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VICI Properties Inc
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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties’ First Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Please note that this conference call is being recorded today, May 02, 2019.
I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.
Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com.
Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by use of words such as will, expect, should, guidance, intend, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.
During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2019 earnings release and our supplemental information.
Hosting the call today we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; and Gabe Wasserman, Chief Accounting Officer. Ed and team will provide some opening remarks and then we will open the call to questions.
With that, I'll turn the call over to Ed.
Thank you, Samantha, and good morning everyone. We're very excited to be here and appreciate you taking the time to join us for our first quarter 2019 earnings call. We released our first quarter results last evening. John, and David will walk you through the quarter and recent activity. But first, I want to provide some context on how we view the start of 2019 in terms of our progress against our long-term strategic goals, and how we continue to build on our foundation to be the next great American REIT.
The first quarter of 2019, was the first full quarter in which the rewards from our significant transaction and capital markets activity in 2018 were reflected in our financial results. The Q1 2019 net of the effects of the new lease accounting standard, which David will address in a moment, our revenue increased by $13 million, and our operating income increased by $13.1 million, meaning we achieved 101% flow through of revenue growth to profit growth. Our ability to turn acquired revenue into new profit and free cash flow is one of the hallmarks of our triple-net business model.
All told, this resulted in our shareholders' net income growing nearly 35% year-over-year, while AFFO was up almost 22% on an absolute dollar basis and approximately 3% on an AFFO per share basis. The increase in our AFFO was the result of the lease modifications we completed in the fourth quarter with Caesars, annual rent increases embedded in our leases, ownership of Harrah's Philadelphia for an entire quarter and almost a full quarter of rent from Margaritaville, which we closed on January 2nd.
Our AFFO per share growth was reduced by the short-term dilutive impact of our very successful first follow-on equity offering we executed in November of 2018. As we have discussed with you, we are focused on building a leading REIT portfolio and corresponding balance sheet that can weather all cycles. As a result, we elected to over-equitize the balance sheet with the November follow-on offering in raising $724.5 million of gross equity proceeds. These additional proceeds have a near-term dilutive impact on our per share results, but position us for long-term success.
Just to touch on Margaritaville for a moment. We've been very clear and building VICI. We are laser focused on providing our shareholders with best-in-class income quality, income resilience and income transparency. A key element to take -- to achieving this vision is tenant diversity. In January, when we closed on the acquisition of Margaritaville, we've bought great real estate. But just as important, we officially launched our partnership with Penn National Gaming, one of the best gaming, leisure and hospitality operators in the business.
We have also partnered with Penn to acquire Greektown, which as Penn noted this morning on their own earnings call, we anticipate closing by the end of May. Continuing on this diversification theme. John will provide additional details, but thanks to his deep industry connections, on April 5th against the backdrop of decreasing overall commercial real estate transaction activity, we announced the first gaming transaction of the year in which we are partnering with Hard Rock International to acquire the JACK Cincinnati Casino. We are excited to partner with Hard Rock, a global investment grade leader in gaming, hospitality and leisure, and an experienced operator in the Ohio market. We look forward to expanding this relationship over time as both companies continue to execute on their growth strategies.
We have achieved tenant diversification faster than any other gaming REIT, through our relationship with Hard Rock, Penn and our foundational tenant Caesars. As it relates to Caesars, we are honored to be Caesars real estate partner at the 21 properties where we currently do business together. As you heard on their call last night, continues -- Caesars continues to produce industry-leading results demonstrating their strength as one of the top leisure and hospitality operators across the globe.
As it relates to Caesars valuation of paths for enhancing shareholder value and the potential impact of VICI, we would remind you that our leases and our call options our obligations of the entity and transfer with the entity should any transaction occur. In regard to the transaction committee that was formed our fundamental thesis and our fundamental commitment, which we have expressed to Caesars is that we are always here to help Caesars grow the performance and value of their business as we are for any partner we will do business with.
We feel great about this -- our start to the year and how we continue to progress on our strategy based on the three key drivers of value creation to our business model. Namely number one, ability to deliver portfolio income of the highest character and quality. Number two, a best-in-class and fully internalize governance and management structure and three, one of the best embedded flash internal and external growth profiles across the REIT sector. Through these advantages we believe we will provide our shareholders with superior returns.
