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Gaming and Leisure Properties Inc
Earnings Call Analysis
Q4-2023 Analysis
Gaming and Leisure Properties Inc
The company finds itself sailing through the fluctuating economic waves with a level of cautious optimism. Amidst adjustments in the interest rate curve, impacting expenses, and the unpredictable timing of the Rockford funding pipeline, there is an acknowledgment of 'noise' in their financials. The room given in the guidance accounts for these variables, suggesting potential movement within the interest expense and funding timing, with a $600 million term loan featured prominently.
Key executives express no anticipation of cap rates reaching the highs of 9.5% or the lows of 6.5% in regional markets, signaling a nuanced view of investment feasibility. Market dynamics in places like Vegas set them apart, and every deal is unique, resisting a one-size-fits-all forecast percentage. Current acquisitions, like Lincoln, carry an air of uncertainty, with options being extended to allow more time for a contemplative and strategic approach.
The introspective narrative moves towards racing assets, a realm intimately familiar and serving as a springboard for GLPI's forays into new ventures. These assets are viewed as long-term interests, echoing a sentiment of surety in their enduring appeal and a desire for geographic diversification. Even as racing provides entry points, sometimes it's merely an amenity within larger transactions, demonstrating adaptable investment strategies.
A transparent glimpse into the company’s deliberations underscores the selectivity and discretion used when navigating opportunities. Decisions are made with a purpose, yet the ever-present disclaimer reminds investors of the unpredictability and complexity of their endeavors. Regulatory approvals, among other hurdles, mean fast executions are rare, and so future activity remains a closely guarded development agenda.
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Greetings, and welcome to Gaming and Leisure Properties Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Jim Leahy. Thank you. You may begin.
Thank you, Rob. Good morning, everyone, and thank you for joining Gaming and Leisure Properties Fourth Quarter 2023 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 to the risk factors and forward-looking statements contained in the company's filings with the SEC including its 10-K and in the earnings release as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.
On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer at Gaming and Leisure Properties. Also joined 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, Chief Development Officer; and Matthew Demchyk, Senior Vice President, Chief Investment Officer.
With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.
Well, thank you, Jim, and good morning, everyone. We're especially pleased to be here with you this morning, talking about the wind up of a very good year last year and off to a good start in the first quarter of this year. I think the critical issues are well outlined in the first 4 paragraphs of my written comments in our press release, I would encourage you to read them there rather than have me repeat them. As is our normal approach, I'm going to ask Desiree Burke and Matthew Demchyk to make some or to highlight some things that we thought you might want to hear and then we go straight to your questions and answer the things that really interest to you.
So with that, Desiree?
Good morning. For the fourth quarter of 2023, our total income from real estate exceeded the fourth quarter of 2022 by over $32 million. This growth was driven by the addition of Bally's, Biloxi and Tiverton, which drove an increase of cash rental income of $12.1 million. The Rockford acquisition increased cash total income by $3 million. The Casino Queen Marquette acquisition and the Baton Rouge landside development increased cash rental income by $2.3 million. The recognition of escalators and percentage rent adjustments on our leases added approximately $3.6 million of cash rent and the combination of higher noncash revenue gross-ups, investment and lease adjustments and straight-line rent adjustments drove a collective year-over-year increase of approximately $11.6 million.
Our operating expenses increased by $12.8 million, primarily related to increases in noncash expenses such as depreciation and the provision for credit losses. The annualized rent reduction in the amended percentage 10 percentage lease was $4.4 million, which began in November of 2023. However, we did achieve full escalation on that lease of $4.2 million annualized and $3.5 million escalation on 10/2023 master lease annualized. In addition, our PENN amended and Pinnacle Boyd Master leases have rent resets occurring on May 1, 2024. We expect these resets will increase percentage rent adjustments between $4 million and $5 million annually.
From a balance sheet perspective, during the fourth quarter, we sold 3.9 million shares of common stock under our ATM program, raising approximately $179 million. Subsequent to year-end, we sold an additional 182,000 shares. Our net leverage remains under 5x EBITDA.
Included in today's release is GLPI's full year 2020 for AFFO guidance ranging from $3.70 to $3.74 per diluted share and OP units. Please note that this guidance does not include the impact of future transactions. For modeling purposes, our noncash straight-line rent adjustments for 2024 will be approximately $62 million, which will be needed to be included in revenue and then deducted for AFFO purposes.
I would also like to note that our first quarter dividend was declared of $0.76 per share, and our rent coverage ratios remain strong, ranging from 1.95 to 2.75 on our master leases as of the end of the prior quarter.
With that, I will turn it over to Matthew for his comments.
