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Gaming and Leisure Properties Inc
Earnings Call Analysis
Q2-2024 Analysis
Gaming and Leisure Properties Inc
In the second quarter of 2024, Gaming and Leisure Properties (GLP) exceeded last year's performance, seeing an increase in total income from real estate by $24 million. This growth was driven by various strategic acquisitions like Tioga and Rockford which collectively added over $7 million in cash income. Additionally, rental income saw boosts from the Casino Queen Marquette and Baton Rouge developments. Operating expenses also significantly decreased, primarily due to a $31 million reduction related to noncash provision for credit losses.
One of the most significant highlights of the quarter was the $1.6 billion transaction with Bally's, which is anticipated to contribute substantial future growth. The management underscored this deal as a ‘win-win’ for both parties, locking in the company’s growth trajectory for the next few years. This transaction, among others, fortifies GLP's position in the market and sets the stage for sustained growth.
GLP has issued a full-year 2024 AFFO guidance ranging from $3.74 to $3.76 per diluted share and OP units, despite the guidance not incorporating the impacts of future transactions. The increase is mainly attributed to the strategic transactions completed during the quarter. Coverage ratios remain robust, ranging between 1.94 to 2.66 for master leases.
Over the last six months, GLP has announced close to $2 billion worth of new investments with multiple counterparties. These deals were made at a healthy yield, even in an unpredictable macro environment. The company emphasized its strong position as the 'go-to landlord' within the gaming world, underlined by a continuously healthy investment pipeline.
GLP evidenced sound risk management by highlighting the significant rent coverage of over 2x for its master leases with Bally's and other tenants. Even if a tenant encounters issues, this high coverage ensures that operations remain profitable and attractive for other potential operators. Furthermore, the company maintains a keen eye on market changes and potential risks, focusing on thoughtful underwriting for long-term stability.
GLP has been instrumental in key urban projects, particularly with Bally's developments in Chicago. The company has been actively involved in planning and underwriting to ensure that these projects remain on time and within budget. GLP's proactive stance in development and risk management instills confidence in its ability to handle large-scale projects effectively.
GLP indicated a strong balance sheet and flexible capital structure, allowing it to leverage both debt and equity markets effectively. The company remains focused on maintaining a comfortable debt-to-EBITDA range while optimizing capital deployment for future projects. This balanced approach ensures that the company remains financially robust and capable of seizing future growth opportunities.
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Greetings, and welcome to the Gaming and Leisure Properties, Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Joe Jaffoni, Investor Relations. Thank you, sir. You may begin.
Thank you, Maria, and good morning, everyone, and thank you for joining Gaming and Leisure Properties second quarter 2024 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 Form 10-Q and in the earnings release, as well as the definitions reconciliations of non-GAAP financial measures contained in the company's earnings release.
On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer of Gaming and Leisure Properties. Also joining today's call are Brandon Moore, Chief Operating Officer, General Counsel and Secretary; Desiree Burke, Chief Financial Officer and Treasurer; Steve Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer.
With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.
Well, thank you, joe, and good morning, everyone. Well, we've had a pretty eventful quarters with good performance this quarter from portfolio companies and the actualization of some of the various projects that we've been working on for actually some time.
We pretty well locked in the next couple of years of growth, before anything else we might succeed in creating. You know that earlier this month, we announced an approximate $1.6 billion transaction with Bally's that we believe is a clear win-win for our company and for Bally's as well.
I'll skip reading through the details of that since it's well documented in my written comments on our press release. And I suspect that what we might miss, you'll find a way of asking us anyhow.
So I'm going to let Desiree Burke highlight a few financial items. Thanks, Des.
Sure. Thanks, Peter, and good morning, everyone. I'm going to hit the highlights of what we achieved in our P&L for the quarter as I normally do.
So for the second quarter of 2024, our total income from real estate exceeded the second quarter of 2023 by $24 million. That growth was driven by the Tioga acquisition, which increased cash income by $3.6 million; the Rockford acquisition, which increased our cash rental income by $3.8 million, including the loan proceeds; the cash, the Casino Queen Marquette acquisition; and the Baton Rouge land site development increased cash income by $2.3 million; the strategic acquisition increased cash income by $1.2 million, and then the recognition of escalators and percentage rent adjustments on our leases, which added approximately $4.7 million of cash income.
Lastly, we had the combination of noncash revenue gross ups, investment in lease adjustments and straight-line rent adjustments, which drove a collective year-over-year increase of approximately $8.4 million.
Our operating expenses decreased by $31 million, primarily due to the noncash decrease in the provision for credit losses. Our amended PENN Pinnacle and Boyd master leases had rent resets that occurred on May 1, 2024. These resets increased percentage rent by $5.9 million annually. In addition, we received full escalation on these contingent leases, which resulted in $6.5 million of additional rent annually.
Finally, the amended PENN master lease is subject to contingent escalation on November 1 of this year. And if obtained, we would get a full to $4.2 million of additional annual rent.
Included in today's release is our full year 2024 AFFO guidance ranging from $3.74 to $3.76 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. The increase in guidance is primarily due to the closing of the strategic transaction.
Our zero-coupon treasury bill matures in August of '24 at an implied yield of 5.32%, and our coverage ratios remained strong, ranging from 1.94 to 2.66 on our master leases as of the end of the prior quarter.
