Gaming and Leisure Properties Inc (GLPI) 2020 Q2 法說會逐字稿

Greetings, and welcome to the Gaming and Leisure Properties Second Quarter 2020 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, sir. You may begin.

Thank you, Christine, and good morning, everyone, and thank you for joining Gaming and Leisure Properties' Second Quarter 2020 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on 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. The 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; and Steve Snyder, Chief Financial Officer at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President and Chief Accounting Officer; Brandon Moore, Senior Vice President, General Counsel and Secretary; Steve Ladany, Senior Vice President of Finance; and Matthew Demchyk, Senior Vice President of Investments.

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

Thank you, Joe, and good morning, everyone, and thank you for joining our second quarter earnings call. As you all know, there have been eventful and unprecedented challenges that we and our triple-net competitors have faced this quarter. But I think on balance, GLPI has weathered the crisis extremely well. As always, our team has issued a very detailed summary of activities over the quarter. So I will limit my summary remarks. But I think the important net result is that we have received 99, if I can get that word out, percent of our contractual rent through July. Additionally, I think we've proved to be very flexible in helping our tenants meet liquidity or other business challenges in order to ensure their long-term viability and success.

As you all recognize by now, the partial opening of all but a few of our tenants' properties has produced stunning and unexpected results. Business volumes are surprisingly strong, but margins have proven to be even stronger. We expect to hear the same result from Penn National when it reports on August 6. This is probably the best time for me to say what I've been saying for years. And that is my belief that the real strength of our industry lies with the regional properties, not on the Las Vegas strip. Not only is the cash return on invested capital better, certainly with all the properties I've been involved with over the years, but you're about to see again that the resiliency of our tenants' regional properties far exceeds that of destination properties in Las Vegas, however wonderful and exciting they might be.

Let's be clear. I'm not suggesting that Vegas properties are not extremely valuable, they are. But I want to make the case, and I think this demonstrates it that regional properties have long been undervalued, and we deserve equal or even greater appreciation for that.

Another bright spot that I would highlight is that within the triple-net space, our companies uniquely will collect virtually 100% of our rental income. Further, our tenants are largely distinguished public companies whose earnings and issues are largely transparent. Not a lot of guesswork for investors about the health of gaming -- about gaming REIT earnings, pretty open book.

So with that, let me turn the call over to Steve Snyder, who will give you a lot more detail. Steve?

Thank you, Peter, and good morning, everyone. I hope everyone is staying safe and healthy through these crazy times. Just to clarify, although we've been trying since last evening, we did file our second quarter 10-Q this morning in spite of some interruptions to the EDGAR system with the SEC.

Before I move into the quarter, I just want to touch on some personal things and bear with me, this will only be a few minutes. Obviously, my retirement is something that I've been thinking about for quite some time, just having reached the age of 60, believe it or not, and about to be a first-time grandfather. My wife and I have bought a place in Nashville, and we look forward to spending a lot of quality family time in Nashville in the next years to come. So it has been a fantastic run here at GLPI and previously at Penn. I joined Peter back in the late 1990s, and I'll be forever grateful to Peter, to the Board here at GLPI and to the Board at Penn originally for giving me the opportunity to contribute to 2 transformative companies. I think while we were at Penn, we laid the foundation for Penn to now be the leading regional gaming and operator here in the United States. And certainly, over the last 7 years at GLPI, we've created a new asset class in the triple-net lease space, which others have come to copy, which to me is the highest form of flattery.

Finally, the value creation that we've been able to achieve at both these companies is a testament to the talented and dedicated team members I've had the privilege to work with over these many years, and I'd be stepping away with a very talented group of the next generation of leaders for this company. So I look forward to it.

Moving forward into the quarter. It certainly was, as Peter mentioned, a strong quarter. It exceeded even the most optimistic scenarios that we looked at back in the dark days of March and April in trying to evaluate what this unknown pandemic would mean to our businesses. Clearly, it's not over. It seems to be heating up in certain parts of the United States and gaining a little bit less traction in other parts of the United States. But we think the company and most importantly, our operating partners, our tenants, are well positioned to weather and get to the other side of this unprecedented pandemic that we're currently seeing.

Part of the outperformance that we've achieved has really been across all variable items in our business. The percentage rents in our Columbus and our Ohio businesses, since they were able to reopen in June, exceeded our expectations. The operating performance in our 2 operating assets in our taxable REIT subsidiary just wildly exceeded any assumptions that we had made when we scenario planned back in March and April. I give a lot of credit to our VP of Operations, Matthew Heiskell, down in Perryville, who's also the GM in Perryville; as well as Jeannie Magdefrau, our GM in Baton Rouge, and their teams for very effectively and efficiently, literally shutting down a business, furloughing folks and then bringing those businesses back online with unprecedented performance over the course of the weeks that they have been open.

Lastly, on the expense side, we really were able to also outperform from an interest expense standpoint. And you'll see that in the press release in terms of the effective execution that we did achieve in accessing the capital markets to term out some of our variable rate debt.

