Gaming and Leisure Properties Inc (GLPI) 2022 Q2 法說會逐字稿

Greetings, welcome to the Gaming and Leisure Properties Second Quarter 202 Earnings Conference Call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the conference over to your host, Joe Jaffoni. You may begin.

Thanks, Kyle, and good morning, everyone, and thank you for joining Gaming and Leisure Properties Second Quarter 2022 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at www.glpropinc.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ 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 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 at 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, Chief Investment Officer.

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

Thank you, Joe, and good morning to everyone who has dialed in with us today. Happy to report another excellent and impactful quarter. And I'll highlight, as I always do, that we have outlined all the activities this quarter pretty thoroughly in our release. And rather than have me go through or read in detail all the stuff that's available there, I think if you look at page -- the bottom of Page 1, right through Page 4, you'll have a perfect idea of everything that we have accomplished this quarter.

Notably, we announced a significant transaction with Bally's that is in the range of over $1 billion, which, combined with the Cordish transaction in the last 8 months, aggregates about $2.7 billion in new business and potentially as much as $3.1 billion, depending upon how the Bally's transaction shakes out. So it's been a pretty successful quarter for us, and I do want to highlight that. Again, lots of detail that we've provided, and then we'll turn to your questions.

I'm going to ask now Desiree Burke to highlight some financial points that I think would be of value. Des?

Sure. Thanks, Peter. Good morning. Our total income from real estate outperformed the second quarter of 2021 by over $52 million. That's as a result of the fact that we closed the Cordish Live! transactions, which increased cash rental income by approximately $31 million. We closed the Bally's transactions in June of '21 and then added the Rock Island and Black Hawk properties to that lease effective April 22, which resulted in increased cash rental income of $10 million.

We completed the sale of the operations of Baton Rouge and Perryville last year and leased the real estate, which increased our rental income by $4 million. We achieved escalators on our Pinnacle, Boyd, Belterra and Penn leases, which added $3 million of rent, and also had positive percentage rent resets for the Pinnacle, Boyd and Belterra leases, which were effective May of 2022.

We had higher noncash revenue gross-ups and investment in lease adjustments, partially offset by straight-line rent adjustments resulting in a net $5.3 million increase. Our operating expenses decreased by about $16 million, and that was primarily due to the decline of $28 million of gaming expense and G&A expense related to the sale of the TRS operations. Offsetting this decline, we incurred noncash charges of $2.2 million related to the provision for credit losses associated with the Cordish leases and an increase in the lease gross-ups and ground rent from the new acquisitions as well as amortization of $3.5 million and an impairment charge on land that we intend to sell shortly for $3.3 million. We have included in our release full year 2022 guidance for AFFO per diluted share in OP units, ranging from $3.50 to $3.54, which does not include the impact of pending transactions other than the Tropicana.

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

Thank you, Des. One note I'd like to make -- we'll introduce Matt Demchyk in just a second. If you look at what we've been able to accomplish and the cap rates that we have been paying for these assets, Matt likes to say that we, as a company, compete on capability rather than cost of capital. We're proud of that. I think it is one of our great strengths in tackling some very complex transactions and making them work for our shareholders.

So with that, Matt, do you want to go ahead?

Yes. Thanks for those thoughts, Peter, and thanks to everyone for tuning in. The current backdrop really serves as a reminder that volatility breeds opportunity. And as last year, we have lived through a few cycles, have learned that the key, if you want to take advantage of it, is to have staying power. And that means a financial position that enables you to zig while others are forced to zag.

As we watched funding costs for our company diverge or thoughtfully constructed portfolio, safe and durable cash flows combined with our commitment to balance sheet strength and liquidity and capital markets discipline have set that stage for opportunity. And to that end, this past quarter, we again demonstrated our team's ability to uniquely source and structure a transaction for the benefit of our shareholders.

