VICI Properties Inc (VICI) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the VICI Properties Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded today, February 19, 2020.

I will now turn the call over to Samantha Gallagher, General Counsel of VICI Properties. Please go ahead.

Thank you, operator, and good morning. Everyone should have access to the company's fourth quarter 2020 earnings release and supplemental information. The release and supplemental information can be found in the Investors Section of the VICI properties website at www.viciproperties.com.

Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guiding, intend, project or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial conditions.

During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2020 earnings release and our supplemental information available on the VICI Properties website.

Hosting the call today we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Danny Valoy, Vice President of Finance. Ed and team will provide some opening remarks, and then we will open the call to questions.

With that, I'll turn the call over to Ed.

Thanks, Samantha, and good morning, everyone, and thanks for joining us. If for any reason, you hang up or the line goes dead in the next 30 seconds, here's the one message I want you to take away from this call. In 2020, according to FactSet consensus, 2/3 or 14 of 21 U.S. triple net REITs are projected to post year-over-year decline in AFFO per share. In 2020, as David Kieske will elaborate on in a moment, VICI's AFFO per share grew 10.8% for the year as a whole and grew 24.3% in the fourth quarter. In a year 2020, when again, 2 out of 3 peers are likely to see declines in AFFO, we think VICI's growth is worth or marking on.

But it's been interesting to see commentary so far, which can be pretty much reduced to VICI achieves consensus AFFO per share. This VICI achieve consensus or to keep question, we think it's also worth asking with consensus call for AFFO per share growing, staying steady or declining. Is it called for growth? Was it a lot of growth or a little of growth? Once all triple net -- American triple net REIT report their 2020 results will know [in totality] where VICI's AFFO per share growth stands on a relative basis. We already know where it stands on an absolute basis, and it is growth, we're very proud of, especially coming out of the year, so tough and so thoroughly dominated by the COVID-19 crisis.

As I said in our Q3 2020 earnings call, what the COVID-19 crisis has taught us across the U.S. REIT management spectrum, is it that strength of a REIT's business model is the aggregated strength of the REIT's tenants business model. And for gaming REITs generally and VICI specifically, the COVID-19 crisis has demonstrated that our gaming tenants have built business models of great strength and durability, and the strength and durability of their business models is derived from the strength and durability of their relationship with their customers, the end users of our real estate.

This strength of the gaming operator, gaining customer relationship is a key lesson I take from 2020. This strengthened relationship and the mission criticality of our real estate to that relationship is the key reason we, VICI, collected 100% of our rent in 2020, on time and 100% in cash. It's the key reason we were able to announce what we believe is one of the larger 2020 dividend increases among large GAAP American REIT. It's a reason we were able to go back on offense as early as June with our Caesars Forum financing. And later in the summer, our first non-gaming financing with Chelsea Piers. Finally, it's the driver of force behind our AFFO growth in 2020 and our AFFO growth trajectory coming into 2021.

But there's a second lesson I take from 2020, and it's a lesson, the clarity and power of which truly burst through in the second half of 2020 and that is the emerging power of sports betting within the American gaming ecosystem. As gaming real estate owners, we aren't as focused on the TAM of sports betting revenue. So of course, we hope our tenants realize as much revenue and profit as they can from this new channel of business, whether online or in property.

As real estate owners of assets that we will own and our tenants will occupy for decades to come, we believe sports betting will have the greatest long-term impact and create the greatest long-term value by greatly expanding the audience for American gaming. American gaming is an American consumer discretionary sector. Every American consumer discretionary sector competes with the attention time and spending of the American consumer. If the given sector can achieve competitive advantage in gaining and sustaining the attention of a potential new customer or consumer, that sector will likely generate outsized growth and value in the years to come.

For American gaming, as an American consumer discretionary sector, we strongly believe sports betting represents a new competitive advantage. What we believe sports betting does most powerfully is insert American gaming more broadly and deeply into the American conversation. Think about it. What are the 2 great mainstays of getting an American conversation result? Number one, weather; number two, sports. You'll see as the day ever comes when casinos offer betting on weather. But the day is now here when sports betting is getting powerfully woven into the all-consuming American conversation about sports.

Just to cite 2 examples involving 2 of our tenants, every time the Caesars sportsbook gets cited exclusively on ESPN, and every time Penn is able to deliver a sports betting message through its partner Barstool, each of these great American gaming companies is reaching an audience of potential new customers, especially potential new and younger customers.

For American gaming, sports betting represents a new and technology-enabled paradigm for reaching, engaging and activating a new, bigger and younger audience. This technology-enabled paradigm is a new tailwind behind American gaming. And if you look at REIT asset class performance over the last few years, the winning asset classes in terms of superior total return that tends to be asset classes with technology-enabled tailwinds. Cell towers, data centers and e-commerce logistics are just 3 such examples. Conversely, the asset classes that have struggled tend to be those suffering from technology-related headwinds. We believe with high conviction that the gaming real estate asset class should, in the next few years, benefit from the technology-enabled tailwind.

So all in all, 2020 was a year in which American gaming and American gaming real estate proved its defensive strength by enduring through one of the great crisis of our lifetime. And 2020 also showed, thanks to the growing strength of sports betting, that American gaming arguably represents one of the most impelling offensive opportunities in the consumer discretionary sector in the coming years.