Also, during the quarter, as Peter touched on this, we spent a great deal of time collaborating very closely with all of our tenants, and that's evidenced in some of the items that are highlighted in the press release. Spent a lot of time with our brethren across the parking lot at Penn, coming up with a rent credit program that really allowed them and proved to be the catalyst for them to achieve some pretty significant performance with respect to access to the capital markets and most recently, performance with respect to their assets.

Also, the new Caesars team. We spent quite a bit of time with them. You saw that as evidenced by the lease amendments that we entered into, which I think really helped them set the stage for getting the final regulatory approval with the accommodations that we worked with them on with respect to the substitution of the asset in Indiana. So I'm certain that they will perform quite well now that they've got their new platform under their belt.

And lastly, we also spent quite a bit of time during the quarter with the folks at Boyd as evidenced by the approval of the Ohio Racing Commission to own the real property assets of Belterra Park, which now does stand in a separate lease, so we have taken that real estate onto the balance sheet and no longer have a loan in place with respect to that asset.

Also, with respect to our public tenants, in all cases, we spent quite a bit of time providing them the necessary relief from nonpayment covenants in all of our leases to give them runways back to normalization because these, as I've said, are truly unprecedented times, and there's no point in using these times for a [footpath] under our existing leases. They need to get through to the other side and are well on the trajectory to do that.

Lastly, in terms of the portfolio, we spent quite a bit of time during the quarter with the folks at Casino Queen. They were successful in procuring a loan under the Payroll Protection Program (sic) [Paycheck Protection Program] plan that the federal government did put in place. We did get, as you'll see in the earnings release, a partial June rent payment of $250,000, and we do expect to execute a deferred rent agreement with the new owners of the Casino Queen that will get us paid in full by year-end. We have elected to go to just cash recognition of the rent receipts from Casino Queen given the situation that we find them in at this point in time.

Finally, from a liquidity and a balance sheet standpoint, we ended the quarter with an undrawn revolver with complete capacity of $1.175 billion. We ended the quarter with $74 million of cash on the balance sheet. In terms of any near-term maturities, we've got a $224 million Term Loan A-1 that is due in April of next year. But beyond that, there are no other maturities until 2023. So the company is in a tremendous liquidity position at this point in time to get through what remains of this pandemic.

As it relates to leverage, you will note that our leverage did tick up modestly in the quarter relative to our EBITDA, not because the debt increased, in fact, the opposite. But because of the modest decline in EBITDA affected by the pandemic. And we did, as was noted in the press release, pay our second quarter dividend, 80% in stock issuing, about 2.7 million shares. And I will note for those on the call that, that $0.60 quarterly dividend ended up being the lowest payout ratio that the company has ever paid at about 71% of the $0.84 AFFO that we reported. Because you will see from the press release that our performance did exceed any of the consensus estimates that were out there on Wall Street.

Finally, as GLPI moves forward, we clearly are still in the fire of this pandemic. But as Peter mentioned, I'm very comfortable that regional gaming assets and our operating partners, in particular, will lead the recovery of this asset class. And once normalized, our tenants will achieve the strongest 4-wall coverage of their lease obligations in the entire asset class.

So with that, operator, why don't we turn it over to the participants for any questions they'd like to address to the management team.

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

First off, Steve, I just wanted to say congrats. It's been a real pleasure working with you over the years. So thanks for everything. And I guess I'll start just with the dividend, is this the appropriate level? Is this the appropriate rate here? And how are you thinking about the payout ratio going forward?

Well, let me take away -- it's Peter. Let me take a quick whack at that. Look, we're going to do whatever is prudent looking ahead. Steve has said earlier, we've matched what we're paying out in cash to what we get in cash. We expect the fall to be actually excellent. And so that we'll be taking a hard look at what the next quarter might offer exactly. But we're not going to make any commitment about that now. But I will highlight that as a shareholder who kind of loves dividends personally, that we'll get back to a normalized rate as early as we think is prudent. And that's really the best answer I can give you.

Okay. Fair enough. Next, and maybe this is a question for Matt, but maybe just talk generally about the M&A environment. What does the pipeline look like? What's your appetite here?

Sure. Yes. So the top-down answer is really that the stage seems to be set, at least partially set for there to be some activity in the space. If there's one thing that COVID taught us, it's that there's certain importance to solvency and the value of permanent capital, and our lease structure is really as permanent as capital gets. You can also look at where operators have priced debt in recent trades, and that suggests that our capital is attractive from a cost perspective. And when we look at our capital sources, we definitely see a functioning capital market. But from a bottom-up perspective, it feels a bit too early or soon. Operators have really been focused on survival and successfully reopening their properties.

And the real question is going to be when there are going to be strategic reasons, be they rationalization, consolidation, regulation for assets to change hands. And when that happens, because of the ability to both help in pricing for transactions and also to help with permanent capital in that maturity risk question, our sale-leaseback structures' value proposition is really as relevant as ever. And we definitely have been working to ensure that we have the seat at the table for all those discussions.

Great. And then just a final one. Peter, you kind of touched on this, but as you look across the triple-net sector, maybe even beyond that, how do you see GLPI and the gaming REITs positioned? Long before coronavirus, there was an argument for cap rate compression. Where do you think that stands now given coronavirus?