Our team has again created a bespoke solution for a tenant partner with our recently announced Bally's transaction. It really illustrates Peter's point that we compete on capability not just cost of capital. At a time when few large-scale transactions have been announced, we were able to use structuring and other levers to achieve a noteworthy 7.6% cap rate. We've again demonstrated discipline with our funding for the transaction, locking in adequate equity, key in conjunction with our transaction announcement to position our balance sheet well within our target leverage range of 5 to 5.5x. Our recent bank backstop equity raise was over 5x subscribed, reflecting very strong support from existing and new shareholders.

We've also begun the process for a delayed draw term loan to support the funding and tax structuring of our Bally's transaction. Our actions reemphasize our commitment to balance sheet strength and our respect for the role it plays in our long-term success. Our core message to potential counterparties is that despite the macro backdrop and recent volatility, we are emphatically open for business. With our leverage at a comfortable level and benefiting from our continually demonstrated match funding discipline, our team continues in its unrelenting efforts to unearth and create opportunities with attractive risk-adjusted returns. Our overarching objective remains the same, increasing long-term intrinsic value per share for all our shareholders.

Thanks for joining today, and I'll turn the call back to Peter.

Thanks, Matt. I think it says it pretty well. It sort of outlines what the ethos of this company is as we think about creating value for our shareholders.

And with that, Kyle, would you open the floor to questions?

(Operator Instructions) Our first question is from Neil Malkin with Capital One Securities.

I'm sure everyone appreciates you reinstating guidance. So thank you for that. First question, Matt, you talked about being thoughtful and making sure the balance sheet was in a position to be able to perform well in uncertain times, but also be in a position to be opportunistic. And along those lines, do you feel like you have or will see more opportunities with existing or potential new tenants as they look to grow or access the capital markets? But at a time when the high-yield debt market is less attractive than a sale leaseback opportunity, thus providing them with lower-cost, long-term capital to execute any of their discretionary growth endeavors. Is that something that you think will start to occur? And have you seen that yet?

Yes. Well, to the first point you made I'll reemphasize, having a balance sheet and liquidity position that makes us open for business is certainly the first step in that process and having all of our connection points with existing and potential tenants is the next key piece. And then beyond that, I'll comment. I mean, certainly, if you look at our relative all-in cost of capital versus that same metric for the folks we talk to, it would suggest that the backdrop could be ripe for more opportunity, but there's also more to it.

I mean we're not trying to replicate market risk and returns when you just look at the cost of their debt or where that trades because we can do that by just buying a portfolio of unsecured debt in our potential counterparties. Our mandate is really to create a super structure of lease terms and coverage and credit enhancement and all the other factors that you watch us continually put into our structures that collectively result in our shareholders getting attractive risk-adjusted returns.

And if you look at the deal we just did with Bally's, I think it's a great illustrative example where we were able to thread the needle to achieve something important to them that arguably the backdrop helped facilitate. I mean they had recently a share repurchase out there that I'm sure they got far better returns on in their eyes than we might get on the real estate, but we are looking for a different risk profile. And when you think about the relevance of that for a counterparty, it's kind of win-win because to your point, there's certainly a perpetual nature to the capital that we're using.

So big picture, watch us continue to have the relationships, to understand when the stars align, to move meaningfully when they do and to make sure that we're always positioned to move aggressively and quickly when opportunities arise, and continue to use the discipline again on the balance sheet, to your point, to support that.

This is Peter. I think the answer was yes. And Matt highlighted it very well. I stuck my neck out earlier in this year to say for the first time that I think there is an increased likelihood and that will be able to get together a project or 2 with one or more of our tenants. I mean we're working hard at it this year. We see that window. The window is open. Matt is very attuned to that. And we can probably say more, but we won't. We take that opportunity very seriously.

Okay. I appreciate that and won't push that too much. The other one is just do you have an update in terms of the Bally's transaction with the regulators or approvals? And is that going to be something where you can actually do both Lincoln and Tiverton? Or is it going to be looking more like a Biloxi-Tiverton, and then potentially Lincoln later? Any updates would be great.

Brandon Moore, of course, is sitting here with us right now. I think he was hoping to stay silent on this call. But with that, Brandon, why don't you take that, please?