The next sound you hear will be the sound of the American consumer roaring back. And as many of you have been writing about, after many months of consuming mainly things, American consumers will return to what has been their growing preference for the last 2 decades: the preference for consuming experiences over things. As some of you may have heard on the Sunstone Hotel Investors earnings call last week, our good friend and Sunstone's CEO, John Arabia, cited transient bookings for the second half of the year at our Maui property that are currently double digit, 13%, above 2019 levels. And the outlook continues to improve on a weekly basis. We believe this is one of the many anecdotes around pent-up leisure demand that will benefit the consumer discretionary sector at large as the economy continues to reopen.

I'll now turn the call over to our President and COO, John Payne, who will talk about what we have done and more over what we are doing to capitalize on the roaring comeback of the American consumer. John?

Thanks, Ed, and good morning to everyone. 2020 was another busy year for VICI as our hard work continues to pay off. In 2020, our team completed nearly $4.6 billion of transaction activity, growing our annualized revenue by approximately $360 million or 37%. Throughout the year, we worked closely with each of our tenants as the pandemic unfolded to provide short-term solutions on an as-needed basis. As Ed stated, our cash rent collection track record of 100% to date is a testament to the quality and strength of our business model and our collaborative approach with our tenants.

As you are undoubtedly aware, the recovery of the gaming industry has demonstrated that despite the many challenges over the past year, the consumer has not found a replacement for the bricks-and-mortar casino experience. Our portfolio of industry-leading assets in regional markets continues to demonstrate margin expansion, and in some cases, profitability above 2019 levels, while our Las Vegas properties, led by Tom Reeg, Bret Yunker, Anthony Carano and the entire team at Caesars Entertainment continue to outperform peers on the strip.

As we start 2021, we have the experience and credibility to explore opportunities, both within and beyond gaming, and we are very encouraged by the volume and quality of potential transactions we see ahead. It is important to remember that for VICI, underwriting and investing in different sectors is not an either/or. We continue to develop relations with gaming operators. We look for ways to support existing tenants growth, and we continue to spend time studying and meeting with operators in sectors beyond gaming in order to be prepared to transact when the right opportunities come together.

Our gaming investments will likely continue to dwarf our non-gaming investments due to the sheer financial magnitude generated by gaming assets. However, we believe that growing our portfolio accretively through sector and geographic diversification, while maintaining prudent risk levels will yield the superior returns our shareholders deserve. We believe VICI is in great position to continue our industry-leading growth and will abide by the same principles that have driven our success to date. We required with integrity to be the real estate partner of choice. We do fair deals, and we collaborate with our partners to create value for all parties.

Now I'll turn the call over to David who will discuss our financial results and our guidance.

Thanks, John. Good morning, everybody. Thanks for joining us today. I want to start with our balance sheet. And since emergence, we have maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. 2020 put forth, and VICI was able to navigate some very heavy weather as we continue to transform our balance sheet, all while maintaining ample liquidity and never drawing on our revolver.

Just to summarize, in June 2020, we raised $662 million of equity through a 29.9 million share forward sale agreement. We still have 26.9 million shares outstanding representing approximately $547.9 million in remaining net proceeds as of year-end. In February 2020, we raised $200 million of net proceeds through our ATM program. And as we've discussed with many of you, we're on a mission of achieving an investment-grade rating and during 2020, we continued down this path. Last February, we closed on $2.5 billion of an unsecured notes offering, comprised of a mix of 5-, 7- and 10-year notes at a blended interest rate of 3.8%, continuing to stagger our maturity profile. $2 billion of these proceeds were used to fund the Eldorado transaction, and the remaining $500 million of these proceeds were used to retire the 8% secured second lien notes.

During 2020, we significantly improved our composition and weighted cost of debt. At emergence, we had 100% secured debt with a weighted average interest rate of 5.49% and a weighted average maturity of 2.9 years. As we sit here today, 69% of our debt is unsecured, with a weighted average interest rate of 4.18% and a weighted average maturity of 6.1 years with no maturities until 2024.

As of December 31, our net debt to LTM EBITDA was approximately 5.8x. This ratio is not reflective of our true run rate leverage as it does not include a full 12 months of income from the Eldorado transaction, meaning, if you take into consideration a full 12 months of rent from that transaction, our leverage would be well within our stated range of maintaining a net leverage ratio between 5 and 5.5x. And as of year-end, we currently have approximately $1.9 billion in available liquidity, providing ample flexibility for future accretive growth.

Just to reiterate, 2020 highlighted our guiding principles on how we approach our balance sheet, which are: to maintain a disciplined composition in laddering of debt, whereby in any 1 year, we strive to have less than 20% of our total debt coming due, safeguarding the company's balance sheet against future market volatility. We're going to opportunistically access the capital markets to lock in funding certainty for all transactions and develop continued access and partnership from the equity and credit markets to finance accretive acquisitions. As I mentioned, our goal is to maintain a long-term target leverage ratio of between 5 and 5.5x on a net debt-to-EBITDA basis and ultimately migrate the balance sheet to that of an unsecured issuer and ultimately achieve an investment-grade rating.

Just turning to the income statement. Total GAAP revenues in Q4 increased 57% over Q4 '19 to $373 million. For the full year 2020, total GAAP revenues were $1.2 billion, an increase of 37% over 2019. These increases, as John mentioned, were the result of adding approximately $360 million of annual revenues during the year from the closing of the Eldorado transaction, the Caesars Forum Convention Center mortgage, the Chelsea Piers mortgage and the JACK Cleveland, Thistledown acquisition and related loans.