With that, I'll turn the call over to John to discuss our recent transactions and what we're seeing in the market. John, over to you.
Thanks, Ed, and good morning to everyone. While it's only been a couple of months since we last spoke to you all, you can see that we remain very busy. On April 5th we announced our sixth acquisition with our third operating partner since we started VICI just a year and a half ago. With the pending purchase of the JACK Casino in Cincinnati, we're extremely excited to enter the Ohio market, which is one of the fastest growing regional markets in the country. We will acquire approximately $43 million of annual rent for a purchase price of $558 million, representing an attractive 7.7% cap rate.
Similar to the Greektown transaction, the acquisition of JACK Cincinnati will expand our geographic footprint into a strong urban gaming market and further diversify our tenant base. Now in addition to Caesars are foundational tenant, we've built long-term partnerships that Ed had said with Penn National through our acquisition of Margaritaville and Greektown and Hard Rock with our announced purchase of JACK Cincinnati. We are proud to partner with Hard Rock as they truly are one of the most recognized experiential operators worldwide with a very strong track record of success operating in the Ohio market.
As you've witnessed in VICI's first 18 months, we've announced $3.2 billion of transactions, and we believe there remains an abundance of potential acquisition targets in the gaming space. So we do not see ourselves slowing down anytime soon. We will look to add to our momentum while opportunities for accretive transactions of all shapes and sizes remain in the marketplace. Additionally, we have the option to take down any of our three call option properties with a 60-day notice. We retain one of the best internal and external growth profiles in the REIT sector and we will continue to put your capital to work, growing our portfolio and progressing toward our goals. Those goals include; diversifying our tenant base, expanding geographically and attractive urban and regional markets, and growing our Las Vegas exposure, all while creating value for our shareholders.
With that I will turn the call over to David, who will discuss our balance sheet and financial results. David?
Thanks, John. I will cover a few of the highlights from our quarterly financial results published last night. As you'll see on the income statement starting on January 1, 2019, under ASC 842, the new lease accounting standard, we are no longer required to present real estate taxes and the related tenant reimbursements on a gross basis since they are paid directly by our tenants to the relevant taxing authority. Therefore neither of these items appear on our March 31, 2019 statement of operations. The prior period, will not be retrospectively adjusted and therefore the historical financial statement presentation remains unchanged and continues to include the gross up of the real estate taxes and related tenant reimbursements.
Our revenues in Q1 '19 excluding the tenant reimbursement of property taxes, increased 6.5% over Q1 '18. Our G&A was $6.2 million for the quarter and as a percentage of total revenues was only 2.9% for the quarter, which is in line with our full-year projection and one of the lowest ratios in the triple-net sector. We did incur $889,000 of transaction expenses in the quarter, primarily related to the legal and accounting costs associated with documenting the JACK Cincinnati acquisition. These costs are required to be expensed under the new leasing guidance.
Our AFFO for the quarter was $151.5 million or $0.37 per share for the first quarter. As Ed mentioned, total AFFO increased almost 22% year-over-year and AFFO per share increased approximately 3% over the prior year.
We'd like to draw your attention to our quarterly financial supplement where we strive to provide additional transparency in information. The supplement is located in the Investors section of our website under the menu heading Financials, and we value any feedback you may have on the information presented.
Now moving onto our balance sheet and capital markets activities. During the first quarter, we issued $6.1 million shares of common stock through our at-the-market equity program at a weighted average price of $21.28, raising net proceeds of $128.1 million. We view the ATM as an extremely efficient tool to shore up our balance sheet outside of transaction specific capital raises. Our balance sheet continues to be in a phenomenal position to execute. As of March 31, our net debt-to-LTM EBITDA was approximately 4.3 times, below the low end of our stated range of 5 times to 5.5 times. This does include the impact of the excess cash on our balance sheet we raised in our November equity offering, as well as the recent ATM issuance that will be used to fund the Greektown and JACK Cincinnati transactions.
