Gaming and Leisure Properties Inc (GLPI) 2021 Q1 法說會逐字稿

Greeting, and welcome to Gaming and Leisure Properties, Inc. First 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.

Thank you, Doug, and good morning, everyone, and thank you for joining Gaming and Leisure Properties First Quarter 2021 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section of the company's 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 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 discussions related to risk factors and forward-looking statements contained in the company's filings with the SEC, including its first 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. 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; Steve 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, everyone. Thank you for joining us this morning.

We are, of course, pleased to announce another strong and, I think, eventful quarter. Notably, we have continued to diversify our tenant roster with the significant addition of multiple transactions with Bally's, part of which includes a 50-year ground lease on the Tropicana property. And I just want to note that, that kind of brings full circle of our pretty, I think, bold and decisive choice to provide a liquidity to Penn National back in a very, very dark hour. The result for them and, clearly, for us, as well, has been evident.

There are many other significant events that we've highlighted in our press release. There's a lot of detail here as always. It's all there, if you want to take a look at it. And we're here, of course, with our team to answer your questions.

Obviously, too, we had a strong financial performance this quarter. And let me ask Desiree Burke to go through just some numbers that she'd like to highlight.

Thanks, Peter. Good morning.

Our first quarter results were strong, and we are ahead of the first quarter of 2020 on several metrics, primarily the variable items in our business.

To summarize our first quarter REIT segment. Our rental income increased by $7.1 million compared to the quarter a year ago. That's primarily related to noncash rent adjustments of $9.5 million, higher percentage rent from our Penn master lease of $3.2 million relating to the Ohio monthly results, Morgantown rent of $750,000 relating to the lease that we had with Penn that became effective in the fourth quarter of 2020. Those items were partially offset by lower percentage rent of $2.1 million on our Amended Pinnacle lease, our Boyd lease and Meadows lease, lower cash rental income from Caesars of $700,000. As you might recall, we entered into an amendment with them in July of last year, which provides for fixed escalation in the future. Lower rental income from Casino Queen, which is related to our deferred rent agreement with them and their temporary closure during the quarter. We do expect this amount to be collected upon closing of our Hollywood Casino Baton Rouge transaction with Casino Queen, which is expected in the latter half of this year.

The REIT segment also benefited from lower interest expense this quarter due to the refinancing activities, which we occurred in 2020. And then lastly, our TRS had strong performance, with net revenues and adjusted EBITDA exceeding the prior year by $10.9 million in revenue and $6.8 million in EBITDA. Consistent with the theme that we're seeing across all regional gaming, spend per visitation, it continues to be strong, and we began to experience an increase in visitation throughout the quarter as well. So we have spend up as well as the visitation, which is a very positive sign for our TRS operations.

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

Thanks, Des, very much. Matt, you wanted to highlight some broad issues, just to put the company and our efforts and perspective of this quarter.

Sure. Yes. A few thoughts.

The first thing, if you look at the $150 million of acquisitions we just did and the transaction we did last year with Bally's, and you really consider their master lease construct, a creditworthy operator and a very solid 4-wall coverage based on our underwriting. They arguably represent some of the best risk-adjusted cash flows in all of commercial real estate. Both deals had aspects that were off-market that are reflective of GLPI's unique skill set, not just bidding at auctions, but creating and originating transactions. We compete on capabilities, not just cost of capital, and these transactions make that clear.

As we continue our efforts to facilitate and originate transactions, we remain committed to a balance sheet with optimal leverage for our business plan that maintains significant liquidity. And more broadly, to Peter's point, as we move forward, given the still very significant yield spread between our assets and the market level of interest rates and the even more proven track record of operating resilience we heard on some of the operator calls so far this quarter at the underlying properties, the case study is still in play, and the case for cap rate compression and multiple expansion remains very strong.

With that, I'll give it back to Peter.