Well, I think as it relates to the regulatory process for this transaction as a whole, as you probably know, these are the only 2 assets in Rhode Island. So Rhode Island regulatory has not ventured into the REIT world yet. So we're their first foray into that. And I think there's some work that needs to be done to figure out how we're going to be licensed there and how our lead structure and our governance structure and all that plays into licensure.

That being said, I don't think it differentiates between Tiverton and Lincoln. I think the regulatory process in Rhode Island will be approving a REIT structure in Rhode Island and what we're offering. And so I think it will be both of those likely to be approved at the same time or neither of them. And so I don't think it's a situation where Tiverton gets approved and Lincoln doesn't or vice versa.

And this is Steve. If your question was more around the amendment with respect to Bally's, as you may be aware, they pulled the amendment. They were unable to reach a consensus agreement with their lender group. However, Bally's continues to be open to discussions to try to reengage on that topic if, in fact, circumstances were to change and the parties were to decide to try to pick that back up again. So I think from our perspective, we have -- the way the deal works is the pivot to Biloxi doesn't happen until November.

And if, in fact, that happens, as you're well aware, we would have then a 2-year option on Lincoln. And that's what Peter alluded to in his opening remarks of there's, I guess, an outside chance that we could, in fact, end up with an even larger aggregate transaction if, in fact, we close Tiverton and Biloxi first and then came back and close Lincoln.

Yes. I guess not to belabor, but would that not make sense based on what you just said, it's either going to be all or nothing? If Lincoln doesn't get approved, then Tiverton also not then get approved?

Yes. We're -- I think we're mixing concepts. The concept that Brandon discussed was a regulatory concept, in his commentary around Lincoln and Tiverton, was that they're both in the same state of Rhode Island and therefore, an expectation that if you were able to get regulatory approval for one, you likely then can get regulatory for both. .

The delta that I think you're bringing up now is there is a lender consent required, not a regulatory consent, a lender consent required for Bally's with respect to the Lincoln asset. And that's why that -- the outcome of Tiverton and Lincoln could be disconnected because you don't need the lender consent to get the Tiverton asset. You just need the regulatory approval.

Yes. Look, I'm going to speculate that that's the minimum possible outcome. Tiverton and Biloxi, irrespective of what consents they may need from their lenders, there is the question of approval in Rhode Island structured. Do they license all the management, for example? Or is it, as in many states, no licensure required at all? This is -- that part is unknown. But we expect that, ultimately, we will get there.

I would now like to introduce Barry Jonas with Truist Securities.

I wanted to start with Tropicana. Any sense within the second half when the deal could close? What are we waiting on? And then any update on redevelopment opportunities there? Is it kind of you guys or Bally's really driving those discussions?

I'll tackle the first part, probably the easier part of your question. The regulatory process is a little bit opaque to us because we're not licensed in Nevada as a REIT. But from what we understand, that process is coming to a conclusion. So I would think that in the next few months, we hope that, that transaction will be in a position to close. I'll let others address the reinvestment in the property.

Well, essentially, it has nothing to do with us, necessarily. There might be an opportunity under some circumstances. But there's nothing to find today. I think you're all generally aware of the kind of things that Bally's is looking at for development at that site. But we don't run that process. We have obviously an interest, strong interest. We understand it's proceeding the pace, but I can't really tell you where that stands today.

Got it. Got it. And then just as a follow-up. Can you give an update on the construction in Baton Rouge, whether that's timing or budget? Any update there would be great.

Steve, do you want to take that?

Yes. I think the timing expectation is still first quarter of '23. I think, as everyone is aware of the macroeconomic and actual just labor situation nationwide, I think that you would imagine there have been some fits and we've been dealing with a number of different complications. But project is moving along. Like I said, our tenants looking forward to moving land side there, and we're actively working to make that happen.

Our next question is from Haendel St. Juste with Mizuho.

So I guess, first question is a follow-up on Bally's. I guess I was hoping you could help us understand the tax structuring in the Bally's transaction and the implications for GLPI?

Sure. So at a very high level, they will be buying into our operating partnership, and we will be guaranteeing some of their debt to help them delay the payment of any taxation. And the tax structuring is the key to that transaction of how we're pulling that together. But that's at a very high level, how the tax structuring will work so that they can -- again, it's a deferral of tax by using the structure.

