Gaming and Leisure Properties Inc (GLPI) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Gaming and Leisure Properties Fourth Quarter 2017 Earnings Call. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Hayes Croushore, Vice President, Finance, for Gaming and Leisure Properties. Thank you. You may begin.

Thank you, Melissa, and good morning, everyone. We'd like to thank you for joining us today for Gaming and Leisure Properties Fourth Quarter 2017 Earnings Call and Webcast. The press release distributed earlier this morning is available in the Investor Relations section of 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're 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.

And now I'd like to turn the call over to Peter.

Well, thanks, Hayes, and good morning, everyone. Well, we wound up with a good fourth quarter and I think an excellent year for some reasons that we'll highlight.

The -- I guess, the most notable thing that occurred in the fourth quarter, of course, was the merger -- proposed merger of Penn National and Pinnacle Gaming, which after a lot of discussion, we -- and of course, the sale of 4 properties to Boyd Gaming, which brings a new tenant into our fold. That transaction, as you have seen in our release, should increase our total rent by approximately $46 million and will be accretive to our shareholders and to all of you. We also concluded a transaction in Tunica, which we earlier announced this year.

And again, although there has been some activity in the gaming space, we've been very careful, I think, notable of the things we chose not to pursue in the end out there because our focus remains now and always to do and only do accretive transactions.

So -- and as we look at 2018, we trust that toward the end or the third, fourth quarter of this year that PENN will complete its transaction, which is terrific for us.

And as to new things, there are some interesting prospects we're working on. Obviously, nothing we can announce or talk about, but we're -- I think, we're looking for a terrific '18 and '19 if we look ahead over the next couple of years. So we think the future is pretty bright.

Bill, do you want to highlight a couple of...

Sure. I think what I'll highlight is just a couple of items that affected the fourth quarter, none of which I think have any kind of a long-term impact on our prospects of the company, but were really kind of one-off in the quarter.

We had roughly $1.9 million for the bonus, which was the amount attributable to the fact that we had accretive transaction, which is the PENN-Pinnacle merger combined with Tunica meant that we got a full new deal a portion of our bonus. So really effectively what that means is that we've done more than $0.13 per share of accretive transaction, which is what caused us to take an extra charge in the fourth quarter.

And the other piece that's meaningful that had an effect on the quarter is relative to our TRS, the new tax law, the Tax Cut and Jobs Act, I guess, what they call it, had an impact where our effective rate obviously will drop from 35% to 21% and for all of the deferred tax assets we have on the books, we had to recognize a charge relating to the fact that as those items come off and we use those to reduce our future tax liability that, that will be done at a lower rate of 21% versus 35%. And that was roughly $1.8 million, offset just slightly with an interest expense, which we had a favorable variance of $0.5 million, somewhat affected obviously by the LIBOR curve, even though interest rates are going up as well as the fact that we had an upgrade on our ratings from S&P that moved us up to investment grade, which caused a ratchet down in our bank facility and lending rate, which took us from LIBOR plus 175 down to LIBOR plus 150. Those are basically the only things that I think are meaningful or worthy of really discussion in the fourth quarter.

I will -- I guess, maybe add on that Baton Rouge has a very tough comps in the fourth quarter as well as the first quarter this year, probably extending a little bit into the second quarter, where last year we were the beneficiary of a lot of extra money flowing through the Baton Rouge economy related to the repairs and the insurance proceeds on the flooding that they had in the previous August. And so clearly that's had an impact. Looking forward to next year on Baton Rouge, we have a smoking ban that is coming in effect in August or July or August, which we think is going to have probably about a $2 million impact on that property. So Baton Rouge is going -- is definitely a challenged property mostly because it's working off incredibly tough comps, plus it's got this headwind with the smoking ban. That's it.

It turns out that local disasters are very positive for us.

It can be.

A lot of federal money gets spent in the market. So we tease about that, but serious for the folks involved, but we've been very fortunate with that property in the past, so...

