Gaming and Leisure Properties (NASDAQ:GLPI) Q1 2020 Earnings Call

0:00 Greetings. Welcome to Gaming and Leisure Properties' first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to Joe Jafone with JCIR. Thank you. You may begin.

0:30 Thank you, Sherry, and good morning, everyone, and thank you for joining Gaming and Leisure Properties' first quarter 2020 earnings call and webcast. The press release distributed yesterday afternoon is available in the investor relations section on our website at www.glpglpropinc.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.

1:15 As a reminder, forward-looking statements represent management's current estimates and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to risk factors and forward-looking statements contained in the company's filings with the SEC, including its first quarter 10Q and 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, and Steve Snyder, Chief Financial Officer at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President and Chief Accounting Officer, Brandon Moore, Senior Vice President, General Counsel, and Secretary, Steve Ladany, Senior Vice President, and Matthew Demchek, Senior VP of Investments.

2:03 With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

2:07 Thank you, Joe, and good morning, everyone, and thank you for joining us today. With us, as Joe indicated, is most of our senior management team who are Equally available to fill in the blanks where Steve and I may miss something or some detail. So at the outset, I want to say that this is not the first quarter call that I expected to make at the start of this year. We and our tenants were off to a terrific start until the unimagined impact of the COVID-19 virus changed everything. We had just concluded a tremendously successful 2019, as you would know. but what a difference a week or two can make.

2:54 We saw our entire portfolio of assets completely closed, which happened virtually overnight. So we moved quickly to try to understand what this shutdown could mean to our tenants and ultimately to us and to figure out how to decisively mitigate any risk to our business. We recognized that Penn National as our largest tenant was critical to our success going forward. not knowing how long this crisis might last, we made a judgment that we needed a plan that we believe could carry us safely into 2021. We met several times with the Penn team, the Penn National team, to fully understand their situation and work to craft a plan that would give us both, both companies, the ability to outlast any plausible closure period.

3:45 To that end, again, as you would know, We purchased the Tropicana Las Vegas on, I believe, very favorable terms in a transaction where Penn received credit for approximately five months of prepaid rent. And consider that for that property beyond an outright sale, which would be perhaps priority one, there may be a number of attractive options that we might consider. At the same time, we negotiated a new ground lease at Morgantown. And by the way, that property is under roof, stalled now, of course, like so much else. But it's at a terrific location, one of their new properties, at a 10 cap. We got a lease modification, a number of things that we were anxious to change with Penn. We got master lease renewals at Penn, and we struck an option for Penn to buy Perryville.

4:42 and just a number of favorable things that came out of this whole package. This outcome accomplished our original goal of giving us and our lenders and our shareholders visibility and predictability around Penn's rent payments through the end of this year. It also ensured that our shareholders were made economically whole, which is a huge focus of ours from the beginning. We weren't giving away something. We got true value and I think we got great value for that period of time. We received almost 99% of our overall cash rent in April, with payments in full from Penn, Eldorado, and Boyd. Casino Queen is yet to be settled, but we have had a constructive dialogue with their ownership group to date, and we believe that that should or could lead to a favorable outcome.

5:34 One of the most difficult parts of addressing the impact of the COVID outbreak was the decision to furlough the majority of our casino employees in Baton Rouge and Perryville, which really was a very, very painful but sadly necessary choice. We have maintained employee benefits at least through the end of this month, and we have retained certain personnel to help us plan for reopenings as soon as safely possible. getting our employees back to work is a huge priority for us. And we believe, as many of you may be seeing, there will be news soon that some of our tenants, all of our tenants' facilities may open as early as in the next couple of weeks, albeit with initial restrictions.

6:23 It could be tough. We don't know yet. And I think we expect to have a lot more clarity on where this is going to go, even by the end of this month, as states Thank you for joining us. or how quickly they will ramp. So the change was made in conjunction with a reset to our quarterly dividend run rate as well.

7:13 The election to reduce the quarterly dividend was made really in an abundance of caution. There's no magic to that number. It is a reasoned, carefully thought out number, but it's not the final word. We could well adjust positively later. but we think that Prudence suggested that we take a cautious view. These actions, along with others that Steve Snyder will outline in his following comments, should see us through. Our properties are extremely critical to the states where our tenants do business. The tax revenue that they generate is extremely important to most of them, especially now.

7:58 So we expect great pressure for states to open their properties as quickly as they think safely possible. And then finally, thinking about this as I talk to you all this morning, I want to say I've been at this business and its predecessors for a very long time. I was Penn National's president when it opened in 1972, and I led our public offering in 1994. and through those years I have weathered many, many challenges. Though this one I must say is like no other. But we have a highly talented team here at Gaming and Leisure Properties who are more than up to successfully navigating through this crisis. So we do all that we must to ensure that when this all ends we're on our way to being bigger, better and stronger than ever.