Okay. That's helpful. I guess curious how much of the debt you're guaranteeing, just a quick follow-up.

Yes. We haven't determined that just yet. We have to wait and look at their tax basis and their assets and some other diligence items that we have to do in order to be able to complete that.

Okay. Fair enough. Now maybe one for you. I guess thoughts on equity use of the ATM and leverage in this environment. And if you feel you're in a position today to execute on more transactions given, I guess, with a slightly higher cost of capital and your balance sheet objectives?

Matt, do you want to take that?

Sure. Yes. So as I stated in the intro, we're happy with the leverage level now. I mean really staying within our 5 to 5.5 range is the key for us. And to the extent we had an opportunity set that made us feel somewhat confident, we certainly could see us use, in conjunction with that mentality, the ATM as a tool in our tool chest.

We don't have a goal of delevering for the sake of delevering beyond being within that range. There's a certain efficient frontier of our leverage that we want our shareholders to benefit from. But that said, yes, it's certainly a tool that we have, and we'll be thoughtful about its use within the context of those other comments.

Our next question is from Jay Kornreich with SMBC.

Some new cities have recently legalized or in the process of legalizing full-scale casinos such as New York City, Chicago, which led likely to the recent Bally's transaction with their development there. Can you maybe give just an update on any other cities or states that you expect to approve full-scale casinos or add licenses in the near future which could provide additional external growth opportunities for you?

Sure. Sure. This is Steve. Look, I think expansion of the gaming TAM is something we're always focused on. And so we are closely watching and eager to try to be helpful and participate. We agree that Chicago and New York seem the most near term. We continue to monitor what's going on in Georgia and some other states such as Alabama. I think as far as near term goes, I probably would not put Texas in that bucket.

But I think we constantly look around the country and realize the opportunity not only for the gaming operators and the gaming REITs, but more importantly, the states and the tax-paying public and the benefits that, that can prove. So we're actively looking. I think you've named the 2 that are most near term, but I don't -- I would never suggest that there's no others that could pop up in the medium term.

Okay. And then just as a follow-up, within your current portfolio, are there any expansion opportunities that your tenants are looking into at this time, which could be a development opportunity for you to finance?

Yes. Let me take that. As I suggested before, we are in active discussion with a number of our tenants today about some interesting possibilities. I mean they're just that. It's the tenant who decides when and if they want to pull the trigger. But we've talked about without naming locations, hotel opportunities this year. And I think the stars may be aligning better than they have been almost from the beginning. So we're feeling optimistic. That's the best word I think I can use that you'll see some significant investment with one or more of our tenants in the next 12 months. I'll just pull that out of the air, but we're hopeful that, that will be the case.

Our next question is from Ronald Kamdem with Morgan Stanley.

Just a really quick one on -- obviously, a lot of talk of a recession and sort of the gaming having very recession-resistant tumors and spending. The question is really when you look at sort of the facilities today, is there something different, whether it's a diversification of revenues, whether it's marketing, whatever it could be, what are some of the sort of intangible factors that gives you guys confidence in sort of that -- those facilities producing and if we go into a downturn?

Yes. Look, Ronald, this is Steve. I appreciate the question. I think if you look back at the last recession and we had a slide -- Matt would be able to comment if it's still in the deck. It's been in the deck for years now. And it showed what happened from a rent coverage perspective, for the regional properties versus the Strip. And this is not me saying that the Strip is going to act the same way as it did historically.

Obviously, we've seen a nice run-up post-COVID on the strip. But if you look back at the slide and history, I guess, it would suggest that the regional assets held up better in the recession. And I think we attribute that to the fact that there is not the same level of diversification of revenues. The revenues are majorly focused on the gaming business. And therefore, our belief that people do focus on the gaming and enjoy that activity remains true. Their focus on paying $200 for a stake might wane. And so I think that slide, if it's not out there anymore, we'll make sure we'll get it out there again. And Matt, do you know if that's in that deck?