Thanks, Matt. That's very helpful. And with that, I expect you'll hear from others, but let's turn it -- open the floor, operator, for questions.

(Operator Instructions) Our first question comes from the line of Barry Jonas with Truist.

Maybe I'd like to start with Tropicana. Can you give any more color on the process? How deep was interest in the end? Do you think you maximize proceeds? Or was the relationship with Bally's an equally important factor?

Well, let me take a shot at that. The relationship with Bally's is very important. That probably was a driving part of this. There's a lot of interest -- in the range of -- without saying too much -- in the range of what we had invested, maybe you could have made a couple of dollars. But I think we took the long view here to create an earning asset, after all that's the business we're in. We got a significant cash payment upfront and a long-term deal at a decent yield and also solidify our connection to Bally's in this and other things that we're looking at and doing.

Anybody else at the table want to add? Steve, you...

No. I think everything you said, Peter, is correct. Look, I think the ability for us to convert an asset that was non-income-producing into income-producing and the ability to use the $150 million as an offset to the additional acquisitions we're doing in Black Hawk and Rock Island, I think, were very beneficial for us in our story going forward.

That's great. And then just as a follow-up question. I'm curious to get your thoughts on the recent realty income acquisition of Bay REIT and see if there are any takeaways for you, especially as you think about consolidation at some point in the gaming REIT space potentially.

Matt, you want to take a look at that?

Yes. I mean I'd just say big picture, Barry. I think there are certain key factors in all triple net M&A, and it's really initial accretion. It's future growth impact. It's diversification of the portfolio, and I think -- and the impact of a larger denominator on the company. And in the realty income deal and all the feedback I've heard, the overarching positive was the 10% AFO accretion that they shared. And the countervailing point was just a question around how denominator that large is going to impact their growth going forward. And without any specifics to our sector, I mean, I think those themes are applicable. I think the accretion piece and the impact on future growth pieces are what they are. Diversification is a little different because realty income was a lot more diversified when it started. So I don't know if they gained a lot there. Our companies are much less diversified. So you could take that for what it is. And then the impact of the denominator also is as relevant, maybe more because there's a limited finite number of properties in the space. So I think that's how I'd read the tea leaves there and leave the conclusions to you.

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

First question, I guess, following up on asset pricing. Matt, you touched on cap rate compression in your opening comments. Are you seeing price pressures or competition beginning to drive down cap rates? From a competitive standpoint, are you seeing new capitals show up on the real estate side?

I think it's a little early to call exactly where spot is because there's not that many moving pieces in real time. We haven't seen 3 or 4 transactions close. I'd say what we did was certainly an off-market deal in every aspect. So I wouldn't take our cap rate as market. I mean, I'd suggest to you that it was favorable to where the market might be. We'll have to see where price discovery is. And I'd also say every one of these deals has a lot of nuances, and we're very focused on credit quality, the operator, the construct we get. And it's hard to kind of look at it all apples-to-apples because there's nuances.

But I do think if you look at the valuations of the public companies, if you look at the ones for capital to get exposure to higher yields, back to the cap rate compression point, over time, I'd expect there to be some compression. And our hope is and our strategy is to find opportunities to get excess return from our efforts. So not to be bound by this kind of headwinds in the transactions that we do. So I think we'll see how it plays out this year. I think the stage is set for a positive backdrop in that regard, and we'll just have to wait and see how it plays out.

Okay. And then I was wondering if there was an update on the timing of the sales of the TRS operations and the closing of the initial Bally's transactions.

Brandon, why don't you take that?

I mean, simply, there's really no update on that. What we've said publicly is still where I think we are in the second half of this year. And I don't see anything to change that at the present time. Whether it's early in the second half or later in the second half will depend on the regulatory process. Both of those are in full swing, and I think we'll know much more next quarter than what we know this quarter.

Yes. I mean, candidly, we can't get ahead of that process. And we owe it to the folks we work with, our regulators, to be patient, get it done, and they kind of set the time. So -- but I think, as Brandon indicates, we stand by our previous suggestion of when they will probably occur.