8:53 So We believe that there will likely be much greater opportunity for favorable asset purchases as we begin to return to normalcy and that the journey to regain our previous success will be both gradual but certain. And through this all, you can expect us to maintain the same focused discipline for which we have long been admired. Same company we always were, very careful. So with that, Steve,

9:23 Thank you, Peter, and good morning, everybody. Recognizing these are very unique circumstances that we find ourselves in, let me just get one housecleaning thing out of the way first. We did file our quarterly report on SEC Form 10-Q last evening with the Securities and Exchange Commission so that there's exhaustive detail in that 10-Q to the degree there are follow-up questions after this call. Obviously, this is a very unique earnings call in that the quarterly reporting Even though it was reasonably strong and we achieved really all of our objectives in spite of our businesses being closed for two weeks during the quarter, this quarter really isn't the focus. The focus is on the steps we've taken to preserve value in light of the unprecedented velocity and depth of the disruption to the economy that has resulted in significant impacts on our and our tenants' businesses.

10:18 COVID-19 has affected everyone, and as a company, we must look at the current circumstances through the lens of its impact on our employees, our tenants and their employees, the communities in which our facilities operate, our creditors, and all of our stakeholders as we rapidly adapt to a world that's evolving more quickly than we could have ever imagined. Historically, the cadence of our earnings calls has been to follow our public tenants after they've provided us with four wall coverages for the completed quarter to incorporate that critical measure of four wall coverage into our release. In an effort to provide more timely transparency, we felt it better to not wait given the impact that zero revenue months have in the near term on the coverages of our tenant's lease obligations. We'll continue to work with all of our tenants to forbear covenant defaults resulting from these closures as long as a collaborative dialogue continues with our tenants. To highlight some of the steps that we've taken, and Peter mentioned a few of these, we've done extensive scenario analysis and had frequent discussions with all of our tenants as well as with all of our credit group.

11:30 As you saw from the PEN transactions, the series of transactions that were announced, we had prior to announcing that transaction gotten a cooperation of our banks in amending our credit facility agreement to allow us to recognize non-cash receipts as cash revenue for purposes of all covenant calculations. We also withdrew our guidance given the lack of predictability relating to our monthly variable rent at our Columbus, Ohio asset, the upcoming variable rent resets that we will be seeing under our master leases, the lack of escalator realizations here in light of the COVID-19 pandemic, and the TRS performance due to the duration of closings and reopening trajectory of our facilities. We drew the amounts available under our revolving credit facility to provide enhanced liquidity, providing a quarter-end cash position of nearly $560 million, which has been enhanced by the receipt of cash rents in April.

12:27 Finally, as Peter mentioned, we made the very difficult decision to furlough nearly 550 of our TRS employees which was a very difficult decision to make, but what we've done is we've continued to pay their benefits, we've committed to paying their benefits through the end of May, and we'll evaluate this as May progresses as we gain hopefully greater visibility as to the timing of the reopenings. We've maintained the minimum staffing levels for security purposes, but also maintaining staffing levels to prepare for the reopening of these facilities and to provide for the appropriate sanitary and hygiene protocols to be prepared for the safe opening of these businesses for both our employees and our customers. Lastly, we outlined in detail the financial impact to the company of zero facility revenue months and the impact on the contractual rent adjustments.

13:24 Just from the standpoint of our expense structure, obviously you all know our average monthly interest expense is about $23.5 million. We've taken the G&A and the company down below $2 million per month. And as disclosed in the press release, we've reduced the expenses in our taxable REIT subsidiary to under $1 million per month. So our total monthly cash burn on average is just over $26 million. A real quick portfolio update. Peter mentioned that the Casino Queen did not pay its April rent. As you'll recall, they had an item pending in front of the Illinois Gaming Control Board in January for a change in ownership of that business. Given the impact of COVID-19, the change in ownership of that business has been slowed down. We are in very productive conversations with the sponsor of that reorganization of the business who is also now the secured lender of that business. And we do contemplate a deferred rent agreement as part of the recapitalization of that business as it proceeds forward once that facility does reopen.

14:37 In Ohio, we were fortunate to get the Ohio Racing Commission to give approval to our ownership of the Belterra Park Real Estate. and we're working with Boyd to complete the transaction to include that real estate as owned real estate on our portfolio rather than the mortgage. For the current quarter, as Peter mentioned, our board approved yesterday a dividend policy that reflects the impact of the current closures on the business. We're also changing, as Peter mentioned, the composition of our second quarter dividend to be paid 80% in stock to provide for a matching of our non-cash distributions to non-cash rent receipts. The temporary step also provides a reasonable cushion to maintain our leverage targets and provide future balance sheet flexibility. Obviously, the goal in taking these steps is to both strengthen our current position while also providing value-enhancing opportunities in the future among things like evaluating alternatives with respect to our owned acreage as a result of the PIN transaction.

15:36 We consider the current environment to be a temporary interruption in an asset class that, as Peter mentioned, is essential to the state and local governments in which these facilities operate given the significant tax generation and employment provided by these facilities. We're very confident that the regional markets and our tenants will lead the way in the recovery of these assets when they do reopen. Social distancing in the form of virtual weddings or virtual happy hours or a virtual NFL draft will not become the new norm. It's simply the current norm. which we and our tenants are planning for, activity will return to these casino floors. Finally, before I turn it over to you, operator, for questions and answers, I want to call out our team members. The folks at GLPI and in our taxable REIT subsidiary have really stood up and have shown their dedication and talent through these very trying circumstances. Our property management implementing the furloughs, our property management team working with our affected team members in seeking the support that's available out there, making donations of food and beverage to the local food bank down in Baton Rouge. We've taken significant steps to help all of us try and get through these uncertain times because there will be another side to this. So with that, operator, I would turn it over to you for questions and answers.