Our total outstanding debt at quarter end was $4.1 billion, with a weighted average interest rate of 4.97%. This includes the impact of the two interest rate swap transactions we entered into on January 3rd, having an aggregate notional amount of $500 million. These have an effective date of January 22, 2019 and a termination date of January 22, 2021 and effectively fix the LIBOR portion on the $500 million under our Term Loan B facility at a blended rate of 2.38%.
Taking into account our swap agreements 98% of our debt is now fixed rate debt providing clarity to our future interest expense. The weighted average maturity of our debt is approximately 4.8 years and we have no debt maturing until 2022. We ended the quarter with approximately $1 billion of cash in short-term investments and an unfunded $400 million revolver providing us liquidity for future growth.
To follow-up on the acquisition front that John discussed, on January 2nd, we closed the acquisition of Margaritaville for $261.1 million, adding approximately $23.2 million in annual cash rents. The transaction was funded using cash on the balance sheet. For Greektown, we will use the proceeds from our November equity offering to fund the transaction, which we anticipate closing by the end of May. Subsequent to quarter end, we announced the acquisition of the real estate of JACK Cincinnati for a purchase price of $558 million adding $42.75 million of annual rent. The combined Greektown and JACK Cincinnati transactions are expected to be funded on a leverage neutral basis utilizing debt and existing cash on hand.
We are reaffirming our 2019 AFFO per share guidance with a range of $1.47 to $1.50. As a reminder, our guidance does not include the pending acquisitions of Greektown and JACK Cincinnati that have been announced and not yet closed. We paid a dividend of $0.2875 based on the annualized dividend rate of $1.15 per share on April 11th to stockholders of record as of the close of business on March 29th.
In closing, we continue to make tremendous progress as we execute on our strategy and we remain well positioned with significant liquidity and access to capital to keep growing our portfolio in driving shareholder value.
With that, operator, please open the line for questions.
[Operator Instructions] Your first question comes from the line of Carlo Santarelli from Deutsche Bank. Your line is open.
Thank you very much and thanks everybody for the comments thus far. Ed, in your prepared remarks you made the statement that that you guys were able to execute on some transactions in a commercial real estate market that has seemingly gone a little bit more challenging. When you think about the nuance of the gaming REIT business and model, relative to the backdrop of broader activity in commercial real estate, do you view it as a net positive maybe for valuation as investors seek areas where there could potentially be more growth as from the standpoint of maybe thinking about it just from a stock level as opposed to a slowdown in the environment where you guys are kind of operating in an environment where we're not really seeing any kind of slowdown in transaction activity?
Yes. I think you picked up on something very important Carlo. If you look across and again we approach this as the real estate people that we are as we look across all of the other American commercial real estate sectors whether it be industrial, multi res, medical office, single-family housing in so many of the sectors the prevailing wisdom and it remains to be seen whether that prevailing wisdom is correct is that most American commercial real estate sectors are in the late innings of the cycle that they are in.
We believe the gaming real estate is still a very early inning story. It is a story and it has really developed we believe over the last 12 to 18 months in terms of especially the dedicated REIT community understanding the Alpha that they can obtain by investing in publicly-traded gaming real estate. So we believe that this will continue to be a sector that gets a lot of attention growing attention because of that if you will off cycle characteristics. This is a place that the active manager we believe will continue to find value especially when compared to so many of those other late inning commercial real estate sectors.
That's very helpful. Thank you for that. And then, John, you mentioned in your comments that you guys did want to remain focused on growing your Las Vegas exposure, unless I misheard that, but let's assume I heard that properly. Clearly there is one large asset out there. I'm not going to ask you to comment on that specifically. But I will ask a bigger picture question as it pertains to Las Vegas, clearly, a market where real estate has been valued at a little bit more of a premium.
Would you guys in any way, I don't want to say jeopardize, but maybe sacrifice some of the discipline you've shown to-date to do an acquisition, such as a large, kind of, let's call it third party type of deal, that might be a little bit more expensive, it might not be out of the gates accretive, if it meant potentially opening up new avenues for deals down the road with the new partner or something along those lines?