Thanks, Desiree, thanks to everyone for joining today. Over this past quarter, we've launched as market participants vacillated between diverse views on interest rates, inflation in the economy, headlines around looming commercial real estate loan issues and the potential for more downs. It's a very interesting backdrop to further highlight the relevance of GLPI's enduring cash flows. Our thoughtfully constructed portfolio of safe and durable cash flows, combined with our liquidity and capital markets discipline have set the stage for opportunity. And to that end, this past quarter, we again demonstrated our team's ability to uniquely source and structure a transaction for the benefit of our shareholders.
Our team created a bespoke solution for a new tenant partner, American Racing with our recently announced Tioga Downs acquisition in which we issued OP units and achieved an 8.3% initial cap rate on a $175 million investment. The transaction took a long time to finalize and underscores the sweat equity that our team invests into deals as we compete on capability and not just cost of capital. Our capital market actions reemphasize our commitment to balance sheet strength and our respect for the role it plays in our long-term success with an appreciation for our pipeline of opportunities, including Tioga, we also opted to lock in equity through our ATM program.
Our very healthy net leverage positions us to be highly opportunistic in our use of debt and equity for new deals. We've underscored our dual commitment for GLPI to be both safe in a volatile environment and also very well positioned to take advantage of opportunity if and when it arises. Our core message to potential counterparties is that despite the macro backdrop and volatility, we are very much open for business. Our overarching objective remains the same, increasing long-term intrinsic value per share. Thank you to our shareholders for the confidence you've placed in their efforts to make prudent long-term decisions for you.
And with those comments, I'll turn the call back to Peter.
Well, thanks, Matthew. I think that well summarizes kind of our philosophy of operating with this company. And the growth, which I'd love to look at, the 19 properties we left when we spun from PENN, we did so with 19 properties today, we have...
[ Including Tioga ]
Yes, we just added that. The script I have here says 61, but things get older quickly. So we're pleased to say 62 properties in the time we've been in this business, we're proud of that.
Okay. With that, time to open the floor to your questions. Operator, would you please do so.
[Operator Instructions]. Our first question comes from Jay Kornreich with Wedbush Securities.
You previously mentioned having a number of opportunities to hit singles and doubles this year with new acquisitions. So I'm wondering how you currently see the opportunity set and based on your conversations, what's the appetite of regional casino owners currently looks like?
Just to [indiscernible], I'm going to give that to Brandon Moore, who's looking -- we'll have it at Steve.
I'm sorry, could you repeat the second part of the question?
Yes. Second part was just based on your commentary with current regional hotel owners, kind of what their appetite currently looks like for sale leasebacks?
Sure, sure. Look, I think from a pipeline perspective, it remains very healthy and active. Our dialogues are plentiful. I think from a regional owner perspective, we're currently having more dialogues with folks, who have either a generational ownership, type of complexities that they're working through or tax matters that they're working through. I think things right now are not necessarily down the middle of the fairway as far as people just out there looking to transact for the largest number and a regular way transaction because of where the capital markets sit in the macroeconomic environment.
So I think what we're really seeing is interest is remained high for people that have needs, and those needs are various. But we continue to have dialogues. And I think we feel very good about the upcoming quarters.
And Jay, I'll add, if you I mean, look out in the environment. We're building on this reputation of being a unique problem solver. You look at Tioga, Steve's point, the fact that we used OP units, we were able to help this tax structuring, do the same exact thing in a different way with Cordish that tends to help. And it also tends to help us get back to the sweat equity theme, a better than market return when we close these deals for our shareholders, because we have a true partnership with a counterparty.
I'm smiling here. You can't see it obviously, but by suggesting that we direct that question to Brandon as our General Counsel was, he's always cautioned that we don't get too far ahead of what's out there. Look, we're very active in chasing down opportunities. These things are often complex, take a long time to get done. So with those cautions, we continue to work away.
Early on, we used to get the question, where is your pipeline? Well, we've never had a pipeline. Yet, I highlight, we've gone from 19 to 62 properties, and it's not an accident. So we're encouraged. We'll see where it goes.
Okay. Well, I appreciate all that color. And then just as a follow-up on the capital raising front. As you commented, you recently been tapping ATM, robust $684 million of cash on the balance looks like. So just wondering how you think about funding upcoming acquisitions if that will largely be done [indiscernible] the balance sheet? Or if you think about -- or how you think about match funding kind of new equity debt capital with new acquisitions?
Yes, Jay, I mean one thing we've been so focused on is making sure that we're not exposed to the winds of the capital markets. So towards the end of last year, we derisked our bond refi that we'll see later this year with the bond raise that we did. And you're right, we've used the ATM to cover effectively all the cash needed for Tioga and then a little bit from a position where we had really strong debt-to-EBITDA. And the goal is really to be in a position to play [indiscernible].