16:58 Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Carlo Santarelli with Deutsche Bank. Please proceed.

17:26 Hey, Peter and Steve. Thank you very much for all the color. If I could just start with, as you guys think about the transaction that you've already made with Penn, and you think about the go forward from here, and clearly there's a range of outcomes that are very difficult to handicap from just about any perspective, but acknowledging properties will start to reopen here in the coming weeks. How are you guys thinking about the ramp and potentially what levers there are left with some of your primary tenants or larger tenants in the event that we do experience a potentially slower ramp that doesn't necessarily translate to positive cash flows or cash flows that exceed the ability to kind of make rent payments down the road.

18:13 Are there levers left to pull or other types of creative transactions that you guys are potentially contemplating?

18:23 You had actually a multi-part question. Let's start first with the Tropicana transaction itself and what we got for it. I mean, it's a 35-acre site in probably, you know, Maine and Maine, if you will, in Las Vegas. It's a terrific location and, you know, MGM and doing a lot of stuff around it that we think lends the value. Penn had said previously that they were looking to sell that property. So that's not a new idea. And they were in active discussions with a number of people about that before all this happened at, by the way, significantly higher prices than what we're talking about today. Now, that doesn't necessarily mean anything for the future.

19:10 But we think that we got more than fair value at the number that we've identified. And we're going to have to play it out. There may be some other things that I won't get into today that we could do with that property. The point is we own it, we control it, and by the way, a simple sale would be fine. In the end, we want paid. We think we've got paid. We now then have to monetize that in the form of hard cash rent. That's about all I can say at the moment other than, Steve, why don't you add?

19:46 Yeah, Carlo, obviously your question is what's left on the shelf if there's something necessary? And no one has visibility on when, and nobody has any visibility, clear visibility, on how these facilities will ramp back up. We are in a constant dialogue with all of our major tenants, with all of our tenants, and we recognize none of our tenants plan their balance sheets for zero revenue months. None of our tenants came into 2020 with a business plan for a series of zero revenue months. So we will continue the dialogue with all of our tenants. We will look at and evaluate any and all alternatives that they would like us to consider. But clearly, the discussion is going to be if there is any kind of short-term compromise, it will come with long-term gains.

20:41 because we do, at the end of the day, we own these facilities. We own these bricks and mortar, and we do feel we have a portfolio of really the best operators in the business in terms of realizing the maximum opportunity that exists in this asset class. So I'm not trying to avoid your question. It's one that doesn't have a clear answer, as you can imagine. All we can do is share with you the thought process. Yeah, let me ask you, Carlo.

21:07 You asked about the ramp question. Well, that is, of course, the toughest answer to provide because the truth is none of us know. You have announcements like yesterday I saw that the governor in Illinois said, there's no date out there for casinos. Simply said, eh, you know, somewhere down the road we'll talk about it. So it's indefinite. And you have others, of course, looking to open much sooner. And then the next question is, with what kind of restrictions? 10%? 50%? All these things are unknown, and they're going to differ from state to state. But then consider something like West Virginia, we know is very anxious to get open. We're hugely important as an industry in that state.

21:53 That might put pressure on our governor here in Pennsylvania, as an example, to get this show on the road a lot faster than at this instance it seems he will. So all of this is a trip into and up and running sooner rather than later. And the only unknown is just how slowly will they come back. We don't know. Gamblers are a pretty active group, desperate group. People are locked up in their houses, and I suspect they're going to come in in faster numbers than we might first imagine. So that's my best and only answer to that.

22:34 Carlo, this is Matt. I'd also add on the topic. I mean, our operators are obviously in a lot better solvency positions across the board than they were just a few weeks ago. Penn, in large part, due to this transaction, but they've taken meaningful steps to really address the circumstances and move their cash burn to an important and comfortable place. But I'd also point out, to add to Steve's comments, I mean, you can look at a few signposts that were really relevant in the Penn deal. and continue to be relevant for us to appreciate how we're thinking. It was really getting to a point of economic wholeness for our shareholders with an opportunity for upside that we're really obligated to get for our shareholders wherever possible for any deviation from the norm. The bottom line question in all these decisions for us is, is the company's long-term value more or less after the decision is made versus before? and with Penn, I mean, we're very confident that that answer is yes. And so I hope that gives a little extra color on how we think about things.

23:39 That does. Thank you, guys. Thanks for all the color. And if I could just ask one follow-up, which I think will be a much simpler question. The monthly resets in Columbus and Toledo with the Greektown deal, there is a floor under Toledo, a little less than 50% of the monthly rent, I believe, that you get from those two assets. How much lower is that floor than kind of where you were trending, say, in 2019 with respect to just the monthly rent on the Toledo piece? Is that disclosed somewhere, or is that something you guys could provide?

24:12 It is. It's in the queue. It's $22.9 million is the floor. On an annual basis. The floor for Toledo, I'm sorry. Great. Thank you. Sure. Thank you, Carlo. Stay safe. Our next question is from Nick Ulico with Scotiabank. Please proceed.