With that, I'd like to turn it over to Matthew for comments.
Thanks, Desiree, and thanks to everyone for joining us this morning. History shows the periods of heightened volatility leads to opportunity for those who are prepared. Our thoughtfully constructed portfolio of safe and durable cash flows, combined with our continued commitment to balance sheet strength and liquidity, along with our track record of capital markets discipline have set the stage for more opportunity.
This past quarter, we again demonstrated our team's creativity to uniquely source and structure a multipart win-win transaction with the recently announced Bally's Chicago, Kansas City and Shreveport Investments along with the improvement of economics related to the Lincoln [ Colliery ]. Our development team's confidence and input in the Chicago project combined with our creativity to open the door to opportunity, as we offered another bespoke solution to Bally's.
Over the course of the last 6 months, we've announced close to $2 billion of new investments with 4 different counterparties across the gaming world. We have done each of these deals with a healthy yield in an unpredictable macro environment. Strong market share of all gaming real estate investments that we have demonstrated of late, we have further solidified our position as the go-to landlord of choice within the gaming world. The flywheel effect has been to our benefit.
Our pipeline remains healthy. With each deal, we have new and interesting case studies that encourage more conversations with our pipeline of potential investments. We remain focused on protecting and perfecting our existing cash flows as we continue our efforts to unearth opportunities for the prudent and thoughtful deployment of our shareholders' capital.
With that, I'll turn the call back to Peter.
Well, thank you, Matthew. That was a pretty good summary of where we find ourselves today. A couple of [indiscernible] comments, if I may.
We -- at the time of our -- since the time of our spin, I get the question on the road all the time, where is your pipeline? What have you guys got coming next? And I always say, I'm apologetically, we don't have a pipeline. It's something we create as we go.
This last quarter and this last year, I think, underscore the tremendous amount of work that we do. And just because we have a quarter or 2 quarters, even a year, with no activity, if you look at what we've collectively done over these last years, it's been terrific. So we're quite proud of what we're accomplishing here.
And with that, we'll pass it over to your questions. So Maria, please open the phones.
[Operator Instructions] Our first question comes from Brad Heffern with RBC Capital Markets.
Obviously, a lot of capital commitments coming up between the Bally's transactions, development funding deals and debt maturities. So can you just walk through your expectations for how and when all that will be funded?
Sure. So the funding needs for the transactions we recently announced with Bally's will be staggered over the next couple of years. As we've done historically, we intend to fund the transactions with both the mix of debt and equity. Our balance sheet gives us a lot of flexibility with our leverage below 4.6x and our $1.75 billion revolver currently undrawn.
With our second quarter 10-Q filed and the financial results announced, obviously, we'll be actively monitoring the capital markets to take advantage of any opportunities to lock-in capital at attractive rates for both of these transactions as well as other upcoming capital needs, including our debt maturities that we have coming due.
Okay. Got it. And then, Peter, you've historically been somewhat bearish on the Illinois market. Obviously, you're making a very large investment there now. I'm just curious, what is it specifically about this asset? Or what changed in your thoughts around that market to make you comfortable with that?
Well, this is a big-time project that is going to be pretty impressive. I mean, obviously, we have some knowledge of what is planned there, and I think we've had some material impact assisting the strong Bally's team and coming up with something that makes a lot of sense. The key to any project like this is on budget, on time. And I think we've had a pretty good track record over the years of accomplishing that.
Look, we've looked carefully at the market and the competition and so forth and look, despite that and some of the more [ gracious ] things that in years past that our former Governor, Rod Blagojevich is used to promulgate things of -- look, it's tax increases are not good. But I think we feel pretty confident in this project. We've spent a lot of time looking at it. We like the sponsorship with Bally's. We'll have a seat at the table in assisting and I hope, hopefully, creating a project that is going to be successful.
So we feel pretty good about it. I mean I think the range of outcomes, I think, in any case for us is very, very strong.
Okay.
I mean, we're doing business in -- our tenants are doing business in Illinois now. None of them died. So they're surviving. So in any case, business is being done. We're being supportive, as you know, for Ben, with the land side move with Joliet and Aurora. I'm pleased to do that. So we're not afraid to invest money in the state.
Our next question comes from Jay Kornreich with Wedbush Securities.
As we think about Bally's, as they continue to become a larger tenant for you, because there was a headline yesterday that they just accepted a buyout offer from Standard General. And I wonder if you see that translating to any changes in plans or strategies you currently have with them, or changes how you think about credit underwriting with them? Just any comments on that standpoint.
I'm going to ask Brandon Moore to take that question. He can't wait.
Yes. I was excited for this one. Look, I think, first off, we should let you know. We know what you know about the Bally's go private transaction, and we've known what you've known. So we haven't been under the tent in that transaction at all.
But I will say, look, we look at that transaction. We're looking to understand more about it. But overall, I don't think it changes anything with Bally's to date. So we have not just made clear, we've not been approached by Bally's or Standard General to make any changes to our leases, to make any alterations to the existing documents we have in place. I'm not saying that might not happen, but it hasn't happened today.
And so for us, it's business as usual, but we're waiting to carefully take a look at the control transaction structure when it's announced, and it comes out. And I think we'll try to strike a balance between what's best for our shareholders and what's viable for the tenant as we continue to negotiate the definitive agreements that will ultimately spell out the transaction terms for the term sheet that we've announced.