You kind of know what my answer is going to be, Barry. It's better than ever. Look, we always said that these are state-sponsored businesses and most -- that rely heavily on the kind of revenue that we generate for them and that these places essentially don't close. Even through tough times, you saw Caesars. The operations still continued. Life went on, maybe the ownership has kind of changed hands. But this stuff is about as bulletproof as it gets. And I'm not going to [live] when I say it because there's always some surprise that maybe in the future will appear. But I think this demonstrates perfectly how rock-solid the income coming out of not just us, but our gaming partners, gaming REIT partners really is.

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

Steve, congratulations. Guys, I know this is going to be hard to answer, but it was recently, obviously, in the paper earlier this week, kind of that Tropicana has been officially listed. And could you talk a little bit about in the couple months now since the transaction, the way maybe your thinking has evolved as it pertains to potentially working with somebody in some form of mixed use versus an outright sale of the property versus kind of any other agenda you could potentially have at this point?

Well, there's an easy answer to that, and that is that as things settle out, and they're certainly not settled in Las Vegas right now, it's hard to guess. We'll do whatever makes economic sense for this company, period. We'll look at every opportunity, all opportunities, partial sales, partial sale leasebacks, ground leases. I mean you can go through a litany of things that we're open to and even are having some discussions, albeit early, that will lead us to the right answer.

I think the key is we have a valuable piece of real estate in Las Vegas. We got fairly priced. We feel very confident about that. And as this evolves, we're just going to try to maximize value for all of us here and for you.

Yes. And Carl, just to amplify on Peter's point, I would make it clear that these 35.1 acres are strip frontage. Others talk about strip proximate. There's nothing proximate about being on the corner of Las Vegas Boulevard and Tropicana Boulevard. This is the corner of Main and Main. And you know everything that's going on down there with respect to the stadium opening and everything else. So it's really a matter of being patient, letting Las Vegas come back to some feeling of normalization. But in spite of that, to Peter's point, there have been folks that have been making inquiries because this has been an ongoing process. And in spite of the Las Vegas Review Journal just sort of suggesting it's just been listed, we stepped into Penn's shoes in this process, and they had started this process well over 1 year, 1.5 years ago. So it is something that will continue. And to Peter's point, with the goal being maximizing value for GLPI.

Great. And then if I could, it's been a question that's come up for years in terms of your interest outside of the gaming space. And it's never been something that made a ton of sense. But in the current environment where some of the entertainment-related companies maybe aren't seeing that the multiples that made the transactions a little bit more difficult from an accretion perspective in the past, have there been any -- and some of that is obviously valid as the business models are very troubled at this point. But has there been any change in kind of your view of nongaming-related assets since the pandemic?

Well, it's Peter. As I had indicated earlier, look, we're happy to be in the space we're in and thankful we're not in some other spaces right now where people are hurting a whole lot more. So -- but what you've asked is, does that open opportunity in some other sectors?

Look, I think, again, we have to wait to see how things settle out. It may create some opportunity for us. But again, the struggle has always been, and I said this when we started 7 years ago essentially doing this, show me a better business than the one we're in. Show me a business that has the cash flow certainty that we have. And we're about to prove it. We're proving it now. So that's always been the struggle.

When we're on the road talking to investors and to all of you, it's really a matter of we're trying to make the case. We are in a business that is about as bulletproof as it can get. It's not about occupancy. It's not about tenants canceling. It's -- none of that can happen. So we're looking. Something may well emerge. I mean, I've always said, I used to say on the Penn side, if it's alive and breathing, you can imagine we're looking at it. I mean, that still is kind of our philosophy. But we're going to be patient. We're going to see what may change. And we're looking to the future growth of this company. But again, prudence, caution, remembering who we are, staying close to the -- to our core value of safety for shareholders isn't going to change. So we'll see. We will see. You may well have a good observation that this is going to open up something for us. And if so, we hope to identify it.

We're open to anything. I mean, that's pretty much the answer.

Our next question comes from the line of Jared Shojaian with Wolfe Research.

So if casinos are going to come out of this crisis in a new normal of higher profitability, but potentially lower revenues, like what we're seeing right now, how does that affect you with the rent escalators tied to revenue? And is there anything you can do to address that? Or does it frankly not matter to you because the overall corporate coverage would just be so much better?

Well, it matters. I mean it certainly matters. Again, I'm going to punt. Maybe Steve or Matt has -- or Steve Ladany has an answer or a different thought about it. But look, like everything else, we're going to have to wait and see how things go.

Look, I have faith in ultimately getting back to the kind of levels we were at before. It may take, though, a lot longer than we ever would have imagined. In the meantime, I think companies were already working. Certainly Penn National was and everybody else as well on improving margins.

Now look, let's be real. I think the level -- the margin level that we're looking at right now is likely -- I mean, is not sustainable. I mean, right now, we're kind of the only game in town, I think, in terms of entertainment and things that people can do and get out. But I think there has been a permanent shift, companies are going to operate more profitably, and we'll have to wait and see what the net result of that is. Steve, do you want to add?