24:34 Thanks. Good morning, everyone. I just want to go touch on the dividend. You know, Peter, you did mention that you could maybe adjust the dividend positively later. You didn't mention negatively. So can you just give us a feel for how the board thought about adjusting the dividend in light of, obviously, you had already the PEN transaction, but if there's any other rent relief you might have to give to your other operators, how should we think about that, your comfort level there?

25:10 Well, of course, we don't have the answer to any of those questions. I'll let Steve walk through the logic that got us to the number we selected. We just took a conservative view. You know, I used to say when I ran PEN, that we are not in the gambling business. Our customers may be, but we're not. And that certainly applies on the gaming and leisure side of things. We try to be open, we try to be extra transparent, all that you've seen over the years you've followed us. So we just look at the logic and say, look, things aren't going up any too quickly. Let's look at a number that looks sustainable under almost all measures, almost, and to your other point, could it be worse?

25:57 Well, sure. I mean, if nobody opens and this goes on forever, I mean, who knows what will happen. But we're not taking that view. We're much more optimistic. Take a look at Pennsylvania. Our two properties in Pennsylvania provide over $250 million annually to the state. And that's before income taxes, that's before corporate taxes, that's before everything. So those two properties in the balance balance generate almost $2 billion for the state of Pennsylvania. You can bet somewhere up there in the governor's office they're thinking about how they get this back. So that's what we rely on ultimately. But just how it's going to play out, God knows.

26:37 And, Nick, just to follow up on your question a little bit, in dealing with our board, in presenting this to our board, we basically looked at what the contractual impact is going to be on our business as a result of these months of negative EBITDAR. and what that meant in terms of coverages, what that means in terms of the resets of our leases, what it means for the operating performance in our taxable rate subsidiary. So we think we arrived at a set, a point for our dividend that is reasonable in light of the current circumstances and will allow us to get back to a growth trajectory in terms of returning capital to shareholders in light of where the balance sheet is, because at the end of the quarter, you see we got below 5.5 times net leverage, which has been our target. So we're inside of our target ranges.

27:34 We've got a very solid relationship with our bank credit group, and we think this messaging to all of our constituents signifies our willingness to make difficult decisions and really an approach that allows us a nice runway going forward to get back to the trajectory. But we all need to wait and see exactly when these things open and how they open before we can arrive at a conclusion and tell you with certainty that this is it, no more.

28:07 Okay, appreciate that. And just my second question has to do with your other operators, Boyd, Eldorado. Have you had any conversations with them about rent deferrals, and do you expect to receive full May rent from them?

28:22 At this point in time, we certainly do hope to receive full May rent since we are now at May 1st. Everyone is certainly focused on maintaining the flexibility to get reopened and get reopened as quickly as possible, and therefore they don't want to trip any covenants. So you saw Penn got covenant relief when they announced our transaction. as you can imagine, if someone fails to pay rent and there's a default under a lease, that is likely to be a cross-default under existing credit documents. So everyone is very focused on not allowing for a default that would cause an acceleration of a lease obligation or cause acceleration of any credit facilities that they currently have. So at this point in time, we are in a constant dialogue with all of our tenants but really as it relates to May, everybody is really now focusing more on opening and obviously to open, you've gotta pay occupancy costs.

29:23 All right, thank you Steve and Peter. Thanks, thank you. Our next question is from Thomas Allen with Morgan Stanley. You may proceed.

29:34 Thank you, good morning. So Peter, you know this industry better than anyone else probably. What do you think the outcome will be from a state-by-state perspective of the weaker state budget and potential more state legislation?

29:54 By new state legislation, are you thinking taxes?

29:59 I mean, taxes, expansions, shift to online. I mean, how are you thinking about it?

30:09 You know as much as I do about what's out there and possible, and frankly, anything is possible. I hate giving vague answers, but this is one time in my life where I haven't a freaking clue of where this is all gonna go, and I think it's gonna be very different state to state. I mean, I'll make one observation that those states led by Republican governors seem to be a little bit more ambitious make your own conclusion about that to get these places up and running than some others. And in fairness, some of the northeast states have been harder hit than some of the western and southern states. So, hey, it's going to be all over the lot. Some states are in big trouble. Illinois, for example, just said they don't know when they're going to open and offered no guidance.

30:59 Yet they're a state that's in one of the worst conditions in the U.S., So, I mean, this is just an unknown.

31:06 But Thomas, to your question, I do think internet wagering, I do think sports wagering, I think things that were being contemplated before COVID-19 are going to be accelerated. I don't think that anybody expects that taxes will jump, tax rates will jump, because obviously the operators have been significantly impacted by this event. So raising taxes on an industry that's already been impacted as negatively feels like sort of an attempt to get blood from a stone. And we know that all of our operators and the entire industry is certainly lobbying heavily to make sure that the industry comes back and gets back to where it was in 2019. So I see opportunities for enhancements.

31:54 I don't see a real risk immediately of a wide expansion of additional facilities in states or anything like that, only because I do believe that these state legislatures will first try and protect their legacy industries and then, of course, try and get them back as quickly as possible.

32:20 That's helpful. Thank you. And this is a follow-up. Hasn't experience changed your thinking about your long-term leverage targets at all?

