Gaming and Leisure Properties Inc (GLPI) 2021 Q2 法說會逐字稿

Greetings and welcome to Gaming and Leisure Properties, Inc. Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Joe Jaffoni, Investor Relations. Thank you. You may begin.

Thanks, Doug, and good morning, everyone, and thank you for joining Gaming and Leisure Properties Second Quarter 2021 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section of our website at 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 materially from those discussed today. Forward-looking statements may 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 discussion related to risk factors and forward-looking statements contained in the company's filings with the SEC, including its second quarter 10-Q and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.

On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer of Gaming and Leisure Properties; and also joining today's call are Desiree Burke, Senior Vice President and Chief Accounting Officer and Treasurer; Brandon Moore, Executive Vice President, General Counsel and Secretary; Steven Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer.

With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you, Joe, and good morning to all who have dialed or tuned in this morning. We're very happy to report another excellent quarter here at GLPI. I can tell you, having done this for many, many years, a lot more fun to talk about good quarters than disappointing ones. And happily, in my career, we've had very few disappointing quarters over many years. So this is a good one.

As usual, I'll make very few comments. I think we have our entire team here, as always. And I'm going to ask Desiree Burke to highlight some significant points. And Matt Demchyk will also have a few comments, and then we'll open it to your questions.

Our release, I'd like to think, as always, is very, very thorough. So most everything you need to know, of course, can be found there. But we're here today to answer your questions. So Des, why don't you take the mic?

Thanks, Peter. Good morning. Our second quarter results were great, and we're ahead of the second quarter of 2020 on several metrics. To highlight the second quarter REIT segment results, income from real estate increased by $22 million for the quarter compared to the prior year. That's primarily due to higher percentage rent from Penn's Master Lease of $11 million related to Ohio. Rental income from the new Bally's lease of $3.1 million, Morgantown round of $750,000 related to the lease with Penn that began in the fourth quarter of last year. An increase related to Casino Queen of $3.4 million as a full quarter of rent was collected in 2021, while 2020 over call had a deferral. Escalators on our Pinnacle and Boyd Master Leases that became effective on May 1 of $1.2 million and some noncash straight-line rent adjustments and revenue growth of $4.5 million.

These positive variances were partially offset by lower percentage rent of $1.8 million due to our amended Pinnacle lease, Boyd lease, Caesars lease, Meadows lease, percentage rent resets that were negatively impacted by the Casino's closures from COVID-19. The REIT segment also had an increase in expenses of $6.4 million compared to the second quarter of 2020, and that's primarily related to an increase in noncash items such as our land rights and ground lease expense and depreciation.

Our second quarter TRS segment results continued strong performance with net revenues and adjusted EBITDA exceeding prior year levels by $33.7 million and $14.3 million. I also want to point out that we anticipate achieving a full escalator on the Penn Master Lease effective November 1 of this year, which will increase annualized rent by $5.6 million and that we also expect to collect Casino Queen rent deferral of $2.1 million related to the first quarter of deferral upon the closing of the Baton Rouge transaction.

With that summary, I'll turn it over to Peter.

Thanks, Des very much. And Matt, you've got some points you want to highlight, please do.

As many of you recall, we articulated a theme, a goal really being offensively postured coming into this year. Balance sheet strength and smooth capital market execution of prudently sourced, efficiently priced capital are essential in this effort. To that end, during the quarter, we opted to utilize our at-the-market equity issuance program, raising just over $70 million of proceeds at an average net price of just over $47 a share. Our use of the ATM program took into account our balance sheet goals as well as the composition of our investment pipeline. Our balance sheet is officially at fighting weight. Our leverage is trending toward the lower half of our 5 to 5.5x debt-to-EBITDA target range around year-end.

We look forward to having the ability to comfortably earmark retained cash flow for redeployment into growth-enhancing investments, revenue-enhancing CapEx for existing tenants or external opportunities. To the extent we're successful, our overall growth rate will enjoy the benefits of compounding cash flows. As we move forward with the strong and sound financial foundation, our focus is squarely on unearthing opportunities for the prudent deployment of our shareholders' capital. Our objective is to enhance our growth profile in conjunction with the enhancement of long-term intrinsic value per share.

Taking a step back, this is a unique, dynamic and very exciting time for the gaming industry and especially the gaming real estate industry. The combination of higher rent that we're achieving from the escalators Desiree talked about in combination with the operational strength that Peter alluded to, and the stronger tenant base that has resulted, ultimately translate to greater value for our portfolio, for our platform and for our shareholders. Pound for pound regional gaming real estate stands out as incredibly attractive compared to other investment opportunities across the real estate spectrum and beyond. This reality is especially relevant as more and more institutional capital yearns for safe and durable incomes, which are the hallmarks of GLPI's strategy and portfolio.

With that, I'll turn the conversation back over to Peter.

Thanks, Matt. That pretty well highlights many of the great points that we'd like to make. We're in a great business, had a great year. It's pretty exciting.

So with that, let's get to Q&A, Doug, if you would.

(Operator Instructions) Our first question comes from the line of Smedes Rose with Citi.

I guess my first question is, you mentioned achieving rent escalators with Penn. I was just wondering, do you expect to achieve those escalators with respect to other leases, which have anniversaries later this year based on what you're seeing now?

