VICI Properties [VICI] Conference call transcript for 2022 q2
2022-07-28 16:19:09
Fiscal: 2022 q2
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, July 28, 2022. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.
Samantha Gallagher: Thank you, operator and good morning. Everyone should have access to the company's second quarter 2022 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the words such as will, believe, expect, should, guidance, intend, outlook, 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 certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and our second quarter 2022 earnings release and our supplemental information. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties described herein, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Danny Valoy, Vice President of Acquisitions and Finance. Ed and team will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Ed.
Edward Pitoniak: Thank you, Samantha and good morning, everyone. Q2, 2022 was a quintessentially VICI quarter. A lot happened, a lot of continuing transformation as we worked to build VICI into one of America's highest quality and larger scale REIT. Here's a quick recital of Q2's highlights. IG, in late April VICI was elevated to investment grade credit status by S&P and Fitch, IG fundraise. In late April, we conducted our inaugural investment grade debt raise and that $5 billion raise was the largest debut and largest single IG debt raise by any REIT in history. It was a debt raise conducted in conjunction with the funding of our MGP acquisition that proved the continuing energy and agility of David Kieske and the VICI finance team. As the treasury swaps and locks that David and the team had put in place in late 2021 and early 2022, significantly reduced the net coupon of net debt. MGP closure. In late April, we closed on our acquisition of the real estate of 15 MGM assets, magnificent examples of Class A real estate, thereby adding about $1 billion of new portfolio income and initiating our new partnership with MGM, a partnership we believe can grow substantially in the years ahead. S&P 500 inclusion. In early June, VQ was added to the S&P 500 making VICI the first American REIT in history to go from IPO to S&P 500 inclusion in less than five years. Pilgrimage experiences. In June with Cabot Citrus Farms near Tampa, we announced what we believe will be the first of many capital and property partnerships with Cabot, a global leader in creating and operating pilgrimage resort golf experiences. Our third tribal nation partnership. In June, we also announced that Cherokee Nation entertainment gaming holdings will become in due course our new operating partner in Gold Strike in Tunica, giving us yet another dynamic partner to grow with. These accomplishments significantly strengthen VICI's growth resources, capabilities, and opportunities, but there's one other key Q2 accomplishment. And that accomplishment is the growth of our VICI leadership team. In early June, we added two very talented senior officers. Kellan Florio became our new Chief Investment Officer, Moira Mccloskey became our new Vice President, Capital Markets. Kellan significantly adds to our ability to grow VICI's relationships and transactional activity with asset controllers, especially across, excuse me, especially across non-gaming sectors and Moira significantly strengthens our ability to further develop and sustain our relationships with capital providers, both equity and credit. Additionally, in June, we established the VICI management committee to continue to broaden and deepen VICI strategic resources and reach. This committee of seven includes Gabe Wasserman, Jerry -- Jeremy Waxman, Danny Valoy, Elena Keil, Cameron Lewis, Kellan Florio, and Mario Mccloskey. The VICI management committee working with John, David, Samantha and me will play an integral role in developing and moreover ensuring the execution of VICI's cultural ESG portfolio and total return goals and strategies in the years to come. They will be integral to the development of our growth ideas and our growth relationships, and from the growth of our ideas and our relationships will come the creation of stakeholder value. In a moment, John will tell you more about our current growth activities, and David will talk about our financial results and our financial outlook. But first, let me say a few words about our current strategic outlook. As you will hear further from John, our operating partners are delivering outstanding operating results, especially along Las Vegas Strip, where we gather about 45% of our portfolio income, but you wouldn't know this from how the equity and debt of our public listed partners are trading right now. Granted trading values tend to be based on outlook rather than current performance and both the sell and the buy sides are understandably concerned about a possible recession in the quarters ahead. But let me offer these three points. Point number one, gaming consumer resiliency. As we have discussed in the past, the gaming customer has proven to be more resilient through both garden variety recessions, and full blown crises than just about any other discretionary consumer out there, that was proven through both the great financial crisis and throughout the COVID19 pandemic. Point number two. Gaming operator resiliency. A couple of you on the sell side have produced well reasoned analysis that show the gaming operators generally, and many of our partners specifically will be in very solid shapes in terms of both free cash flow and balance sheet strength, even under fairly draconian recession scenarios in the year or so ahead. Our operators are responsible -- responsive, and agile in dealing with changing conditions. Both gaming consumer and gaming operator resiliency give VICI confidence in our belief that a possible recession will not harm the credit quality of our operators. But in the meantime, and this brings me to my third point. There is absolutely no question that the relative attractiveness of VICI's capital to both our current and potential operating partners in both gaming and non-gaming has only strengthened in the last few months. With our investment grade credit status and our S&P 500 inclusion, VICI's access to and cost of capital has strengthened on a relative basis at a time when most experiential operators have seen their access to capital severely curtailed and the cost of any incremental capital significantly increased. As we've proved with our Venetian acquisition, VICI has the capability to move quickly and decisively in market conditions that may cause others to pause. Current and especially prospective market conditions could yield VICI, we believe highly attractive growth opportunities in the quarters ahead. And further the topic of growth, I'll now turn the call over to John Payne. John?