And so I think there'll be a lot more to come on that, but we're optimistic. We work really hard here to get into transactions, not out of them. And we think that this will be a positive transaction and we still think that the path that we've set forth in the term sheet will be the one we'll ultimately take. But obviously, there's a lot we have to learn at the same time you do.
Yes, Jay. And our underwriting was very focused on having a good basis in the assets. I mean we're aware of the public nature of the potential take private at the time. And if you look at the coverage on the sale leasebacks in Shreveport and Kansas City being at 2, 2, with the basis in Chicago being with some margin of safety relative to the construction cost, we're happy with that basis. We didn't rely on any greater support or anything else beyond those things that give us comfort.
Okay. I appreciate that. And then just maybe one more big piece on the transaction market as the Fed seems poised to lower rates and just seen the 10-year stats coming down recently. Are you already seeing, I guess, increased interest and conversation from casino owners who have been on the sideline in the past year and maybe waiting for cap rates to come down? Or is it too early for that to start happening?
I don't think -- I'll take a shot at that. I don't think anybody sitting on the sidelines. Every transaction has a reason recurring. Sometimes it's been a state reason. Sometimes it's a liquidity reason. Sometimes, Lord knows what might drive somebody to make that choice. I don't think anybody is sitting in this. I'll go that far. It's sitting on the sideline, waiting for a better day so that they can move their asset.
These things evolve over time as you've seen. We could never have foreseen the opportunity to own the Kansas City asset or the Shreveport asset. None of these things were foreseeable. They evolved out of other needs of our tenants. Bally's in this case, Bally's is a company on the move. Soo Kim is a creative and innovative guy, who is focused on building a great company.
We're thrilled to be his partner in these transactions. So it's that term, I think, somebody you're used to use like hanging around the hoop. That's what we have to do. And that's what we do, do. So I don't think there's anything special that has changed. These things just happen when they happen, and we always have something in the mix. So wish I could be more precise, but that's pretty much the story.
Okay. Appreciate the thoughts.
Our next question comes from Barry Jonas with Truist Securities.
Can you talk a little bit more about your level of input now in Chicago for construction and design? How important is this for you? And is this a formal or informal role?
Yes. So we're in the process of negotiating the definitive agreements, including the development agreement on the Chicago project. But needless to say, we'll be taking an active role as that project continues. So we'll be, as we've said in that, we'll be financing or funding the construction of the improvements and owning the improvements.
And as part of that process, we'll be keeping a close eye on the budget, the plans and specs, the construction timeline, the construction documents, all those things. We expect Bally’s to be on the front line of all those, but we'll be very closely behind, and I think we're aligned. And I think this is just another example of we provide a resource to them as someone that has done these projects before successfully, and we have internal resources that we can bring to bear to help ensure that the project is delivered on time and on budget, and we intend to do that.
We would -- I don't think we ever would have entered into this project, if we weren't confident that we could have a front seat and make sure that it gets done along the timelines and budget that we've underwritten.
And we're providing resources to do just that. So Bally's has a great team in place. We're adding to that with some of our skilled players as well. We have a terrific track record. I'm knocking on wood when I say that because every project is brand new. But we feel pretty good about our ability to provide strong assistance in this case, both design assistance, construction. So on and so forth. We've done it.
Yes. And I think as you probably saw in the deck that we put out in conjunction with the term sheet, the design of this project has changed dramatically from the project that we first looked at a long time ago to the project that we announced. And we had a pretty significant hand in the redesign and development, and structuring and programming of the project that you currently see.
Yes, I've reassembled some of my old team over across the street at PENN. And you all know that we have built many casinos from ground up. So this is not new territory for us. And we're putting the muscle on the front line here. So we feel pretty good about it.
That's great. And then just for a follow-up. M&A is clearly happening with Bally's and Casino Queen, and there's more M&A being speculated for some of your other tenants? So can you just remind us what your rights are in the event someone new assumes a lease or also the lease is broken up for new parties. I believe there's some specific criteria, but it might just be helpful to talk about it here.
Yes, I can. In general terms, our leases, if you want to break them up, will require the consent of GLPI. So if you want to take assets out of the lease or split the lease into multiple leases or push them to new tenants, that will all require a conversation and approval of GLPI.
The leases do have in them, generally speaking, some flexibility for tenants to transfer to what may be a discretionary transferee or an eligible transferee. The defined terms tend to be a little bit different. But the point is if their transferee meets certain preestablished thresholds, then we would not be able to withhold our consent to that.
So I think the answer is it depends. If you're not going to change the structure of our leases, the rent, the portfolio and you're going to another large operator, you might not need our consent. If you want to do any of those things, you probably do.
Our next question comes from David Katz with Jefferies.
I think you answered the first part of what I wanted to ask about is with respect to your seat at the table on Illinois. So I'd like to pivot to Tropicana Las Vegas. My impression is that Bally is exploring alternatives as to how to create value out of that property. And just common sense, resources is them redevaluing it themselves seems a little reachy. And so I'd love for you to comment on your boundaries, given that you've taken the step now of getting involved in Chicago in a new way, just help us think through what could happen with Tropicana?