Yes. Carla, I'll jump in there and Ed or David will. I don't think we would ever sacrifice the way we think about underwriting and ensuring that it's accretive at the beginning. As you know, we -- the way we're structured it's imperative that it's accretive to us as we do the deal. You didn't miss hear me at all, and that -- and I think we've been clear on this suite. We would love to have more Las Vegas real estate, whether that's on the strip where we continue to believe there is a limited amount of supply of invaluable real estate on the strip, but we've also said that there are some great assets and some great real estate in downtown and also in the locals market that they should ever come for sale and there is an opportunity to do a transaction, we looked at that as well.
It doesn't mean that that is our sole focus as we continue to look at opportunities outside Las Vegas, where we, as you've seen as we love the urban real estate that many of these casinos have. But David, Ed, you want to add to that answer that Carlo asked?
Carlo, it's David. And John, I think you did it. I mean we will not -- as everybody knows we are triple-net REIT. So the accretion that we underwrite day one and we live with, we don't have the ability to asset manage, property manage or improve operations in our model. And this is the part of the reason we're able to achieve such high revenue flow through, but we will be very disciplined in the way we approach any asset and any acquisition depending, regardless of how large it is and where it sits.
Yes, and I would just add one more thing, Carlo. Because you touched on it, an important element. An element that's strategically important to us, when you did cite the fact that we will put value in our underwriting on developing strategic relationships that can grow over time. It would not become a factor that causes us to accept dilution going in, but to your point, it is a very important point in how we evaluate any given transaction.
Great. Thank you. That's very thorough, and then John, if I could, just you mentioned obviously the locals market in the downtown market. To the extent that you've thought about certain transactions within either of those markets, I'm going to assume that there's unlikely to be any gating issues that would make transactions in those markets any more difficult necessarily than transactions on the strip, or in any regional markets. Is that fair?
Based on what I know I think that what you said is accurate, but it's hard to give a general comment on that. You got to look at the specifics of a current transaction.
Understood, thank you very much guys.
You are welcome.
Your next question comes from a line of RJ Milligan from Baird. Your line is open.
Hey good morning guys. Given the fact that the stock is sort of pushing up near all-time high, so I was curious how do you think about using your more attractive cost of equity to possibly expedite pulling in the call option properties?
Yes, RJ, it's David. Thanks for joining us. Look we've -- we loved the call properties because it gives us that embedded growth, and as we talked about that ability to drive consistency through the sector that I don't think has been demonstrated in the past. And so we still layer in the call properties, one in each year is a base case scenario. One in '20, one in '21 and one in '22 and each one of those delivers $40 million odd of rent to VICI and that is at our discretion.
There's a lot, as John mentioned, there's a lot going on out there. So we don't -- we haven't deviated from that kind of base case today, but it is something that we are always mindful of and we do highlight where the stock is and that's we've had to downs our cost of capital and the accretion that we can achieve on each of those.
And I would just add RJ, that -- obviously that that improving cost of capital that you're referring to also gives us the ability to make whatever else we may be working on other than the call properties even more accretive as time goes by.
Okay. That's helpful. And I guess, David, can you talk about sort of your expectations for additional ATM issuance throughout the year to fund. I don't know if you need additional capital to fund Greektown or want to bring down leverage. But can you talk about what you expect the cadence of ATM issuance to be for the rest of the year?
Yes, RJ, it's a good question. As we sit here today, we do not need any additional equity for Greekdown or JACK Cincinnati. So we're fortunate to have executed a very successful follow-on offering in November. And then as we view the ATM, look it's one of the most efficient tools -- equity tools that we have available to us as any REIT has available to it.
And we will evaluate numerous considerations including the trading environment of our stock, investor demand around our stock, and kind of what the long-term outlook of our pipeline is, obviously with the timing that it takes to close these deals and making sure that we have pre-funded the balance sheet, we've put the balance sheet in the best position as possible to drive as much optionality for us is very important to us. So, we'll assess the ATM kind of opportunistically as we have with all the equity offerings that we've done.
And I'm not sure that if you can disclose, but the ATM issuance in the first quarter was that just general way or was that incoming inquiry for a position?
Yes we opened it up in the first quarter and it was the general way issuance throughout the quarter.
Great. Thanks guys.
Your next question comes from the line of Daniel Adam from Nomura. Your line is open.