John Payne: Thanks, Ed and good morning, everyone. During the second quarter, we completed the acquisition of MGP, expanding our portfolio to 43 of the highest quality experiential real estate assets under our triple-net model with a combined 58,000 hotel rooms, hundreds of food and beverage and entertainment outlets, and millions of square feet of high-quality meeting and convention areas. Thanks to the tireless work of team VICI. We've completed over $29 billion of transactions since our company's formation, less than five years ago. We're very proud of these accomplishments. And at the same time, we're excited that our work has only just started. One of our primary objective that a company is to work with our existing tenants to provide capital solutions that help meet each operator's strategic objectives. As many of you have heard me say before, our team does not take a break after announcing or completing an acquisition. Our development team remains very active, expanding our relationships and sourcing opportunities that we believe will continue yielding accretive outcomes for VICI. During the second quarter, we entered in a long-term partnership with Cabot, a leading destination golf operator, where we provide funding for the redevelopment of Cabot Citrus Farms in Florida, and convert a portion of our loan to real estate ownership under a long-term sale lease back. We're very excited about this relationship and will look to potentially expand with Cabot over the coming years. While many of you enjoy asking questions about on the ground operating trends, I would like to remind you that we are a triple-net lease landlord. We collect fixed rent streams with annual escalations over very long periods of time. Those who have followed our story will recall that we continued to collect 100% of cash rent when every one of our properties was forced to close due to the government mandated restrictions in response to COVID-19. There have been many questions about the outlook for consumer spending. And I would simply repeat that our income does not fluctuate based on monthly or quarterly trends. Now, with that said in Las Vegas, the Strip continues to produce incredibly strong numbers. For example, gross gaming revenue in May was 41% above 2019 levels. And Harry Reid International Airport just registered an all-time record for passenger traffic this past June. While the growth rates are becoming more difficult to surpass given the record activity levels, the gaming industry has proven its resilience over decades. And anyone who researches operator profitability will understand that the business models are leaner and more flexible today as compared to pre-COVID years. The gaming operator successfully navigated a very uncertain period at the start of the pandemic in 2020 and emerged on stronger footing with record breaking margin expansion as they've created ways to monitor consumer activity and adjust their cost structures accordingly. We are very proud of our track record to date and our relationships with stable, industry-leading tenants. We will remain disciplined as we evaluate opportunities and ensure future acquisitions satisfy our investment criteria. Thanks to our exceptional balance sheet, which David will touch on, we believe we're in a very strong position as we evaluate growth opportunities. In an environment where cost of capital fluctuates daily, we will continue to pursue transactions with appropriate underwriting and accretion for our shareholders. Now, I'll turn the call over to David who will discuss our financial results and guidance. David?