Yes. I think the quick answer is that you really ought to talk to Bally's about that. They have taken a pretty active lead role now in the process. I'll call it the process there in Las Vegas.
Pretty clear to us that the stadium will likely be built and that the design will work in conjunction with what planning that Bally's is doing at the site. We have provided some input there. We do know a fair amount about what's going on, but I'm reluctant to comment on a project that is essentially there.
Look, we've got a big seat at the table since we own the ground and want to see something long-term valuable place there. But I think they've assembled a team now, architects. Again, I'm very reluctant to comment, but I am happy with what they're now doing at that site. They've got a first-class team assembled, architecture design, land planning and so forth. And I think, feeling pretty good that, that is going to head into a good direction.
Brandon, do you want to add anything to that?
Yes. I'll just add, I still think despite what people may be reading in some of the press that this project is still largely on schedule. So as Peter said, Bally's has developed a strong team of professionals that have a lot of experience in the Las Vegas market, which is crucial and particularly on the strip. If you're going to build a project that is going to be successful out of the gate, it's tricky. This is not the same as regional development.
And when you put that in conjunction with a stadium size, this needs to be carefully planned. But I would say, we're pretty confident in the team of professionals they put together, but still too soon for us to know what kind of role we might want to play there. And so as you look at Chicago, I think this is several steps behind. And then it's too premature for us to really evaluate the project and determine for our shareholders, whether or not it's prudent for us to invest capital into that project.
But the A's are moving forward on their timeline at the moment. They've had a lot of progress with the stadium authority and some very public meetings recently, where they're clearly making progress. They're working simultaneously to get into their entitlement process and things.
And so while I think the timeline remains tight and the A's will probably say that time is of the essence, I think this is still a project that can get delivered on time, and we're still optimistic about the potential there.
Yes. Look, I think Bally's primary focus was Chicago, period. That is just my sense. And it took a little while for them to turn their full attention to Las Vegas. But I know for certain that they've assembled a Class A team of professionals. And I know sitting around this table, we feel a whole lot better about what they're working on. So I'd say stay tuned, talk to Bally's, and I'm sure they'll be happy to tell you kind of where they find themselves.
Just one quick follow-up, if I may. In there, there was some reference to it being on schedule. Can you remind us what that schedule is or means?
Well, I think on schedule at the moment, the demolition needed to be completed by, I think it was roughly April of '25 or something. I think we're clearly on target for that. If you if you've been out to Las Vegas, you'll see all the low-rise buildings are now gone. They've stripped the towers.
So that part of it is in line. The part of it that's a little more squishy is the entitlement process and as you all know, if you've developed, that can go fast or that can go slow. You've got to get into the meat and potatoes of that to really know where they are. But I think they still believe where they sit today that the way things are moving, they can still get started when they wanted to get started.
So from our perspective, would they like to be moving faster? Yes, I'm sure. Any developer would like to be moving faster. But the progress is being made on the site, and clearly, if you've been out there, you would see that.
Got it.
I get the sense, too, listening to our -- to their team that the city is very supportive of this whole project and anxious to make it happen sooner rather than later. So I think there's a positive vibe out there around what's going on. And if there was any delay in the past, I think, frankly, that is now over and it's full speed ahead.
Our next question comes from Haendel St. Juste from Mizuho Securities.
So just one for me. My question, I guess, is on the underwriting of the Bally's Chicago project, and what gives you, I guess, confidence in your 2x to 2.5x rent coverage projection for that asset? It looks like the temporary casino there has missed a number with the initial targets.
Yes. Look, I -- this is Steve. Thanks for the question. I think we go through an extensive underwriting process on every transaction, whether it's a traditional sale-leaseback transaction like the other -- the Kansas City, Shreveport part of this overall deal or a brand-new development project.
And so with respect to the brand-new development project, obviously, we have to get comfortable from a construction standpoint that we can bring the project on time and on budget. But more importantly, the budget is somewhat predicated on what's the ultimate profitability and the opportunity that exists in a market.
And so every market, as you would have guessed, is different. In this particular instance, all of our underwriting that we've done plus stuff we've done with third parties, all kind of triangulated to the point that we think this property can be very, very successful.
And when we look at this, our takeaway is that rent coverage is going to be probably north of what we put in that presentation. But at the same time, I think we feel very, very comfortable that 2x is a completely realistic and acceptable outcome here.
And so that's really how we look at this. That's how we get comfortable. It's somewhat how we dictate how much we're willing to or not willing to spend ultimately on the construction project. We have no desire at the end of the day, building a project to see a rent coverage that is not adequate and the coverage that's not adequate. So we want to provide long-term security and stability to our cash flows, and that's how we've gone about this.
Yes. Let me add that we believe that this will be a landmark, and I use that advisedly. A landmark project in the city of Chicago. One of the great hotels, one of the great casinos in the market by far. So we have -- we see a tremendous opportunity here. And that's part of the skill that I think we add to the process that they're undergoing right now.
I can tell you a lot more about it, but I think that better comes from Bally's. So I underscore that again. The goal here is to create nothing less than a landmark project in the City of Chicago.
Our next question comes from Smedes Rose with Citi.
I just wanted to go back a little bit to one of the first questions, talking about the capital commitments and the funding. I know you said it'd be staggered over the next couple of years. But could you just say sort of at the end of the day, kind of how you would like to see the mix of equity versus debt?