Okay. Got it. Are those are the 2 primary factors around not providing guidance at this point? And should we expect to see some additional guidance or visibility once those transactions closed?

Go ahead. Steve, you want to take that?

Yes, Todd, I think the answer is yes. With 7 assets currently either being divested or acquired, it is very difficult for us to provide guidance because the timing aspect of all these transactions is so critical to what will ultimately be the annual performance here. So I think you're right. That's the main overarching issue for us to provide anything that would be accurate to the marketplace.

Yes. It's all good. I mean we're going to get there with these transactions. But we can only be wrong in trying to estimate when and how they're going to occur. So we just feel that whatever we said would be misleading one way or the other. Now that'll smooth out at the end of this year as we get into next year, and we may well then get back to guidance.

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

This is Cassandra asking on behalf of David. Coming back to the Bally's transaction for a second and just give us a bit more on the rationale there. Is the ground lease instead of the usual triple net lease on property, so we see -- I mean just giving more details there?

Steve, why don't you take that?

Yes. I can jump in. With respect to the Tropicana side of the transaction, yes, it's a ground lease in effect that we are going to only own the land pro forma for the transaction. Part of the long-term thoughts, as Bally's has indicated in their press release, was they will look at redevelopment opportunities in the future. And I think it was important that, for them, that they have the ability to make changes to the overall capital improvements that sit on top of the land today. So I think that was part of the thought process there. It will be triple net in that. We have no carry costs associated with the property. We'll just collect our rent on the land.

Got it. That's helpful. And with respect to like the right of first refusal on -- in several markets that they lay out, can you talk about the rationale between like balancing using equity or debt to finance such acquisitions or financing provided to them?

Yes. I mean as the year plays out, I'll go back to that commitment to having balance sheet in the optimal place. We've historically said the guidepost for that are 5 to 5.5x debt to EBITDA. And as the year plays out, I think we're going to get some more visibility on the likelihood of some of the transactions coming to pass.

And I'll just remind you, we have in our tool chest the same tools we had historically. We've got an ATM program. We've also got retained cash flow that at our size is actually a decent number that can help fund things, too. As we move forward, our intention on anything we're going to do incrementally is to at least appropriately balance the debt in the equity, and that means to have -- equity that's not going to lever the company.

Yes. I think that's the best answer. We're committed to that, and as Matt well outlined. So you can always assume we're going to stay in that range period.

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

In terms -- a couple of questions on Bally's. Can you tell us what is the outstanding obligation to Bally's on the $500 million commitment for the Gamesys transaction? It's not clear also whether the Black Hawk and Rock Island sale leaseback transactions would satisfy part of that obligation.

Sure. So as you'd imagine, we would love to fund the commitment in exchange for $500 million worth of sale leaseback acquisitions with Bally's. However, historically, Bally's has demonstrated an ability to efficiently fund transactions using various forms of capital.

I'd point out that and remind you that the outstanding commitment is reduced by an incremental equity. They raised above $850 million between the time of our agreement and closing of the Gamesys transaction, and they've already raised $745 million. So we're cautiously optimistic that some portion of the sale leaseback financing may occur.

Okay. And are you able to select which assets satisfy the sale leaseback obligation? Or is that at Bally's discretion?

That's mutually, the language says that's mutual.

That's a mutual agreement between us and Bally's.

Okay. I guess just one other question is on rent coverage, which is 1.3, which is below the typical 1.8 escalator coverage governor. Given the recent occupancy cap restrictions that are lifted in certain jurisdictions, could you provide some insight into the potential trajectory of improving rent coverage?

Hang on.

Yes. So are you referring to the table where we report the prior quarter rent coverage on Page 14 of our release?

Yes.