Yes, and it's not just for the record, it's not that everybody takes their insurance money and spend it in the casinos. What ends up happening is there's an awful lot of jobs that get created and a lot of people come into the market to assist with the repairs and adjustments on all of that. And so you get an influx of people as well as a lot of extra discretionary jobs or extra work that's generally done at favorable hourly rates because they need the laborers to get -- to do the cleanup and that generates an awful lot of, what I would call, discretionary income in the local market related to the cleanup from the hurricane. It's...

It's sort of a perverse result, but that is what happens.

Well, with that, I think we've said what we wished to start with. So we'll open the floor to questions unless if you would do that, please.

(Operator Instructions) Our first question comes from the line of Robin Farley with UBS.

I guess, 2 questions. One is your guidance is assuming the rent escalators for 2018. So I don't know if you just have any color to put on. Is it just National Harbor maybe still being down a little bit after anniversary reopening? Or just some color around that. And then just a bigger picture question, which do you think -- or -- and what would you think it sort of changes like potential transaction or the market overall having another gaming REIT out there now?

That's a fair question. Bill, why don't you take the first and then I will take the latter, the second -- take the second one.

Relative to the escalator, it's been our practice not to include the escalators until we get to the point where we've got high visibility. And certainly from PENN -- on the PENN escalator, which is in November of next year, I would highlight that we did -- that was one of the other, I guess, headwinds that we had is at the end of the last quarter, we've estimated that we were going to get out of a potential full escalator of $5.4 million, we estimated we would get $4 million. When the actual results came in, they were roughly $2.4 million. And so what that tells me is that obviously the escalators, especially when you are very close to the margin are incredibly variable relative to how much they are. And for that reason, we've decided not to include escalators in our guidance. I think it leaves us on a more conservative basis and therefore, more likely that good news will come down the road, so to speak. And even with the PENN escalator -- or the Pinnacle escalator, which I think is probably in better shape candidly than the PENN escalator, at least in terms of the cushion they have going in, that would be a max escalator at $5.9 million and that would kick in at April 28 of 2018. So I will highlight PENN has included in their guidance estimates that they think that their year-end coverage ratio on the rent will be 1.85. If they in fact hit those targets, that would be a full escalator [next year, and that --that's not taking in] Just for purposes of clarity, there is a revenue reset set for November of next year, the 5-year revenue reset. The way that, that calculation works is they would be calculating their rent coverage before the revenue reset. So the 1.85 and then they would obviously when we have the reset, would give them additional cushion for '19. Hopefully, that's sufficient color on the escalator.

Yes. That's great. And then on the impact of having another gaming REIT out there?

Yes. I think several of us might want to opine on that. Look, we like monopolies and would have preferred that there were no other players in the field, of course, and it goes without saying what has occurred is inevitable. I rather think, and I think it's our current experience that each of us have kind of will and have found a niche where we can play. Does it mean that the markets are going to be more competitive? People will, from our point of view, maybe overpay for some assets that we wouldn't. That could happen. So I think we have to -- it's early yet. I think we have to wait and see how this all plays out. We know what we have on our plate looking at '18. We're encouraged by that. And beyond that, I think, we just kind of have to wait and see. Steve, you deal with that every day. You want to offer some thoughts?

No. I think your point is it is too early to see what the impact is going to be. It's too early to see where the newest kid on the block is going to focus their resources. And at the end of the day, we're going to continue to remain disciplined and only look at transactions that are accretive for our shareholders regardless of what their parties are doing or not doing.

Yes. I would just add in that we've talked previously about our expectations of averaging $500 million a year of transactions. I would say that last year with the combined effects of, and I'm not telling about the actual amount, but the effect of the PENN transaction as well as the Tunica transaction that we effectively did transactions that would have been roughly equivalent to $1.5 billion worth of transaction. So I kind of look at it that we need to reset the clock again, as we've historically said we would aspire to do $500 million a year. We've reset that with the original Pinnacle transaction, I would say -- or we've now reset that again with the PENN-Pinnacle transaction and the Tunica transaction. And as we look forward going towards the future, I'm still comfortable that over the long haul, we'll get our $500 million a year that we've kind of said and delivered on effectively over the last 4 years and coming into the fifth year. So our track record of having gotten transactions done, I think, is starting to get to a point where having delivered in 4 years, now we haven't done it on a nice, smooth trajectory, which I would dream, fantasize about that that's the way it works for us, that every year we'd have multitude of transactions and we'd be arguing about whether we got $400 million done or $600 million done, but that's just not the way it works in the gaming industry. But we're still -- I haven't lost my enthusiasm or commitment or expectations that we're going to hit that target.