And I guess, particularly on the equity side, I mean, since you will be issuing a lot of equity presumably to fund over $2 billion of activity here. How do you think about it relative to at least consensus NAV or your internal NAV estimates? You just issued some after the quarter that was below at least consensus NAV, but there doesn't seem to be a forward equity program in place.
So maybe if you could just talk a little bit more besides just that it will be staggered, but kind of how you think about perhaps flexing the balance sheet more in the near-term, if you're not getting to equity pricing you like and just some color around that.
Yes. And I think to answer your question, Smedes, it really depends on the capital markets and what we find attractive in both the debt and equity markets. Our balance sheet is so strong. We have a lot of flexibility on which way we intend to raise capital. And it really depends on the pricing that we're receiving and the ultimate spread that we're getting to the transactions that we price.
Yes, high level, Smedes, our balance sheet philosophy remains the same. You know over a long period of time; our goal is to be in the 5 to 5.5 net debt-to-EBITDA range. We've kind of hug the bottom of it over time and that might be the sweet spot over the long-term. But just expect us to be thoughtful, measured and balanced as we have been historically.
To use an old term, the proof's in the pudding. And I think we've proved kind of what our commitment is to the kind of balance sheet that we want to have. So you could expect for the same.
I just wanted to ask you, too, on the land purchase in Chicago. Do you have a sense of what the timing is on that? Or are there any particular hurdles that you need to overcome to finalize that transaction?
I'd say, Smedes, customary hurdles. So by that, I mean typical due diligence, title survey, phase one, all that kind of stuff. So we have an agreement in place to acquire that land and we're running through the hoops that we need to take ownership and title to that property.
The [indiscernible] team has been a good team to work with. I will say very professional and helpful, and we appreciate the partnership we had with them in reaching an agreement to acquire the land. And as soon as we're able to do it, we'll do it. But there's obviously a few hurdles you've got to jump through to acquire real estate of that nature, and we're working on that now.
Our next question comes from Greg McGinniss with Scotiabank.
We recognize rent coverage is still healthy at most of the casinos. But what are your thoughts on cash flow and profitability at Bally's? Especially after going through the transactions, that's a bit more stress to that company's cash flows plus you got to take private Standard General, which you might be adding even more debt. So what are you thinking about cash flows there and potential options if the parent runs into a problem?
Yes. Look, I think we can't comment on the go-private transaction. As we've stated, we have the same public information as everyone else.
With respect to general commentary around Bally's or any of our tenants, you can see in our press release, where the rent coverages of our existing Bally's master leases, it's significantly covering, it's in excess of the 2x.
So I think our, I guess, position, belief, underwriting, thought and process historically has always been that we have comfort when we have assets underwritten in such a way that they're covering like that, that someone else, if not that tenant would willingly step in and operate those assets and take that profitable position, if, in fact, there was any issue.
And I think that's not a Bally's answer. That's an answer for any of our tenants and any of our leases. If our lease is underwritten and covering north of 2x, we're very confident that someone will be happy to clip half of the cash flow and operate those assets. So that's the way we look at it. I think that's the way we continue to look at Bally's.
And as Matt mentioned earlier, with respect to this broader transaction, we had the same information as everyone else that there was a go-private offer in the market when we underwrote this. And we decided that based on the rent coverage and the profitability, we were very comfortable moving forward with the transactions that lie ahead.
It's one of the reasons, Matt, I know you've always wanted and to emphasize, 4-wall coverage, because again, these things, in the end, standalone. They're not going anywhere. They're not going to close irrespective of what could happen at a parent level. So it's nice to feel good about what that individual property is doing, it will always have a home.
Right. And I guess in regards to the rent coverage, those numbers have generally declined over the last several quarters. Is that representative of some natural give-back of margin gain there during the pandemic? Or are we seeing some broader shift from customers away from regional gaming, where we've seen kind of some pressure on GGR lately?
Yes. I mean, they declined by a few basis points, nothing significant. We're not seeing a major issue in any market whatsoever. And I do think there's a little bit of give back still from the highs after the COVID pandemic. But I -- look, we are operating at stronger margins than we had even before that, so in 2019. So the coverage ratios, we feel very confident in. And yes, they're going to move a few basis points here and there. Some actually went up, most went down a few, but there were a few that went up.
All right. Last one for me is just on Lincoln. Does that still -- that still requires debt holders to approve that transaction, correct? And has there been any progress on that front?
You'd have to ask Bally's. I think the answer to your first question is yes. The answer to your second question, you'd have to ask Bally's that. My guess is that the go private transaction that they just announced and what they've been working on could have some bearing on that. I don't know.
But for us, we look at the timeline for the acquisition of that property and the renegotiated purchase price for that property, we're pretty happy where we sit. And we're confident by the end of '26 that Bally's will have that sorted out in a manner that will permit us to own that property.
Our next question comes from Daniel Guglielmo with Capital One Securities.
The team always seems focused on risk-adjusted returns. And I was just curious, what are some of the main risks that you all think through when doing these high capital and longer-term deals?
I'll start. First of all, you brought up timing. So what's the cost of money over time. Number two, when you relate it to development, what's the timeline? What's the risk of that timeline shifting? What's the risk of the cost shifting? What's the risk in the market?