Okay. So obviously, each of our tenants have been impacted by COVID in prior quarters, and that is a trailing 12-month number. So we expect those numbers to continue to improve. As we've said, the properties have continued to open up and have had fairly strong performance. That's what we've seen other operators report to date. So those numbers are a point in time and trailing 12 months and do include closed periods.

Yes. As I'd like to say internally, it's hard to count to 0. 0 revenue or limited revenue is just that. So no, we're not at all concerned about coverage, and we expect it's going to move very swiftly back to a place that we're more comfortable and in line for increases.

And then you can take a look at some of the results we've seen, at least Bally's has reported. I mean there was certainly some robustness in the time period since the numbers in here. We're just -- we're not giving any guidance on the time line of when we expect that to eclipse our threshold, but we're hopeful to see it and not terribly distant future.

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

As Bally's has been quite acquisitive lately, how do you think about the Bally's new 7-year ROFR opportunities in the 4 states? I know Bally's previously had a bid for Virginia Casino Development or that they might be interested in a downstate New York full-scale casino gets legalized. So just curious on your overall big picture view on the potential here.

Sure. I'll give a shot. But obviously, we can't speak for Bally's intentions of any project. But yes, it's publicly reported, obviously, that they were knocked out of the Richmond bid process.

Look, I think the way we landed at the ROFR in those 4 jurisdictions was predominantly based on the fact that we believe and they believe those are 4 jurisdictions where, ultimately, online sports betting and iGaming will be very important to a company that's trying to put together an omnichannel strategy. And therefore, whether or not they achieve the acquisition of a property in the next 12 months or in year 6 of the ROFR, I think we want to be able to have a seat at the table to work with them because, as you did point out, they have been acquisitive. They are aggressive, and we would like to be their partners in any transaction, whether that's a development project or a existing casino property. So that was the thought behind that process.

Okay. That makes sense. And then just one follow-up. As the tenant conversation has largely shifted away from your largest tenant and national gaming, do you foresee any further desire for them to grow and access new states with you as a partner? Or is the right way to think about external growth with newer operators like Bally's or the ROFR on the Casino Queen -- with Casino Queen?

Yes. I mean I think the answer is we want to do business with every one of our tenants, and we stay as close as possible to each of them to be a good and a positive partner for the things that they may wish to do. How it would shake out on a particular deal or state or an opportunity, we -- I can't predict. But obviously, we spend a lot of time thinking about how we can be a good partner to our existing tenants, period. It happens at the moment, the Bally's is highly acquisitive. They've proven to be really good guys to work with. Honest, easy. It's been kind of fun. So we're going to go where the river is flowing. So -- and that could be with any one of our existing tenants.

Our next question comes from the line of Smedes Rose with Citi.

I just wanted to ask you -- there's been a lot of media stories about native Americans moving into commercial gaming, particularly with a couple of assets in Las Vegas now. And do you see that as a potential avenue to develop new tenants? Or is that of less interest to you?

No. Look, commercial is commercial. That's a terrific opportunity, and we want to be part of that anywhere, in any place we can with any responsible, well capitalized group, absolutely.

I mean if you look back historically, we've talked about on the travel reservations, it's a little hard to structure appropriately for our structure. But anything they do off-campus effectively with projects that are on traditional sale leasebacks with us, I mean, it's -- we'd love to do it with the right balance sheet, the right credit, and some of them have a lot of cash flow, they'd like to grow it. So it's certainly a part of the conversation here. It has been, frankly.

Yes. And do you -- I mean do you feel like this is an avenue that more native American tribes will pursue going forward for whatever reasons? It just seems like there's been a little bit of a -- I mean I know some of them have been in it for a while, but, I mean, I think it could be a big new thing over the next few years.

I mean the question is me is that they have a lot of cash sitting around, what do you do with it, right? I mean people with good situations have that problem around the world, and they know that business, and they know the upside from that business. And it's very unique compared to other things you could put your cash into. So I'd expect there to be more of it.