32:30 Look, that's a great question. Given how benign the interest rate environment had been, and I do think the interest rate environment is going to be pretty favorable going forward, I mean, with a 10-year treasury at 60 basis points, obviously people have made the argument, should you have leverage? And clearly financial leverage is something that we as a REIT are going to employ. What is the right leverage level? We felt quite comfortable. The rating agencies felt quite comfortable. Our creditors felt quite comfortable with where we were. And I look at this, again, as a temporary interruption in really just a very sound underlying business. So that's a discussion that was had with the board as part of the dividend policy, and the dividend policy does preserve the flexibility to migrate further and further down the leverage scale, as you can imagine.

33:30 Thank you. Thank you. Our next question is from Barry Jonas with SunTrust. Please proceed.

33:41 Good morning, guys. I just wanted to go deeper into the Tropicana. Maybe it's too soon, but can you talk about the level of interest You're seeing here from potential buyers. And I guess with that, how are you thinking about timing if you're going to sell it, given you'll keep more proceeds the longer it takes?

34:00 Well, that's an interesting point. First order of business is to get paid, convert what we have to cash. So there was an ongoing arrangement. As I said, Penn was actively working. I'll not mention the broker or who's involved, but had an agreement to represent this property for sale. There was significant interest at a much, much higher price than where we are. And we, of course, have now full control of what that disposition gets to be. We insisted that Penn keep it up and operating. It's kind of hard to sell a house if you've got no furniture in it. And they've agreed to do that.

34:49 and they cover all expenses, so the carry costs that we have to deal with are all borne by 10. It's really hard to know. I don't think there's somebody tomorrow at 9 o'clock, although there may be. There may be for all or part of that property. Remember, there's a lot of interest in the frontage there. So we're just exploring that. It's just too early to say. We've got bigger concerns, and that's working with our kids to get these properties open, get our properties open in Prairieville and Baton Rouge. As soon as we see that there's a forward momentum, that the advancement of Las Vegas is coming back and so forth, we will. And we've been in touch with those folks. But we'll make the all-court press. If we can sell it early, I think that's what we'll do.

35:34 Yeah, Barry, let me just add to that. I mean, by any metric, in a normal market environment, looking at comps that are in Las Vegas, whether it's off-script properties like the Rio or the Hard Rock that have traded in recent years, given our basis in this asset at under $9 million an acre for 35 acres of land that is at the corner of Las Vegas Boulevard and Tropicana Boulevard and the hotel rooms and the amenities that are on that facility, we feel that we've got a very significant cushion to realize incremental value as a result of the transaction at an appropriate time. It's just that right now As you can imagine, everybody is waiting to see where things are going to go.

36:23 So to Peter's point, it's not like you should expect anything to show up tomorrow. You should expect us to look for value-maximizing opportunities with respect to those holdings.

36:35 We'll take a good offer tomorrow if somebody wants to make one. But Steve answered it very well.

36:42 Got it. And then just a second from me, how does this crisis kind of influence your thoughts about additional M&A within gaming? And I guess, does it influence your thoughts on eventually doing something outside of gaming as well? More from a geography within gaming, I guess, is where I'm getting at.

37:01 Well, it's hard to know what's going to shake loose. I mean, I don't think it changes our ambitions one bit.

37:08 and Barry, look, I am anxious, as we all are, obviously, to get to the other side of this, but I think people will come to appreciate the stability that exists in the cash flows from these regional gaming assets once they do reopen and once they do get back to a more normalized operating environment. So, again, as we've spoken in the past, This is a pretty high hurdle in terms of finding other assets that have the same characteristics and have the same cash flow quality as the portfolio that we have been able to build. So it's a high standard, but we will continue to be focused on increasing shareholder value as we continue to grow our business.

37:56 Great. Thanks so much.

37:57 Thank you. Our next question is from Joe Grave with JPMorgan. Please proceed.

38:08 Good morning, everybody. Peter, does it make sense to use some of your liquidity to invest new equity in your tenants? You can think of it as an insurance policy that has appreciation potential. Are there any restrictions for GLPI to do that?

38:29 Joe, there are related party tenant issues that would limit us to owning up to 10% of a tenant. It's an interesting thought, one that we've had discussions about in the past. It's not one that we have taken action on at this point in time, but suffice it to say it is a component of any discussion that we've had with Penn, as an example, in discussing any kind of or the transaction that you saw as print. So looking at those kinds of opportunities, taking advantage of the liquidity that we do have are certainly things that we would consider subject to the REIT constraints that exist.

39:15 It's been talked about. So, I mean, look, you can always assume that we're thinking about everything. It's a point I've made for many, many years. If it's alive and breathing, we're looking at it. If it, in this case, as you framed that question, sure, we looked at it. Maybe you should have stepped up when the price hit bottom just a short while ago. Happily, it's going back in a better direction. But all things are possible if it makes sense for our company.

39:46 Got it. And then, Steve, looking back at last year for Columbus and Toledo, the math that I have for Columbus rent last year was about $25 million, and Toledo is something like low 20s.

39:59 Is that sort of... Yeah, the floor was set based on 2018. The floor is 22.9, as disclosed in the queue. Correct.

40:10 In terms of those specific property rent contributions last year...

40:13 Yeah, based on the percentages that were disclosed in the press release, yes.

40:18 Great, great. Thank you.

40:20 Stay safe. Our next question is from Jay Cornridge with SMBC. Please proceed.