The quick answer is yes. Des, do you want to comment?

So the Penn escalator because of the performance of the Penn properties, we do expect. The only one would reset later this year as well as the Meadows Lease, we're not certain to that we expect to get an escalator on that. We'll have to see as their COVID months drop off and the better performing months come in, how they perform. So the only one we are projecting right now is the Penn escalator.

Okay. And then, Matt, you just mentioned institutional capital continuing to look at this space. So I was wondering, do you expect more interest in their regional assets? Obviously, we saw another transaction in Las Vegas recently. But I'm just wondering, do you think -- is there something about the structure of regional gaming that makes it may be more difficult for institutional capital to come in?

Yes. I mean, Smedes, as you know, on one hand, we've got a bit of a moat because in a lot of the limited license states, there's a need for licensure and some other things that make it a little less direct for capital to go into our asset class, but over the many years I've been in the investment world that reminds me of that law of physics that water ultimately finds the lowest point. Capital is ultimately going to find the best risk-adjusted returns. And 00 I mean, the amount of capital out there now, if you look at some of the private equity platforms and the recurring income that they're focused on in their private REIT vehicles is stunning. And over time, our cash flows fit that return profile incredibly well.

To date, we've been very successful with our relationships, being the first mover, creating the space in finding and sourcing off-market transactions at very nice risk-adjusted spreads. And we've also pointed out as institutionalization continues, we expect to see more cap rate compression. So you've got a few recent comps on the strip that happened. Interestingly, what you've seen in the regional markets year-to-date, of anything of scale and our quality has really been off market. Our deal with Bally's and then the transaction that MGP did at Springfield. It's going to be really interesting to see a market clearing high-quality asset in the regional markets, and perhaps we'll see when in between now and the end of the year.

Our next question comes from the line of Nick Yulico with Scotiabank.

I guess in terms of first question on Bally's, are there any -- have you discussed any other options or opportunities with them now that that $500 million investment is off the table?

The quick answer is yes, but I want to turn to Steven Ladany for that.

Yes. Look, we have a great relationship with Bally's as seen from the various transactions and structures that we've accomplished and achieved with them. Our dialogues with them continue even beyond this commitment. Part of the commitment was necessary for the U.K. regulations. Clearly, they had the amendment from the Rhode Island statutes to allow them to increase leverage and their outperformance of the properties has been incredible. So they no longer needed that capital earmarked today, but I would not suggest that that means that there's no further dialogue with them. We're always talking with them and always interested in transacting with them.

Okay. That's helpful. Second question is just on the CFO search. Maybe you can give us an update on that. I think it's been a year now. What's -- how should we think about when that could get resolved?

Well, there isn't one. That's the quick answer. There isn't one. We abandoned that quite some time ago. As I've answered in earlier calls, functionally, we've decided that among the principles here with Desiree, Steve, Matt that we're perfectly able, as you've seen in the interim time to handle everything and anything, including all the financings we've done plus the day-to-day operating stuff that we have reported. They just don't need. Now somewhere down the line, I expect we'll do it. But we're not in any hurry with the great team that we have in place. We just don't need it quite candidly. And I expect -- I'll say it again, somewhere down the line we'll probably designate somebody or bring in somebody. But at moment, we've got no interest and spending no time on that subject.

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

Just somewhat of a modeling question. As you guys get closer here to the sale of the TRS assets, how should we think about kind of the G&A that maybe goes with those assets?

Des, you want to take that?

Yes. So the -- the performance of the properties are pretty much split pretty evenly. So I think you can think about those as half and half to do your modeling and you shouldn't be far off.

I think the G&A also, if you look at the breakout in the earnings release, the line item that's attributable to the noncorporate piece is related to the TRS. So I think that's the piece that's ultimately going to go away.

That's what I'm speaking to. The whole TRS goes away when both properties go away. But if you're modeling for this year, about half of it simply closed on the transaction with Perryville happened on July 1. You can expect the other half to remain for the -- until such time can conclude on the sale of Baton Rouge. And then the whole line item obviously goes away.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

This is Ravi Vaidya on the line for Todd Thomas. I just wanted to ask here. Are there any regional markets in particular that have surprised you in their strength and resilience coming out of the pandemic?

It's kind of everything. And dare I say without being smart. The whole industry is a surprise and kind of a shock. I don't think anybody and not even us, who know this industry well, expected the kind of turnaround that we've had. In many cases, setting record top line numbers, which is the shocking part. Understand the bottom line and margin improvement and all the things we know with the cost cutting that occurred, but it is incredibly shocking to consider that many of our properties -- our tenants' properties are hitting record numbers. And doing it, by the way, over these last months with limits on occupancy. I think they’ve been pretty judicious and who they allow to sit in a seat and have carefully controlled their marketing towards the better of their customers.

Obviously, in our industry, we have a high degree of knowledge of who -- the value of every customer who comes to our facilities. But on balance, the answer is the whole thing is kind of shocking. But it demonstrates to Matt's earlier point, what we said all along that there is an enormous strength in gaming generally. Many have heard me say in one-on-ones over these years, that if you look at Maslow's hierarchy of needs, it's food, it's shelter and it's gambling. It's very high. People don't give up their entertainment. They just don't. And that's been my experience for many decades as a matter of fact. So there is resilience. It's incredible. People just won't be denied their entertainment.