Yes. And I'd echo that and include the fact that there's a number of jurisdictions, which historically have not had gaming, Nebraska, Alabama, which are now starting to move towards it. So as you have cash flow and you're sitting on a wonderful asset that's performing, but you have sudden competition possibly coming in around you, you're going to look to diversify. And I think that's something we're going to continue to see. And I think you're right. I think we'll continue to see things happen in Vegas, maybe not on the Strip, maybe off Strip, but I think we'll continue to see activity there.

Okay. And then just maybe a comment. I mean I don't know if you're taking a vote on this, but there's only 3 gaming REITs. And I think you have your call concurrent with one of the others is you should probably like reach out to your peers in this space and figure out a way to have calls at separate times. Just a comment for -- take it forward...

That's a fair comment. They came in after we did, and I think somebody came into my office and said shall we move out. And I said, heck, let them move. I am not being cute. But yes, it's unfortunate. We agree. So we're in the same page. No malice there. Just the way it kind of worked out.

(Operator Instructions) Our next question comes from the line of Finn Barrett with Bank of America.

I had one a little bit more broadly. Just as we've seen some new states legalize online sports betting, and the license system is kind of untethered from land-based casinos to a certain extent. It'd be great to see or hear your thoughts on kind of how that's going to affect the transaction market going forward and maybe your own growth plans.

Well, look, I mean, part of the answer is we don't really know, but most of these states are tethered to bricks and mortar. There are some that aren't, and there are some ongoing debates in various states.

I know talking to our major tenants, they are very focused on bricks and mortar. They are completely focused on that and are building out facilities at some considerable cost to capitalize on that opportunity. So I don't think the script has been written yet. There are some states -- you're right, that could open it to the world, it's possible. But I think on balance, look, people are social animals. I'll take the point that -- or make the point that look, you might place the occasional bet from home or from your car, from a parking lot someplace, but by and large, on a Saturday, I mean when football is going and Sunday football activity, people are going to want to be with other people and enjoying a drink and get the whole social experience. So I think what's going to happen is you're going to see a huge lift in gaming in the United States generally. I'm not sure that's good from a public policy point of view, but I think that's what's going to happen. You're going to see numbers rise everywhere.

Yes, Finn. And I'll point something out. I mean you used the word tethered. And one piece of this practically for us is having the state structuring. But the reality is, if you look at Penn's public comments, the value of a customer that uses multiple pieces of their omnichannel platform, whether it's iGaming, sports betting and the bricks-and-mortar, is inherently multiple times more profitable. So there's a business incentive for our operators to have both pieces in their delivery platform. And at the end of the day, I mean, our assets are essential than getting customers that are reliable and predictable and give them more profitability.

So I think when we look back, we're going to get many positives that come from COVID, getting this case study that we're getting. And on the growth front, I don't know that it's going to be very different because those economic incentives are going to be there regardless of how the state structure things.

Yes. I think with -- I'd add one differing comment just around your M&A question. I do think that it could be a little different in that if you can now go and be one of 60 online license holders in Maryland, you don't maybe then feel the need to go and acquire an asset there. I think that's the surface understanding of it. But I think what the reality is, is there are owners of assets in states, which have had massive price appreciation tied to the assumption that those states will tie their license back to a property. And if those things don't happen, those valuations move aggressively. So if you take New York, for example, and look at an asset there, the assumption that all that was going to be tied to a property, and suddenly, it appears that it might not be, will massively swing what the perception is of value for a particular asset. So I actually think we're going to see M&A come out of this, and it's going to be the opposite direction than what everyone's thinking. It's going to be people that we're holding out with hopes that they were going to get this massive pot of gold, and now all of a sudden, people can access the market a different way, and now they realize that maybe they should be a seller anyway.