And when you think about the relative cost of debt and equity, there's a period where they converge decently, and they're beginning to diverge a bit. I mean if you look at our bonds that we did towards the end of last year, the trading in the low 6s. And that's really latent earnings potential, to your point, on incremental deals. And we have the opportunity to use debt as a tool, maybe more so than we have over the past few years, because our leverage is so low and expect us to continue to prefund and match fund acquisitions with ATM equity. At the same time, as may be balancing things a bit more from an earnings perspective.
But it's going to be a function of how big the opportunities we close are and the timing around those. And don't forget, we've also got Lincoln still outstanding. We've got the spend with PENN on the back burner that ultimately get spent. So we want our balance sheet to be able to handle walk and [indiscernible] at the same time, handle multiple things at once.
Our next question is from Greg McGinniss with Scotiabank.
Maybe just a follow-up on that funding question. So VICI's used the full future and its ATM pretty effectively in terms of building up dry powder with a limited dilution impact? Is this a tool that you've considered using? Or what are you looking for before utilizing it?
Yes. I mean, we have used the ATM in the past. We closed on an acquisition in February of this year. So the fourth quarter use of the ATM, we knew we had that transaction, Tioga coming at us. So there was no need to enter and go forward for that equity raise. But we absolutely know that is a tool that we have to use when it makes sense for us to use it.
Okay. And then I'm just trying to understand on the guidance range, how you might hit the bottom end, because if we annualize Q4, we're kind of in the middle of the range and embedded escalators appear to offset any additional share issuance. But as guidance include shares [indiscernible] beyond what we've already seen? Or is there something else to consider there?
Yes. So we -- as you know, [indiscernible] curve, the forward curve, it moves pretty quickly on us. And so just as of last week, when the Fed came out with their announcement, the curve actually shifted up as they didn't expect some of the rate declines to occur. So we do have some room in our guidance around what that curve might do in the future based on future announcements and whether or not the 75 basis points or so of rate reductions will occur at the end of the year.
So there is some noise in interest expense as well as the fact that we've told you about our pipeline of Rockford funding. We don't know exactly the timing of the funding of some of the transactions that we have out there. We have a commitment to fund that loan, but we don't know exactly the timing of it. So there is some room around the timing of those transactions and the funding of those loans.
Okay. So if those are delayed then that's potentially how we get to the bottom end. It's just the term loan, right, that would be the -- from the variable side.
Yes. That's $600 million term loan, that's right.
Our next question is from Todd Thomas with KeyBanc Capital Markets.
I guess I just wanted to follow up first on the comments around the capital costs. Matt, you said they've come in a little bit. What's in the guidance for the September, the $400 million, [indiscernible] security at 3.35%. And then if you do look to utilize debt capital more in '24 with pricing a little bit more favorable today, can you just remind us how comfortable you are taking leverage up from current levels?
Right. So in the guidance, clearly, we've already prefunded the $400 million, 3.35% that we're taking out with the $400 million that we issued at the end of 2023. So that is a known item and not a variable item. And we've -- as Matthew mentioned, we will use our balance sheet when we think it's optimal to use our balance sheet, but we can always increase our leverage, we don't intend to keep it below 5 forever. We just want to have it as a tool to use when the timing is correct to use it.
Todd, I mean, over cycles, we've talked about our target range being 5 to 5.5. We said, hey, in this environment, our sweet spot is definitely towards the lower end of that. But to Desiree's point, we're well within it right now. So that gives us some flexibility on incremental deals to navigate and think about what's best given those relative costs.
Okay. And then just in terms of the investment pipeline and pricing, how should we think about pricing for any future investments just vis-a-vis the Tioga Downs deal at 8.3%, just provide some insight on pricing for future deals that you're seeing in the pipeline today and how we should think about that?
I'd say, [indiscernible] sort of not really. So it's not a joke, but I think, look, every transaction is very different. There are aspects of each transaction, which either garner additional risk-adjusted return and therefore, higher cap rates or potentially lower cap rate depending on the transaction. So I think directionally speaking, I feel like you can look at where the market has been on gaming, regional gaming transactions even in the last 12-plus months. And most transactions have come in that 8% area, plus or minus. And I don't see cap rates moving materially in a very expedited way.
So I don't anticipate seeing a 9.5% cap rate anytime soon, nor do I expect to see 6.5% cap rate in a regional market anytime soon. Vegas obviously has its own differentiating factors. But I think right now, it's hard to say you should definitely model X percent into your forecast, because each transaction is very different and it stands on its own 2 feet.