Perfect. Just one more here. Are you looking to expand any nongaming experiential real estate, either via debt or equity?

The quick answer is yes and yes. But -- and we've been doing -- we've been looking, as I try to point out, since the day we spun 7, almost 8 years ago, at a variety of things. The problem is we're in such a strong category. Our revenues, as we finally demonstrated, are bulletproof, knocking on wood as I say that, there's always the atomic attack that is possible, I suppose. But we're pretty bulletproof, finding it's equivalent or anything close there to is very, very difficult. We are looking at things. And if I were a betting person, and I'm basically not, I would say somewhere down the road, we might find something that kind of grabs us but -- and it's our responsibility looking for shareholder value over time. But until we see it, you won't see us pulling the trigger.

Our next question comes from the line of Barry Jonas with Truist Securities.

As you've talked with operators, do you think more are willing to move to a complete asset-light model under the right circumstances? Or is there still some hesitancy to go all the way?

Look, I'll look at Matt for an opinion. My sense is that there's still those who are taking it cautiously that want a balance that are willing to do some and consider others. But I think generally, people have recognized the value that REITs bring to the industry, and you're going to see more and more people saying or, frankly, just wanting to cash in and take advantage of the kind of multiples that their cash flow can generate.

Yes. I think you put it well, Peter. I mean I think it's a learning curve for the operators. I think the fact that we had COVID, and we saw the valuable benefits of having leases in place that are permanent capital, that have no bullet maturity resonates with folks. And ultimately, I think it's going to be conversations between them and folks like you around what valuation they might get under one structure or another. And as we move forward, things could likely line up for that, but it may take some time.

Got it. And then just to be clear, as we're seeing rising COVID cases out there, curious if that's influenced or you see it influencing discussions or timelines in any way?

Not yet. And so the quick answer is no. As I said, there's always a threat of an atomic attack down the road, I suppose, or the equivalent thereof. But at the moment, no, I think we're a good bit from that.

Yes. I think it's widely accepted, Barry, that the operators have now been battle tested. There's protocols in place. There's a lot of people who are inoculated. There's masks. There's a lot of steps that could be taken. And going to the draconian knee-jerk, we're just going to close things down. It’s certainly not the first step for anyone. And if the doors are open, we know how resilient things can be.

Our next question comes from the line of David Balaguer with Green Street.

Wanted to discuss the institutional capital once again. And just thinking about that from a long-term perspective, obviously, it seems like it'd be advantageous if we saw cap rate compression in the regional markets from the standpoint that street NAVs would go up. But at the same time, you've been able to attractively source deals at attractive pricing immediately accretive to AFFO. Could you stand to benefit somewhat from this moat lasting for a bit longer to continue to grow at attractive pricing before we see pricing reset like that?

I mean I think we've seen some of that this year. I mean, I'd argue if the assets that traded this year were totally marketed, they would have been at tighter cap rates on all fronts. I really look at it as a win-win. I mean, on one side, we continue to look at all the deals we've done to get really good returns for our shareholders. At the same time, if the wave comes up and goes over the shore and there's rerating, I mean, we can -- we have -- remember, the largest, most diversified portfolio, these kinds of cash flows in existence. And the ability to then harness that, whether it's a joint venture and some other structure to source capital at far better pricing to enable us to go back out and redeploy it, we're ready for all paths that might play out.

And do recall, I mean, to the earlier question, one of the gating factors for us doing things outside of gaming since day 1 is also the spread between where our assets are priced and where everything else is priced. And to the extent your scenario plays out and maybe our whole portfolio rerates dramatically from here, which arguably it should, we're in just as good or better positioned to start looking more aggressively at some of the other stuff. So our job is to have a playbook that's ready for each eventuality, and that's what we spend our time doing.

Got it. That's helpful. And just a quick follow-up on that, as you mentioned JVs and considering that the moat in this business is quite real. Is that a potential avenue to help potential institutional capital to become some of the gating issues from a regulatory standpoint?

Totally. I mean at the end of the day, when someone decides how to deploy capital, especially if there is a moat, finding a platform and a seasoned management team is key. And you can look back, especially nuanced real estate asset classes over time. That's been a -- I mean, that's kind of box 1 you need to check to make sense. So I think that totally makes sense. And I think it's one way to monetize our skill set here if and when the world plays out the way you're suggesting it might.

Our next question comes from the line of Jay Kornreich with SMBC.

It's great that you're planning on hitting all your Master Lease rent escalators this year. And I'm curious if you can just break out if that was achieved largely due to margin expansion, the regional gaming operators saw or if it's more from strong revenue surpassing 2019 levels?

So the answer -- the one that we told you we're going to hit was only the Penn lease just to be clear, the $5.6 million is just the Penn Master Lease. But the reason that they're hitting it is their performance. I mean, they have had record earnings. They've had record EBITDA. They've had record revenues, all of the above. But the adjusted revenue to rent ratio is calculated as disclosed in our earnings release in the table, and they're just really performing extremely well, which is why we are able to achieve the rent escalators.