Great. That's super helpful color. I really appreciate that. And then I guess one other question for me just on the M&A market. I understand the transactions you guys have done in the last few months have been generally a bit more off market. But it would be great to hear kind of your sense about what the buyer pool for assets looks like. Kind of pre-COVID, there was a big talk about the increasing institutionalization with private equity, which has been quite active on the operational side so far post COVID, but just be great to see kind of what are you guys are seeing out there in terms of deals.

Matt, why don't you take a look at that?

Yes. I think that it's the usual suspects. I mean we certainly see them. And I think on the margin, there's a little sniffing around from some of -- some folks on the private equity side. But remember, it's not that easy. I mean you -- a lot of these states need to be licensed. There's a lot of regulatory dynamics involved. And it's not between our -- and that has given us historically an economic moat to an extent and better risk-adjusted returns. So we'll see how that plays out. But you're right on the path towards institutionalization, it's inevitable that other folks get involved.

And on the other side, I mean, you can look at the Venetian deal. I mean Apollo is -- they're not in the real estate, but as an operator. So there's also a case that some of that capital finds its way on the operating side and uses someone like us, which might actually be helpful to us. So we'll have to wait and see.

Congrats on another great quarter, and that's it for me.

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

So just the first one is a follow-up on the Bally's transaction. I noticed in the [wording] agreement that GLPI would use its line of credit funds as backstop. So I'm curious, I guess, better yet, help me understand your thoughts around the balance sheet strategy, that 5 to 5.5x leverage range you outlined. How did that play into how you structured the deal? And any concern at all with their ability to put that financing backstop to you within what I think is 3 days?

Steve?

Okay. Sure. So 2-part question there. First, I think, look, we have a significant amount of time between now and when any transaction would be closing on the Gamesys. And I think there's a lot of things which could happen between now and then, which could impact the total amount of the commitment. So I think that we're committed, as Matt said earlier, to the leverage point. If we're -- if down the line, we find ourselves acquiring additional assets, we will, of course, look to use different avenues that are available to us, such as the ATM, for example, to go ahead and make sure we stay within our leverage parameters.

With respect to the 3 days notice, I'm just going to say, my personal belief is we will have significantly more heads up as to whether or not that commitment would be needed to ultimately fund the transaction well in advance of 3 days before closing. So again, I think we have what looks to be sometime in 6 to 9 months to watch this play out, and I think we'll know more information as we go and significantly more information next quarterly call.

Got it. Got it. All right. And then I guess a question on the guidance. Why still no guidance? Can you shed some thinking into why you're not giving guidance? I know there's a lot of other REITs and other sectors with equal or even greater uncertainty that have provided guidance, so curious on that. And certainly, I understand the challenge that the unique times present here. But curious when we can expect guidance. And then maybe as part of that as well, what's the latest with the CFO search?

Well, I'll just reiterate the comment from earlier around the guidance. I think the main overlying factor that's driving the fact that we're not providing guidance right now is that we have 7 assets that are -- we have 3 divestitures, and we have 4 acquisitions that are pending, pending regulatory approval and timing TBD. So I think that's been the main item that's caused us to have hesitation around providing guidance because without knowing the timing, we're definitely not going to get the number right.

I'll let Peter answer the rest of the...

On the CFO search, it's really -- for the moment, not searching. Look, I think you can see pretty evidently from this quarter and last quarter, I mean, we have no need for someone in that capacity today. Will we eventually fill it? Yes, I think we're going to see how things shake out. We've got a great team here. All bases are covered completely, orderly, perfectly. And we'll just have to see how it evolves. And -- but I think, ultimately, down the road, you will see us filling that slot, but there is no active search going right now just -- because all bases are covered.

So a question on the guidance. Any thoughts on perhaps providing a range, which perhaps at the high end contemplates one set of circumstances, at the bottom end would contemplate another? Anything on that?

I think it's virtually impossible for us to achieve that with all the moving pieces because if there were 1 or 2 moving pieces, we clearly could try to make an estimate on the low end based on timing in the high end. When you have 7 moving targets, I think that to come up with a meaningful range would be very, very difficult. I think the range would probably be so large, and it would not be a meaningful number for the market.