No. Let me add that, look as a shareholder, and I'm first and foremost a shareholder, totally focused on dividend growth. We've done a terrific job with that since inception. And I can only speak for the voice of one, I've been a pretty happy camper with that result and looking forward to future growth. Again, that's kind of what it's about here. So the way discipline has been used by, I think, each of us at this table it's kind of what we've been about forever and that's what will remain. So it's protecting our core always as we step forward that matters most. So I hope that gives you how ever vague an answer about our feelings.

Our next question comes from the line of Joe Greff with JPMorgan.

Maybe another way of asking for you guys to talk about the M&A or the acquisition environment at the present time. Peter, you mentioned earlier that you've be careful in things not to pursue, maybe you talk about Centaur, but other than a deal not being accretive for you, what are the characteristics or things that you would fail to pursue or not pursue that's out there right now?

Well, look, prices is probably item 1, 2 and 3 and then stability and the quality of -- less the quality of the assets, but the quality of the earnings. I mean, I try to make that point. I'm speaking again as a voice of one, much more focused on how reliable is the cash flow out of that asset than I really care what it looks like or what it is. So I mean, I don't know if you can add a lot more Bill? Or do you want to...

No. I think, listen, I mean, we do what I'll call a risk analysis on the long-term prospects of whatever the target is and take a look at what we think is going to happen 5, 10, 15, 20 years in a particular market. There's certainly markets out there that we feel very comfortable with, they're going to be nice, stable cash flow machines, and we'll be quite comfortable in those markets. There is other markets where we're less so. Some of them are obvious, some of them may not always be so obvious. And that's a big part of what we look at and then what we want to make sure is that doesn't mean that we can't participate in more challenging markets, but we are not inclined to pay huge prices in challenging markets. We want to be much more comfortable paying. We can get comfortable with some price ranges in markets that are tougher, but it would revolve around: one, multiple; two, the rent coverage that we were getting out of the get-go and what we -- how we project on what we might see as upside going forward if there were upside at a particular property relative to being able to improve the rent coverage, aka, back to the -- kind of going back to the Meadows as an example.

Or a tenant that we might want to work with.

Or a tenant that we might want to work with is another factor and whether it's cross-collateralized or it's just going to be an asset sitting that might have some challenges, but if it's going to be cross-collateralized with a number of other assets that we feel good about, we'll be more inclined to move forward with that type of transaction. So it's a little bit of art, not totally science. The science comes in as you take a look and you can see here's what -- how much rent I'm going to get and here's what I'm going to pay for it and what the impact on AFFO per share, that part is science. But the rest of it's a little bit of combination of science and art.

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

Bill, could you just talk a little bit maybe holistically about how the changing federal tax structure has maybe altered the way that the industry would think about deals, maybe some of the opportunities that have fallen forward, some of the stuff that isn't so obvious that you guys have maybe discovered as you've kind of gone through your process?

I think the most meaningful impact is the fact that the tax rate -- the effective tax rate on the separation of assets, which is always a challenge for us when we start, because we're almost always looking at a target where they've got a combined operations and land and building and separating the operations from land and buildings in many, many cases, most cases have some kind of a tax consequence. So clearly, reducing that -- the rate that you have to pay is helpful. It can also be helpful in terms of, I guess, people now know kind of where the tax laws are going to be for a while and so people are starting to kind of make some decisions and they understand what the implications are. I think that was, I'm not going to say completely prohibitive to getting transactions done, but I think it kind of set people of a mind that they would ignore the future tax if they could get a high enough price. Now they can take a look and say, well, I know what the tax consequences of my transaction is going to be and that's the way that kind of lays out the future and I can make a decision relative to what I might want to do in terms of monetizing an asset and recognizing we've got a fairly stable outlook on taxes for the foreseeable future.