Okay. And then do you foresee any opportunities with your current tenants for either to fund expansions or redevelopment opportunities?

Yes. The answer is yes. That's part of an ongoing discussion with a number of our tenants. We're hopeful that over the next 12 months that we might be able to announce some significant expansion, a hotel or things of that sort to be illustrative. Nothing certain right now, but there are things that we're talking about. And of course, we would welcome that opportunity to put some capital to work. We -- as Matt pointed out earlier, are well positioned to do that.

Our next question comes from the line of Robin Farley with UBS.

Great. Sort of going back to an earlier topic, and I know that Vegas assets are not your strategy. But I'm just curious for your take Peter, in some of the transactions where the public gaming REITs having maybe more leverage constraints than others out there. Just that in some way put the public gaming REITs at a disadvantage in terms of bidding for assets? Or is the answer, well, it doesn't matter because those other buyers aren't going to go after the type of assets that you're going after, which are not the big Vegas assets?

Look, I don't think you can assume either. I mean we do look at Vegas assets. It's part of an everyday discussion here. So it's not like they have leprosy or that we're frightened, we may or may not be able to get to the kind of number that is competitive. And we don't presume that others are not looking at the same kind of assets that we do. So look, it's a competitive world. There's number of players in it and many more seeing how successful this industry is, who would like to be in it. So it's dynamic right now. We like what we see in front of us. We've got a good year, expect a good year next year, and we think there's an adequate runway for us. But I wouldn't close any doors, Robin. We're -- we look at everything. We really, really do. And as Matt points out, we are becoming ever more competitive across a broader range of industries.

But I guess in terms of not taking on the kind of leverage that maybe some other buyers are, how do you ultimately compete with that?

Well, I think, Robin, if our strategy was only to buy assets on the strip, and we've now, in the last 2 years, seen the development of the CMBS market to support strip and drive strip asset valuations, it might be a little more challenging. But -- to date, there hasn't been much formation of CMBS capital in regional markets. So that is part of the explanation behind the moat that exists over time. It certainly could evolve. But right now, we get the benefit of that. I mean we get better returns on equity because there's not as much debt jumping up and taking lower returns as part of the capital stack.

But you're also right, as a public company, I mean we do have legitimate kind of a sweet spot for our leverage that might be different than a private operator -- private owner like a private equity fund that levers up to 70%, 75%. But there's a place for both. I mean that's been the case. If you look at other asset classes in real estate, there's been a developed CMBS market. I mean, in apartments, there's a developed GSE market where the government actually loans the apartment at extraordinarily low rates. That hasn't precluded the public companies from building enormous portfolios. So there's room for all to coexist.

Yes. Let me say that if we did not value our investment-grade ratings and we were a private company, we'd lever the live in stuffings out of these assets because as we've said time and time again, our revenue streams in both grew. I could sleep at night forever looking at the portfolio that we have, knowing that we're going to get paid this year, next year and 10 years from now, with absolute confidence. Of course, we'd take more leverage. But look, we're a public company with a different set of goals and a different financial structure that we want to protect and maintain. So we're much more cautious and we play within the sandbox, if you will, that we have.

Our next question comes from the line of Haendel St. Juste with Mizuho.

So going back to the comments on the balance sheet for a second, I guess I was intrigued by the comments on the Bally's Gamesys (inaudible) no longer needed and you're back to fighting, waiting and getting more offensive. And so it sounds like you're clearly gearing up to be more offensive in near term. And I guess I'm more curious if you're thinking about investments outside of gaming as one of your peers has done here recently. If there's been any change in thinking on that or anything on the table and how you think about required returns there versus your more core regional gaming assets?

Yes. So yes, we continue to -- as we mentioned a little bit earlier, think about things outside of gaming. I mean required returns are a function of a spread to our cost of capital given the risk of whatever the investment might be. And I mean, I will point out, not just in our cost of equity, which is decent, but in our cost of debt, which we're sector leading amongst our gaming peers, we are, again, in fighting weight. I mean, we're ready, both from a cost of capital perspective and balance sheet perspective to do things. And that said, yes, things outside of gaming are part of that opportunity set. I mean I'll just say, our goal is not to let great be the enemy of good. We've got great opportunities in gaming, but could there be something good outside? Perhaps, and we've spent many years doing R&D to find what that thing or those things might be. And all I'll say there is stay tuned.

Okay. Fair enough. We will. I guess back to the CFO search for a second and not to beat the dead horse, but I think many of us were under the impression that the search was ongoing. It wasn't maybe the highest priority when it would just take a bit of time. And if it's that you're comfortable with players internally who can fill the role, do the responsibilities, why not designate one of those persons as CFO? It's a bit unique for a company of your size to not have a CFO.

But my real question is more on guidance. I guess we're pretty far into the new year here, and I'm curious why not the comfort level to provide some annual guidance here, but just not going to happen? You have a lot more visibility, obviously, than back in April. I'm just curious on some thoughts there as well.

I think we've said before that we'll head the guidance in all likelihood as we get into next year. We decided with all the variables this year, things known, maybe a couple of things not known that -- not negative, I don't want to suggest for a moment, but that we just may not have a perfect handle or a perfect sight on where this year is going. So it's going to play it out, get through this year, look ahead to next year where I think we probably will get back to guidance.