I'm sure it's part of the deck. And to just flesh out the answer, simply drive-through is better than fly-to, if you have a recession. Lower fixed operating costs are better than high fixed operating costs and higher state tax rates are better than lower state tax rates when you think about how it impacts the bottom line.

And to Steve's point, the regional assets check all those rate boxes. And it's also very important for us to be thoughtful about coverage in this environment. And you'll see in the last few transactions we've done, whether it's this last deal with a blended coverage at 2x the deal before that with Cordish, Pennsylvania too, and then Maryland as a single asset, 2.7x, we certainly look to build in a margin of safety in our underwriting to ensure that we can sleep at night knowing our rent will be collected now and well into the future.

Yes. That slide, which I think many have seen, Matt, you'll recall, indicated that the low 0.08 in that whole collapse coverage in Vegas dropped to 1 to 1 or even slightly below at the nadir. The coverage in the regional market, never below 1.4 to 1.5. So we've never got to disaster range worst of times, which is something that I think we've been pretty firm and I've been clear about in many, many presentations that the regional revenues are essentially bulletproof.

Helpful. And then my quick follow-up is the Bally's, is that still expected to close end of this year? Or could that slip into next year?

Oh, yes. Is it Tropicana you're interested in? Or is this the Tropicana Las Vegas or the Rhode Island...

The Rhode Island.

I don't think we have enough visibility to know. We're still targeting year-end. I think in the coming weeks and months, we're going to have a much better idea. As you probably can imagine, the regulatory process is usually the long pole in the tent for our transactions. This one is no different. So as we continue to work with Rhode Island, I think we'll have better visibility into whether or not year-end is possible, but we're certainly targeting it from the business side.

Well, it may be a little bit slower or unpredictable simply because they don't have any REIT experience. I think they get it, and I'll understand it, but it does add a layer of complexity that they've got to get their arms around.

Yes. Certainly, a layer of uncertainty in the timing. In states that already have REITs, we usually have better visibility into how long that process might take. And I think this one, we expect to work cooperatively and together with the regulators. And in fact, we have already started that, but we just don't have enough visibility at the moment to really accurately, prudently predict whether that will happen by the end of the year. But that's the goal.

Our next question is from John Massocca with Ladenburg Thalmann.

Maybe just turning to the new guidance. I'm just kind of wondering -- I understand there's some seasonality to the higher percentage rent and you're going to have dilutive impact from the share issuance in July that's not going to be deployed until later this year or even potentially next year. But kind of -- what are kind of the pushes and pulls that got you to the guidance range on a per share basis, just given, obviously, the annualized 2Q would be way above it? I understand you can't do that, but maybe any other kind of factors that are going into that guidance that kind of created the $3.50 to $3.54 rate for AFFO per share?

Sure. So what's driving the range or different assumptions on so far, the interest rate on our variable debt, the assumptions that you make on percentage rent and how the Ohio properties or Penn perform as well as we have a reset coming later this year for the Meadows property; assumptions on the timing of the Tropicana transaction, when that occurs; assumptions on escalators, and there's a few left remaining to happen this year. So those are the key assumptions and drivers. And I agree you can't just take the quarter, but you can take year-to-date numbers and almost double them and get close to within the range.

But it's really hard to do that because of, as you said, there is some seasonality in the Ohio properties as well as the fact that timing of when like Black Hawk and Rock Island closed and that wasn't until April and when the Cordish transactions closed in January and March. So those are the big drivers, really 4 things. What's happening with our interest rate, what's happening? What are your assumptions on the percentage rent? What's your timing of the closing of the Tropicana, and what are your assumptions on escalators?

And I guess maybe just there's no other capital market assumptions besides the July closing of the (inaudible) offer. Correct?

That's correct.

Okay. And then maybe as you kind of look out at future deal volume, assuming you still are on a rising interest rate environment, how do you think about timing of deals? It seems like a kind of net lease broadly speaking, there's been this idea that cap rates are going to kind of expand in the back half of the year and maybe kind of prudence on deploying capital makes sense because of that? I mean is that something you're seeing? Is that something that makes sense strategically or just because of the bespoke nature and the kind of limited nature of kind of assets you can buy that you kind of take what you can get when you can get it?