Yes. Timing is everything in these transactions. Obviously, there's a lot of money involved on a monthly basis, and we can't guess -- I mean we can estimate or take a swag at what it might be. But we've talked about it ad nauseam with our Board and with his team sitting right here today, and we've decided that there are so many variables that it just -- we can't be right and don't feel comfortable putting it out there. Now, as I said earlier today, we may well we get through a lot of this stuff, be back in a position where we can feel comfortable once again. And if that seems to make sense at that time, then we'll do it. I mean we understand the interest. But right now, we think it's not serving us, certainly not serving our shareholders well to put out a number that we can't offer with confidence.

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

Most of my questions have been asked. I guess I was just curious if you have thoughts on the Venetian sale price and kind of what you think about valuations in the Vegas market from here forward. And obviously, that was done at a time with a little more uncertainty, but just curious of your thoughts on that.

Matt, it sounds liked your question. So why not...

Sure. So firstly, Robin, we think the valuations in the Vegas market, given the risk associated with the cash flows, are far less attractive than what we got in the deals that we did, and we'd underscore the benefits that we got and the deals that we got.

More broadly, I mean, I think it reflects the cap rate compression we've talked about. I think if you look at their lease structure, the escalators and the IRR construct has certainly helped drive the pricing in a way that puts a good mark out there for our entire asset class. And I think we'll watch as things transpire and see where things price going forward.

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

Maybe just following up on that last question with kind of a broader lens. I mean, it seems like if you were to take the Venetian transaction, maybe some of the deals that GLPI has done, it's a pretty wide gap, and I know your deals aren't necessarily market, but just broadly speaking, there's a pretty wide gap between kind of cap rate on regional assets and Las Vegas assets at this point. And I mean, I guess, what do you think needs to happen for some kind of convergence to occur on those cap rates, if it will kind of ever occur?

Yes. I mean I think we're seeing a lot of that right now. I mean we talked about the last call, too, look at the underlying operating cash flows, look at the resiliency and look at the creditworthiness of our tenants. And you'll see if you look at the stock prices of our whole public company asset class, they've all moved neatly upward in this environment. And if you look at -- and I know we've talked about historically, other asset classes, like self-storage, manufactured housing, data centers go down the list, it took a while. And it was a slow process, but it was methodical, and it was pretty consistent over time. And we've seen the beginnings of that. We do not think we're past middle innings of this cap rate compression.

The merits of our cash flow compared to especially the fixed income market. I mean if you took our assets got rid of them and just created bonds out of our cash flows. They would trade well better than where our company is at and where the assets are valued. And on top of that, we have real estate as collateral that's mission-critical to state budgets. It's operationally essential to the operators. When you put those facts in front of people, it's a learning curve. I think there is a price discovery piece that comes from the private side. I mean we've talked about that historically, too.

As the public market gives one form of price discovery, if there are transactions in the private market that come from private equity or other sources or anything we might do, whether it be a joint venture or something else to give a positive mark for the asset class. There's really no transactions that take place that represent the value of a '19, '20 asset master lease with a creditworthy counterparty like Penn. And we hope folks like you help make that case as we move forward because it's pretty obvious when you look at the resiliency where the cash flow should trade. But there's a time element involved. It's always been that way, and we're methodically moving forward on that trajectory.

Yes. Look, I'll say flatly, the cash flow coming out of regional properties is more valuable than the cash flow in the Strip, period. It just is. That's a story we've been telling. We'll continue to tell. The facts bear it out without a doubt. But look, people like glitz, and the market is the market. We can't affect that except to say, if you really care about the liability and certainty, you really want to be in a regional market, you risk too less. You want to have a $4,000 room hotel, when things are tough, you want to have none and have a strong facility like some we built in Ohio, Toledo and Columbus, I think you're way better off by any measure. And if you cared about your return on investment, would you put your money on the Strip or would you put it in one of these regional markets, pretty simple. I know where I put it, and we did and had.