40:30 Hi. Thanks for taking the question. Just a follow-up on the sports betting. Has Penn made sizable investments into sports betting with partial sports and other similar players? I understand you guys are viewing these types of No Touch Gaming going forward in terms of the recovery as people continue to worry about social distancing.

40:52 So the question is what? What we see as the potential or where you think it's headed?

41:00 No, I... Yeah, I guess more...

41:02 Sorry.

41:03 Yeah, I... I guess more... If I understand your question correctly, it's basically did these remote? Because I think your question was not unique to sports betting, but was more about Internet wagering, or am I wrong? Yes, both of them. Yeah, and clearly all of our tenants are looking at Internet platforms for both their sports wagering as well as in Pennsylvania and New Jersey full-blown casino gaming. and each of them has basically identified that as a real source of customer ID, customer acquisition and customer retention. So it would feed, the real estate would feed, the Internet business would feed our bricks and mortar business as they continue to develop that Internet presence because they're able to identify people at a relatively low cost.

41:57 that they might not otherwise have identified and be able to drive them into the facility. So if the question is, will sports wagering grow?

42:05 Yes.

42:06 Will internet wagering grow?

42:08 Yes. What impact will it have on our real estate? We expect over time it becomes a value driver for our tenants in terms of driving incremental traffic into our buildings and therefore increasing and improving the performance under our leases.

42:27 Got it. That's helpful. And then just one follow-up. With Penn's option to buy the Perryville operations and then lease the real estate for $7.77 million annually, I'm just curious if you guys know or announced the cap rate that got you to that $7.77 million.

42:45 No, we haven't. What we've done in the discussions that we had with Penn – were really around what the performance of Perryville will look like impacted by the Category 4 licensed facilities here in Pennsylvania when they open. So it's really two questions. What's the multiple on the OPCO, right, at the $31-plus million that we're selling the OPCO for? And then what is the cap rate on the underlying lease? And those are going to be determined as we get closer to closing. based on the actual performance of the facility.

43:24 Yeah, I remember both Morgantown and York are within range of a customer base, so something we have to account for, they have to account for.

43:38 Okay, thanks very much. Thank you. Our next question is from David Katz with Jefferies. Please proceed.

43:49 Hi, morning, and thank you for all the detail. I do want to go back to a couple of the prior questions and just go a little bit farther. Quite frankly, because I find you to be one of the more philosophical management teams about this, we do consider this to be a temporary set of conditions, but like in many events, whether it's personally or corporately, we would have to be changed on the other side in some way, right? And how do we answer the question of how the company prepares or positions itself for the next pandemic or for a potential resurgence that may or may not occur, hopefully not obviously in September.

44:41 And specifically from how you look at a tenant and tenant coverage, and, you know, more specifically, how do you think about leverage? I know you touched on it with Barry's question, but, you know, is four to five the new five to six? And, you know, that's ultimately what I'd love to hear your perspectives on.

45:05 I'll take the first part. I have often said to those of you who have seen me on the road or come and visit us here, that through many years of this in the racing business and so forth, being through many ups and downs, that you gotta consider that Maslow's hierarchy of needs, as I like to say, it's food, it's shelter, and it's gambling. It's almost that. In fact, through every recession that we've had over the years, but for 08-09 timeframe, we actually went up during that period of time. People found it relief and entertainment and so forth. I have absolute confidence we'll get back to full shoulder-to-shoulder playing in time. Now, what I can't guess at is how long is it going to take for people to have the confidence to do it. My bet is going to be shorter than many think, but it's going to take a while. It's going to take a while.

46:02 There's been a lot of fear sold out there. A lot may depend on which state, which place, what the risk level is. People intuitively know that. So I'm going to be very optimistic about ultimate performances. What I just can't speculate on is how long is it going to take to get there?

46:21 Look, David, you're asking the right questions, right? Does this affect our decision-making in the future? And it has to. I mean, the bottom line, living through an experience like this, is going to affect everyone's decision making in the future. Are we going to materially modify the way we approach this business? Look, we own the buildings. At the end of the day, these buildings are key revenue drivers for the states in which they operate. So we're very comfortable that there's an alignment of interest between the states, the regulators, our operators, and ourselves in bringing these businesses back as soon and on as accelerated a performance level as possible.

47:08 But, I mean, all that being said, are we going to be better prepared for the next shutdown? I don't know that this is going to cause us to plan for future shutdowns, but time will tell.

47:26 Okay. Appreciate that.

47:27 Thanks very much. Thank you. Our next question is from Sean Kelly with Bank of America. Please proceed.

47:35 Sean Kelly Hi. Good morning, everybody. I just had a couple of more specific ones. The first one is just on the stock versus cash dividend, Steve. I think there was a sentence in there that said something about you only planning to pay the stock dividend in the periods when you're realizing non-cash rent payments. Can you just elaborate a little bit on exactly what that means?

48:03 Yeah, no. As I said in my comments, Sean, I mean, distributing cash in distributions when we're not receiving cash rents obviously is a levering transaction, and that's something we did not want to go – that's a path we did not want to go down. You know from the disclosures that the PEN agreement provides for non-cash rent credits in the months that are outlined, May, June, July, August, October, and November. So there are impacts in each of the next three quarters, the current one and the next two, based on those non-cash rent receipts. So that was the point with that statement, that we're aligning the distribution of equity with the receipt of non-cash rents. and obviously for us what that does then is that that creates a tremendous amount of flexibility for the company when we do realize the value in Tropicana because we're going to take that onto the balance sheet or have taken that onto the balance sheet as a non-income producing asset at this point in time and we'll amortize its value in those non-cash rent receipts or non-cash rent credits over these months.