Yes. First of all, Jared, welcome, and thanks for the work that you've done in understanding the asset class and initiating in June. So it's great for you to take the time to drill down and to have you join.

In terms of -- yes, the escalators, clearly, as Peter mentioned, we do expect to see permanent margin improvements in these businesses, which will drive 4-wall coverages so that there is the ability to realize escalators. But I think the bottom line is, look at the amendments that we've made with new Caesars under the Tropicana lease and see what is in those amendments that drive known future same-store sales growth in the form of escalators. And those are the kinds of things to look for on a go-forward basis in my mind from GLPI, just to be specific with respect to your question.

That's a fair answer.

Anybody else at the table want to add?

I'll just add, if you look at it for perspective, the vast majority of our rent is subject to escalation based on EBITDA. So the bulk of it does get the benefit of some of these trends.

And when you think about variable rent, you're right, there could be headwinds that we're working to protect and protect our cash flows through steps like Steve brought up with Eldorado. And also going forward, you should expect us to continue those efforts and help the value of the cash flow.

And then assuming Caesars decides to swap out Tropicana Evansville out of the lease as you've granted that option and then they look to sell it for regulatory reasons, is that an asset that you would bid on?

Absolutely.

Oh, yes. Steve Ladany, just for fun. You've been silent for a bit. You've been keeping an eye -- we all have, but...

No. I think, look, I think the short answer is, yes, we own the asset now. We like the asset. It's performed very well, and it's a quality property with known competition. I think we would definitely have an interest in it. I do think it will be interesting to see how that entire process rolls out because as you're well aware, the other 2 divestiture requirements in Indiana are both leased currently to one of our competitors. So we'll see how we can be involved in that process, but we do have an interest.

Our next question comes from the line of Finn Barrett with Bank of America Merrill Lynch.

I'd like to echo all the sentiment towards Steve. A quick one from our side though. Thinking about the TRS Properties, specifically Baton Rouge, do you guys go through some of the long-term strategic importance of that of, do you see it having a place in your portfolio? Or would you look to do something similar to Perryville?

Look, I think we've been pretty public about that. I personally have a great affection for that property. It was one of the early ones that we bought, and I really do.

But look, I think ultimately, we're a REIT, and that's probably where we're going to need to be. I say that. But happily, there's some interesting opportunity. And that, of course, is the possibility of moving that boat land side. We have orchestrated, thanks, Steve Snyder had directed an effort with the team that we've used in all of our Hollywood properties and guys I've worked with from the very beginning, [Don Bangert] and the Genesis folks in California to do a Hollywood theme facility land side for a relatively modest budget. It's pretty exciting. I'd like to see that through. There's some other things happening in Baton Rouge that are actually very appealing. So there is a real opportunity to do something good with that property.

Beyond that, I'm not sure what happens, but I would like to see through, assuming we get approval down in -- in fact, this month or August coming -- we get approval to move land side with a modest but very attractive facility. The spend is going to be very cautious. But I've seen plans. They're terrific. We just got to sell them to the folks in Louisiana. And so I'd stay tuned for that. I think that property has some room to move, and we'll see.

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

First off, thank you, Steve, for everything and best of luck in retirement. So my first one here to kind of touch on the CFO search. Is there anything you are looking for within a candidate? Someone with REIT experience, gaming experience? Anything you can provide there?

Look, I'd love to answer that question, but I don't think that's an appropriate -- or this is an appropriate forum for it. If you want to give me a call directly, I'd be happy to chat about it and so forth. But in an open call like this, I think it's much -- it requires a much more nuanced answer than I would be prepared to give now. So if I may, it's one of the few times I'm going to dodge a question.

No worries. I guess...

But I'd be happy to discuss it separately later.

All right. And then do you expect to restructure the lease with Casino Queen given that it's been under the minimum coverage for some time now?

Steve Ladany, do you want to take that?

Yes. Look, I think we're currently in discussions with the current management team there as well as the current secured debt holder around that transaction and what's going to happen with that property going forward. As you may have seen, they just announced the DraftKings' transaction, which, from our perspective, is very positive, should support the performance of the property and, therefore, enhance our rent coverage. So there are a number of things going on behind the scenes, and we're working on with them. We are working closely with them, and we hope to have that entire lease in a much better place going forward.

Yes. It looks like -- I mean, in summary, a much improving situation there.

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

So -- and Steve, thanks for all your help over the past few years. So Peter, you've been around the industry for a little bit. You made some interesting comments earlier that I don't think anyone disagrees with you, but that the margin levels we're seeing right now are not sustainable and casinos are the only game in town.

If you look at regional properties and true regional properties, EBITDA is right now growing in the kind of mid to high teens. What do you think -- like if we go out a month or 2 and the current environment sustains, what do you think true EBITDA growth is going to be for regional properties?