So look, it's an anomaly. I understand. I mean you drive up to the Bellagio with the wind. It's pretty exciting and people do that. But don't be seduced by pretty pictures. It's -- if you care about quality, you really want to be looking at the regional market. That's our story. That's what we believe will eventually prevail.

And quality to us, John, is cash flow quality. And the one thing I'd point out is the coverage rates in both of these markets. I mean look at the coverage on the last deal that went away from us in the Strip and look at the coverage that we were able to achieve on the assets that we buy. And not only did you get a better cap rate, you have something that's operationally essential and mission-critical to the states. You also get coverage that's in excess, especially when you stress it, well above one can look back at the deal we did, 2 deals ago with Valleys last year. It was called Twin River. I mean if you take the trailing 4-wall coverage for the trailing 12 months and include all the closures that we talked about all those zeroes, as Peter pointed out, even some negative numbers, our coverage was still in excess of 1.4x there. And at the end of the day, that's called the margin safety, and that helps us sleep at night. And that's our value proposition to our shareholders. The bond market appreciates it, I mean, despite historically being a little more levered than our peers, with the best cost of debt because the folks are looking at the underlying risk profile of the cash flows when they give those rates to our company. And it's inevitable over time that the equity market will continue to appreciate it as we deliver results and clip the coupons and send the dividends to shareholders and do what we said we were going to do.

Thanks, Matt.

Okay. And then sticking with that theme of kind of regional performance and maybe on a more specific kind of level, how should we think about the cadence of the Ohio portion of the 10 percentage rent in coming quarters? I understand it's down to kind of individual property performance. But I guess how strong are the comp that these are going to be based on quarter-to-quarter at this point?

Well, the one thing I will tell you with Toledo, don't forget that we have a floor. So that is pretty much fixed at that rate. So I don't think it can go higher, clearly, but it can go lower. So the only one that's really variable there to go any lower would be Columbus. And as we've seen and as these properties continue to open up, we expect the continued good performance, not the closures that we had seen in the trailing 12 months.

Okay. And as a reminder, the comps are based on prior month? Or are they based on year-over-year basis?

When you say the comp, so the percentage rent is based on net revenue incurred within the period.

Okay. Yes. I'm just thinking about quarter-to-quarter, would just be this quarter versus the prior quarter, I guess, would be kind of the way to maybe think about it based on the reported numbers.

That's right. The reported numbers that I discussed was the $3.2 million beat was first quarter of 2021 versus first quarter of 2020.

Our next question comes from the line of Steve Pizzella with Deutsche Bank.

Given costs have reduced as heavily as they have been for operators, and as such, acquisition-related synergies are probably harder to justify, do you guys expect the M&A environment to remain as active as it has been?

Go ahead, Steve.

Yes, I do. I think that the synergy aspect was certainly important a few years ago when Eldorado acquired Isle and Eldorado acquired Tropicana. I think that at this point, I think those large-scale M&A deals where one operator is buying 10, 12, 15 assets from another operator and is able to garner a massive corporate expense synergy, I think those deals are few and far between going forward just because the landscape in the gaming operator world is pretty set. There's just not a lot of those Isle, Trop type size companies that are still left. So I do think that synergy piece will be less important.

The asset quality, asset type, filling out your omnichannel, I think those are the things that people are looking at. In talking with operators, they're focused on the type of asset. They're -- I think they are being a little more selective at this point as far as what asset they're buying in what market, but I don't think synergies are going to slow down the M&A environment.

There are no further questions in queue. I'd like to hand the call back over to Mr. Carlino for closing remarks.

Well, thank you very much, and thanks to all who dialed in this morning. It's been fun to talk with you, and we'll look forward to, hopefully, another strong quarter next time around. So see you then. Thank you.

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.