Okay. And is there any update at all on Lincoln, whether you have any insight or can discuss how you feel about that potential opportunity prior to the end of the year?
Yes. We don't have really visibility or color into that. Obviously, it's an asset that is a premier regional asset that we would love to own in an accretive way. And so all those factors remain true. The wind is very unknown. Obviously, as we did with the Tropicana transaction, we pushed out the option to the end of 2026 to give ourselves additional time to pursue and ultimately acquire Lincoln. So we do have additional time. It's not required that we would close that by the end of this year. So we're kind of standing by and waiting to hear [indiscernible].
Our next question is from Brad Heffern with RBC Capital Markets.
Matt, I think you briefly mentioned the PENN development funding, but can you give a broader update on that and when you would expect those funds start being drawn, obviously, or is at the groundbreaking?
I mean we really point you to the comments they made around their expectations. I mean all that we've heard is pointed to them likely given the mechanics of the agreements and Aurora likely using their balance sheet and using us probably closer to the end of the development period versus early as more of a takeout. But it's really up to them.
No, I think that is the best update. I mean I believe they're -- well, they are committed and moving forward on these projects. We'd love to put up money sooner, but that gets down to their balance sheet management and what they choose to do. So we stand ready, willing enable and anxious to put money to work with PENN, if we can or as soon as we can.
Okay. Got it. And then the coverage ratios continue to work down fractionally each quarter. Are we at the point now where you think kind of the COVID tailwinds that we're elevating those numbers are out of the numbers and these coverage ratios are sort of representative of the true fundamentals? Or is there still more to go?
Yes. That's a good question, probably more so for the operators than it is for us. But look, we may barely inched down as you've noticed a couple we're still 1.95 to 2.75 . It's still extremely strong. So we are confident that it's not related to COVID any longer. It's related to operational adjustments that they've made and strengthening their margins, but that is probably a better question for how the operators feel about their coverage.
Yes. We've said for a long time, we expect some of the benefit to ultimately be cap. But I mean there are a lot of forces that were onetime in there. So we started from a strong position. It got incredibly strong, and we expect it to fall out. So we're in the strong plus category.
Our next question comes from Haendel St. Juste with Mizuho Securities.
So first question is on the dividend. The new annualized dividend of [ 304 ] implies, I think, like an 81% payout ratio at the top end of the guide. So I guess I'm curious, are you changing your target payout ratio here to something maybe above 80%? Or is this basically just a reflection of you and the Board's confidence in your ability to outperform expectations this year?
We are not changing around 80%. We've always been around 80% of the payout ratio. Obviously, it does change based on what our taxable income is at any point in time, and we are reflecting a payout ratio to meet our taxable income distribution requirements.
Fair enough. And then a follow-up on the acquisition here, Tioga Downs in the quarter, [indiscernible] asset. I'm curious kind of what drew you to that asset type? Are we going to see you do more here in the near term? And any color on how that low 8% cap rate may compare to where you think perhaps are seeing regional -- more traditional regional gaming cap rates in the market today?
Yes. Look, the proprietary of that asset, Jeff Gural, we've known Jeff for some time, and Jeff had some tax things he was working through with respect to the transaction and minimizing the leakage and the like. So we were a natural fit to have dialogue with him and try to find a complex bespoke solution. And so we endeavored down that path. Look, we were not in the State of New York. We obviously have an interest in geographic diversification. At the same time, it's a wonderful asset. And I think we feel very comfortable that whether it's Jeff or someone, someone will want to run that property long into the future beyond when I'm here, even.
So we felt very good about the longevity of the asset and the counterparty we were dealing with and our ability to solve some of the problems that he was working through from a tax perspective. So those are all the reasons that kind of got us to the table as far as the transaction goes.
With respect to whether you should take the [ A3 ] and just roll it forward for other transactions, I think I would go back to what I just said. I think each transaction is different. I think for smaller transactions with individual proprietors where we are providing additional benefits. I don't know, maybe for the time being, that's an okay area to think about cap rates in the low 8s. But I think as the markets kind of stabilize and the larger players come back and start to look at divestitures or larger scale M&A, things of that nature. I don't think we'll forever see low 8s as kind of the normal go-forward cap rate for transactions.
Got it. Got it. Appreciate the color. And just more broadly, are you interested in adding more of these assets to your portfolio? And is there anything specific with this operator that you can do any [indiscernible] or agreements to purchase anymore?
Which assets -- I mean, well, I think if I understand the question, are we interested in adding more regional assets of this nature. I think if that's the question, answer would be sure, absolutely. You can underwrite them and get the right cash flow, sure.
With the rate component. I just wanted a little -- different. So I'm just curious on.