David Kieske: Thanks John. I want to start with our balance sheet and overall liquidity available to VICI to fund future growth. To recap the second quarter events. On April 18th, VICI was upgraded to investment grade by S&P and Fitch, greatly broadening our access to permanent debt capital. On April 20th, we priced $5 billion of investment grade senior unsecured notes, executing the largest REIT investment grade bond offering ever. The blended cash interest rate for the notes was 5%, while the effective interest rate after taking into account our $3 billion hedge portfolio was 4.51%. On April 29th, we closed down the acquisition of MGP as well as the $5 billion bond offering. We used 4.4 billion of the proceeds to fund our redemption of a majority of MGM's MGP OP units. The remaining proceeds plus cash on hand were used to repay the outstanding balance on a revolving credit facility. The company also issued approximately $4.1 billion of aggregate principle amount of senior notes in exchange for and with the same interest rate, maturity date and redemption terms as notes originally issued by MGP pursuant to the settlement of the exchange offers and consent solicitations. Following the settlement of the exchange offers and consent solicitations, approximately 90 million of original MGP notes remain outstanding. In terms of leverage, we ended the quarter with a total -- with total debt of $15.5 billion inclusive of our pro rata share of the BREIT JV debt. Our net debt to adjusted EBITDA pro forma for a full year of rent from the MGP transaction is approximately 5.8 times. We have a weighted average interest rate of 4.38% taking into account our hedge portfolio and a weighted average 7.2 years to maturity. We have had many accomplishments in our short existence as a public company, but being added to the S&P 500 index on June 8th is a continued endorsement of our growth. As mentioned, VICI was the fastest REIT to be added to the S&P 500 index from IPO to inclusion. And we believe being added to the index will broaden our investor base and improve our access to equity capital. During the quarter we sold approximately at 11.4 million shares with an aggregate value of $367.4 million before fees under our ATM program. All of the shares were sold subject to a forward sale agreement, and as such are not reflected on our balance sheet. As of June 30th, with approximately $4.5 billion in total liquidity comprised of $614 million in cash and cash equivalence, $360 million of estimated net proceeds available upon settlement of our forward sale agreement, $2.5 billion of availability under the revolving credit facility and $1 billion of availability under the delayed draw facility. In July, the revolving credit facility was amended to permit borrowings in certain foreign currencies up to the U.S. dollar equivalent of $1.25 billion enhancing our financial flexibility. Turning to the income statement. AFFO for the second quarter was $430.1 million or $0.48 per share. Total AFFO in Q2 increased 67.9% year-over-year, while AFFO per share increased approximately 4% over the prior year. The disparity between overall AFFO growth and AFFO per share growth is due to an increase in our share count, which increased primarily from the equity raised and shares issued to consummate our transformative acquisition of MGP. At the end of Q2, the company has approximately 963 million shares of common stock outstanding and VICI OP has 12.2 million additional OP units outstanding held by MGM, which were received in the merger. A full reconciliation of the share count is included in our earnings release. Our results, once again, highlight our highly efficient triple-net model, given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong in a high 90% range when eliminating non-cash items. Our G&A was $11.8 million for the quarter. And as a percentage of total revenues was only 1.8%, in line with our full year expectations and one of the lowest ratios in the triple-net sector. We believe this represents the appropriate go-forward run rate when accounting for the increase in certain expenses related to the MGP acquisition I just want to touch on CECL or current expected credit losses, out of the $552 million non-cash charge we incurred in Q2, 80% or approximately $443 million was related to the initial allowance we were required to record upon entering into the MGM master lease. This allowance did reduce our GAAP net income for the quarter, but as previously noted non-cash CECL charges do not impact cash flow or AFFO. Turning to guidance. We are reaffirming AFFO guidance for 2022 in both absolute dollars, as well as on a per share basis. As a reminder, our guidance does not include the impact on operating results from any possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions. The per share estimates reflect the impact of treasury accounting related to the pending 11.4 million forward shares sold from our ATM program in Q2. And as we have discussed, we recorded non-cash CECL charge on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and AFFO with accuracy. Accordingly, our guidance is AFFO focused as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. AFFO for the year ending December 31st, 2022 is expected to be between $1.66 billion and $1.69 billion, or between $1.89 and $1.92 per diluted common share. With that operator, please open the line for questions.
Operator: Thank you. We have the first question on the phone lines from Anthony Paolone of JP Morgan. Please go ahead when you're ready, Anthony.
Anthony Paolone: Great. Thank you and good morning. My first question relates to your efforts outside of gaming. So, you have four of these experiential relationships going, can you comment on where you -- when we might see some of these convert into straight up property acquisitions and also do you see more of these, or these growing over the next 12 to 18 months?
Edward Pitoniak: Yeah. Tony, good to talk to you and I'll start out. This is Ed. And before I answer that question, I hope I don't preclude a second question you may be asking. I want to thank you for doing the math that you did in your note last night regarding the potential impact of CPI on VICI's run roll. To answer your question, I think, Cabot, the Cabot transaction is representative of the sort of transaction we wish to duplicate in many, if not all of our non-gaming transactions, insofar as the Cabot transaction is predicated on a period of lending into development with the lent capital converting into real estate capital upon stabilization of the development, that will obviously apply in situations where there is development. In other situations, we will obviously look for opportunities where we have the opportunity to own real property right out of the gate. But we're taking an approach in non-gaming that often requires pioneering. Insofar as one of the fundamental opportunities we believe we have at VICI is to pioneer the OPCO/PROPCO structure into experiential white space that has not seen the OPCO/PROPCO structure before. And in order to do that, and we're very happily doing it, we're willing to create structures like we did with Cabot.