Hey guys. Thanks for taking my question. I guess a follow-up related to the call option properties. The more I think about it, my question is, why doesn't it make sense to call them in now. I mean, wouldn't calling them in sooner rather than later enable you to maximize the net present value that you see from the accretion?
Yes, Dan it's a fair question and look it's the one that we've gotten since day one. I mean we know they are always there. We're not going to let them go. And the stock continues to work in the right direction as Ed alluded to the understanding of the merits and you've been a big proponent of helping people understand the merits of the sector. And so I think, it can remain a lot of activity out there, third-party acquisitions and they will always be accretive and they could potentially be more accretive tomorrow if the stock continues and heads in the right direction.
It's not something that we want to engineer our financial growth, so to speak, financial AFFO growth, but again we look at them layering one in 2020, one in 2021 and one in 2022.
And again I would just reemphasize Daniel that, I mean, here we are, where we're -- basically we're in our seventh quarter as a company, if I'm doing my math right. And in those first six quarters we did as John already spoken of in the prepared remarks, $3.2 billion of acquisitions. So that averages out to about $500 million a quarter. Obviously it hasn't layered in exactly like that, but you get a sense for the velocity at which we've been able to grow the business. And as we look forward, we continue to see the opportunity to continue to grow the business at or close to that velocity, and thus we are not faced with a situation where we really need to bring down the call properties in order to continue that kind of velocity. And thus given the opportunity to choose when and how we do it, we will continue to prioritize those opportunities here right in front of us.
Okay great. That makes sense. And then just one follow-up. So yesterday, EPR technology, that they are now more open to exploring deals in the gaming space. I'm just wondering what are your thoughts are on this pluses and minuses? Thanks.
I think, net-net Daniel, it's very much a plus. The guys of EPR are very smart real estate investors. And in their recognition the gaming real estate can represent real value, and truly institutional quality real estate. We see it as an important step in the validation that any commercial real estate sector needs to ultimately realize its full institutional value, right.
In other words, as we become fond of saying, validation drives valuation, and any new entrant into the sector is a another step in that validation process, which is to say another step in the revaluation or rerating process.
Thanks so much, guys.
Your next question comes from the line of David Katz with Jefferies. Your line is open.
Hi. Good morning everyone. And thanks for your insights and color so far. I just wanted to ask, Ed in your opening remarks, you made some commentary about Caesars, about your largest tenant.
And the degree to which there maybe actions or strategies that you can take whether it's stepping up on any optionality that you have, ahead of any change of control or any specific outcomes, and I don't expect that you may have detail to share with us specifically. But are there strategies that you can consider to protect or add value in that context given where Caesars sits today?
Yes. Maybe just as a starting point, David, though, you didn't ask about a per se. I think everyone on this call, saw the Caesars results yesterday and we do not -- we must emphasize, we do not rely on Caesars quarterly performance to solidify the security of our rent. But we were very happy to see for the sake of Caesars team, that those results were as strong as they were. So that's, sorry that just I wanted to add to be a preamble.
It's clear.
In terms of how we approach any sort of engagement with Caesars, we are very mindful of the rights we have, we are very mindful of the obligations that we have and we will be looking at anything that arises in a relationship with Caesars through the filter of how do that make Caesars even stronger which thus further securitizes the quality of our rent.
And then, how do we make sure that obviously the interest of our shareholders are being carefully preserved as well. And then, beyond that we take a lot of confidence in fact there is a lot of very smart people involved at Caesars, there is a lot of energy and a lot of urgency to create value and we're actually excited about the opportunity we have to work with them to increase the value and the strength of both of our businesses.
Thank you, for that. And just one follow-up on another matter and on regarding the prior questions. Around other real-estate fronts looking within gaming and I know it's been somewhat of an early stage discussion about looking about your looking outside of the gaming realm.
I suppose a fair question is has anything changed in that regard, you know there certainly has been some news about contiguous businesses coming up for sale and so forth. Any updates there?
Yes. You know, we from day one, we've positioned VICI as an experiential REIT and from day one we've always been engaged both as a board and a management team in learning all we can about experiential factors that share what we believe are the key characteristics of what we love so much of our gaming.