Well, we have plenty of assets that have a racing component to them. I think sometimes the racing component provides the entry point for these transactions and other times, it's a necessary amenity to the transaction we're doing. I don't think we focus primarily on racing per se. But certainly, the racetracks are an important part of many of these gaming properties. And we're -- we don't shy away from them and we certainly look for opportunities to get engaged in those transactions.
I don't know that it's true, but I would wager just sitting here that we own more racetracks than anybody in the United States, physical facilities. So no, I mean, look, we're in the gambling and gaming business and everything that, that entails. And I think Brandon said it well, it has been in many, many places, the entree to broader gaming. So no, we -- some of the last things that I did at PENN were built 2 race tracks in Ohio. And those are great facilities, great gaming facilities as well. So now we're thrilled to own racetracks.
Right. I would say we're thrilled to own racetracks with gaming component, right? So it is -- the regulatory environment has historically allowed slot machines and other gaming because of the license.
You don't love horse racing, as Desiree?
Okay. That's kind of a joke in here. The racing business has been much of my life. But it's been the entree to a lot of new things for PENN in its time and certainly for us here at GLPI. So would we own more, we sure hope so.
Well, Peter, and I wouldn't wager again. So you've got a pretty good track record.
Thank you.
Our next question comes from Daniel Guglielmo with Capital One Securities.
The first one, Peter, you've been in the gaming industry a long time and seen various cycles play out. When you think about ROI projects and things operators can do to bring more people in the door, what do you think is the best bang for the buck? Are there certain projects you'd be excited to see announced by your tenants in the coming years?
Wow, that's a difficult question. Anything that makes money. Yes.
So it's the PENN engaging again.
Well, yes. Matthew just points out that PENN is a good illustration of folks wanting to invest more money in their projects. 2 hotels that they're talking about, Columbus and at [indiscernible] in Las Vegas, both absolutely need room expansion and Columbus has long needed a hotel. Plus, they're going land side in 2 Illinois properties, Aurora and Joliet. That's a positive thing. I mean we could point to the Casino Queens efforts in Baton Rouge and how successful that role into a landside property has been. First, we were much involved in that. It's a terrific property. And it's had the desired result. It's really tremendous.
So yes, we want to see our tenants investing in opportunities that can -- but that again, it's on a project-by-project basis. The ones we're looking at, I think, are pretty exciting, pretty positive. So I go back to my original answer. Anything that makes money.
Great. Makes sense. And then kind of on a similar vein and as you guys are kind of looking at development. Just how has the development environment changed, if any, this year versus last? Is there anything of note that you're seeing around kind of labor availability, supply chain underwriting versus actuals. Maybe Steve or...
Steve?
So maybe 2 things. I think from a development financing perspective, not a lot has changed between last year and this year. It's a difficult environment for folks that are trying to raise dollars. So I think one thing that has maybe shifted a little is, I think, existing tenants are starting to take more of a longer look at their existing portfolios and what redevelopment opportunities or development opportunities may exist at those locations. So I think that has increased more recently than maybe a year ago.
With respect to supply chains and things like that, I feel like that in most cases, things have become a little easier, not easy. There's still long lead items for mechanical things and the like. But I think that the process and maybe it's just that everyone has become more used to it. So everyone's adapted a little more. And so you know to put your order in significantly further ahead than where you used to. But I think things are becoming a little more normalized with respect to the actual construction process.
Our next question is from Barry Jonas with Truist Securities.
I wanted to ask about the Tropicana. Can you talk about where things stand or maybe what are next steps there? I know the property is shutting down in roughly a month. And then just curious how involved you expect to be in development of the stadium or the new property?
Brandon is going to take that. I finally got him to answer something.
Yes. So look, I mean, I think a lot of the news coming out of Las Vegas lately has been somewhat negative questioning the timing and development and maybe the viability of that project. I think from our perspective, a lot of that's noise. I think a lot of this is proceeding along the time lines that we would have expected. We understand at this point that the Bally’s in the A's are working pretty closely together to ensure that the A's new stadium design and the integrated resort really maximize the use of that property, that 35-acre parcel and the value that's there. And we've had an opportunity to see the stadium architectural designs, and we've seen several variations of the integrated resort designs. And we still believe that the fully developed property will be a very good addition to that corner of the strip.
I think as far as how involved will be, time will tell. We're the landowner. And obviously, we're taking a very keen interest in ensuring that the value of the remainder parcel that we hold is sustained. And if we can enhance that, we certainly are looking to do that. But at this time, I think we're waiting to see what Bally's is proposing to do for the integrated resort. And then we will figure out what our opportunities are to invest in that. And that in some ways will tend on Bally's needs for financing. So I think we're in kind of a wait-and-see mode, but we're still optimistic that this will be a good project on the corner of the strip.