Anthony Paolone: Got it. Okay. And then, with regards to the equity raise in the quarter off the ATM, any comments on the planned usage there, or how should we think about doing it or, why you did it?
David Kieske: Hey, Tony, it's David. Good to talk to you. It's really an opportunistic use of the ATM. And as I mentioned, we put it under the forward agreement. So, with the inclusion in the S&P 500 index, we saw elevated volumes in a level and a priced -- share price that we thought made sense to raise a little equity just for the -- given the current state of the environment and enhance our overall liquidity.
Edward Pitoniak: And I think you can take it, Tony, as a sign of our confidence that we're going to have opportunities to deploy capital.
Anthony Paolone: Okay. Great. Thank you.
Edward Pitoniak: Thanks Tony.
Operator: Thank you, Tony. We now have the next question from Steve Sakwa with Evercore. Please go ahead when you are ready.
Steve Sakwa: Yes. Thanks. Good morning. Ed, I'm wanted to circle back to your comments. You talked about sort of the downturn and obviously that doesn't really affect you, but it does affect the operators. And I'm just wondering if a pending recession or weakening fundamentals might actually spur more transactions in the near-term. And then I do have a second question. Thank you.
Edward Pitoniak: Yeah. Steve, good to talk to you. The -- as I mentioned in my opening remarks, what we do not fear is a recession having a harmful effect on our operators operating results and their overall credit quality. But I think one thing to be sober about is, the outlook for refinancing in 2023, 2024, and potentially even beyond, but especially in those two years. And one of the data collections I read most avidly every Monday is the credit trading data of our existing and potential partners. And when you look at the yields to worst of a lot of -- a lot of the experiential credit, both gaming, and non- gaming, you're looking at yields to worst right now that if they had to refinance at those levels, and then compare the cost of that refinancing to the cost of our capital through sale lease back structures, we can, frankly, in many cases, beat the hell out of that. So, I think, we do see it. I think, implicit in your questions, Steve, we agree with your implicit suggestion that there could be very attractive opportunities to, for us to support very strong operators who nonetheless could suffer from a refinancing marketplace over the next couple of years, that makes our capital that much more attractive.
Steve Sakwa: Thanks. And then the second one, maybe sort of along the lines of development, I know when -- we were talking over the last few weeks, densification opportunities along the Strip are opportunities. And sort of similar, we talked about the non-gaming and Cabot and doing lending into development, would you use a similar structure for opportunities on the Strip, or would you just wind up, you think purchasing those upon completion?
Edward Pitoniak: I think it would depend on the circumstances, Steve. But just to make sure everybody understands that the basis of your question, we are very excited about the densification and intensification opportunities that we and our partners have along this Strip. We have 660 acres all told, and in due course, we're going to be mapping those 660 acres to identify either unoccupied acreage, or acreage that is otherwise not being put to its highest and best use. And we think we have the opportunity to support our partners in the intensification efforts in ways that could lead to billions of dollars of incremental investment opportunities. In terms of how we would structure the capital in those opportunities, where the opportunity is there to lend and then convert to real estate ownership, we might do so. But in many of the properties we already own, it could simply be a case where we are. We are financing the development of the real estate with our capital and effectively owning the real estate as it gets built, if you will.
Steve Sakwa: Great. Thank you.
Operator: The next question comes from RJ Milligan of Raymond James. You may proceed with your question, RJ.
RJ Milligan: Yeah. Good morning, guys. So, security and investment grade rating, plenty of liquidity, stock is now trading near an all-time high. So, despite the macro uncertainty and volatility, it seems like the market's giving VICI the green light for growth. So, do you think it's time to get more aggressive on the acquisition front even more than you already have been? And why not call the Caesars assets now and lock-in pretty attractive accretion?
Edward Pitoniak: I'll turn it over to John, but the idea that we would exceed the velocity. We've transpired -- that's transpired so far $29 billion in a little over four years. That's a pretty strong pace, but I'm going to turn it over to John for his thoughts on potentially taking advantage of both our current cost of capital and market conditions. John?
John Payne: Yeah. RJ, good morning. You're giving me a heart attack already, RJ, for moving more than we've already -- more than we've already done. But look, RJ, I think your observations are good, but as good as we are doing right now, we need to continue to be disciplined in our approach to evaluating opportunities, and making sure we're meeting our investment criteria. I can assure you, and as Ed said in his opening marks, we've added resources to the development team. Not only our expertise in gaming, but we've added Kellan Florio as our Chief Investment Officer who is going to focus on non-gaming. So, more to come here, but we hear you and we're out there, turning over every rock of opportunity.