AFFO for the fourth quarter was $251.7 million or $0.46 per diluted share, bringing full year 2020 AFFO to $835.8 million or $1.64 per diluted share. AFFO increased 28.7% year-over-year while AFFO per diluted share increased approximately 10.8% over the prior year, which is due to the increased share count and the resulting temporary dilution in the first half of 2020 from the June 2019 equity offering. Our results once again highlight our highly efficient triple net model, given the significant increase in EBITDA as a proportion of the corresponding increase in revenue, and our margins continue to run strong in a high 90% range when eliminating noncash items.

Our G&A was $8.1 million for the quarter, which we believe represents a good quarterly run rate going forward. And as a percentage of total revenues was only 2.2% for the quarter, in line with our full year expectations and one of the lowest ratios in the triple-net sector. As always, for additional transparency, we point you to our quarterly financial supplement for a detailed breakdown of our revenue and lease streams, which is located in the Investors section of our website under the menu heading Financials. We welcome any feedback on the materials.

Turning to guidance. We are initiating AFFO guidance for 2021 in both absolute dollars as well as a per share basis. As many of you are aware, beginning in January 2020, we were required to implement the CECL accounting standard, which due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, going forward, our guidance will be focused on AFFO as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends.

AFFO guidance for the year ending December 31, 2021, is estimated to be between $1.010 billion and $1.035 billion or between $1.82 and $1.87 per diluted share, which at the midpoint represents a 12.5% year-over-year growth in our AFFO per diluted share. These per share estimates reflect the dilutive impact of the pending 26.9 million forward sales shares, assuming settlement of the forward agreement on June 17, 2021, the maturity date of the agreement. In addition, these estimates do not include the impact from any pending or possible future acquisitions, dispositions, capital markets activities or any impact from the incremental equity drawdown from these forward shares.

During the fourth quarter, we paid a dividend of $0.33 per share, which represents an annualized dividend of $1.32 per share. Our AFFO payout ratio for the fourth quarter was approximately 72% in line with our long-range target of 75%.

With that, operator, please open the line for questions.

(Operator Instructions) Your first question today comes from the line of Richard Hightower with Evercore.

Ed, thanks for your enthusiastic comments to start the call. It's maybe a valuable reminder that we, on our side, sometimes exist within our sort of narrow analyst speech bubbles. So I appreciate the reminder there.

My pleasure.

No, in all seriousness. But maybe -- I'm going to ask 1 sort of narrow question and then maybe a bigger picture question. But just in terms of -- really quickly on the Danville ROFR. Maybe just help us understand to the extent you can explain it at this point, some of the terms around that?

And then maybe I'm misinterpreting something here. But if I look at the ROFR as sort of recompense for giving up the security of the master lease at Southern Indiana, how do we sort of pair the value proposition on either side of that, if that's an appropriate way to think about it?

John, do you want to take that?

Richard, I'm not sure if that's the exact way I'd think about it. I think that ROFR just has an opportunity, obviously, as the operators need to decide at some point if they ever want to monetize their real estate. We sure would like to have own real estate in a new market, which we think is going to do very well. We're very excited about the new tenant that we're going to have in Southern Indiana. I've known that The Eastern Band of Cherokee Indians for almost 20 years now from my old job when I worked at Caesars, and we're excited to help them expand their portfolio for the first time outside of tribal land.

So again, we -- as you've seen with other deals, Rich, when we negotiate and we do try to add to our embedded growth pipeline. And that's how this came about in Danville, and we'll just have to see if the operator ultimately wants to sell the real estate.

Okay. I appreciate the color, John. And then a little bit from a bigger picture question, but also related to Southern Indiana, I know that the original press release stated 2.2x coverage in the first year post closing. So that puts us somewhere into sort of the mid- to late 2022 by the end of that sort of measurement period. But take us into sort of the underwriting and how you gain comfort with what stabilized cash flows on this. Or really any other investment are going to be over the next year or 2, and how does the tenant and the landlord gain comfort in those -- in that sort of ramp-up maybe as compared to 2019, or however we should think about it?

Yes. Rich, I'll go at this first, and my colleagues can jump in. First, it starts with the relationship of understanding who your partner is. And as I just mentioned, I've been fortunate to have a relationship with the tribe and watch them grow their incredible business in North Carolina to record levels. As well as the regional business, Rich, as you know, has rebounded tremendously when there weren't many restrictions on the business. So the pandemic started in March and April. The casino shut down. But as they reopened in places like Southern Indiana, we've seen them open with the consumer returning to the business as well as a margin or an operating model that's much more efficient than ever before, and I give great credit to our operators to do that.

And so as we went into this deal, we put all of those together, we talk to the tenant. We understand how they're going to operate business, and we develop the plan from there. But critical part is understanding how this business is going to rebound as the consumer comes back to it. We're very -- again, I'll repeat, we're very excited to have them as our sixth tenant and running the Southern Indiana property.

Our next question comes from the line of Anthony Paolone with JPM Securities.

Ed and John, you guys both talked about the importance of partnering with your tenants to drive growth. As you're thinking about non-gaming assets, is that equally important as you try to get down that path? Or do you think you may just have to bid on assets and other product types and try to get it going that way?