And as we talk with you David, we love about gaming, then it's fundamentally a business in which great operators offer diverse experiences to a diverse clientele across diverse geographies. And as we look at adjacent sectors, we are seeing in some of those sectors those same characteristics and it's that diversity of experience clientele and geography that we think greatly improve the risk profile of any experiential sector.
And to your point, there are certainly some names coming up in adjacent sectors that have characteristics we're very interested in. We obviously have to we were obligated to learn all we can, we're obligated to invest very carefully and we're obligated to make sure we never lose sight of the fundamental opportunity right in front of us right now which is to continue to grow our gaming real-estate asset portfolio very accretively.
Got it. Thank you, very much. I appreciate you taking my question.
Thank you, David.
Your next question comes from the line of Barry Jonas with SunTrust. Your line is open.
Hey. Good morning guys. I guess just following up on the non-gaming question. I mean, do you analyze those deals the same as gaming or different and do you think diversification away from gaming ultimately helps your valuation and maybe your cost of capital?
Barry. I'll take the first crack at this, and I'll let John and David pitch in. It will improve our business and our cost of capital. And this is obviously believing the obvious. If we make fundamentally good real estate investment decisions, and we -- if we are going to do this, we need to make sure that we understand, not only the general but the highly specific characteristics of any sector.
So that we understand, among other things, its supply demand characteristics, not only now but going forward. Is it a sector that's going to be favored or disfavored by demographic, cultural and social trends over the next 10, 20, 30 years.
Again, we are investing, basically in multi-generational assets, and we need to have confidence that there will be a durability to the experience that then yields the durability to the rent.
And again, the factors that come into play in those sectors may be different than the factors that come into playing gaming, especially given the highly regulated nature of gaming, which you generally don't find in these other experiential sectors, and thus don't have, if you will, the built-in, if you will supply growth constraints, that the intense regulatory regime of gaming does provide.
Got it. And then, you know look, I think early on investors are very focused on you having a single tenant, you've addressed that twice now. At this point, are you somewhat agnostic about adding an additional tenant relative to those initial concerns or you're happy just working with the ones you have?
John?
Barry, I'm very active in continuing to build relationships across all the platforms, and it's been great to finalize deals with Hard Rock and Penn and of course Caesars. But we continue to meet other companies, understand our growth strategies.
What are they trying to achieve over the coming years and is there a place where we can be a part of that. So I think you'll see Barry, over the coming months or years that we continue to add more tenants to our portfolio.
Got it, alright thanks guys.
Your next question comes from the line of Mike Pace from JP Morgan. Your line is open.
Hey guys, this is Coleman for Mike. There are no fronting question I got to ask, thank you very much.
Your next question comes from the line of John DeCree from Union Gaming. Your line is open. John from Union Gaming, your line is open.
Good morning, guys. Sorry, it was I hit the mute button, clicked there.
That's fine.
Just, wanted to get high-level thoughts, maybe Ed or John, on the behavior that we've seen in some of the corporate companies and potential partners early on. I think there was reluctancy and probably still to some extent for some of the operators to partner with the REIT, but we've certainly seen just across your portfolio more folks are willing to work with you guys and even your peers.
I was wondering what you thought has changed or is it just the education, people getting more comfortable, and how do you kind of see that going from here? Is it just, are your conversations with potential operators getting easier about partnering?
John?
Yes. I'll take that and then Ed can jump in if I don't completely answer. I think you've described it well. I mean, when we started, I think at times, there is a misunderstanding of how a REIT like us could help many companies to grow. So again it's a relatively new sector, probably only five or six years old compared to many others in the REIT business that are decades old.
So I think we've been on and you know this, John, we've talked to you about this, we've been on a mission to make sure, at least in our first 18 months that everyone knew who VICI was. How we could help them with their growth plans? How we do fair deals that we're an independent company and how we can again be there available to them, should they want to do a sale leaseback or sale of their company?
And I just think it's a little bit of an education process where folks better understand how we can be part of their team so that they can it's -- you are correct, more and more folks are starting to understand.
It doesn't mean honestly, you have the structure, but I think they understand how we can be a thought and I think VICI has played a big part in helping to educate and get out there and tell people about our company and the REIT space in general, Ed, David, anything on that?