So is it fair to say then you guys believe that this would be -- overall the policy should be helpful for the gaming REIT industry? At least kind of getting more transactions done on a go-forward basis? Or at least you're in a better position today than you were a year ago at this time?

Well, we are. And there is a couple of other little nuances that I think are helpful, which I'll highlight, which I think as people get more comfortable with that. There are some limitations on interest expense that companies can take and rent expense is not included in that. So the reality is that the rent that they pay is fully tax deductible whereas the interest expense that they might be incurring while they carry the assets on their books, for some people, not all, but for some people might not be tax deductible. So that could actually be also helpful looking into the future.

Our next question comes from the line of Shaun Kelley with Bank of America.

This is Barry Jonas. First question, guidance has diluted share count increasing by over 2 million in 2018. Is this share issuances using the ATM may be to fund recent M&A or something else?

No, that's the performance -- those are basically the restricted share timing vesting as well as the performance shares that were granted in January relative to the fact that we performed in the top 80th percentile of -- or north of 80th percentile of the REITs over the last 3-year period. And a couple of -- a few options, but there is not a lot of options expected in '18.

Okay. So not a material amount of cash coming in associated with the increasing share count?

No.

Great. And then just wanted your thoughts on this rising interest rate environment we are in now. I mean, obviously, there is impact to multiples for triple nets, but maybe just talk about how you see it influencing your business directly, particularly from an M&A perspective?

Well, obviously, you have to factor in interest rate expense as part of the calculus in terms of what you're going to pay for an asset as well as your own implied cost of capital associated with your equity. And that's kind of what we're alluding to in the earnings release when we talked about acquiring assets that it has to take into account interest rate environment and what's your expectations are over the long term. Clearly, it's not great news from a triple nets perspective. Obviously, all of the triple nets have been hit in their stock price rather significantly over the course of the last 3 months, us -- ourselves included to a certain degree, although I have, knock on wood, we'd had on a relative basis less impact than they have or the others have. But it's something we factor into what our expectations are. We're much more inclined to be looking at what we think where our 10-year bonds are trading or our longer-term debt is trading in terms of an implied cost of debt. And then you can just take a look at where your current stock is at for what the equity component of a transaction would be.

Got it. And last one. Just given how prevalent the gaming REIT model has become, I'm curious if you still -- if pushback from asset owners now is mostly valuation based. Or you still have concerns around the model's viability in our projections?

It's a hard one to answer. I don't think that's really affected owners thinking, particularly. I mean, as you see some trades occur at numbers that we might not like, it certainly emboldens others to think that their less-than-wonderful property should be -- is really wonderful. Look, that's just a reality of it. We would wish in some sense that things were different, but that's kind of the current reality. We see enough stuff and think there is enough out that we can do. So we're a long way from despair about getting meaningful transactions done. Just means, again, caution, patience. And as Bill has said on these calls and certainly most of his presentations, it gets to be, I mean, I guess, some people will move for money, but in most instances, it's when they want or need to sell for some reason or another, that they kind of need to have a transaction. We have -- I don't know that we've converted anybody with just a theoretical phone call, "Hey, would you like to sell your asset to us and we are going to give you such." I don't think we've actually gotten anybody to actually convert that was not otherwise looking to do something. It's probably what we're seeing out in the world.

Yes. I would add that I think -- look, I take encouragement. I mean, one of the things that I think helpful long term is there are 3 gaming REITs, the 3 -- I would argue all of the largest gaming companies that are domestically oriented are completely invested in the real estate investment trust model for the ownership of their assets. And I don't think that's lost on the other players within the gaming industry. So to -- and I'm really just addressing your point about is there a reluctance about the model and does it work? Boyd Gaming is another one, I'm not saying that they've endorsed it completely for their own existing portfolio, but they've certainly endorsed it relative to the assets that they're acquiring from PENN and Pinnacle, that transaction and such. Generally speaking, I think it's to Peter's point and to kind of echoing what I've said before is, I don't think people are afraid of the model. It doesn't mean that they're going to turn around at all, run out and do the transaction. I think it's again a concept of, are they at a stage for whatever reason that they're looking to monetize something and do they want to do a transaction or not. I think people generally tend to stay where they're at and they don't really make major decisions unless there is something compelling them to do that. Said another way, unless there is a reason to sell, they're not going to sell.