I mean, hopefully, you get the combination of our master leases with the Bally's deal in Chicago, our involvement on the development side. And then having support from our super structure of our leases help mitigate these risks. I mean the vast majority of all of our assets are in master leases with strong coverage.
And it really comes back to the point Peter made. I mean these are mission-critical assets for state budgets, especially in limited license states. So at the end of the day, if you get the right basis, which is incredibly important to us, and the right rent level, based on the long-term productivity of the assets, you'd solve for the vast majority of the pieces that are important. And that's not an easy thing to do.
I mean you look at Chicago effectively, instead of being a takeout, we moved up the value chain and got involved early and we're able to lock-in through this transaction a very favorable basis. And given the population, the density and the opportunities for that asset in that market, we're very comfortable with our basis there, regardless of how the world plays out over the next many decades. That's the thought process.
But it really comes down to having a margin of safety in each piece of our structure to make sure it makes sense. And then making sure we've got the right spread, to your point, to our cost of capital and then ultimately locking that in, in a prudent, thoughtful and balanced way over time.
I think in addition to that, we do, and Matt touched on it. We do a pretty in-depth look at the markets. So these are -- this is a game of chess now in gaming, it's not checkers. You have to think about what's going to be happening in adjacent jurisdictions. And not only in adjacent jurisdictions, but the jurisdiction you're in, "limited license states" have shown a propensity to increase licenses.
And so you have to be cognizant of those things, and we're underwriting not for a 5-year time frame or a 7-year time frame, but we're trying to do it for a 30-year time frame or a 40-year time frame. And so we are trying to take in all information we can get about all those different things in the market and trying to underwrite a prudent transaction.
And clearly, if you can do it as part of a master lease or something like that, you've increased the level of safety you have over time. But it is an in-depth research we do, and we do use outside vendors to look at those markets and things before we do any transaction.
Yes. And part of it, too, we bring our own skill and experience over many years of just understanding what the risks are, what the adjacencies that threaten us might be on and on. And we bring in, as Brandon says, outside resources to further give us kind of data that helps us in that analysis. So look, it's not perfect, nothing is ever perfect, but you apply your best judgment.
I think in addition, what you see in our transactions, as Matt touched on, there's a margin of safety. We try to do healthy rent coverages because we understand over time, tenants need the flexibility and the ability to grow and to build their business, and we try not to put too much pressure on that with the rent right out of the gate.
Great. Yes. I really appreciate all that detail. And just as a quick follow-up. In general, did the return hurdles for other potential deals go higher when you do have a full plate of capital commitments? Or do you try and make the funding work if the deal meets your standards?
The latter, and we try to make the funding work if the deal meets our standards. We spend a lot of time. Some of these deals are many, many years of effort put in. So we wouldn't be able to walk and shoot down.
Our next question comes from Ronald Kamdem with Morgan Stanley.
Just two quick ones. So going back to Lincoln and being able to sort of reduce the purchase price. Is that -- was that just a unique situation for this deal? Is that something that you guys have thought about before or couldn't look to do in the future and other situations? Just trying to get a sense of how much is just the idiosyncratic to this transaction versus could we see this happen in other parts of this market?
I think with respect to Lincoln, look, it was part of a broader negotiation related to Chicago. And I think over the course of time since we first entered into that transaction agreement, obviously, cap rates in the world have moved.
And so we're still very interested in acquiring that property. That's a marquee asset in that market, but we were more comfortable doing it at an 8-cap rate at this point than we were at 7.6. And so as part of the total package of the Chicago negotiation, that was just part of it.
We are in a unique circumstance there to better our position. If we have circumstances and chances like that in the future with tenants, sure, we might do that. But I don't think there's anything necessarily on the horizon that we'd be seeking to renegotiate with any tenant. That was just unique to this transaction.
Yes. And I don't want to appear creditory, taking advantage of a situation. These relationships are holistic, and I think establishing a relationship with a tenant that is good for them and good for you, and having a tenant, by the way, who is mindful of what is good for our company at the same time and open-minded about a balanced transaction is hugely important, terrific, and we're very thankful that we're dealing with a partner like that in Bally's.
Helpful. I guess my second one was just on the guidance range. Any chance, any color on just the pieces of the raise? Is it all the transaction? Anything changed on the financing side? Just any broad strokes on just decompacting that guidance raise would be helpful.
Sure. I'm going to mostly talk about the high end of the range, but it's all due to the strategic transaction. Clearly, we raised the ATM proceeds, and we'll invest that in cash and that's some interest income, but that gets a little bit offset by the share count increase, obviously.
So it's really on the high end related to those proceeds going up as well as mainly the strategic transaction. And then on the low end, it's the exact same thing. It's the strategic transaction as well as the proceeds being vested.
And then also, we had different assumptions for the percentage rent adjustments on the low end than we did on the high end as well as different assumptions on interest expense.
Our next question comes from Shaun Kelley with Bank of America.
Peter, I wanted to build off of, I think, a comment you just made, and it goes back to, I think, Barry's question much earlier on the call. But a lot of the conversation here has been about M&A as it relates to Bally's and the privatization offer. I'm curious about kind of the rest of the tenant base and, obviously, really your major tenant where there's been a lot of M&A speculation, too.