On the CFO thing, it's an interesting problem, if you want to consider it that way. We've got a very talented financial team here. And I'm looking at just part of it sitting across from me at this table. So I am -- I'll speak as the CEO of this company, I am blissfully happy with the workings of this team, and indeed, it is a team, we could designate an office of CFO. We've talked about that.

And my suspicion is, look, there will be a day when we'll do that, but we're going to play this out longer to no disadvantage to shareholders or to this company. I can't underscore that or not. We have a great team of finance people here in this company. As I say, present and elsewhere in the building. So for the moment, at least, we're going to continue down the road we're on.

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

I wanted to just delve in a little bit to Tropicana Las Vegas, which obviously you've transacted already but there remains, I believe, some excess land, if I'm correct, that you own, which for as far back as I can recall, had some development potential. Is there anything potentially a foot or prospectively, there that -- where you could maybe activate that asset just a little bit?

David, are you referring to excess land at the Trop site or more broadly in our portfolio?

Yes. I was specifically referring to the Trop site, but I'm happy to have you elaborate elsewhere as well, if you feel it would be supportive.

David, there is potential for more at that site. I don't think we or even Bally's knows what more is right now. Frankly, we're working cooperatively with them to figure out how we can maximize whatever occurs there. And I'm just here to say that we are considering the maximization of every inch of that property. So that's as much as I can say for the moment. But I wouldn't assume that the deal that we've announced is all that you may see coming out of it. Time will tell.

I mean look, we're very anxious to build our relationship with Bally's. They've been terrific to work with to date. But I don't think they've refined what they want to do, but we're helping in that process to figure out how we can get the best use from that site. So I think Matt used the term stay tuned. I would stay tuned on that one as well.

Got it. And then if I can just tap into one chronological experience, Peter; and two, just the fact that your team is much closer to regional properties than we are. I'd love an opinion or a perspective around just the profitability levels that we have been seeing for the past 2 quarters. Obviously, people in our position are actively debating the sustainability of some of those profitability levels. And I would just think that your experience and information flow, how sustainable are these -- is it realistic to assume?

At the current levels, I'm going to say not at the current levels. However, to -- however, a good bit of that will definitely remain. I think every company has said, holy smokes, there's a different way we can operate this business to maximize. I think Penn has said they expect to keep about half. They publicly said that. So -- and by the way, had they not, I would have taken a guess at about that level. And I think with many of our investors, I've offered that very thought that I expect about half of what has been gained to be retained for the long haul. This industry has changed, and it's going to -- isn't going to go back any too quickly.

Okay. Neighborhood half is?

Yes.

That is sort of the takeaway.

I'll stick by that. Yes, I think so. Which, David, I'll add is a beautiful outcome for us. I mean just look at our 4-wall coverage pre-COVID, add in that piece and all of a sudden, we have an even more robust portfolio, more a potential for escalator achievement. I mean that really gives our business model some octane.

Sure. And if we were to drop it in the context of digital proliferation, which is only supportive in most cases, it's all good.

More relevance, more durability and more cash.

Our next question comes from the line of Daniel Adam with Loop Capital Markets.

Peter, what do you see driving the record top line results in gaming that you alluded to earlier? Is it pent-up demand? Is retail sports betting contributing, understanding, of course, that it's not GLPI's core business by any means.

Desperation is the word that comes to mind. And I actually mean that. You've got my priority on the Maslow illustration, the hierarchy of needs. I can tell you, look, I've been around the gaming business or the gambling business with certainly with thoroughbred grazing in Penn National, where I was President of that company in 1972 when we opened. And been through a lot of recessions, fuel crises, all matter of things. And I can tell you, absolutely, that in every one of those situations, except the '08 downturn, except that, we saw an increase in business. Business always went up when things -- when the world went down. I'm not sure that's logical or sensible, but that is a lifetime of experience, over 50 years, I can tell you that's the case.

And look, we've all seen it. The people are desperate. I mean they've been cooped up for a long period of time. They want to get out of masks. They want to get back to having fun, living their lives, doing those things. You see it in airports. You see it everywhere today. People are just anxious to get out and do stuff. And I think we're the lucky beneficiary of just that. And I will say also one other thing companies have gotten pretty good, as I said earlier, of knowing their customers. And clearly, marketing has been curtailed, but targeted to those people who can produce the most revenue. They've been pretty skillful at doing that. That will remain.

Remember, the 2 biggest expenses in any gaming business are marketing and people. So if you don't blow your brains out doing stupid marketing, which I think used to be the case some decades ago in the gaming business in the early days when it was expanding around the U.S. and people finally have wised up and decided to keep a little of that to the bottom line. So we're looking at a very different time, but I think the simple answer is people don't give up their entertainments, people are desperate to get out, and I think that you'll find that pattern will continue.

Got it. And one more for you, Peter. Earlier this year, you made a very timely sale in Penn stock. And I guess at this point, as Chairman Emeritus of the company, what is your involvement, if at all, in Penn?