Yes. I'll just add one more thought John, and I added as an open question that we would not pretend to have the answer to, and I think that open question, John is, is to what degree will a gaming asset that comes to market to be sold here in the future. To what degree will a whole co be able to win the bidding, if a REIT is interested in the real estate of that asset that has come to market, and an operator is interested as well.
In other words to put the question in the most succinct terms, will there be circumstances when a whole co can outbid the combination of an OpCo and a PropCo, right. That I think is the question going forward that fundamentally ends up time to the degree to which gaming REITs can continue to grow.
Ed, I think that was my follow-up question. I was going to present to you on, on just competitiveness as the REIT stay involved. So perhaps a slightly different question for you guys as a follow-up. How do you think about, when you're underwriting an acquisition, particularly some of the single asset stuff that you're looking at or have done on a 4% coverage basis.
There's been a clear preference for -- some corporate guarantee or credit support from your OpCo partner, but do you think about just kind of the 4% coverage, even if there is a some type of credit enhancement involved, kind of as you underwrite at this point in the cycle or how do you think about that going forward? And that's it from me. Thanks guys.
Yes, John, it's David. I can start and John chime in. As Ed and I've appreciated and John's realized over the long-term there is such a resiliency to the gaming revenues and cash flows that come out of these assets. So as we underwrite assets ultimately over the long term we want to try to get to kind of the 2% coverage.
But as you've seen us do with the fixed deals that we've announced to-date, the coverage ratios going in at a range of a 1.7% and 1.8% with a much lower in Harrah's Las Vegas knowing that there were significant capital going into that asset. But the Margaritaville, as you heard this morning, we would do that at a 1.9 and Penn made the comment this morning that they are having the best quarter ever in that asset.
So it's a combination of knowing what the operator can do what they can do with synergies and the conviction that we have in the partnership with that operator in their ability to continue to drive revenues obviously, EBITDAR for rent coverage in there as well. It's a little bit of a long-winded rambling answer but I think it's -- it depends. And, but ultimately if we 1.7%, 1.8% getting up to a 2% over the long-term is where we'd like to be.
Thanks, guys.
Your next question comes from the line of Stephen Grambling from Goldman Sachs. Your line is open.
Good morning. This is Bill on for Stephen. And thanks for taking my question. So following up on Daniel's question earlier. Do you expect as the gaming REIT space becomes more appealing to diversified REITs there'll be a pickup in the industry consolidation?
And are there any barriers to entry associated with gaming licenses?
Bill. Yes, good to hear from you. In terms of what you're talking about in terms of industry consolidation, could use just clarify what you meant by that?
Yes. Just like a maybe a higher propensity for diversified REITs or even gaming REITs to acquire and consolidate within the industry?
Yes, yes. So again I -- we would look at the increasing interest in gaming real estate as a sign of validation. And as to what the impact of that will be on bidding, as to what the impact of that will be on the incumbent gaming REITs in terms of their growth, their consolidation, again an open question at this point.
It would stand to reason that the arrival of new entrants, the validation that they bring should lead to a rising tide that should rise -- raise their -- all boats when it comes to improving your cost of capital, and needless to say as cost of capital improves to a point that was raised earlier, it does make the available suite of investment opportunities gaming and non-gaming more abundant.
That's helpful. Thank you. And there was recently announced closing of a lease gaming property. Do you expect us to have any ripple effect on regional casino underwriting?
Dan you want to take that?
Ed, I don't think so. I assume you're talking about the small asset that 10 and GOP I have in Tunica?
Yes.
Yes I don't see that effective regional underwriting.
That's it for me. Thank you.
Your next question comes from the line of John Massocca from Ladenburg. Your line is open.
So is there any thought process on your guys and to maybe keeping the leverage below target levels over the next couple of years. Just given, particularly given the call option properties are so accessible for you guys, that it just gives you more flexibility of not being reliant on your position in the capital markets to take down those deals in the most accretive manner?
Yes, John, it's David. The leverage is something that we're very mindful of obviously this entity started at 10.5 times and we worked to really, really hard to take a lot of leverage out of the system. And then with the size of the deals and the timing of the close, we never want to be in a position where our funding -- there is funding uncertainty around our acquisitions. So, I specifically, with the call properties we've got internal funding capabilities out of having a lower AFFO payout ratio around 75% of our AFFO, that in itself provides a nice funding capability for the call properties.