So big picture question is sort of, how favorable or amenable are you to, let's call it, larger scale consolidation especially when it impacts GLPI? And then if one of these transactions would require particularly meaningful divestitures, how are you kind of trying to protect GLPI's interest in a case like that?
Well, let me say at the outset, it wouldn't surprise anybody that I like it the way it is today. There are tenants. They're reliable. Their business is highly profitable. Their operating business is highly profitable, and everything works.
So I would look with the [jaundice diet ] towards anything that could upset the [ apple cart ] of what we have here. We like our cross-collateralized leases, would be very reluctant to see anything change. And so I am not well disposed to -- but we'll do what we must.
Look, in the end, it will be what's good for our company here, period, period, period. So we'll have to see. I'm not going to speculate on what might or might not happen, but we would look, speaking just for me, not particularly favorably and anything would break up our beautiful arrangement.
Yes. Look, I mean, I think what we don't know, and we haven't been approached by is anybody presenting anything to us and what it is. And I think if and when we see that, as Peter said, we'll do what's in the best interest of our shareholders and our company. And we will have some opportunities if people want to break up leases. Could we transition that into something that's good for our shareholders? Absolutely. Yes, absolutely. We might be able to do that. And we'll look to do that if we're presented with that kind of situation.
And we did that. If you go back and look historically at what happened when Pinnacle was acquired by PENN. We were asked to separate assets out of existing leases. It didn't require our consent and we did extract some value for that, for our shareholders.
Thank you all for entertaining that one and giving some detail. My follow-up would be going back to Chicago, and I appreciate a lot of angles have been approached. But mine is pretty simple, which is, obviously, I think part and parcel of this transaction is making sure that the project, as you structured it, is now fully funded as it relates to the overall stated budget. Oftentimes, these urban developments, in particular, have a bit of a history of struggling with budget overages and there's a lot more complicating factors when your vertical and you're dealing with, I think, urban landscape.
So the question here is pretty simple. If we were to run into bigger overages on a budget that maybe you've experienced in other regional projects, what's kind of the make whole for that? Where does that extra funding come from? And how protected are you if we kind of get to the latter stages of this?
And again, there's material dollars here that still need to be found to get a project like this over the finish line and cash flowing.
Well, let me say at the asset, we're not obliged to provide it, we're not obliged to provide it. And look, I spent a lot of years in the construction business. And I'd like to say that if a project doesn't make sense on paper, it certainly isn't going to make sense when you actually put it in the field. So that having your advanced work done thoroughly, completely and with as much certainty as possible is how you best protect yourself.
We're involved right now, and Jim Baum, who's with us, not on this call, but I suspect he's listening, the Head of Construction at PENN, and he and I did a lot of projects together over time, all of which were on time and on budget. Jim is spending a fair amount of time; I haven't seen him around the office much because he's in Chicago working on this project to make sure we get it right up front.
So there is no certainty. We recognize the difficulties and the challenges, but we're putting a lot of advanced work in to make sure that we know what we got.
Look, I think to maybe add to it, as Peter mentioned, we, in part of our transaction, negotiated that we were not responsible for any expansion of the budget. I will say there's obviously a $735 million solution that's available if there was, in fact, a budget problem and Bally's was responsible for it.
So if you're not following what I'm saying, Lincoln can be acquired, that's negotiated $735 million. So we feel comfortable that there are adequate safety nets if, in fact, there was an issue. But I will also mention this, unlike some of the other urban projects, which have been retrofits into an existing building, which is always fraught with unknowns, this is going to be a scrap site.
So we do feel that, that provides some additional comfort to us that we know what we're starting with, which is nothing.
And look, part of our job right now is to help Bally's make sure that they don't run into that problem. And that's why we're spending a lot, a lot of time right now in the design phase and the planning phase to make sure that we know exactly what this is going to cost and what the product is going to look like.
Yes. And finally, I'll just add. In underwriting this, there's quite a bit of contingency built into the numbers that we've underwritten. And so while that may not solve all ills, we have not been -- we've been cognizant of the fact that this will be a tricky project in a large metropolitan city, and we've underwritten it that way. So while no certainty, we have thought about all these things.
Our next question comes from Robin Farley with UBS.
One of my questions have been asked already. I guess just taking a step back. And after, as mentioned earlier, a lot of periods where you had to explain the lumpiness of transactions and that investors had to sometimes be a little more patient.
Would you say that your plate is pretty full now in terms of -- do you have bandwidth, or would you be looking to do additional transactions at this point? Or would you really be sort of mostly focused on digesting a lot of the opportunities that are -- some of which may not be announced yet, right, but maybe some of the things that are more obviously happening for you in this next sort of 2-year period?
If we need a bigger plate, Robin, we'll get a bigger plate. It's not remotely filled, not remotely filled. Look, each transaction stands on its own. We have announced a couple that we're more actively involved in as opposed to a straight-up acquisition. But no, I don't think so. We haven't seen the -- haven't seen the horizon yet. I don't know if anybody else have a comment about that.
The market remains strong, and we continue to look at and have lots of conversations. So while opportunity presents itself, we are inclined to grab the opportunity when we can in a thoughtful, risk-adjusted way and look to continue to climb forward for our shareholders and increase our dividend as we go. So we're looking to continue to grow accretively.