Yes, Tony, the way we are approaching non-gaming is that we really want to pioneer into categories where REITs may not necessarily have been heavily trafficking and bidding and buying. We really have no competitive advantage in heavily marketed, heavily bid categories. And so what we're working hard to do as we did in the case of Chelsea Piers is identify either categories or subcategories where we believe there are operators who have uniquely powerful, enduring relationships with their customers and are producing economics that can support -- more than richly support an opco/propco structure.

It obviously takes a bit more time, but we're very excited about what we are learning and who we are meeting, and who we're getting to know and the opportunities that they represent. And I think, Tony, as we talked about with you around the whole technology tailwind theme, there are also cultural tailwinds out there. And we think there are certain experiential sectors, especially at the higher end. We're going to have tremendous cultural and demographic tailwinds behind them for the next 10 to 20 years, and that's where we see our opportunity. It's really not in the commodity categories of triple net.

Okay. Great. And then for David, on the balance sheet, I mean, given what unfolded in 2020 and the performance of the portfolio, any sense as to just how much more attainable IG might be in the near term?

Yes, Tony, it's something that we've discussed the depth with the rating agencies. We met with the agency several times during 2020, both on our regular checkup, but also as the pandemic was unfolding. And for us, it's really around the term loan. The term loan is secured by all but one of our assets. And so we do not have a typical unencumbered asset pool like most traditional REITs do. So we need to refinance out of that secured term loan into the unsecured debt markets. And as we move into 2021 and into 2022, it's -- we will sequence that refinancing of that term loan essentially into 2023, part and parcel with what may come in the acquisition and the pipeline, what sort of funding we may need for additional acquisitions.

So it's -- there's a clear path. GLPI has paved it and has proven that it's an achievable tenant concentration. In and of itself is not a gating factor, but just simply for VICI's cap stack and that term loan, again, securing all of our assets is -- secured by all of our assets is the gating item.

Okay. And then just 1 last follow-up. On the other side of things, just again, given the performance of the space through the pandemic, do you think that changes the discussion around yields on investments as we look ahead?

It should. If this category behaves the way certainly so many other categories have, Tony, that have undergone an institutionalization process, yes. Yes. The prices should go higher. Our mission, we would work hard at every single day at VICI is to make sure our cost of capital improves at a rate equal to or in excess of the velocity of cap rate compression.

But it just stands to reason that these assets should attract higher prices as time goes on, as everyone recognizes that they came through really a totally unforeseen magnitude of crisis, right? And they came through better than just about any leisure consumer discretionary sector out there as a real estate asset class. So yes, you have to think, especially as people truly start calling out from under the rock to COVID that we should see what -- so frankly, I joined VICI 4 years ago, which is to take part in great cap rate compression story in American commercial real estate.

Your next question comes from the line of Stephen Grambling with Goldman Sachs.

I guess a couple of follow-ups on the last 2 questions. First, as you think about some new potential acquisition opportunities within gaming, are there any markets that you feel are more or less attractive or easier to underwrite, given your current exposure? And could you weigh in on how that resilience of cash flow from operators may be impacting seller expectations around price relative to perhaps where the broader cost of capital has moved?

John will take the first part, and David can take the second.

Yes, absolutely. Steve, look, there aren't any markets that we look at that we wouldn't study right now. We like the fact that we have a balanced portfolio. We've said that since we started the company. And I think we'll continue to add the balanced portfolio. We like to own assets in these regional markets, and we've talked about how resilient they've been, and we've talked about every change of the operating model. But we're also big believers in Las Vegas ever since we started this company, not only assets on the script, but also in downtown and locals.

So Stephen, we'll continue to turn over every rock and look at opportunities in all of the gaming markets. It doesn't mean that we'll invest in every market, but we sure will take the time to meet with operators and talk about how they're thinking about how we can help them grow. And I'll turn it over to David to take the second part.

Yes, Stephen. I think it was -- correct me if I'm wrong, a mix of pricing and kind of how we think about capitalization. Pricing is maintained, right? The regional markets have come back. There is the level set, obviously, not a lot of transactions, but the pricing in the regional markets is that or near where it was pre-COVID. TBD on Las Vegas, given a little bit slower ramp there.

But as we think about our capital and our leverage, we're very focused on maintaining our leverage between that 5 and 5.5x that we've talked about. And that's, back to Tony's question, something that's important for the agencies. And then a deal has to be accretive. We've talked with you all a lot about what we buy day 1 is what we live with for 35 years. So we have to ensure that we have the capital and underwriting is done on an accretive basis to continue to grow our AFFO.

That's helpful. And then a follow-up on the comments around non-gaming kind of non heavily bid market opportunities. Should we interpret that any cap rates that you've been pursuing in those markets could be equal or higher to those that you are pursuing in gaming? Or is there even a tolerance that as you look at some of these because they are unique asset classes that you could actually move down the cap rate spectrum?

It could be all of the above, Stephen. The fact that they're not heavily bid could mean they're better bargains we had. But it could also be exactly to your last point, that we can afford to pay and just to by paying maybe at somewhat tighter cap rate because of the nature of the asset, the risk profile of the asset, the barriers to entry and what is been very proven durability of the asset over the long term. So we think we'll -- I hope this doesn't sound like sort of a big answer, but it will be so situation-specific.