Well, Steve, you were going to say? Steve looks like he's ready to --

Well, let me give you a couple of data points because I know you're a data junkie. I'm a data junkie. Looking at our TRS Properties earlier this week in July, I mean, our volumes in the 2 properties were up nearly 6% on a year-over-year basis, and our EBITDA is up over 30% on a year-over-year basis in those 2 properties. That does not feel sustainable. The issue really is, where does the world normalize when we get to the other side of this whole COVID-19 situation, and there's still a risk because you got 50 governors out there. Of course, only 16 of them affect us, that you might see governors roll things back as they're starting to do. But I think we, as an industry, have proven our ability to provide adequate social distancing. We and our regulators have enforced mandatory masks for anyone coming on our gaming properties. And those are the things that have allowed us to realize the performance that we've realized in our taxable REIT subsidiary, and our operating partners are realizing in the facilities that they operate, which we own. So it's too early to tell is really the bottom line.

I think to Peter's point, I don't know about the volumes because, again, these are capacity limited, and yet we're doing these upticks that I mentioned. But I do think, and others have said, wait on their call. We've heard from Caesars, new Caesars in their update, and we'll hear from Penn next week. I think operating expenses have permanently been taken out of these businesses. And that's where the margin improvements will come from. And that's what I think will drive the 4-wall coverage improvements that these facilities will see in the not-too-distant future once we anniversary this.

Yes. Penn already was, I think, had the highest margins across the board in the regional markets anyhow. They were committed to -- still a margin improvement program that has been well publicized. And then you put all this together, I think you're going to see that all businesses, certainly in the regional sector, are going to be able to operate a lot more leanly than they ever did before. So we know it's going to be better. Just don't know where it's going to settle out, as Steve said. We've just got to wait and see. But look, this is -- we're thrilled with the early results.

And just as a follow-up, looking at your TRS Properties, can you just discuss the demographics that are coming through the properties and driving that 6% volume growth? And is there any way to read into the stimulus checks wear off today, I think, is the last day, what the impact could be?

Look, it's too early to tell. Let me answer the easy one first, which is the demographic, slightly younger. We've seen more table games drop than historical norms because of that younger and a little bit more male-oriented demographic. And these data points are just from Perryville, Maryland and Baton Rouge, Louisiana, so don't extrapolate these globally. And we're also seeing a much higher participation by -- from unrated play. We're just seeing much more unrated play because remember, we have not marketed aggressively because of capacity limitations. We've been fortunate, Louisiana has provided $5 million in annual tax-free promotional credits, one of the reliefs that they've provided the industry as a result of this whole COVID-19 situation. So it just went into effect. So these things are still playing out. But generally younger demographic, more midweek, mid-day business than we're accustomed to seeing, greater unrated play and higher spend per visit at a high level or the demographics that we're seeing.

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

And Steve, all the best. None has been more engaging and enjoyable. So well earned. We've covered an awful lot of information, but I just wanted to propose the notion of getting involved in a category of assets that's tangential to what you have. What we're hearing more and more about are hard assets that may house sports betting other than casinos, that could be sports venues. Obviously, OTBs are near and dear. But how much looking or thinking have you done around those kinds of hard assets, particularly in a world where all things digital seem to be top of mind?

Look, I think we spend a lot of time looking at both opportunities or potential threats to our business as we look to the future. So the quick answer is we spend a lot of time talking about that here.

Remember that this is going to unfold, though, on a state-by-state basis. Some states are going to be completely bricks-and-mortar oriented. There's potential that in some places, like, I guess, in Washington, D.C. or I understand that Michigan maybe is talking about anybody in his -- their kids can get a license to do this. I mean, it's just open to the -- almost anyone. That's a suggestion. It hasn't happened. But -- so we have to see how it's going to unfold.

Look, the states have, and I can speak a little bit with -- about Penn National. I do think they are largely focused on legislation that supports their bricks-and-mortar facilities. There's plenty of reasons, employment and otherwise, that the states ought to be sensitive to that. But the truth of it is it will be up and down. Some states will be highly sympathetic to the bricks-and-mortar protection. Other states may be less so. We're very early in the game. And I think we just kind of have to keep an eye and see how this unfolds. That would be my answer. Around the table, anybody want to --

I'll just add, David, when you think about things outside of gaming. The gating factors are really, does it fit our competitive advantages and our institutional skill set? Does it have durable qualities similar to the assets we already own? Does it have an attractive risk-adjusted return profile? A predictable growth profile and also a margin of safety. And if we can find those attributes in some of the areas that you're suggesting, make no mistake, we're looking and we'll certainly move when prudent.

Right. If I may just follow-up. I know we've talked a fair amount about the Tropicana Las Vegas. I -- is it fair of us to assume that the full range of options, including you continuing to own the real estate and bring in an operator, is on the range of outcomes?

Well, the quick answer is, we look at everything. Again, you've heard me say that ad nauseam. It's hard to guess where this is going to go. I mean, I think we've tried to leave the impression that we're very open to look at anything that is profitably, safely prudent for this company. And that could be just a straight-up sale for the highest dollar we could get or something more long-lasting that we believe creates value for our shareholders. And that's what drives the entire thing. So we suggest that until the market kind of settles out, we're going to be patient. We're going to look at a lot of things. There are people, as Steve Snyder offered before, that are talking to us about stuff. Well, okay, let's see a check and let's see a concept that we can accept. So again, it's a squishy answer because, frankly, that's where we find ourselves right now.