Yes. Let me take -- I'm going to have Matt answer that question. But essentially, you used the right word, the bespoke nature of the transaction that we've done. Many have been driven by some other things that one of our tenants or a new prospect might want to achieve. And that's been the driver. So Matt, why don't you take that?

I mean, broadly, John, there's clearly a bid-ask gap in a lot of the real estate world and the structuring and all the things we've talked about throughout this call with Bally's enabled us effectively to get to our economic ask, which was the 7.6% cap rate that you saw. So a few fees beyond that, too, that if you include those, it's even slightly a better return all in. So we wouldn't have done that if we didn't get over a return threshold and we calculate that based on our cost of capital at the time you plug the actual numbers in. And the key next piece, which we've now delivered on multiple times, is to lock that in.

I've watched a lot of folks get offside by getting longer transaction and not locking in the cost of capital and the world changing. As long as we follow that discipline, again, we're open for business. There's absolutely no reason for us to say we're just not going to do deals. As long as we get a spread and lock it in, we can do that deal and the better one later in the year. If they come up, to your point, as long as we're in a position to keep doing it, and that's what we've positioned ourselves to do.

Remember, we did -- to Peter's comments at the beginning of the call, close to $2 billion towards the end of last year and then another $1 billion in the last few weeks. If you asked us 12 months ago, I think the quantum of transaction volume, you might expect could have been much lower. I mean the visibility is not there. But you also -- I mean there's areas of omission, too. You can't pass on an opportunity just because of the macro. If you can make the math work and you can walk in the return, it's our job to do that. So when the stars align, we know what it looks like, and we're happy to push the button at the right time for our shareholders' benefit.

That makes sense. And then one last quick detail one. If I guess the timing for the close of the Bally's transaction, how can that roughly be impacted by a switch to the Hard Rock, Biloxi deal versus having if you do somehow get Lincoln and Tiverton together? I mean what's kind of the timing differential if you switch to the smaller transaction?

I don't think the timing is materially different from a regulatory perspective. As you know, we have several facilities in Mississippi. We're fairly confident that a sale leaseback in Mississippi will be a fairly streamlined process. I think the issue is if Rhode Island approves our entering into a lease for properties in their state and a sale leaseback, the only question will be whether or not the Lincoln lender consent has been obtained. And so it won't be a regulatory issue.

So I think that will be the real dictator is when Rhode Island approves or entering into a lease for properties there, we'll either be buying Tiverton and Lincoln or will be buying Tiverton and Biloxi because Lincoln is impossible because of the lender consent. I think that's the real decision.

(Operator Instructions) Our next question is from Smedes Rose with Citi.

I just wanted to understand a little more about how you might be thinking about financing the balance Bally's transaction. I mean you'll generate a lot of cash through year-end. But I mean are you sort of leaning more towards debt issuance to OP issuance to Bally's? And is the timing really just related to the regulatory process you mentioned going through? Are you sort of -- is it more sort of opportunistic around where your cost of capital is? Just trying to sort of think about how that -- how those things might kind of match up as we move towards that closure?

It's Steve. I'll give that a shot. I think the timing, as you're hearing from us is related to regulatory. I think with respect to the funding of the transaction, we obviously issued the equity -- we issued equity already. We do have the proceeds coming from the Tropicana sale. We expect to have those, then that sale is $150 million to remind you. And then the remaining portion of the financing need will come from debt. And we expect the form of the debt to be predominantly in the form of bank debt. So we are we're -- as Matt mentioned, we're in market with that now and should have, obviously, an update for everyone by next quarter for certain.

It's Michael Bilerman here with Smedes. Just had a quick question. Just going back to the guidance and appreciate you putting out both the gross AFFO as well as the per share numbers given the equity raise and those proceeds are obviously dilutive until they can be put to work. And maybe just focusing on the gross AFFO guidance because I think that may help sort of bridge some of the gap between Street expectations.