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

I wanted to start on your embedded growth profile -- or sorry, embedded growth pipeline. Any thoughts on timing there? Caesars has been talking about selling a strip asset. And I believe the Centaur call option could kick in starting next year.

John?

Yes. So you named -- you talked about something we're very proud of that we worked on 3 years is building this embedded pipeline with the deals that we've announced. And so we'll continue to talk to our partner in Caesars about what they're seeing ahead and what they're feeling about the Las Vegas market. And do they still feel as they did when the Eldorado team took over Caesars that they may have 1 or 2 incremental assets that they don't feel like they need in their portfolio, and they'd end up going through a sales process. As I mentioned a few minutes ago, we're big believers in Las Vegas. We think that's the market that is going to rebound in all segments. And so if they want to move forward with the sale, we're obviously very interested in owning more real estate of those assets that we have ROFRs.

You also mentioned the put call of the 2 great Indiana assets in Indianapolis that do come due. You're right on point. Next year, and again, we'll continue to have talks with our partner about that. So 2, 2 tremendous opportunities for us that we really worked on to develop over the years with our embedded -- creating our embedded pipeline. As it pertains to timing, we'll just have to continue to have discussions with our partners on that.

Yes. Barry, if I could just add on something, it kind of goes back to my opening remarks around VICI's growth in 2020. Someone could rightfully say, yes, okay. Well, the markets already priced that growth in. And yet, what I don't think is being fully appreciated or valued in VICI is not only the growth we produced in 2020 and the growth trajectory that we bring into 2021, but the growth that is represented by that embedded growth pipeline.

And just to get a little old school on you here, which I'm allowed to do, I'm really quite an old guy. I really encourage everybody to look at VICI on that old-fashioned, old school price earnings growth ratio basis using our AFFO multiple in place of a PE multiple. And what you'll find, especially looking over a multiyear period is that we will likely have in your calculations, one of the lowest PEG ratios you will find across the American REIT spectrum and certainly substantially below the peg of the S&P 500 at this current point in time.

And again, I encourage a multiyear view because a lot of REITs are going to grow in 2021 because they shrank in 2020. And what you're getting with VICI is a multiyear growth profile that goes into the future and just the way you described, Barry, thanks to the fact that in 2022, even if we couldn't get anything else done, we got Centaur and the opportunity to call.

Yes, yes. And then just 1 follow-up. Recognizing it's been done so far in concert with your tenant, but do you foresee any more dispositions or prunings in the portfolio?

John?

Barry, I don't -- we'll have to continue to study that, but not specifically at this time. But we'll have to continue to understand would there be an opportunity.

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

I wanted to ask you, you added a second native American tenant. And I just wondering, do you think this will be a trend to see more native Americans moving away from tribal gaming into commercial gaming? And is this -- I mean, do you think you have maybe an advantage with 2 tenants in that wheelhouse already? Or just sort of touch on that a little bit.

John?

Yes, it's a great -- yes, it's a great question. And it's exciting to see the tribes move into commercial gaming because they've done so well in their original casinos. And so you're asking, will there be other tribes that will look at commercial gaming opportunity. I think there will be. And I think we do have relationships with numerous tribes just based on my experience past -- or 20 years experience working at Caesars and working the native American tribal developments.

So we'll continue to meet with them, understand would they like to diversify outside their nation. And if they do, look for opportunities where we can work together. And I hope that trend continues because I think it's quite exciting for the nations that are doing this. Obviously, we've got a relationship with the Seminole and The Eastern Band of Cherokees.

Okay. That's interesting. And then do you see, John, maybe are you seeing any sort of other entrants that have an incremental interest in the gaming industry now given where cap rates are, and how we really going to expand on a relative basis? I mean I know there's sort of regulatory hurdles, but would you expect to see more sort of players coming into the space?

Yes. It's a great question. There's no doubt that the resiliency of the gaming operators during the pandemic has caught people's eyes. When a lot of industries are -- some are still talking about cash burns and regional gaming companies are talking about record EBITDA, it's going to catch the attention of many people that invest in the hospitality or experiential space.

So your question is, will others come into the space? There's no doubt that others are looking at it because of how well these assets have performed and the magnitude of cash flows. But as you know, this business is -- the operating business is quite complex, and it has some licensing requirements. But I do think over time, you'll see more groups getting into the business because it's not only the bricks and mortar, but to Ed's comments at the beginning, how exciting the growth path is when you tie in sports betting and potentially iGaming.

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

John, I was wondering if maybe you could just address from a high level. We're almost a year roughly into the pandemic era, and maybe go back to kind of prior to that and the nature of your discussions around deals, and I'm referring more towards terms, whether it's coverage, things like that, and maybe address anything that's changed in the aftermath.

Our people are potential sellers looking at different things. And I mean that both from the opco perspective, the seller's perspective, your perspective, is there anything that stands out as having maybe been tweaked a little bit given the circumstances of pandemic as well as the higher margins that we're seeing now as well as the ancillary business lines and whatnot? Is there anything that you've noticed that's been dramatically different?

Well, I'll start, Carlo. I can't remember before the pandemic. What went on, I seem to have forgotten all of that. But no, look, I tried to have a constant dialogue, not only with our current tenants, but with all the operators in the gaming space. And I think as we think about underwriting, maybe we've talked more about rent coverage just due to what happened in the pandemic. But I think Ed touched on this as well. It's just been exciting to watch the operators change their business model or refine their business model so that when they come out of this pandemic, and I do believe we're going to come out of it that they're operating these businesses just so much more efficiently than guys like I did 15 years ago. And that's exciting, Carlo, and that -- those are the type of conversations that we're having.

