peter touched on, even when they're done, we don't believe that the Caesars real estate group is a group that is really long-term dedicated REIT investors, let's put it that way.

Got it. Okay. Thank you. But that's very helpful.

Carlo Santarelli, Deutsche Bank.

Hello, guys. Thanks for taking my question and good morning. If we just thought about potential opportunities out there, and I know you're not going to comment on any specific transactions, but one of the things I was curious to get your view on is when you have a property or properties that you're potentially looking at and you do see the potential for a competitive threat down the road, how much comfort do you have, given your experience, in maybe going forward on a transaction like that where there could be future ambiguities created by competition?

Well, I think that's a big part of what is our strength here at GLPI, relative to what it gives us an advantage relative to what I'll call non-gaming REITs. Certainly, people who are in the gaming industry have an understanding, and I'm not going to infer that we have particular insights that other people who are unfamiliar with the gaming industry don't understand. But I do think that we have passed on opportunities to be involved in markets where we saw long-term threats that were going to have a meaningful impact to the individual properties. And so for us to do one-off-type properties in tough markets, we definitely will treat those differently than if it's a portfolio of assets or if it's in a market where we see a very stable customer base and a stable outcome or outlook for the industry.

Certainly, I'm not going to comment on the individual markets that we've passed on. But I can think of at least three where there's been three guys that thought they might offer us up their land and buildings in a market that we just, quite candidly, passed on. And so I think that's part of being long-term oriented, cautious and recognize that the first thing we want to do is add to shareholder value and not to detract. And even though something might look great for the first few years until something bad happens, we recognize that we're in this for the very long haul.

Obviously, when we enter into 35-year -- well, basically 10 or 15, with renewals out to 35 or 30 years, we've got to take a view that what's the competitive landscape look like over the next 20 years, as an example, or 10 to 20. And so I think, it doesn't mean we'll always get it right. But certainly going into situations where you know that there's real challenges to a market is probably something we'll be staying away from.

Thank you.

Have stayed away from and will continue to stay away from.

Thank you.

Thomas Allen, Morgan Stanley.

Good morning. Quick question. What was the rationale with increasing the dividends lately? Thanks.

Well, our dividend policy has always been to pay out 80% of our AFFO as a dividend. We expect, candidly, the dividend increase reflects our expectations for 2017 in terms of what our AFFOs are going to increase by. And that's a function of, obviously, the Meadows transaction, which was not incorporated into the fourth quarter, as well as our deleveraging events that we expect to happen. And so we expect AFFO to grow; and therefore, appropriately, we would expect the dividend to increase, as well. Or has increased.

Great. Thank you.

Thank you. We have time for one final question today. Robin Farley, UBS.

Operator, we're more than happy to take -- we'll take any questions until people are tired.

Oh, sure.

We're not going anywhere.

Thank you. Sorry.

Great. So two questions I had. They're both follow-ups. A couple of months ago, you had described the market as a softer transaction market and about 5 to 10 sellers out there. How would you characterize that number now? Is it a similar number, but just a different level of conviction, maybe, or has that pool changed? And then also -- oh, go ahead.

I don't know that we put up a number. All of us are looking quizzically around the table. But I think the climate is exactly the same. Steve, why don't you -- just for fun.

No, I think the climate, Robin, is very similar. But to Bill's earlier point, there are sellers out there that are waiting to see what these first 200 days of the Trump administration mean from a tax standpoint, from a corporate tax standpoint. So I think anybody that has expectations that we'll be announcing a transaction in the next weeks while this uncertainty is still out there shouldn't get their hopes up. I think the flip side to that is the administration seems to be moving quickly on everything. So we'll just have to wait and see.

And what's Steve's talking about is with any form of a corporate type restructuring transaction.

Or a sale, an outright sale.

Right. But we are certainly working on a couple of opportunities where I'm not promising anything, but there's a potential that we could be announcing a small transaction at some point in time here in the reasonable future. But the deal's not done. And I can tell you, every phone call starts off with some basically comments that, oh, boy, I don't know if we're going to get there concept. So we'll see.

Okay. Great. Fair enough. Thanks. And then my other question, also a follow-up. I don't know if you've actually said, do you have an idea of what you think the impact of National Harbor would be percentage wise when you look out to the year ahead, now that it's been open for the few months, what percent impact we should be thinking about?

Well, that's a different way of getting back to the guidance concept. (Laughter)

I thought I would try.