Very little. I no longer get daily reports as I used to. So I have no special insight into the company at all, didn't at that time, don't now. And I'll tell you this. The price at which I sold was purely lucky if I can use that expression. I sold for one reason only, and that is the moron in the White House. I'll say it flatly. So if your -- if political leanings go elsewhere, with the kind of pronouncements coming out of the Biden White House threats to capital gains and so forth. I didn’t, frankly, representing my family and a responsibility in the family trust to do the right thing. I thought, “Boy, we're going to get some of that out of there.” And it just happened to be at that price. It could have been at the current price, and I would have done the same thing. So I'm being very candid about that. Very candid about that.

I still have probably well over $100-and-some million of family money invested. We didn't bail out entirely. But that was the driver. And by the way, on a personal net level, if the capital gains tax goes up to the ordinary income raise, in my lifetime, I'll never sell another share of stock. So now you get into my politics, but that I'm so angry that an investment at which I've been involved with for 50 years, would be forced to be taxed at that level. It's -- so now you got my personal view, but that believe me, that's what drove it, nothing else.

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

So quick -- so one of your peers, I think even some of your more broader peers in the net lease space as well, have been using kind of construction financing as maybe kind of a toehold into kind of --potentially the toehold in the kind of new transaction deal flow, is that something that you would potentially look to do? Or are there just too many kind of risks involved with that kind of a structure?

John, it's something we certainly have thought about, especially -- I mean, when you think about within the gaming space, opportunities where we can have a really good insight in underwriting a pro forma. If we see mispriced risk there, we certainly could put capital there into the structure ideally that transforms into a sale leaseback. But you said the right thing. I mean the goal is to get the talent in to what's ultimately going to be a recurring attractively priced durable income stream.

And the other fact is we don't lend our balance sheet out for free. I mean you look at the deal we did with Bally's, the equity backstop, we've got $150 million of real estate at an off-market 8 cap rate that we're going to have for many years. It's very different than doing a fully prepayable mezz loan on a construction project. I mean our goal is to maybe do something strategic, but ultimately to get recurring cash flow. So we're open to everything and anything that we can -- that makes our platform more valuable for shareholders. We're also cautious and prudent in that application.

Are you seeing opportunities for those types of transactions today? I mean there's a couple of state markets where there's some greenfield or brownfield development? I mean, is that a potential vertical for investment?

Let me answer it this way. Look we are talking with a couple of tenants about significant expansion at their properties. I'd love to put capital to work in that way. Because it would fall under the Master Lease illustratively. But we have said, look, we'd love to see some greenfield opportunity in some of the states that are talking about going to gaming. We need to be there with a partner in whatever fashion we can get there.

And I can tell you that the -- where there is that activity, we are engaged. That's all I'll say about it. But look, the opportunity so long as you don't overspend to develop in a limited license state is about as bulletproof as you can get. You kind of can't go wrong if you just don't overspend. That's the only discipline. I'd point to the properties the last that I built, well, we would have been Plainridge in Massachusetts and, of course, the Ohio properties that I was totally involved with all the design and the building and development, those things were built to tight budgets. They're spectacular in every way, and the performance has been astoundingly good. So would we pass up an opportunity like that at GLPI? I don't think so. So I mean it's what we do. And yes, we would be there.

Yes. I guess just to add to Peter's comment. I mean, most recently, we've had discussions with folks in states such as Nebraska, Virginia and Illinois, which are already permitted locations, but we're on the ground and having discussions with people in jurisdictions, which are not yet legal as well. So yes, we are -- we are scampering around looking for opportunities to deploy capital. And as Matt said, get a foothold to ultimately own the land and building of those properties.

I like that Steve, scampering.

And then maybe changing gears just a little bit on the balance sheet. Where do you see your cost of debt capital today? And I'm just thinking, particularly in the context of some of the pieces of debt on the balance sheet that have kind of shorter remaining maturity or some of the higher coupon pieces. I mean is there a potential there for prepayment? I know there's kind of an equation in math you all will go through, but just the opportunity there, maybe?

I have a sense you're looking at our 2023 and the 5-plus coupon on those. So you can look out and see our current 10-year papers trading just around 3% in the public market. And believe it or not, I mean, we've talked historically about conceptually looking even at the 30-year market and breaking the sound barrier for our asset class there. And those rates, believe it or not, are very close to, if not at 4%. So we're not in a rush to prefinance or prepay the 2023s, the NPV is still negative to do so, but it's certainly something we've got in our back pocket. Between now and then, and we'll do something if and when it makes sense.

And John, I'll just add with the goal of continuing to increase the term of our debt on our balance sheet, given the long life of our assets, in the long life of our existing leases.

Our next question comes from the line of John DeCree with CBRE.

Maybe to get your views on the current M&A landscape or outlook a little bit, Peter, and revisit your response to an earlier question about the current levels of record profitability and how much of that is sustainable. Obviously, a lot of different views on the investment and analyst community. I'm sure your counterparts and peers as well. Has that influenced buyers and sellers? Do you think that's made it more difficult to get some regional gaming stuff over the finish line. Just wanted to get your thoughts on how the M&A market might be considering that debate?