49:21 So, Steve, what would that allow you to do exactly? Would that tee you up for the possibility of like a one-time special dividend to return some of those proceeds to catch back up if Tropicana was actually monetized? Appreciate, you know, we've already talked about the circumstances to actually do that could take a while, but is that the sort of underlying implication?

49:41 Look, that is an alternative. Obviously, if it's a liquidity event and we've got substantial liquidity from a sale will evaluate at that point in time, based on market conditions, the best deployment of that capital, whether it's for value-enhancing transactions, deleveraging, or returning it to shareholders.

50:01 Helpful. Thank you. And then just one other follow-up, but sort of also more on the technical side, would be the broader liquidity profile. So, obviously, you've drawn down the line, you've given your cash balances, and you're able to preserve a lot through the dividend move. I believe the credit facility does come due in April of next year. So can you just talk about that and any other flexibility levers you have on the liquidity front? And specifically, if you could comment on an ATM program, do you have one? And is it something, how do you think about using it if you do?

50:32 Yeah, just to clarify, the $1.175 billion revolver is not due until 2023, May. There is a $449 million term loan A1 maturity in April of next year. So obviously, given the continued contractual payments of rents, there is no liquidity issue. If there is a liquidity issue, we have only unsecured debt, so there's an ability to incur secured debt. We do have an accordion feature under our existing unsecured credit facility with the bank group that allows for up to $2.5 billion under that accordion feature. and as you saw from the amendments that the banks agreed to in anticipation of the Penn transaction, we've stayed in constant dialogue with our bank group and they are well aware of our situation and quite supportive of us as a company.

51:29 So we think we're gonna have, there are no liquidity issues on the horizon even with that $449 million maturity in April of next year.

51:40 Let me add one small part to that. just a simple thought, and that is this, as you measure use of cash and capital. In the six years that we have spun from Penn, I've been particularly pleased with the dividend growth that we've managed each and every year as we got to the last quarter, last year at 70 cents a quarter. as one of the largest shareholders in this company. I'm wildly enthused about that. I want to get back there as quickly as we plausibly can. So cash dividends mean a lot to me. That having been said, the stability and safety of this company matters more, making sure that we maintain the spend in the engine.

52:27 So I might even say that maintaining proper leverage is probably the larger driving force and if we take care of that, do it properly, dividends will be fine. So that's from a philosophical point of view, I'd share it that way.

52:44 Thank you, everyone. Thanks, Sean. Our next question is from Jordan Bender with Macquarie. Please proceed.

52:56 Morning, guys. Thanks for taking my question. In terms of the dividend, I think you guys typically target paint out roughly 80% of your AFFO or somewhere in that range. Over the next couple of quarters, do you plan on staying within that range?

53:13 Thanks. Jordan, given the uncertainty that exists in the world today, we've set the 60 cents at a lower payout ratio than historical norms based on our internal modeling. We just think it's the prudent approach to take at this point in time. So we need to get through these next couple of quarters, but we are, and that has been set, at a more conservative approach than the historical 80% of AFFO payout ratio. Okay, thanks, guys. Thanks, Jordan. Our next question is from Robin Farley with UBS. Please proceed.

53:54 Great. Yeah, a lot of my questions have been asked already. I guess thinking about how the pandemic may kind of limit for a while the opportunity for others to sell real estate to GLPI because, you know, EBITDA and therefore rent levels would be so low. I guess in the past others have suggested that maybe a combination with other gaming REITs would make sense. I guess I'm just wondering in this environment with maybe some – kind of a change in what opportunities might be out there if you have any thoughts on that that are different now.

54:31 I'll weasel out of that question by simply saying that it's kind of too early to know. Maybe by two quarters from now I'll have a good answer or a better answer for that. But we're just focused right now on getting this company back on firm ground again, and that's our driving force. There's really nothing else that is important to me anyway. Steve?

54:57 No, but, Robin, you're asking, obviously, the appropriate question in light of the current circumstances. Goal number one is obviously to preserve and protect the assets of the company. Goal number two is to look for accretive ways to enhance shareholder value. And you can rest assured, as I've said in the past, we will always look at any opportunity that is shareholder value enhancing.

55:26 Okay, all right, great. Thank you very much. Our next question is from John Decree with Union Gaming. Please proceed.

55:36 Good morning, everyone. Thanks for taking my questions. I think you touched on just about all of them, but I wanted to ask about some other dialogues that you may have had with casino operators, whether it be your tenants or partners you haven't yet reached an agreement with. REITs being new to the space, relatively speaking, as a financing partner. We've seen a loan market with pretty wide spreads, particularly for smaller operators. Has anyone approached you? Have you had discussions about providing some liquidity, whether it's through loans or buying call options or anything A little bit more creative than outright asset sales. I guess the short question is, are casino operators in this environment looking to you as more of a financing partner than they have in the past in terms of just outright asset sales? Is something like that interesting to you?