That's really helpful. And then just as a follow-up, kind of wanted to get your thoughts on the potential for maybe doing deals on tribal land. Curious if you have any thoughts on the types of structures that could potentially make sense?
Yes. I don't know that I can shed a whole lot of light on the structures themselves. I can say this. We have focused on the tribal land held in trust market as a very large gaming market here in the United. And if there's a way that we can find from a REIT perspective to generate good REIT income from an investment with those tribes on those properties, we see it as a tremendous opportunity.
We've spent quite a bit of time and effort in structuring some things. And I won't say that we're there. We have a few ideas on how these things could work and we'll continue to spend some time on that in conjunction with some of the trials and see if we can come up with a way that we can safely invest in these assets for our shareholders. And I think if we're able to do that, it's a tremendous market, but we'll do so carefully and we continue to work on that.
Our next question comes from Smedes Rose with Citi.
You've been through a lot of questions, but I just wanted to kind of circle back. You mentioned at the beginning that you're spending a lot of time with folks where there's generational ownership issues and maybe some tax discussions. I guess 2 questions. If there is kinds of deals, are they typically in this kind of rent range kind of, call it, $15 million, $20 million? And do you feel as a company that you have maybe sort of a competitive advantage against maybe the other experiential REITs or just more traditional REITs, triple-net REITs that want to play in this space? I'm just kind of curious who you're seeing kind of at the table when you engage in these discussions?
Yes. Look, maybe I'll jump in and if anybody else would hop in afterwards, that's fine. Look, I think as far as the size of the transaction goes, I think it would be incorrect to assume that all sole proprietary transactions will be in the size range of $14 million of rent. The Cordish family transaction was done with a privately owned business, obviously, that was well north of $1 billion transaction. So I don't think that any deals cut with the same cost in particular, like sole proprietor transactions or closely family-held businesses, which a lot of gaming enterprises still remain today. Some are very large. Some very notable assets in this country are owned by individual owners or a small group of owners. So I definitely don't think that there's an indicative size range for that.
Separately, though, I do think as we continue to do transactions with this type of counterparty and we get -- and we perfect kind of our thinking around tax structuring transactions and the use of operating partnership units and the like, I do think we start to gain a competitive advantage. So I do think that it's a helpful thing to us as we continue to do transactions with counterparty tenants that do have this form and shape that we do start to kind of better our position as far as competitive advantage against others in our space.
Yes. And I would just add from a competitive advantage standpoint, that Steve talks about when we spun this company out of PENN over a decade ago, really heavily focused on some very creative and in-depth tax structuring. And I think we've kept that notion here at the company. And when we look at potential counterparties and potential tenants, we often will put our resources, our tax resources and expertise behind trying to find ways to solve their issues. And so sometimes people come and they say, "Well, we'd love to transact, but we have these tax issues that we just are going to prevent that." And we say, well, let us take a look at those, we might be able to help you find solutions to those.
And so I think to Steve's point, in a competitive advantage, we show a willingness to try to take a problem and see if we can't put our resources behind it to try to solve it. And I think that's led to the deals like Tioga.
Yes. Let me make a small commercial, which I don't think I've ever done before. We -- it's been my practice for many, many years to bring our team to these presentations so that you've got a sense, there's no one person that makes it happen in this company. We have a [ killy ] team of people, highly skilled, highly capable, highly motivated, and I think what we do is special. So that's my answer to your question.
I think we -- I mean, Smedes, as you asked the question, it just reminded me of the Cordish dialogue, I mean, they certainly had the opportunity to talk to whomever they wanted to and hearing directly across the table that the others treated like it's other people's money, but you guys treated like it's your own really underscores the philosophical differentiation with Peter in his history and being in the industry, the kind of compounded different has been able to achieve.
When people decide to take units in the company and become investors alongside us and the theme of partnership, it leaves them to decisions that might be not fully economic to the last cent. That's why in their case, they said, you guys went for the best price, you were the best decision. And we hope to have that line with future dialogues. It certainly gives us case studies we can put out and have them look at and understand the why behind the decisions that people have made to date.
Our next question is from David Katz with Jefferies.
Look, covered a ton of ground. I think one of the areas we haven't really discussed much is international and the degree to which you would contemplate assets at this point that are outside the United States. And yes, I do consider Canada to be another international or another country. But any other territories that might be on your consideration Board at this point?