Our next question comes from the line of Thomas Allen with Morgan Stanley.

The Ohio variable rent has been -- I think has been a positive versus expectations this year. How are you thinking about it for 2018?

I think we -- one of the things that if I go back to the original Ohio and our original transaction that we always had very good expectations for Ohio. Unfortunately, it took a little while for those to kind of kick in, mostly because they put so much supply into Ohio within such a short period. And every time you have a new -- a brand-new market, it -- the penetration takes longer than in a mature market. And so your growth rates are better. I would expect that there will be -- continued to be pleasant surprises in Ohio going forward. I wouldn't necessarily think that they will be at the same level that they were this year. But I do think that you'll see the Ohio rents climbing better than the rest of America. So said another way that I would expect our Ohio percentage rent to be a better performer than the rest of the portfolio.

Yes, all the PENN's Ohio properties are doing terrifically well. It's been a great year for them. And Bill answered it, I think no reason to expect that this next year won't be excellent at the same time.

I will say just for people -- to give some color on what's in our guidance is, we've reflected what PENN has included within their expectation for how much rent they will be paying us on the Ohio properties. So I think from that perspective, they correlate -- at least our guidance correlates to theirs. They clearly have much better visibility as to what's going on at the individual properties than we do. So short of getting some insights that they don't have, we're going to default to their numbers. And we do look at them to make sure they look reasonable, and I think they do. But that's kind of how we got to the numbers that are in our guidance.

So what does your guidance imply in terms of revenue growth there in that line item? Can you tell us?

I can't really. I mean that would -- I think you should ask for: one, those aren't my numbers; two, is that would, I think, fall into the class of information that's proprietary to PENN. So feel free to ask them.

All right. And then just a quick follow-up question. Have you ever looked at underwriting or underwritten an international deal? And kind of what have the gives and takes been of that?

We have. We've definitely looked at some assets overseas. The gives and takes are obviously the stability of the cash flow. You've also got currency transactions and taxes and what the tax treaty might be with that individual country that the assets are in. And whether they recognize REIT income or REIT concepts or don't and then how you manage to -- how you can effectively have a foreign -- no, for U.S. purposes, it qualifies as REIT income. So from that perspective, it's clean. It's really a matter of what happens over in the foreign country and then how easy is it to get your money back into the U.S. and how do you structure the transaction in such a way that it's still tax-free, and that's not always easy, I guess, is the best description. But we've spent some time, we spent some money looking at that. So we didn't get to a transaction, ironically not for the tax issues but for other issues. So -- but we definitely will look at that and we're open to that, but it's a daunting task sometimes, especially if there is not a clear-cut treaty between the United States and that country, it can really get tricky.

Yes. Maybe that's a good point to emphasize is, we remain open to any reliable source of cash flow wherever located, I mean, subject to the qualifications that Bill provided. So we do look at a lot of stuff, but we have yet to see something that -- outside this industry at least and our current locations that would attract us.

Our next question comes from the line of David Katz with Jefferies.

Obviously focusing around the issue of what you would buy, and I think you did set some interesting boundaries. And I'm wondering why single properties that are larger, whether they would or would not be on the acceptable list. And I suppose I'm thinking along the lines of Las Vegas, where things tend to be on a bit larger scale. Do those -- how do you view those from a -- or Atlantic City for that matter, do you view those with a different risk profile? Or have those opportunities just not presented themselves?