As it pertains to transactions, I mean, we just continue to try to understand how the opcos want to grow their business, and is there an opportunity for our company to help them do that. And then obviously, there's a few levers if we do get into negotiations that you talked about cap rate and coverage and escalation, all that. None of those have necessarily changed. So that's how I'd answer that question, Carlo. I don't know if Ed wants to add anything or David, but that's how I'd leave it.

Your next question comes from the line of Todd Stender with Wells Fargo Securities.

Do I have it right, the Caesars Southern Indiana is not on tribal land? Is that the case?

Correct.

Okay. Now does Eastern Band of Cherokee Indians, do they benefit from lower regulations, lower taxes? How do you actually underwrite that one? It seems pretty unique.

If you're asking about when they're the commercial operator of Southern Indiana, they'll follow the same rules of commercial operator. Whether it's Caesars or Penn or any of them, the same rules will apply to them because the facility is not on tribal land.

I understood. Okay. So as a tribal operator, you don't get all those benefits if you're off of tribal land?

Yes, very similar to the Seminoles and their Hard Rock brand. I think you've probably followed that they have numerous casinos around the United States that they operate.

Understood. Okay. And did you share any information on the land and plans around the Danville, Virginia casino resort?

Can you repeat? Did we share the what?

Yes, the proposed plans. There's the right of first refusal around the Danville property. Are there any...

Yes, that's a -- yes. Yes, that's a development project that is just getting started. So there's information about Caesars, and they won the license and their development plan there, but it's just getting started.

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

So you ended the quarter with $1.9 billion in total liquidity, including over $326 million in cash and $547 million that you have coming in from the forward share sale. Your in an envious position from a balance sheet perspective, obviously, but you're also arguably overcapitalized right now. I guess, given your balance sheet strength, how you intend to deploy excess cash? And are there any near-term deals maybe in the next 1 to 2 quarters that are currently in the pipeline?

Yes. I'll start there, Dan. I mean we're -- and John can talk about the M&A landscape and outlook. But we have always historically, I should say actually. We've kind of silly to use a word always when the company is only about 3 years from its IPO as we are. But from the beginning, we have always tended to over-equitize the balance sheet in the interest of having firepower when opportunity strikes.

And there may be at times -- there may have been a time some near-term dilution taken on, but that was near-term dilution endured for the sake of having a firepower to create long-term accretion to our ability to move very quickly when opportunity presents itself. We certainly do not intend to shortchange our shareholders like keeping excess capital on the balance sheet for a prolonged period of time. But we're pretty confident we're going to be able to put that capital to work.

Okay. Great. I don't know. I guess, John, nothing to follow up on?

No. I think Ed talked about it. Look, I mean, I'm spending my time. It's nice to be able to talk to the operators. We're not focused on how to reopen and how to be safe, and they've done all that, right? Now they can begin to talk about how do we grow and where do we want to go and how sports betting helping attract new customers and those things. And so it's nice to begin to have the growth conversations again.

Okay. Great. And then -- sorry, go ahead.

Yes, Dan, I was just going to add, I think one of the emerging dynamics that is powerful and positive is the growing recognition of the value of network effect in American gaming. Harrah's and then Caesars, obviously, were the pioneers of true network effect in American gaming and would still widely be considered to be the leaders through the power of Caesars Rewards.

But I think increasingly, operators are recognizing, in part because of sports betting, that there is genuine value in creating network effect and being -- having stores in as many jurisdictions as you can. And that we think is going to be a powerful force, especially once COVID clears away in continuing to drive M&A. And with a lot of the M&A-driven, not so much by the sellers' need to get out as the buyers' intense desire to get in, and there are markets in which buyer demand can create incremental supply.

Okay. That makes sense. I think you're alluding to market access rates, if I'm not mistaken.

Yes. Well, market access -- also and true market access being more valuable unto yourself and more valuable to your partners. Whether it be a Barstool, William Hill, FanDuel, DraftKings, whoever your partner may be.

Great. And then just turning to the non-gaming side. So last quarter, you alluded to the potential for follow-on transactions with the Chelsea Piers. Do you have an update on the timing of any such follow-on deals? And how might a transaction be structured?

David, do you want to take that?

Yes, Dan, good to talk to you. Look, as we've talked about with Chelsea Piers, it's opened the doors, open their eyes and increased the dialogue around non-gaming and Ed described it well in the beginning, right, non commodity, high-quality real estate. And with any deal, we can't talk about specific timing or whatnot, but we would continue to meet with, discuss with and have conversations with great operators that have great real estate that might fit into our portfolio.

So I can't say exactly when the next deal will come, but we're optimistic that there will be some more non-gaming this year, but again, just to reiterate what John said, it's not an either/or, right? We're very active on the acquisition front. And as we've started the conversation, we're working to deploy that capital that we have on our balance sheet.

Your next question comes from the line of John DeCree with Union Gaming.

Maybe one for Ed and then a follow-up for John. Ed, in your prepared remarks, you talked a bit about the sports betting expansion and how that's such an exciting opportunity for the industry. I think a lot of folks can really see a clear picture of how that benefits your tenants and indirectly, you guys with higher rent coverage and higher revenue.