Yes. I mean every time a transaction comes up, we do look at it. So we've looked at transactions in South America, Europe, I don't know, Canada [indiscernible] we have spent time. Obviously, it's not an easy endeavor, because you have to do a bunch of tax analysis and understand what the leakage is and when we look at that, just like we do with our underwriting, we look at a risk-adjusted return, we look at what's the net tax impact cash flow, and what does that mean from a from an investment perspective internationally. So we have looked in a number of international jurisdictions. We have bid on properties in a number of jurisdictions, but we've always looked at it with a net tax lanes. And therefore, at times, I think that's maybe caused us to not win in a particular bidding scenario. But nonetheless, that's the appropriate way, we believe, to look at these things.
And is it fair -- I mean, it sounds as among the, if not the primary gating factor is the tax element of it?
I wouldn't say that's the primary factor, but you certainly have to consider that you have linkage to that country that you have to pay before you bring the proceeds back to the U.S. for repurposes, you have to take that into consideration and what your return is that you're really getting. It's not a primary factor, but it is a factor, which will cause us to need more income in order to overcome that.
Yes. I think when we look at these foreign jurisdictions, tax is certainly one of the leading indicators on whether or not economically it makes sense. But there's a whole handful of other risks that we have to analyze when we look at that. And if you're talking about Canada, you may have less so, but you certainly have regulatory risk, there are different regulatory environments. You have currency risks, you have political instability. So depending on where you are from South America to Canada, the risks could be numerous or they could be a few, but tax is almost always one of them.
Yes. Look, it's safe to say we look at a lot of stuff and don't miss a whole lot every now and then, but we don't miss much. And we make conscious choices, and we just have never been able to put one of these jurisdictions over the top. We'll continue to look as we do with many of those and many other opportunities. But until you see it, we're not going to make the move.
Next question is from Caitlin Burrows with Goldman Sachs.
Maybe just back to that how a lot of the deals you're looking at today are not the simplest type given where the capital markets are, I guess, what do you think would make that change? Is it just lower cost of capital supporting lower cap rates? Is it capital needs by operators? Like what could get that traditional type deals going more actively?
My opinion would be capital market stability. I think if you think about people trying to maximize price as a seller, or you think about large-scale M&A, for example, in all those inputs that the critical component is the cost of debt and the quantum of leverage you can put on a transaction. So clearly, a few years ago, when that was plentiful and inexpensive, we saw prices able to press higher, because the amount of leverage whether it be public gaming REITs or private real estate investors, we're able to utilize to maximize the purchase price.
And I think from a gaming perspective on the operator side, most of our tenants and even those that aren't our tenants fund most transactions be a debt. There are not a lot of gaming operators that go out and issue equity to do transactions. So as the capital markets are more expensive on the debt side, in particular, it definitely causes a slowdown in regular way "traditional" sale-leaseback transactions and puts a little bit of a capping on the pricing aspect.
Got it. Okay. That makes sense. And then maybe just on that activity you, guys, mentioned earlier in the call how the number of properties has increased substantially over the past number of years. So as you look at your current conversations and expectations for '24, can you give any commentary on just your expectation for deal activity to kind of get over the finish line this year or even just in the first half?
The answer is no. The answer is no. Look, I think it's been well said that there's a lot of stuff that is out there. We look at a lot of stuff. Sometimes used a Bible quote that many are called, but few are chosen. So it's completely unpredictable. I could tell you the number of things I can't and won't.
But I could tell you some things we're looking at, we'd like to see done, but they're getting done is completely being unpredictable or even if it is likely to happen, is it going to happen this year? Will it happen next year? A lot of complexities to the stuff that we do. There's regulatory approvals, there's so many parts and pieces so that nothing happens fast. Therefore, we're just going to tell you where we're going to add it. Stay tuned.
Our next question is from Ron Kamdem with Morgan Stanley.
Just 2 quick ones. So one, on the Tioga Downs deal. I saw the presentation on the website, which I think is one of the first times you guys have put out a presentation after a deal. So obviously curious why you decided to start with this one, which is super helpful. But the question on this one is just on this right of first refusal for burning down, any sort of conversations with sort of American Racing? Are they looking to sell? What's the color behind that ROFR?
I'll touch base on the ROFR and then Steve can talk about the presentations, which you got to start somewhere. So why not now. I think with the of the ROFR, when we look at Vernon is more of a defensive play. So Vernon doesn't generate a ton of EBITDA and it has some challenges, some tax challenges and other things in the way that, that property came to be. It's not something that we have focused on as being necessary for the transaction. And I don't think it's necessarily something that Vernon or that American Racing is focused on and monetizing.
I think the issue in New York is or in any gaming jurisdiction, anytime you have a facility and it's potential, you want to see if you can get a right to acquire that facility. And this is one where it didn't make sense to acquire today, but that doesn't mean it won't make sense to acquire it in the future. And so that's the reason we had negotiated that ROFR with respect to Vernon. But I wouldn't say there's anything in the foreseeable future from either our side or American Racing where that will make much sense.