Getting out in the regional world. I mean there is not -- I'd like to think -- there's not an opportunity tree with stuff falling to the ground, where we get out there with a blanket and catch it all, It is so varied and profound. The reality is, as I've used before, I mean, we're not catching stuff. We actually have to mine for opportunity because it's just not -- there's not a lot of stuff for sale at any given moment. There's -- there were a number of properties that we've looked at, significant properties that we'd like to own, where we're engaged with the seller. But the seller says, if you buy this from me, I got no use for the proceeds. Where am I going to put them. I mean it sounds like it's a nice problem. It sounds silly. But in other words, the seller is not ready to sell until the seller is ready to sell. There's got to be some reason.

Much of the stuff that we've purchased has come because of some need strategic or otherwise for the seller to offload properties or lighten up or just get out of the business. But until that happens, we can't make it happen. One of our former employees used to say, it's like somebody coming up to your house and is driving down the street, sees your property and say, wow, that's kind of cool, jams on the brakes, runs up your front door, bangs on the door. And says, I love your house, I want to have it. And then we say, well, it's not for sale.

But I really like it, and I really want to have it. Well, it's not for sale. Now that debate could go back and forth for a while. But until the seller decides or the price gets to a point where it's yours, it's not going to happen. So our job is to hang around the hoop proactively there banging the boards to be there if and when that occurs. That's a vague answer, but that's pretty well characterized as what's out there. There are not hundreds of properties for sale tomorrow morning at 9:00.

That's helpful color, Peter. And to ask a follow-up on part of your answer there, given maybe some of the reluctancy. As we see cash flows from casinos increase and cap rates compress. Are we heading to a point if you had to pull out your crystal ball where valuation or just absolute dollar price given where cap rates are going and where EBITDA is going at these properties? Do you think we're getting close to where there's going to be folks that are willing to let stuff go if we're seeing record levels of EBITDA and record cap rates as well?

The answer is, to my view is, yes, but I'm looking around the table. Other comments?

Yes, John, I think -- I just think of Zillow and that make me move price. I think in Peter's analogy, that guy may or woman may have an idea in, well, if I ever got x, I'd consider. And you're right, robust results right now give capital providers like us a little more license to get close to that and make me move numbers if it exists. But again, it's really driven by what are they going to do with the money. I mean we do have the capacity to help with that a little bit if we were to give units or something to someone, try and structure something.

But at the end of the day, if they don't need to or want to do something with that capital, we still can't pry it out of their hands. And remember, everything we do in those scenarios, I mean, if we don't know where EBITDA is going to be, and we have a decent sense from our -- with our experience where it could be, we need a margin of safety built in. And remember the last few deals you saw us do given the uncertainty, we can solve for price with still a decent 4-wall coverage ratio. And that's been important to us and will continue to be.

Our next question comes from the line of Jordan Bender with Macquarie.

This hasn't been touched on in a while or at least since before COVID, but you once talked about doing $500 million in transactions on an annualized basis. I know that you don't have a crystal ball into future years here, but can we kind of expect this $500 million as a benchmark moving forward?

I haven't given up on that yet, and I don't think we will. Now it's never going to be a straight line. It just isn't. But that's certainly our internal goal that we believe should be achievable. And it's -- we've far exceeded that to date, but what's the -- how do they do ads on television today, past performance is not predictive of the future. Something to that effect, whatever that exculpatory phrase is that it is pretty popular with financial projections.

Awesome. I mean understanding the COVID uncertainties today, your dividend payout ratio is still below historical levels in 2021. And you've kind of talked about possibly reimplementing guidance as we enter '22. Should we expect that payout ratio to go back into your 78% to 80%-ish range?

The answer is yes. Des, do you want to make a comment?

Yes. What we -- our payout ratio is very close to what it had been historically, and we do shoot for 80% of AFFO. The struggle for 2021 was coming into the year, what would our AFFO be, how would our TRS properties perform, what would happen with those -- the escalators and whatnot. So yes, you -- we've always had the same goal and the goal will continue into 2022.

Yes. Look, and I'll say it just as an investor in this company myself that dividend growth is critically important to me within responsible levels. So you can bet that we're going to continue to move it to the best of our ability and keep it going forward.

Our next question is a follow-up question from the line of Smedes Rose with Citi.

It's Michael Bilerman here with Smedes. Matt, I wanted to come back to sort of capital raising, and Peter, you can feel free to answer this as well. Matt, you talked about raising $70 million of equity on the ATM in the quarter. I think execution about 46 67. You obviously have a lot more you can raise on the ATM. But I want to see, like how eager would you be to sort of reload the balance sheet today to position you to do something down the road where you can know your cost of capital today, not knowing where you may be able to transact and buy something in the future?

It would appear as though the institutional interest in your asset class is so high, and you've made a ton of comments on this call describing that. So wouldn't it be easier today to go out and do a joint venture, raise a significant amount of proceeds and be at the ready to capitalize on the numerous opportunities that you've been talking about that could come to fruition?

Yes. Michael, I mean, we have, at our disposal, a whole [toll] chest of things. One is the ATM, which we've used for a net price, little close to 47. But at the same time, we still remain open to joint ventures and other things. I mean, remember, there's a few things. One, we don't have a predictable cadence of acquisitions. So we don't want to overshoot in the other direction and kind of delever to a point where we're not getting the benefits of leverage at their maximum kind of ability to kick in. And there's also large transactions out there. So if we did something of significant size, that's where we're making a decision between the benefits of using equity and debt versus the benefits of the JV partner.