But I'm curious if you have thought of or identified any ways that VICI could benefit directly. I'm not referring to sharing in revenue or anything like that. But if there's an opportunity to fund themed sportsbooks or look at your leases a little differently given the earnings growth potential of your tenants and potential tenants. And just seeing if there's ways you can maybe find direct ways to benefit from this big industry trend.

Yes. No, it's a very good question, John. And that would certainly be probably the most meaningful way, which would be a capital provider as great operators envision and execute what this -- the whole sports betting, sports culture, sports viewing experience can be within the casino. John, I don't know if you've had a chance yet to go to Derek Stevens' new asset in Downtown Las Vegas. But it is a great example. John has been -- or John -- our John Payne has been there.

And John, maybe you can talk about it as an example of what we would certainly be happy with our tenants to fund, given the magnitude of vision that Derek has realized there. John Payne?

Yes, John, you might have been there. It's just -- it's a really well done, brand new facility in Downtown Las Vegas that is centered around really a lot around sports betting and the uniqueness there and the type of customer that likes that type of facility. And so anyway, it's just a great example of the trends that are going on right now. It's the first build-from-scratch casino during this, what I'd say, sports betting trend or phase. It's a really neat place.

It is. It's a great place. I was thinking that. I was thinking Barstool theme, sportsbooks and those types of things. So it sounds like if a large tenant was going to refresh and rebrand, VICI could be a capital provider for that shareholder in exchange for some. Got it. Great.

John, a question for you. You've experienced through quite a few development cycles nationally. And it seems like we're on the horizon of one here in the U.S. And a lot of investors into the space are always trying to calculate the TAM and number of assets. And we've got some developments in Nebraska, Virginia, Danville for you guys. New York is talking about expanding casinos downstate. I mean Texas is one that I probably would have never thought I'd be having that conversation again, but it's being talked about.

So in your experience, I'm kind of curious to get your thoughts, realizing -- no crystal ball here, but are you seeing a push towards development? I know Red Rock on their call has a site in Las Vegas, that's very interesting. So curious to get your thoughts on your outlook for gaming expansion in the U.S.

Yes, John, it's an exciting time. I mean, again, I'm 25 years into this, and I can't think of that has so many different levers of growth for this industry. Most calls are talking about sports betting and iGaming, and you just brought up a whole another opportunity that is out there, where there are new development opportunities for operators to expand their network, and it is quite exciting and whether Texas comes, but there's already the states that you mentioned, whether it's Virginia and Nebraska, potentially in New York that are 3 big opportunities.

So it is an exciting time. It's obviously something that we talk to our tenants or future tenants about to see, is there a way to structure that -- is there a way of structure that makes sense for VICI and our triple net model, and we'll just continue to study. But it's -- John, it's just the normalization of gaming throughout the United States is just amazing right now, and it's great to be in the space that we're in, and it's great to see the success of our operators.

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

So just one for me. Maybe touching on the opportunity in Central Indiana. Again, how do you think about timing of potentially pulling down that transaction? I'm just thinking about this given rent to EBITDA level is already predetermined in that transaction. And you have record EBITDA results out there and maybe some questions about how sustainable those are and how sustainable those margins are.

Does it make sense to maybe wait a little and see if kind of EBITDA normalizes and get out at a rent level that's really appropriate for the property? Or is it kind of the time you have and decided collecting rents and there's no reason to wait if you like the properties per se?

John or David?

Well, the process is -- right now, just so we're clear, I mean, we own Southern Indiana right now. I think you know that.

Sorry, Central Indiana, Central Indiana.

Central -- David, do you want to take that?

Yes. I mean, John, it's a question that we -- a similar question we got a lot when we merged, right? As people recall, we had the 3 call properties that we could call a 10 cap would ultimately folded into the Eldorado transaction that we announced in June of '19. So John touched on it, right? We've worked hard to build this embedded growth pipeline. So it's a combination of ensuring that we have consistent annual growth. It's working with Tom and Bret and Anthony and their team and what makes sense for their capital needs and their ultimate sale of those assets.

And then you're right, the performance of the assets will be kind of a third factor and a third lever, but those calls for -- that put call runs from January 1, 2022, to December 31, 2024. So at some point, between those -- between that period of time, we're going to be thrilled down those at a great cap rate, which should be highly accretive. But it's -- there's a myriad of factors that go into it, and we're excited to have that embedded growth.

I mean it's a question about on an individual asset level, whether rents are maybe sustainable for the property. Or is there even, hey, Caesars is a tenant we trust, obviously, we have a lot of other exposure to Caesars. I don't believe these are kind of corporate guarantee, but at the end of the day.

David?

Yes. John, it's a good question. And one of the things we did get with the Eldorado transaction is that those would fold into the master lease, right? If you recall, we had a ROFR on those originally, and we converted that to a put call, and those will fold into the master lease. So they will benefit from the corporate guarantee. And the asset level coverage is something that we'll take into consideration and -- but knowing that they fold into the benefit of the master leases gives VICI embedded -- enhanced protection.

And ultimately, part of the reason, Tom and the team were willing to do -- to set up the put call is Tom's vision of bringing back an end goal of achieving an investment-grade rating on their side, right? This provides significant liquidity to pay down debt or continue their growth profile and improve the credit of our tenant, which will accrue through to VICI with enhanced rent protections.