I think it's a combination from my perspective. Las Vegas results have higher volatility to them. In other words, when times are good, times are great; when times are bad, times are horrible in terms of the flow-throughs and whatnot. So from a rent coverage perspective, that's something that we think about. The maintenance CapEx requirements in Las Vegas relative to the amount of EBITDA is generally higher than in regional gaming. That is not necessarily important for us, because we're not responsible for maintenance CapEx, but it does cause you some concern relative to what the operators are going to be able to maintain in their building and make sure that they're going to be able to stay competitive. And then they, for whatever reasons, with those factors, which ironically you would say in isolation that those factors say that multiples shouldn't be higher than in we're a stable cash flow, but that's not the reality. The expectations and what people are willing to pay for something in Las Vegas are significantly higher than what seemed to be justified by that model. However, what causes that is Las Vegas is perceived as the mecca or the center of gaming in the world. And so therefore, there is a halo effect in terms of the long-term expectations for Las Vegas, and we have to recognize that, that's part of what causes those multiples. Having said all that, I think we are open to doing a transaction in Las Vegas. I don't -- I'm not -- I don't know if you're alluding on the speculation that a particular huge asset is available for sale. But the likelihood that we could get there because we're still not going to do a transaction in Las Vegas, that's dilutive. So if expectations around the sales price and whatnot are anywhere near what I've kind of heard, I would say that the likelihood of us getting involved is pretty low. Relative to Atlantic City, that's kind of has some of the same characteristics as Nevada in terms of volatility, but it has a lot of risk factors and there is a lot of -- candidly, I think Atlantic City has experienced last couple of years the benefits of a couple of properties, or a few properties, closing. I think as we look forward, I know that the Taj/Hard Rock is going to be reopening, and I think that's going to kind of revisit some of the tougher times in Atlantic City and then there is obviously what may or may not happen with Revel. So I think you have to look at Atlantic City and say, well, we've got some new supply coming in and I don't know that it's going to necessarily grow the entire market very much. Having said that, once that's stabilized, I think Atlantic City is starting to look like once you -- if you can normalize for all of that, Atlantic City is looking kind of stable in terms of it's got competition, everywhere it's going to have it. I don't see any -- there's no more surrounding states left to add gaming facilities. No new facilities really coming in. So you would other than maybe potentially some more stuff in New York, but...

Or maybe, I say Northern Jersey one day will get there. They're going to have to, right? Or seed all of their business to New York. That's just my own view. That's just in the fullness of time, I predict you're going to see gaming in North Jersey.

So I guess, the synopsis to that answer is, we'd be interested in Las Vegas at the right price. We have no reservations about the general health of Las Vegas. It's just more the market dynamics and the secular nature or the ups and downs of what would be there and how viable we would think the operator would be in a downturn. And then Atlantic City, the nice thing is that the bloom is -- there is no bloom in Atlantic City. So expectations in Atlantic City are much more reasonable, I guess, is the right way of putting it.

All right. Okay. Sorry, go ahead.

No, I was going to add that I think the issue with Las Vegas is that just inadequate return on capital. So going back to our PENN days, we look at that and say and look at the average return on capital invested in Las Vegas and say, you got to be kidding. There is no way we would do that. Let's pick a property, I could tell you real numbers, I won't, but what we stuck in, just pick any one, Toledo, Ohio. Terrific property for the money spent. Performance better than 20% cash on cash. That's the kind of deal we get excited about. So look, you got to pick your poison. And just more broadly, I would say that, look, we would do a deal with a shack on the beach. I'm speaking decisively, if we were satisfied, the cash flow was great and dependable. So I mean, I can't say it more plainly than that, that what's the Bible line that, "Many are called, but few are chosen." Well, that's kind of the way I think we see it. Go ahead.

All right. Well, look, I wanted to just follow that up quickly. I know I have asked the question before and gotten the answer, but is there a set of circumstances around which you would consider wanting to sell anything?

Us! Sell assets? Sure. I mean, there certainly has to be somebody who wants to offer some incredible price that's absolutely in the best interest of shareholders, we'd happily do that. But I don't see us selling any of our leases at this point.

Yes, we've worked hard to get the scale that we currently have. And looking at some of the things we have on horizon, we intend to continue to grow. So we're certainly not interested in going backwards.

Our next question comes from the line of John Massocca with Ladenburg Thalmann.