And the outcome probably will have some sort of counterparty that wants to bring capital to the table at some point because it does seem the highest and best use is not the exact configuration that the property is in right now.

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

So to follow-up on the acquisition potential, is the pandemic creating any new opportunities for you as holdco operators may be looking to raise capital by selling the real estate for the first time?

Roll that by me again. I'm not sure I understood the question. So maybe unless, Matt, you kind of got it.

You mean kind of just originating new sale leasebacks as an alternative capital source?

Yes. I'm saying there's a number of casino operators that own 100% of the real estate, not yet working with the gaming REITS. So does this environment provide an incentive for them to look to raise capital by working with you guys to sell the real estate?

We hope so. It certainly could.

Where is the public market pricing their entities and is it giving them appropriate value or not? Arguably, right now, I mean, there's certainly dislocation in pricing. If that persists for a longer period of time, it certainly could be an opportunity. But I'll point you back to the original comment. Right now, it's really too early to tell.

We're certainly engaged, though, in a dialogue and we make those suggestions all the time because not only do you get some balance sheet arbitrage, but you also get the permanency of capital that we talked about, which can ultimately lead to higher values for the companies.

So to Peter's point, we certainly hope so.

Right. Okay. And then switching gears. Relating to the approval to own the Lumiere Place casino, is this a new single asset lease like you similarly did with the Belterra Park loan? And if so, why not get the protection that comes with placing it into operator's master lease?

Let me, just for fun, because he hasn't said anything yet, our General Counsel, Brandon Moore, could at least talk about how we have structured that. As to where it goes thereafter and what -- go ahead, Brandon.

Yes. I think the future of whether or not that remains in a single property lease is something that's far down the road. At the moment, the Missouri Gaming Commission permitted that property to be transferred to Gaming and Leisure Properties pursuant to a one-off single lease. And so at the moment, that's where it will remain. And as I said, in the future, we can take a look at that. But for now, that's where it will be.

Jay, one of the other things that you should be aware of, too, is part of the regulatory approval for that, our operating partner, our tenant there, new Caesars, has committed to investing capital in that facility. And they've made it very clear that this is a key asset for them and a key market to be in St. Louis. So in terms of the risk of a single-asset lease, I would suggest to you that the tenants' disposition should be the counterweight to any concern that you might have or anyone might express by the fact that this is going to be a single-asset lease to satisfy the regulators.

Look, it's a very, very high-quality property that we're delighted to own in any case. So again, I have a lot of confidence in the real value there, whether it's current operator, which we expect it will be forever, or somebody else. It's a quality asset. And we're delighted, frankly, to have -- and I credit Brandon with tremendous work to get that done in Missouri. So it's a big accomplishment this quarter, a huge accomplishment for us, and we appreciate all who made it happen.

Our next question comes from the line of Spenser Allaway with Green Street Advisors.

Given the current economic backdrop, I'm just curious, have you guys considered waiving your tenants' CapEx responsibility embedded in the lease agreements, simply to improve tenants' liquidity over the near term?

Well, it's so small. Yes, look, I know one of our peers talks about that frequently. Look at our leases. Our leases' capital expenditure requirements are 1% of revenue. And it's pretty easy to satisfy that in 0 revenue months. So unlike our peers, that has not been a topic of great concern among our operating partners.

Yes. Look, we made a judgment early that if tough times got tough. Remember, we created this industry, and we set up -- and maybe in hindsight, there are some things we might have done differently. But we made the judgment that if things were tough because they spend more than that anyhow, right? So we just wanted in a tough situation to put an amount in that was just a nominal amount. They spend more than that in just refreshing the casino floor year in, year out. So it's such a de minimis burden that it just doesn't really apply in our case.

Okay. And just regarding Steve's upcoming retirement, I understand you don't want to comment on the specifics of the search. But given the retirement date is fast approaching, should we expect to see an interim CFO named if a successor is not identified relatively soon?

Just not prepared to answer that question either right now. So I can't tell you what to expect, except that we'll do something that's smart and sensible. There are a number of alternatives. Obviously, we're talking about that internally right now. So I'm going to dodge that one. That's 2 questions in 1 outing here that I have dodged, I'm not sure successfully, but I dodged them.

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

So first, Steve, let me echo all the sentiments with regards to the help you've provided to kind of everyone on this side of the phone with understanding GLPI, it's always been greatly appreciated.

Thanks.

So thinking back to kind of the lease modifications that you completed with Caesars. I know you've talked about them a little bit. But I mean, I guess when looking forward to potentially trying to do more of that type of thing, has the window maybe for that closed, given the kind of recovery, are tenants still open to those conversations? Or is that maybe less attractive now given the outlook for the industry seems to be better?