Yes. With respect to the presentations, I think we had heard through the Rockford transaction that I think it would have been helpful in some cases for us to have some nice pictures for people to look at and things of that nature. So I think to Brandon's point, we just figured we'd start somewhere. And I think future transactions will have similar few pages of information for you to look at and glean to a sense of what we're doing.
Helpful. Look, my second question, and we do appreciate the presentation. So my second question is just moving to the guidance. So you guys sort of came in below consensus, right? And it sounds like there's some conservatism baked in there. I think you made some comments that your interest cost assumptions. But is there any way we can double click and get maybe what the expectations for interest cost changes versus expectation for NOI change, just the big picture line items other than just the AFFO situation. Just so we can really piece together why the $3.72, which is basically just 4Q annualized is shaking out?
Yes. I mean we've given all of the information that we want to give. But we -- look, it's $10 million of a spread on $1.050 billion. It's not a significant move to be in there, but -- and I've tried to articulate where we think we put some room for ourselves given the timing of the transactions that need to be funded during the year as well as the interest movement. I mean, it moved 38 basis points a week ago. So that was in 1 day. That's what the rates move by. So that gives you an indication of what we're not sure that what will happen in the future as the Fed comes out with more information. And as inflation remains very strong, and not down to the 2% that they're looking to get to.
So I don't think it's significant in the scheme of things. Our high point is $3.74. We will modify guidance as we get more information throughout the year and get a little bit smarter as to what's happening. But that is the color that we would like to give on this call.
Our next question comes from Mitch Germain with Citizens JMP.
Congrats on the year. Just towards guidance. I'm just trying to make sure, I understand what's in it and what's not. So Tioga and I guess you provided some perspective, Desiree, on Boyd and Pinnacle resets. Is that in guidance today?
Yes, it is in guidance today and Tioga is in guidance today. That's correct.
Right. Okay. Great. And just curious about the competitive landscape. Are you guys seeing more organized capital kind of coming off the sidelines these days?
Well, it's a very small sample size. But I would say, not necessarily. I think the same organized capital, I think is the word used. The same organized capital that was -- has been chasing gaming real estate for the last, call it, 2 years is the same organized capital that's chasing it. I don't think there have been new entrants that have raised funds or what have you to enter the space. And I know we've had dialogue with one provider, private real estate provider that's discussed potentially exiting the space.
So I think -- I don't think there's -- the headwinds are there. I think it's mainly because of the leverage component and cost the debt that have kind of kept some additional folks on the sideline.
Our next question comes from John DeCree with CBRE.
I covered most of my questions. So maybe just maybe one big picture question, Peter, you've got quite a bit of experience on new states legalizing casinos. There's been some activity in long holdout states on the legislative front, Texas, Georgia, Alabama, maybe a few others that could be interesting. So assuming you don't have a crystal ball there, is there anything that you're watching closely or anything you think where there might be some momentum that we should be paying attention about? I'm not sure if you have any unique views on some of those situations?
We watch closely anything that looks like opportunity. So you can count on the fact that we're very much aware of what's going on out there in the world, period. Look, my general view is the game is going to be everywhere. There's no place where it won't be just a matter of time. States feel the pressure when the guy next door and have their population is going elsewhere to gamble, sooner or later, they break down and participate. So we keep a close eye on that. Brandon, do you want to add anything?
I think that's really right. I mean we are very close to what's going on in both Alabama and Georgia and then addition in Texas, but I think Alabama and Georgia both have bills moving at the moment that could open the door for opportunities. I think the difference in the southeastern part of the United States now versus maybe 5 years ago is you've had a proliferation of sports betting in adjacent states and neighboring places and people are becoming more accustomed to the idea of gaming being more of an entertainment source as opposed to all the negative influences that people have historically associated with a gaming property.
And I think in those states, you're having the general population generally be supportive of more widespread, resort style entertainment gaming. And I think that's why you're seeing more bills, you're seeing more things moving further each year. I mean I think each year, each one of these states kind of pushes things a little bit further along. And eventually, as Peter said, I think you'll see it in both of those states and probably in neighboring states in the Southeast as well. So we keep a very close eye on that, and those are -- will be opportunities for folks if those states get over the finish line.
We have reached the end of the question-and-answer session. I would now like to turn the call back over to Peter Carlino for closing comments.
Well, thanks, operator, and thanks to all of you who have dialed in this morning. I hope that what we've presented is helpful and as always, we are looking forward to seeing you all next quarter. Thank you.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.