But I'll emphasize, we're kind of where you started, Robin. There's no rush. There's no transaction we have to do. We feel no pressure to -- at least I don't, and I've said that time and again, to do anything. There's no deal we have to do. We'll do it if it makes sense. We think it makes sense for our shareholders, it's as simple as that.
As I've uncharmingly have said, any m**** can do a bad deal. It's not hard. We don't want to be in that group.
Our next question comes from Chad Beynon with Macquarie.
Peter, has anything changed in terms of nongaming opportunities? As you just mentioned, your plate has certainly been full, and you've had some great announcements year-to-date. But wondering kind of where the conversation scale lies between gaming conversations with current and potential partners versus nongaming?
Well, my answer hasn't really changed. We would look at other things if anything matched kind of the value and the certainty and all the things we have in the gaming world. We're not close to that. We just haven't seen anything that grants us and that hasn't changed one with.
And so long as we can keep doing the kind of transactions that we've announced at the kind of yields that we're talking about, we'll continue down that road. But it's really a [ coca thing ], If you can find a better car buy it. If I could find a better deal, we'll take it. But so far, we're going to stick to our knitting. And that's really the same answer that I've been providing for the last decade.
Okay. And then another kind of high-level follow-up. Last night on one of your partners' earnings calls. They talked about doing some projects at some properties, maybe these would have been done during the COVID time period, so they're slightly deferred. And that got us thinking that maybe there's a lot more out there just in terms of building additional hotels, convention centers, something adjacent to these properties.
Do you think that this could be another wave of growth in the gaming space? When you talk to your partners, is this something that maybe you could help finance in the future? Just kind of thinking out loud after hearing that comment last night.
It's a good question. And the answer is we're already doing that, as you're seeing with Bally's and we're doing it with PENN. We're always ready, willing and able to put money to work for a quality project. And there's a number of those that we're looking at and we'll undoubtedly do right now.
So yes, no, I think it's terrific. Existing tenants are a good source of future business. And I know, for example, PENN has a number of announced projects, some pretty sizable projects in Las Vegas and Ohio and so forth, and Illinois, 2 big projects in Illinois land side as we've done very effectively in Louisiana. Look, so I think it's a terrific opportunity for us.
Our next question comes from John DeCree with CBRE.
Maybe just one, thinking a little further out about the New York City casino licensing process that's underway, and it seems like it's taking its time. But if we look at Chicago and the template for financing that you've provided there, Peter or anyone, curious on your views on how you look at New York, if you would look at it similarly.
Obviously, I think Bally's is in the mix. And so every market is different, and I think we're still waiting for some cards to turn over. But curious on your views on the New York process and potential appetite to participate in financing if an opportunity were to come up, and maybe how active or aggressive you might be in that market?
The appetite is huge, but I'll turn the answer over to Steve.
Yes. We've had conversations with more than a handful of parties that are actively looking to potentially pursue licensing there. I think we continue to find the marketplace to be extremely interesting and intriguing and expect it to be very profitable for those that ultimately win the golden ticket.
So with that said, with respect to Bally's, which I think you had brought up early in that question, we do have a ROFR in the State of New York. We've not had any intimate conversations around their project just higher level. But I think we -- like I said, we've talked to a number of the people involved. And I think everyone's interestingly were awaiting the green light to move forward, and we are happy to continue to have conversations with folks around it because we do think there's a huge opportunity in the State of New York.
Maybe a follow-up. I realize it's probably tough to answer, but timing, context to the extent you can or would care to qualify, shovels in the ground pretty much ready at the facility in Chicago at this point.
I mean, how soon in a process would in New York might you be asked or be willing to kind of provide something a little bit more substantial other than conversations in terms of financing? I assume you'd have to probably wait for economics to be released. But just curious if we look at Chicago as wait until project is almost ready before you were involved or could you get involved quite a bit earlier?
I don't think -- I'll just speak for myself. I don't think we have a good enough sense of timing in New York. It continues to move and [ Bob and leave ]. And so I think I personally don't have a good understanding of kind of where that process will actually land, not where it's currently contemplated, but where it will actually land, and what the ultimate licensing and permitting and zoning and all that fun stuff will curtail and what the timing will ultimately be.
So I couldn't possibly even try to guesstimate when all those things would come together, and nor would I or any other institution probably be able to with specificity know what pricing on any type of thing would be.
Yes. The gating factor for us is, can we find a risk-adjusted return that's attractive. And the one thing that runs with Chicago is oftentimes that comes from being the known entity in quantity and having dialogue earlier in the process versus showing up at the end. That's one of the ways we've been able to monetize some of the competitive advantage that we bring to situations.
Let me say to the group. Maria, we're going to have to cut the call now at this hour. We have another obligation. I would say to any who may have missed out on the question, please contact us here. Any one of us is available to speak with you, and we look forward to it. So we -- if we've cut this off at a time and left some people waiting, I apologize, but we're going to have to move on to another scheduled call.
So Maria, would you please affect that.
Of course. This now concludes our question-and-answer session. I would now like to turn the floor back over to Peter Carlino for closing comments.
Well, that was it. And we thank you all for being here. And from our point of view, we've got a lot of exciting stuff happened, and I hope we've shared a little bit of that, our feeling about that. Thank you. See you next quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.