It's hard to say. I mean, look, a tenant doesn't want to give up any favorable arrangement that they presently have. But look, these things are always trade-offs negotiations. As they need something, we might need something. So we'll take advantage of opportunity to fairly negotiate with tenants to our advantage where it makes sense and where we can offer something in exchange that makes sense to them. It's an ongoing process. And you can always assume that we're looking to improve our situation where we reasonably can. And we've done it along the way. But go ahead, please, John.

I was going to switch gears. So if you have any other color on that. Maybe switching more to the acquisition side of things. I mean, I know it's still early days, but has kind of the activity over the last couple of months, has that impacted pricing on transactions, specifically with GLPI? I mean, has that increased your kind of return threshold you're looking for on any potential future acquisitions?

Matt, do you want to go?

John, I'd just say that, a, I mean, if you look at the few things that have happened, I mean, the key one that we point to is our sale leaseback on the land at Morgantown, right, at a 10 cap. But that came from very unique circumstances.

Going forward, if you look at the pieces of what we're looking for, a strong operator, a strong asset and credit support to strong 4-wall coverage and counterparty balance sheet, the ability to access capital, that last piece of the puzzle is obviously more important than it has been for a long time. And it's been something we've been very adamant about getting. So when we think about risk-adjusted returns to our cost of capital, I don't think that's changed, but I think about the definition of risk and the way we look at it and that being relevant. And it might steer the types of counterparties that we might want to deal with in the near term in a specific direction. But the math is the math, and you can see we've got efficient or at least effective capital markets that are functioning. We've just accessed debt in the debt markets, and we know where our cost of capital would be. So the short answer is not necessarily.

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

Most of my questions have been asked already. Just one follow-up, though. When you were talking about the sustainability into July and the level so far, you made a comment that it didn't feel sustainable and you said something about governors rolling back. Is that -- I guess, I just want to understand, is that what you think is not sustainable, that there will be changes in some of the state regulations? Or did you mean not sustainable because mid-single-digit demand is just not how the industry normally grows? Or did you mean not sustainable because of the -- that eventually, for competitive reasons, some marketing will come back and maybe margins will be able to be as good. Just -- or all of those things. I guess, I just want to make sure I understood what you were saying there.

Yes. Robin, you're really parsing my words this morning. Thank you. Look, the bottom line is we are living in just completely uncertain times, and planning for next week is difficult. Planning for next month or next quarter is impossible. So I didn't mean anything specific. I just like you read the headlines, watch what's going on throughout the world. I'm very concerned about it. But at least what we're seeing right now does provide us with some glimmers of hope, but that hope could be very fleeting depending on how this progresses. And I have not met anyone yet whose forecast is to how this is going to progress, I have any faith in.

Maybe one other question, just thinking about, to the degree that the margin that's come back from maybe not having buffets operating or some of those lower margin things. I guess, how sustainable is that as volumes start to recover over time or, say, these will continue to recover over time, that when somebody else opens a buffet, that then you have to as well and all of those, right? And then the same thing with all of the marketing that kind of put margins where they are, right? I mean, I guess, how do you keep from going back to that if the competition does that to get more market share?

Look, that's a fair question, and that historically has been the problem in regional gaming, whether it's in Atlantic City or the Gulf Coast or different regions around the country, there's always been a race to the bottom at times. I shouldn't say always. There have at times been sort of a race to the bottom in terms of giving away business to drive unprofitable business, quite frankly.

Where I personally, and I'm sure Peter and others around the table get their comfort is, this industry has been vastly consolidated over the years. This industry is now dominated by large publicly traded companies. The presence in the industry of the data analytics capabilities have improved dramatically in recent years. And I think, and I hope you would agree, any conference call that you listen to, whether it's Keith and Josh with Boyd or Tom and Brad at Eldorado or Jay and his team at Penn, they are very focused on profitability.

You're correct, there is a risk that somebody gets out in front in a market. But I really do think that this new focus on profitability is going to lead to the sustainability of the margin improvements not to the degree, but directionally that we've certainly seen over these last few weeks.

Look, I think Steve has provided the perfect answer. I know through our time at Penn, and there were years that go back historically since the industry came regional in the early '90s, there were a lot of places where competitors were blowing their brains out. Those days are over. And I recall when I was running Penn on a day-to-day basis that we had a discipline around that. We just simply said, let them go. Let them go. We'll move some business in the meantime, they'll all come back. So we always had a very strong discipline. I am 100% certain that each of the companies we're talking about now has a much more sophisticated view of markets, values of customers and so forth. So we're looking at a different time and world. I'm not overly worried. It could happen on a property-to-property basis in a certain city or town that they put the buffet back as you illustrated and maybe a GM will decide that, that is necessary. But I think there's a lot more discipline in the industry today. And certainly, this whole COVID mess has shown companies that they can operate very profitably with less. So I'm not overly worried that it's going to quickly flush away all the gains that have been made.

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

Steve, congratulations on a great career and best of luck to you in your retirement. You've always been accessible, helpful and thoughtful. So thanks for everything.

Thank you.

So my question, guys, is this. With your payout ratio, most recently at 71% of AFFO and all the things that you've done to strengthen your lease structure, the improvement in your tenants' performance, and obviously, the things you're talking about to improve the coverage ratios with tenant margins improving the way it is, what made you increase that payout ratio? Or is it really a function of once you kind of get past this year without having a stock component, then that would allow you to go back to that upper 70%, 80% payout ratio? How are you thinking about that?