So I mean, I think it's going to be nuanced, it's going to be case by case. What you saw us do this quarter was do that, call it, last piece of positioning ourselves to be in fighting weight to take advantage of especially small and mid-priced opportunities out there, not having equity overhang or any kind of headwinds to our ability to raise capital. But from here going forward, I think everything you said is going to be part of our business plan on an opportunistic basis.

Well, I guess why make it opportunistic? Why not sort of go down the road and try to do something where you can get an attractive cost of capital and tap into that amount of interest that's out there and you run a little bit lower leverage for a period of time, but you've been able to take advantage of the situation. Why wouldn't you be aggressively trying to do it?

We do aggressively have conversations to position ourselves for things like that, but it's the sources and uses equation. Like we're not -- if you're asking should we delever to 4.5 or 4x with a large JV and then wait for the next thing, we don't know when the next thing will be or what scale the next thing will be or what pricing it might have. So yes, we're positioning and thoughtful about being ready for that scenario, but I don't think we would force it if we didn't have a good use of the proceeds. I mean…

We're moving in that direction. I think the ATM demonstrates that we're headed down that road. But we have a lot of borrowing capacity, our undrawn lines and so forth. And yes, we are talking about equity as we raised it opportunistically. But I think we're pleased with where we are right now. And we'd like to pair the concept you have with the use of funds with the transaction with something else. We're not willing to sit on it.

Yes, we were -- just -- Michael, if we were private, we didn't have the public markets, which were totally respectful of and appreciative of, our cash flows would lend themselves to much higher leverage. And you've seen in the last couple of years, get it down to a range that's very, very, I mean, arguably maybe low for what our assets could support, but we think prudent for our business model. To force it well beyond that in the hope that something may arise, I mean, are you giving up more than you're gaining? It's a balancing act. It's an art, but we think we're close to the efficient frontier. We don't want to overshoot one way or the other by a lot -- on the hope of kind of redeploying.

Well, I think the -- I mean, look, I think there's going to be opportunities, right? As you think about the institutionalization of the asset class, to think that it's going to just stop here is probably unwarranted, especially given the confidence that you have in the long-term performance of the asset class. These joint ventures don't -- you can't just snap your fingers and execute them, right? These are long-term sort of relationships that you have to document and let alone all the financing. So if you find an opportunity, it's not like you can just snap your fingers and create a joint venture with an institutional partner or partners or a fund, get all the leverage and deleverage and take advantage of that. So I was just trying to push to see whether and it doesn't seem as though based on your comments, an appetite to sort of fully reload and take advantage today of the extraordinary debt markets and equity markets to monetize some part of your portfolio? It doesn't sound like you have any interest to do that actively today.

We have interest to actively do it for the right reasons. I mean, in your scenario, if we were to do that and cap rates continue to compress, we could lock in a cost of capital and now have a negative spread to where we redeploy it if things compressed another 100 basis points in the next 12 months. I mean again, the REIT business, especially triple-net and healthcare, as you know, is a match funding business. And I don't want to call -- in your scenario, if I'm doing that, I'm calling the cost of my capital now and with an uncertain use of proceeds again, and I'd rather put them together. But we're totally appreciative of the effort and the time line, and that's why we put effort into that channel to make sure if and when it's appropriate, we're well positioned.

And then just finally, just -- Peter mentioned some uncertainties to not wanting to give any guidance, even though it's a lot more clear today in terms of the performance of your assets. And Peter, you mentioned there are a couple of things not known. Are those with your existing assets that are not known? Or is that external opportunities probably more so on the buy than the sell given the conversation we just had?

It's kind of -- Des, you want to say -- yes, it's…

Yes. It's just the timing still on the sale of our taxable REIT subsidiaries. We just want to clean all of that up and then begin forecasting once we have all of the unknowns out of our -- that we -- things we can better control.

We're halfway there with the sale of Perryville.

So it's all -- so the unknowns are all due to the TRS. There's nothing else transaction or at your existing assets, it's all to the TRS. And why couldn't you just sort of bracket the TRS income and things and give us the rest?

There are potentially other things as well. We're just not going to go down that road, we can't. So I mean, yes, there are other things we're looking at doing could happen, might happen that -- nothing negative, I'm looking at the positive side. It's mostly good. TRS performance, by the way, has been terrific and it -- go ahead, Des. Do you want to?

I mean, honestly, the flip side of that is if everything was known, it's pretty easy for everybody to project, right? So it doesn't -- you don't necessarily need company guidance for that. But I mean, I think we will look at providing guidance and determine the right time for the company to begin doing so.

That is all the time we have for questions. I'd like to hand it back to management for closing remarks.

Well, yes, let me thank all who have dialed in this morning. Obviously, we appreciate that. It's to say, this is a lot more fun when the news is good, which it is. You find us in a very optimistic mood about where we're going through the balance of this year. And looking into next year, we feel very good. So if we've left that impression, which I hope we have, then we've had a successful call, and we thank you for joining us. Thanks again. See you next quarter.

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