I appreciate that. In fact, I'll tell you, the Penn folks have been very tight lipped about that. They're real clear that it is better, I was going to say way better, but I can't even characterize it that way, that it's pleasingly better, how's that, than what they -- yes, exactly. But they are not saying that's the picture forever and ever. So my sense is we're going to have to stay tuned over these next months until they get comfortable that the run rate that they're at today is better, worse, whatever it's going to be. So that's the most we can get out of them.

Is your sense that the days that were better in January, because there was a storm in January last year, although it was generally a warm winter, that maybe made some comps easy for some period of January? Is it your sense that things are pleasingly better outside of that event?

That's the impression I got.

I think that's safe. I think I would say that yes, even counting the storm effect from last year, that they're happy with their results on a year-over-year comparison. But I may be putting -- I'll have to go back and read the transcript on the Penn earnings call.

I think that's a safe statement. But they're very cautious, because they don't want to get caught having made a mistake or misled anybody, and hopefully not us, as well. So look, we're just going to have to wait a few more months until they're willing to say, hey, this is where we are.

Yes. And as background, and I'm going to go back to my old days, back when I was over there, more than three years ago, at this point, we did a lot of analysis in different markets in terms of trying to understand how long does it take for you to really have a good handle in terms of where you're going to perform. And honestly, that really happens around the six-month window is when you have pretty good data relative to how you think the impact of whatever transaction or whatever competition or whatever aspect is going to happen.

For whatever reason, there's misleading trends in the first few months, many times. Sometimes they hold, sometimes they don't. But really, when you want to say, what's my correlation to how I really did, it takes about six months after the event before you can get enough data to really start to say, okay, I can see where this is going.

But I also think what Penn highlighted on their call was predictable. Natural Harbor is in a terrible location. Wonderfully central to a lot of population, and for those of us who have been there more than a couple of times. But the traffic, and there's a lot of ugliness in getting to it, makes it still appealing, I think, for a lot of the Virginia market to continue going over to Charlestown. So I was always optimistic that we'd settle out into a good place. But again, we won't know. But we'll know soon enough.

Okay. Great. Thank you very much.

David Hargreaves, Stifel Nicolaus.

Hi. Thanks for being generous and taking the question. I'm just wondering if you, drawing on your knowledge of what's going on in Pennsylvania, where do you think the last racino license ends up? It seems there'd be a lot of opposition to that in major markets. What do you think has to happen? Where does it go?

That's a very good question. I have not talked to the Penn guys in a while about that. Except I do know that they're highly focused, of course, on keeping it where it belongs, out in the Western part of the state. The reality is, and I'll be real clear about this, there's no place to put it. In our time at Penn, we exhaustively looked at every gosh-darn city, town, State College, Johnstown, whatever. There has been talk in the past of moving to Gettysburg. But that's really Penn National's market, could be, obviously wouldn't be a very good thing.

The reality is that license, and the two of them coming up, should be retired. And there's going to be a lot of pressure to try to get them to do it. There will be pressure the other way to try to put it. Look at the state, look at the map. And the reality is, there is no place to put those licenses. And I know some of the politicians, even at my time that I spoke with, recognize that and were in favor of extinguishing those licenses. So nice to have them, but where are you going to put them?

Can it be viable where it is?

Well, apparently not. I think --

No, it's challenging. Because the original enabling legislation was adopted before Ohio passed. So the world changed with the VLT legislation in Ohio. But to Peter's point, there are a number of people in Harrisburg, and certainly a lot of people out in the Western part of the state, that do think it's a Western Pennsylvania license, given the legacy that's taken place in Lawrence County. So it's pure speculation, at this point.

Don't know. But you can bet there's going to be a lot of fighting around that point. But take it as the gospel, we've combed this state, through our Penn days, and with an absolutely a fine toothed comb, and there ain't no place, I'll just put it in the vernacular, to put that license that makes any sense at all. And I don't say that in a self-serving way. There's no place to put it.

Thanks very much for sharing your thoughts.

Thank you. Gentlemen, there are no additional questions at this time.

Okay. Well, I'm glad we squeezed in a couple more. Bill, any further comment?

Look, we thank you very much for dialing in this morning. We're still excited about this business. It sounds like we're going to have to be a little bit patient until we see what Mr. Trump's doing.

I'll just make one comment politically that I heard Speaker Ryan say this morning that he is not putting tax reform on the back burner, that he is absolutely, and the Republican Party committed, but it's going to be in the second tranche, but before June. So it won't be in this first round. They're going to focus on, says he, on healthcare, because it's the biggest need. And then he's committed absolutely, says he, to tax reform. So we'll see.

And thanks very much. See you next quarter.

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