Joe, that was the question earlier, but let me emphasize again, we're going to get back to exactly where we were before at the earliest moment quarter, day, hour that we think is prudent for the company, period. We liked where we were. I think shareholders liked it. And we're going to get back there as soon as we're satisfied that our -- the stability of our cash flows justifies it. So I just can't answer any better than that.

I guess another way of maybe asking it just to get a sense of how maybe you're thinking about this, Peter. If you're 71%, and it would still be the same consideration metrics as it would be if it were 80-20 stock cash.

I mean, no, I -- listen, I think it's going to be the same. Not going to change. I'm looking around the table, if anybody has a different point of view. But no, I mean, I expect to get back to exactly where we were exactly at the earliest plausible moment. But again, we're not going to be dumb and get ahead of ourselves or get ahead of the market. So it's just about certainty when we're satisfied with cash flow.

Recognize -- look, we view ourselves as an income-generating company for investors. I know I like and value that. So we're focused on generating income for our shareholders, among other things, but that's probably a primary driver as a REIT. So getting back to the highest possible number in the earliest possible time is kind of driving me a lot. That's why we work on our balance sheet and do all those things that we do to improve our ability to do that.

Our final question comes from the line of John DeCree with Union Gaming.

Steve, best of luck to you. A 2-part question. Peter, you might be best suited for this one, but I'm sure Steve will have an opinion. I wanted to get your overall view of development of casinos in the U.S. going forward. I think you've kind of addressed sports betting and OTBs earlier in a prior question. But as we look to economic cycles, casinos have been large taxpayers and job creators for your state governments. So I think the direct question is, as we look ahead, where do you see the appetite from state governments and regulators to look to casinos again? And what do you think that appetite for casino developers in your old role would be kind of going forward here? Is there some opportunities left? Is there appetite? What's your just kind of overall outlook on could we see another wave of development on the other side of the pandemic?

It's -- look, if you're looking at existing states, sometimes there are constitutional limits on how many properties can be there. Some -- there are certainly legislative limits. But look, there have been states that made changes. Our own state here in Pennsylvania has done some, I call dumb things, frankly. And I don't mind putting that in print. But the industry still will flourish and is strong and so forth. You may see things in the market, and you see what's going on in Illinois. There are always something odd going on in that state.

Look, I think there's development potential. I hope somewhere in my lifetime, you see Georgia come around because it's a great opportunity. We'd like to be there and be part of anything that would happen there. And by the way, we'll look at new opportunities ourselves, partner with others or even directly if we had to, to be a competitor, put a stake in the ground and make sure we're in any new market.

Texas, I hope in my lifetime, finally comes around to allowing gaming in that state and not giving money away to Oklahoma and to Louisiana and so forth. No criticism of either of those states. But they're leaving a vast amount of dollars on the table. So I hope someday that's going to happen. So I think you're going to see -- there are some major markets that still are open. And we've seen it everywhere, right? Sooner or later, they're all going to get there.

To existing states, yes, you could see some things on the fringe that would occur, maybe opportunity, maybe opportunity. It's hard to -- it's kind of hard to know. Anybody else want to add to that? I mean, now we're talking crystal ball stuff. And --

Yes, John, we've talked about this, obviously, over the years. I mean, we consciously looked at the environment when we spun the real estate out. There aren't too many states left, whether it's because of the incumbents that obviously lobby against because of tribal interest that lobby against or in the case of Texas because of conservative interest that lobby against. It is a very difficult task to go from no commercial casinos to allowing commercial casinos. That being said, obviously, markets like Arkansas and Virginia are developing new casinos at this point in time. So there will always be some limited opportunities, but I think the big opportunities for better or for worse are behind us.

Yes. But let me add more recently, in relatively recent years, you had Maryland and you have Massachusetts. So it is a slowly evolving process, but Steve's right. The number of real opportunities is dwindling. But there's some big ones.

And John, I'd just point out, when you think about the incentives, I mean, you've got states that have to balance their budgets in the short term. The immediacy of the cash flows for them, if you look at casinos, isn't the top of the hierarchy, right? There's a lot of other things they can do that can generate revenue more quickly, especially when you look at the time lag in Massachusetts from the enablement legislation to when things actually got developed and the cash flow into the state. I mean, there's multiple years in between there.

Got it. Thanks for all the inputs, and we could probably talk about that one for hours, but I'll leave it at that. Good luck, Steve.

Thank you.

So we'll hope for more venues to open, and that's part of our job to be alert to that.

So look, we thank you all for joining us today. And publicly, let me thank Steve for more than 20 really incredible years. And I can't -- since -- I hadn't planned to say this, but I don't mind saying it in front of Steve. Much of the success that this company is built on, of course, comes from our years at Penn, and no one had a greater influence on the success of that company than Steve Snyder. So thank you, Steve.

Thank you, Peter. Appreciate that.

Thanks all. Operator, thank you.

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