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

I'll keep it short. I know there's an awful lot of focus on Las Vegas, and I'd love your perspective on how you're -- just generally speaking, underwriting Las Vegas, meaning operators are obviously projecting optimism. But from the investment perspective, are you anticipating revenues getting back to '19 levels in the next couple of years? Are you underwriting something less than that? Just how are you qualitative thinking about that?

Yes. John can answer that in a moment, David, but I will just start by pointing out that this week, we all learned of Koch Industries, which has a rather strong record of capital allocation has seen fit to put capital into Las Vegas, which I took as a net positive. But anyway, John, do you want to answer David's question?

Yes. David, look, I touched on it earlier on the call that -- and I probably sound like a broken record in my 3 years of -- in this job. I mean we're big believers in Las Vegas, pre pandemic and post pandemic. This is a city that has multiple layers -- levers of revenue. We think that the FIT customer is going to recover. We think the MICE business, they're going to be way ahead of many other U.S. destination cities. We think that plain supply will be added back to this market quicker than most destination markets, maybe faster than any market.

And so we're believers in this market. They've -- and the performance in Las Vegas has been -- people like to compare it versus 2019 and 2020. And I think that's a little unfair. I like to compare the performance of Las Vegas versus other U.S. destination city. And when you look at the performance of Las Vegas in 2020, which is probably going to be one of their worst year ever, we'll compare it to New York, Chicago, Miami, San Francisco, Orlando. I mean this is the city that's very resilient, and the teams there are working very hard.

The other thing, David, I'll say, is that we've seen this margin expansion in the regional markets because revenues have come back close to '19 levels. When Las Vegas fees -- revenues come back to that type of level, I think you're going to see similar margin expansion at many of these operators because they worked very hard to change the operating model. And so we'll have to see that because revenues are going to come back. So anyway, that's just a long way of saying we're believers in the market, the strip, and we talked about Circa and Downtown and how Downtown is changing. And then the results out of the local market have -- what I've seen from Red Rock results and Boyd resorts that you have, those business seems strong. So anyway, we're -- we like the market, and we'll continue to see if there's opportunities for us.

Your next question comes from the line of Peter Hermann with Baird.

Can you walk us through the base case scenario for the upcoming Greektown variable rent adjustment? And as well give some color on the Margaritaville rent adjustment too?

David or Danny?

Yes. I can take that. So Margaritaville -- and just to put the 10 leases in perspective, right? There's a variable rent component, which is a small percentage of the overall rent that we get on an annual basis. For Margaritaville, it's $3 million, it's a $23.5 million of annual rent. And for Margaritaville that we did not earn the escalator at that property since the rent did not exceed the prior revenue metrics -- or it did not exceed the priority metrics. And so that was the variable rent decrease, and that was less than $100,000 decrease. So very, very de minimis on our total base rent.

And then for Greektown, that's coming up in June. And again, the variable component is $6.4 million out of the $55.5 million, $55.6 million of total rent we collect. And that $6.4 million of variable rent is only 50 basis points of our total revenues. So a small component of our total rent base again. And we'll have to see how that plays out given that's coming up in June.

Your next question comes from the line of Jay Kornreich.

One of your peers this morning said they are recently seeing increased non-gaming opportunities come up. And I'm wondering if this is true for you as well. And if so, what's the reason for the recent pickup?

Yes. It's an interesting way to phrase it. I mean what we've been doing is going and looking for, as I described earlier, Jay, off-market, categories where REITs are typically not gone. So we are much more oriented to going and finding what we most want to invest in as opposed to letting the market present opportunities to us because the market tends to present opportunities; two, it would be bidder that are, by definition, more mainstream and commoditized.

(Operator Instructions) Your next question comes from the line of Spenser Allaway of Green Street.

Could you guys just share your thoughts on the potential upside from the market spending legislation around online sports betting? And then are there any other states that should be top of mind in terms of evolving regulation or legislation currently?

Yes. Well, Spenser, good to hear from you. We actually don't have any assets within New York state right now. But what I would say about New York state is what I would say generally in terms of how we're viewing sports betting, which is really as a key means of market or audience expansion. There will be a lot of -- once New York figures out what it wants to do in sports betting. Sports betting and the culture around it will enable it to truly widen its audience in the way so many other states and operators are doing. So again, we don't have any highly informed thoughts around New York, but very excited about what this means for gaming nationwide.

Okay. And just one more. I believe we discussed this sometime last year, but any more thought given to structuring variable rent based more on EBITDA or income versus revenue currently?

Well, by REIT law or legislation, Spenser, rent variation has to be based on revenue. REITs are not allowed profit participation. So for that reason, we would expect to see all kinds of rent -- variable rent mechanisms continue to be revenue based. I think that's the right -- if you put it, David.

Yes, that's right. Exactly.

And there are no further questions in queue at this time. I turn the call back to the presenters for closing remarks.

Thank you, Amy. In closing, we thank you for your engagement with us this morning. As you can tell, we are very excited about our present situation, our near-term opportunities and our long-term prospects. We've been saying since we started in 2017 that gaming real estate represents the next great institutionalization story in American commercial real estate. Our conviction behind that thesis has only grown stronger, and we believe can be fully realized as we collectively witness the roaring back of the American consumer. Thanks again, everyone. Bye for now.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.