56:29 No, John, it's a great question. The depth of the disruption that we're all facing does create opportunity for us, and we will look at and continue to be engaged in dialogues with folks that are looking to extend their liquidity runways. Right now, everybody is still going through the shock, for lack of a better term, of what this dislocation has meant. They're more focused on working with their existing creditors, their existing stakeholders, whomever it might be, even the small private operators, rather than looking at just outright asset sales. But I think that's just a matter of time before those discussions accelerate and really kind of increase in frequency.

57:23 Thanks, Steve. I appreciate the color. Thank you. Our next question is from John Masoka with the Leidenberg Foundation. Please proceed.

57:34 Good morning. Hey, John. Good morning.

57:37 As we kind of think about the withdrawal of guidance, I mean, I guess what would you potentially need to see in the kind of market or on a macroeconomic basis or even within your portfolio to be kind of comfortable reinstituting a new guidance?

57:53 Yeah, look, it's a great question. I'd like to think we're more transparent than almost anyone else in the triple net space, given that we've got almost all public company tenants that you can read through. And we are pretty elaborate in terms of spelling out all of the terms of our leases. So I think everyone can model pretty effectively our business, given the moving parts that are in our business. In terms of returning to issuing guidance, look, we're going to be going through a couple of quarters here where our tenants' coverages, as I mentioned or implied in my opening comments, are going to be below thresholds that are required under our leases. So I think we've gotta get back to a much more normalized operation. So I wouldn't want you to take away from this phone call that as soon as these facilities reopen, we're gonna be reinstituting guidance.

58:52 We just need to see where things first open, then stabilize and ultimately normalize before we are probably gonna feel comfortable given what we've just lived through.

59:06 Yeah, let me say this as well. These rollouts are going to be very, very, very different state to state. And that's the problem. We just have to see how it evolves. But I guarantee you that not all states will be alike. Not all states will move with equal speed. Not all states will bring customers back as quickly as some others. So, again, we scratch our head here. What do we say? What we don't want to do is give misleading information. So, We'd rather be silent for the moment until we actually have something we think we can firmly tell you.

59:46 Understood. And then maybe kind of longer term philosophically, as you kind of come out of the current economic situation and understanding that the Perryville option that was granted to Penn was part of a larger transaction, I mean, has your view on having TRS properties change at all because of what's occurred over the last couple of months? I mean, is the agreement with Penn maybe an indication of some willingness there to potentially divest of those assets?

1:00:18 We've always had that willingness if it made sense, if it made sense. Look, we're not operators. That was never goal number one. It was part of the requirement for our spin. But having been said, if it makes sense, which I think we've said publicly before, to facilitate a transaction, to bring another Opco back in the day after, let's say, Perryville goes to Penn, we would do that. So we have no – we kind of like having our fingers in the gaming side, working with our people, remembering that gaming right now underlies our entire business. I don't necessarily want to lose touch. We just think it's the right move to get us back to a pure REIT status today, but we'll have no hesitation to do something else in the future.

1:01:05 And John, that goes both ways. Maybe people haven't focused on it, but we're actually bringing the Tropicana into our TRS because it is non-income producing and because we're bringing it in not necessarily with an expectation of owning it for a long period of time. moving assets out of, moving assets into, operating or real assets into the TRS are going to continue to be tools that we will employ.

1:01:33 Just a clarification on that last comment that you're not liable for any of the, Penn is going to essentially take all of the risks associated with the actual EBITDA of that property, correct?

1:01:44 Absolutely. Okay, okay.

1:01:46 Just wanted to make sure.

1:01:47 No, they're Heat Electric, you name it all, taxes, God bless them. It's all theirs.

1:01:55 Just wanted to make sure. And then one last clarification. You kind of alluded to it a little bit with some of the earlier questions and in the press release, but the rent credits are not going to flow through AFFO. Oh, no, they are. If I'm thinking about it correctly.

1:02:09 So they are. They are. They are because they're flowing through the income statement. So they're going to be flowing through the income statement, and as I mentioned and as is disclosed in the press release, we did get agreement from our credit facility providers to treat those as the equivalent of cash since GAAP requires us to.

1:02:31 So essentially the cash impact of not having that cash rent is not going to be reflected in AFFO? Or will it be reflected in AFFO?

1:02:42 It will be reflected in the AFFO as a cash equivalent.

1:02:48 Okay. That answers my question. Thank you very much. That's it for me. Thank you, John. Take care. And our final question is from Spencer Holloway with Green Street Advisors. Please proceed.

1:03:00 Hi. Good morning, guys. One of your peers reported a notable impact from the current expected credit losses accounting standards. Do you guys anticipate booking a similar allowance for potential credit losses or a subsequent write-down in the value of any of your real estate this year?

1:03:18 We did. We evaluated our loans. We, unlike the party that you're referencing, treat our leases as operating leases. So it was only on the loan portfolio, and given the short duration of the loan portfolio, we didn't see an impact that was material enough. or that rose to a level of materiality, excuse me.

1:03:45 Okay, perfect, thank you.

1:03:47 Good. And that concludes our question and answer session. I would like to turn the call back over to Peter Carlino for closing remarks.

1:03:58 Well, we'll make them short. Again, I want to thank you all for dialing in today. These are very interesting times, but we here at TLPI are very optimistic about the future. Thank you very much. Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.