We will keep the balance sheet of 5 times to 5.5 times. And so that does provide us some optionality with the call properties. So we don't specifically keep the balance sheet under-levered for those call properties. We want to make sure that we are -- we have funding certainty around anything that we've announced or anything that we potentially may acquire here in the future.
Okay. And then shifting gears to the two kind of pending transactions. How should we think about timing and maybe size of potential debt raise to help kind of fund those without putting too much of a burden on the line. I know you talked about doing some debt around Greektown. I mean is that just going to grow kind of pro rata for the additional acquisition in Cincinnati or was it kind of the original contemplated issuance around Greektown sufficient for both acquisitions?
Yes, John it's a good question. As Penn said this morning and we are reiterating obviously it is subject to final regulatory approval, Greektown should close by the end of May. The plan would be to use cash on the balance sheet to close that asset. And then it sets the debt markets later in the year to acquire both Greektown and JACK Cincinnati on a leverage neutral basis. So Greektown is $700 million, Cincinnati is $558 million, so $1.2 billion $1.3 billion of total value for our assets that we're adding to the portfolio this year. So rough numbers $500 million, $600 million of additional debt that we will need to fund on a leverage neutral basis. And again, the markets are there today and as we get through the Ohio regulatory process we'll make -- we would have certainty around closing, we'll look to add incremental leverage on to the balance sheet.
Okay. And then kind of touching maybe on the regulatory side, I know it's kind of a broad question, but are there any markets or states where you think you guys may have destructural difficulties pursuing additional acquisitions because of regulatory concerns around competition or given kind of the diversity your portfolio, is it pretty wide open right now?
John you want to take first crack of that?
It's hard to say, but I don't think there is any regulatory restrictions that I see in front of us of deals that we're looking at, and where we may be. So the answer right now is, I don't see any impairments for us to be able to grow from the regulatory.
Understood. That's it for me. Thank you guys very much.
Thanks John.
Your next question comes from the line of Bradford Dalinka from Morgan Stanley. Your line is open.
Good morning, Brad on for Thomas Allen.
Hey Brad.
I wanted to ask you guys you had another one on the call options. Some articles indicates Caesars is looking to renew its license in New Orleans and potentially put some capital into that property. Could that situation impact the timing of the structure of the economics on that call? That's it for me. Appreciate the question.
Thanks Brad. John you want to take that?
Yes, Brad. This is John. So you are right that Caesars continues to look at extending their operating agreement, which expires in 2024. They're going through a state process right now, and we continue to monitor and work with them on that that option. We'll have to see how it ultimately plays out and how it gets finished and what the capital commitments are. So we're in contact with them as Ed said earlier, and we'll see how it it plays out and we'll be able to give some clear direction on where that's going. I don't know, Ed or David if you have anything to add to that?
I mean, I would just add that, obviously, as we talked about in the announcement of the Jack Cincinnati acquisition and as we talked about in the announcement of the Greektown acquisition, there are relatively few downtown regional casinos across the US landscape. New Orleans represents yet another one. And obviously we believe it is a really wonderful place to own a property. So we're obviously supporting Caesars in every way we can to ensure success in this process.
Thank you.
[Operator Instructions] Your next question comes from a line of Smedes Rose from Citi. Your line is open.
Thanks. This is [indiscernible] on for Smedes. I just want to ask how I think you comment on how current transaction pipeline looks and how it's changed over the past 6 to 12 months?
Yes, I'll take that. Someone asked me yesterday on a plane how things are going? I said I'm busier than I ever have been. But we've been saying since we started 18 months ago that we've been busy. So the activity is good. I think that the work we did in 2018 to build relationships and let folks know who we are, hopefully will continue to pay off. And in '19 and we'll do some work with those companies. So I'd say it is quite busy. We're quite active and it's pretty exciting time in this space.
Great. Thank you.
There are no further questions at this time. I will turn the call back over to the presenters.
Thank you, Operator. Thanks to everybody again for your time today. We look forward to providing an update on our continued progress in the summer when we report our second quarter results.
This concludes today's conference call. You may now disconnect.