And you had about $453 million of AFFO in the first half. And based on that $900 million to $920 million sort of implies about $460 million in the second half of the year. And Desiree, you called out interest expense, percentage rents, the Tropicana sale and the escalators, can you sort of go post each of those items in effectively what you've embedded into that second half midpoint range of $460 million so that we really understand the puts and takes of those items that are already known? So can you break that out a little bit more for us, please?

Yes. We don't have any other detail that we put into the release. So I can't break that out for you. But again, it's just assumptions on those 4 items, how they get to...

Yes. But are those positive or are they negative drags? I recognize those are the items. We knew those items last night, but we actually need the numbers, right? So are the percentage rents, are you assuming it's how much within there? When are you assuming the Tropicana sale? What are you assuming for SOFR, right? I mean that's the detail that we really need to really understand how the numbers are going to shake out.

Obviously, for the Tropicana, it could either be closed this year. And we always say we said the second half. So there's 6 months of range where it could be closed this year or could not close at all, right? If it closes on December 31, there would be no impact to that one. So that's how that swings the percentage rent. It's pretty much an all or nothing when you're looking at the one, whether or not they hit their adjusted revenue to rent ratios. And as you can see in the tables on Page 14 and 15, you can see that most of the leases look like they're going to hit their percentage rent while they're going to hit their escalation provisions.

Other than that, the SOFR rate, you pull a forward yield curve and it's changed significantly. The SOFR rate has changed significantly over the last month even. So it's anybody's guess as to what that will look like when we get to the end of the year.

I know, but you provided guidance. So I'm just trying to get -- you provided the $900 million to $920 million for the full year, $460 million midpoint. I'm just trying to understand what assumptions you have used. I know it's a lot of volatility, uncertainty, I'm just trying to better understand what you've actually put into those numbers so we can make sense of the guidance. I don't know why -- I mean, the Tropicana. So what's at the low end of the range and what's at the high end, but it's not like, this shouldn't be rocket science.

Obviously, it's nothing or it's all of the rent, like it's all or nothing.

Well, that's what I'm trying get. What's embedded -- right. I'm just trying to understand what's embedded in the numbers you put out. So if you can put the goal post for each of those line items that impact the $900 million because you really have a simple -- most of your rent should be earned, right? That's what makes this company a very easy to understand. But when there's variables that can swing, understanding the impact to your numbers is obviously important, especially if you are going to provide the bottom line guidance. Actually understanding the assumptions that drive it is more important than the bottom line number.

Matt, I'm not sure if you have anything you want to add to this, but frankly, we're just not prepared to go any further with that question now. We didn't want to deal with guidance in the first place.

Well then, don't give guidance. I mean like you can't -- and you didn't want to do it. But you've done it, and we're just trying to understand the impacts to these variables that's embedded in those numbers. And so that's it. Like the fact that you said, okay, Tropicana is 0, probably at the low end. And at the high end, it's the full rent assuming close, I don't know. I don't know if that's closing. And that's -- understanding what's embedded is much more important than the bottom line number. So that's -- it is what it is.

Okay. I think we have that missing.

Our next question is from David Balaguer with Green Street.

Sorry if this has been clarified. But I just wanted to ask a clarifying question on this Bally's deal. So if those 2 Rhode Island properties are closed, is there anything that would preclude you from still being able to pursue the Biloxi property later?

The Biloxi will not be part of the transaction. If those 2 close, it doesn't preclude us from participating in a sale leaseback on the Biloxi property down the road should Bally's elect to do that.

Yes, I think the real question is, do they feel they have a need or a desire to do that at that time? But clearly, Brandon answered it precisely right, that it's not part of the transaction if we get the other 2 properties, which really were our first goal.

Got it. So we could take that as a signal that this is a property that you would be potentially interested in if Bally's decided later on that another sale leaseback makes sense.

Absolutely. We're in the business of leasing properties. So you bet.

Got it. And just wanted to touch on the Meadows lease, just looking at coverage levels. I know with the escalator coming this October, and these coverage levels, I recognize that those are trailing. And the casino business has been pretty strong this year. We don't know where that could go. But can you remind us that end date when that reset would occur, that sort of last day where you look at coverage where you decided to qualify some of that lease...