So just quickly kind of touching on Pennsylvania and the mini casinos out there. I mean, how do you weigh that as an opportunity versus a drain on revenue at PENN and Meadows? That's it.

Well, I think -- the Meadows, I think, is pretty well protected given the fact that there really can't be any casinos within a distance or within a range that would have an impact on the Meadows between Nemacolin and the downturn Pittsburgh facility, the Rivers. The zones of protection are such that I think the Meadows is very well isolated and protected from Pennsylvania. Penn National, on the other hand, is obviously much more exposed. And we're going to have to wait and see how that works. We take some comfort that PENN secured a license in the area that is probably the largest market for Penn National that can be affected by the new tax -- or the new Pennsylvania sites. It doesn't mean that the process is over. I mean, they think they're going to get 11 sites or something like that. There are just not 11 sites that will fit in the state, at least in my mind. I think there is some more markets left that will have some impact -- could have some impact on Penn National.

Not much though. I mean, if you look north and look west, there aren't cows out there. I mean, there really aren't, which is why PENN had to protect its market to the south. By the way, probably the largest -- if you don't care about PENN, but you're an outsider coming in, that would have been the largest available market, the York, Northern Maryland kind of market that would be available in the state. So PENN did well to lock that up. And in fact, yes, I think, it was a very, very smart move on their part. So I don't think there is a lot of exposure because there is just not a lot of places that people can go around Penn National. Further east, potentially, closer to where we are, somewhere between King of Prussia and -- it's possible, but we're just going to have to wait and see. I think PENN itself in its call this morning said that -- I think today, isn't there another...

Another auction.

Yes, there is another auction today. It's going to be interesting to see how that all plays out. But Bill said it right, there are not enough spaces, just nowhere to go in the state.

Not to fill out 11, but there is few more sites.

Yes.

That surely will work, but...

On the other hand, the state's done very well because they've got way more on each site than they could ever have imagined. So economically, they're going to do fine.

Understood. And then just there is an opportunity for you guys, I mean, how does that market look now that you're going to have this additional competition in there? Is this something where you're seeing some attractive acquisition opportunities either with PENN or some of the other operators coming in and bidding on these sites?

There could be. We'll have to wait and see how that plays out. I don't -- I think they're going to be relatively small facilities. I don't think these are going to be -- these are not your major huge facilities by any stretch of imagination with 750 slot machines and whatever tables they have. I think those will be relatively modest facilities. But you could -- listen, we look at it and say, yes. Is that's something we'd be interested in? We could very well be interested. I mean, we have some limitation within our lease in terms of what we could participate and finance new transactions. We have a 60-mile zone relative to being able to -- if it was somebody, a greenfield-type project that wasn't being done by Penn National or we would have -- we couldn't participate if it was in 60 miles of a PENN facility.

Right. And that protection works both ways. It works for the tenant, but it also works for us. So I think we just have to wait and see where all of these facilities end up being placed and how they're capitalized.

Okay. Makes sense. And then looking out to future with Boyd, I know on their call they said that the lease structure is going to look pretty similar to PNK's existing lease structure of those 4 properties, but without the corporate guarantee. I mean, is there any more negotiating to go with those leases? Or is that kind of set in stone the way it's been laid out?

It's done. I think what -- to address the issue of the corporate guarantee, what we did instead is we got a much higher default rent coverage ratio. So that at the end of the day, if the asset -- the only time you care about a parent guarantee is if the assets are struggling. And so what we've got in exchange for not having a parent guarantee, there is a much -- is a higher ratio relative to when the lease goes into default, which gives us fewer rights and other abilities to have a negotiation much earlier if those portfolio of assets aren't performing than we would otherwise have with companies who had given us parent guarantees.

Remember these are outstanding assets. They're well established, strong players in the market. They're about as safe and rock solid as you can get. And one will support the other. So I mean, I don't think there is much concern there.

Yes, they are cross-collateralized between them. So the assets that they've got within that lease are all cross-collateralized.

That makes sense. And then looking at our guidance a little bit, straight-line rent is going to kind of move around as well as the direct financing lease. Is timing of that just the PNK direct financing lease that will move down with the rent reset in April and then the straight line -- all that straight line kind of moved down is with the PENN reset in November?

No. The direct financing lease got -- doesn't have anything to do with the anniversary of it. It's just a straight-line amortization that goes down over time. The -- or that was the direct financing piece, sorry. And then the straight-line rent is, for PENN, at the end of the 5 years, which we were originally required to take the proportion of the rent that was determined to be fixed, which was the original variable part, amortized basically recognized that over 35 years. So we've been deferring the straight line -- let me add, that will flip on the 5-year anniversary because we'll then be through the initial 5-year lease period. It will then instead of being rent that we are deferring will actually be recapturing rent that we've previously deferred. The net impact of all that, just for clarity, there will be no impact to EBITDA or to AFFO. However, both FFO and net income will both increase dramatically, which you're seeing a portion of that in '18 and will be much more meaningful in '19.

Understood on the straight line. So the deferred financing lease adjustment, that doesn't change at all, because if you take the 1Q and you just run it out, it would be higher than the full year.

The deferred financing lease adjustment will actually increase because instead of it being an add back to the receivable, it gets recognized in that deferred financing lease line as rental income. And that's really just due to Pinnacle rent reset occurring in 2018.

(Operator Instructions) Our next question comes from the line of Andrew Berg with Post Advisory Group.

Just a quick question. Recognized guidance excludes the PENN, Boyd, Pinnacle transactions. Do you guys care to speculate on when you think it may actually come in to the numbers this year, and what it may contribute? Especially on a pro forma basis.

Yes. The -- I mean, PENN has indicated that they expect it to close in the second half. They clearly have much better insight as to the timing. I think, I would as a plus/minus, I think, it's probably the middle of that. But I have no information that's in any way better than what they've got. Look, they're certainly having all the meetings that they've alluded to on their call with the SEC and with state regulators. Not that we haven't also sometimes been invited to speak at the regulator meetings, but we're really more as a third-party participant. And I think there is a combination of -- obviously, you've got 3 gaming entities -- really 2, but you've got Pinnacle who's kind of going -- technically going away, but you've got PENN, who got to get licenses in these states. We have to get license in Massachusetts as well. But then you've got Boyd, who has got to get licenses in some states, which is a start from scratch. So I think it's going to be -- in the gaming industry, typically, it takes anywhere from 9 months to a year to get through the licensing process, particularly if it's a brand-new entity that's getting license. And if it's a complex entity, it's even more inclined to be longer than shorter.

Let me make this comment that we see no obstacles to getting this done. It's just time. Now I'm going to put our general counsel, who is sitting right next to me on the spot, who could offer without any inside knowledge a general view, September, October, I mean...

It's tough to say. I mean, we haven't been a part of the discussions that PENN and Boyd have been having and clearly, the applications in those states are more on them than they are on us. With respect to Massachusetts, where we do have a direct contact and obligation, I certainly think we'll be within that time line, and we are encouraged by the conversations we've had with them on their time line, but again, I think you have to defer to PENN or Boyd -- and/or Boyd and the discussions they're having in some of the key states as to what the ultimate timing would be. If I guess, it would be pure speculation.

Right. That's fair.

Got it. I think -- I really think as it's a when, not if on that. But with respect to Massachusetts, given the recent events that have occurred, any -- have you spoken with them since the wind stuff has popped up? And whether or not that might slow things down on your side because of how they're trying to progress on that front?

We have no reason to believe that the analysis they are doing with respect to the wind company will have any impact on the timing of our suitability review. Several of the folks that are here with our company now were previously reviewed in connection with PENN's review because that's the place before the spin out of GLPI from Penn National Gaming. And so not everyone here is a stranger to Massachusetts, and we believe that we'll get the applications in quickly and that, that won't have a significant, perhaps any impact on the timing for us.

Mr. Carlino, there are no other questions at this time. I'll turn the floor back to you for any final comments.

Okay. Well, thank you very much, and thank you all for dialing in this morning. We're happy about our last year results and pretty excited about what we see on the horizon. So with that, see you next quarter.

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