Yes, and it's noted for you on Page 14 of the lease, but it is the lease commencement date is that's the date in which you look at them each year. So depending on which one you're looking at. It's out there on Page 14. I think Meadows is September, if I recall correctly.

Our next question is from John DeCree with CBRE.

I think we covered a lot of ground. So just 2. One is just kind of forward-looking clarifying question. But in the event the alternative transaction is the one that it works with Bally's this time and Biloxi is included. Between now and when the option expires, is there a mechanism that would require Bally's to get lender consent ahead of time? Or would that just be addressed at the time did you prefer to exercise that option? Just curious if Bally's has to kind of actively work towards that amendment.

Yes. So the -- we're in the process of negotiating the definitive documents. The standard by which Bally's has to act hasn't been fully fleshed out. I think you can assume that we will expect them to pursue that consent, whether or not they should be actively doing that at all times. I think it's a business judgment on their part as to how to work with their banks and how best to get it. The option doesn't require them to be actively pursuing that consent at all times. And I think that's why it has a length that you see. Stretching out 2 years gives them quite a bit of runway to deal with their banks in whatever fashion they believe is best for their business and their relationships.

Yes. That's right. That's kind of what I figured. I appreciate that clarity. And then just maybe one big picture on kind of prospective deal volume. I think a little bit earlier in the call, we've touched on it. But given where interest rates have gone and the market starting to adjust to the new normal, perhaps a higher cost of capital than we've been used to. Has the phone started to ring more than it has? I imagine it's always a pretty steady flow of conversations. But curious if you've seen maybe some of your partners start to think a little bit more about doing something or maybe folks that you haven't heard from in a long time that are now kind of reassessing their kind of cost of capital relative to what you can offer. So just curious if you've seen any change yet in kind of inbound flow?

Yes. Go ahead, Steve.

Yes, sure. So I think deal flow has been consistent for a few years now, to be totally honest. I think the conversations have changed. So what you're alluding to is, 2 years ago, if I called someone out of the blue and said, hey, you have a bond maturing. And why don't we consider a sale leaseback? Chances are my sale leaseback rate was higher than whatever their borrowing rate was. That dynamic has shifted. So it's still the same conversation. It's still the same phone calls that we're having. The discussion is changing slightly because now my cost of capital may be advantageous for them.

And -- or even just the fact that I'm open to transact might be better than where they find themselves in the current high-yield market environment. So the dialogue has changed. I don't know that the volume of calls has necessarily changed, but the discussions have taken a different angle.

And the second point I would make is I do think, though, with current tenants and with properties they own, in particular, already leased, the discussions around reinvestment in those properties have picked up. So that I know was part of your question, and I know Peter has made some commentary earlier today, suggesting in the next 12 months, you would expect to see us doing an investment with a tenant. I think that dialogue will continue to trend and be more active going forward.

Our next question is from Robin Farley with UBS.

Actually, that last question was what I was going to ask as well. So maybe just the other thing I'd ask about is, I don't know if you can kind of give us any color on how you think about the upside for GLPI from -- ultimately gets developed at the [drop]?

You mean in participating, Robin, in something that -- yes. I mean I think value of the land improves, depending upon what they actually do with it. We're still in the early stages. Again, we get paid, we get our lease payments, but what actually is going to happen at the site is still an unknown. I mean you can bet, we've looked at some of the concepts that they're dealing with right now.

But until they actually nail it down, we can't quite answer it. You can ask this question, and are we about to do something crazy with our company's capital? The answer is no we're not. So we ourselves will wait and see what's proposed. Maybe there's an opportunity for us, maybe there's not. Look, we're in -- we want to do as much business with Bally's as we responsibly can.

We have reached the end of the question-and-answer session. And I will now turn the call over to Peter Carlino for closing remarks.

Thank you, Kyle. Thank you all who have dialed in today. We feel we've had a great and, as I said at the outset, impactful quarter. We're excited about it. The balance of the year is looking good as well. So we're pleased to share this information. We're always available to your calls, if you like. So thanks again. Have a great day, everyone.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.