RJ Milligan: Thanks guys. And a follow-up question. And this is related to Steve's earlier question, but I wanted to focus more specifically on Caesars because we've gotten a lot of questions on Caesars and their balance sheet and sort of their plans. And obviously, the coming rent increases are positive for VICI, right? Given that it boosts your internal growth above most of the peers in the net lease space, but it also stretches coverage. And so, if you factor in a recession, maybe that stretches coverage as well. So, I'm just curious how you feel about Caesars right now, the current and future coverage levels? And then, specifically, and this leads to Steve's question about potential transactions with them in the future.
Edward Pitoniak: John, do want to start?
John Payne: Look, we feel great about Caesars, under the leadership of Tom Reeg. As you all know, we helped support them when they were El Dorado taking over the company. They had a business plan in place and they've executed it in a very disciplined way on the bricks and mortar facilities. Would we continue to do -- find opportunities to work together? We hope so. We hope that they continue to perform well, and we find opportunities to help them grow their facilities. And they've been very good partners to us, and I hope they feel that we've been good partners to them.
RJ Milligan: Thank You, guys.
Operator: Thank you. We now have a question from Smedes Rose of Citi. Please go ahead when you're ready.
Smedes Rose: Hi. Thanks. Morning. I wanted to ask just kind of specifically about the billion dollars of funding commitments that you mentioned in your Q, that's coming from the property growth fund. And just given, more recessionary concerns, do you feel like your existing tenants may be more likely to kind of pull back on those funding commitments, because it's -- I guess it's initiated from their end, correct? And I'm just wondering if you have a sense that maybe the -- their appetite for investing maybe slowing a little bit, just given maybe the need to hoard capital, if you will. There's any kind of thoughts around that.
Edward Pitoniak: John?
John Payne: Well, I'm going to kind of -- sound like I'm repeating myself here, but Smedes, it's nice to talk to you this morning. I mean, if you look at Las Vegas right now, Smedes, just where there could be a lot of this capital deployed, in my opening remarks I talked about the growth in Las Vegas. In May, it was 41%. GGR up over 2019 and then the June numbers came out this morning and in June grew 23% year-over-year. So, again, we have to be aware of the macro conditions going on, but there are some markets such as Las Vegas that are seeing tremendous growth. The consumer continues to visit. In my opening remarks I talked about the record number of passengers declining in Las Vegas in the month of June. And so, if you are an operator and you have a facility in Las Vegas, you can see it is a town that is growing and there could be opportunities to deploy capital creatively. And as Ed mentioned in his remarks as well, or in his comments about Las Vegas, it is a town that we have 660 acres and we'd love to continue to grow there.
Smedes Rose: Okay.
Edward Pitoniak: The other thing I would add, Smedes -- the other thing I would add, Smedes, is that, we could be -- it remains to be seen that the velocity of which this will rollover. But we're -- you're beginning to see -- beginning to see the beginnings of rollover instruction costs. And I think, if we continue to see a more benign construction cost environment, it could obviously create a stronger green light for development.
Smedes Rose: Okay. And then, David, I just wanted to ask you, on the ATM, I mean, it looks like the growth raise was close to $374 million and the net was $360 million. That seems like a particularly high kind of fee. And I'm just wondering, is that typical, or was there something specific maybe to that?
David Kieske: The gross was $360 million 7.04? Sorry Smedes. The gross number was $367.4 million and the net was $360 million. So, these were market fees.
Smedes Rose: Okay. Gotcha. Thank you.
Operator: We now have the next question from Neil Malkin of Capital One Securities. Your line is open, Neil.
Neil Malkin: Hey, everyone. Thank you. Relative to the time, David, I'm still waiting for those VICI raises. So, we can talk off line about my address for Kellan, I don't know if he's done that. I don't know if he's on the call. But obviously you brought him over to focus on non-gaming. I'm just wondering, maybe this is just a broader general question. You can take it however you want. What does he see, I guess, in terms, what do you guys see as the biggest opportunity, the biggest untapped segment, that has the most potential to be executed on over the next 12 to 24 months. I know you talked about pioneering and you guys have definitely done that on the different parts of the capital stack, for sure. But I'd be really interested to get some insight from you or from your conversations with Kellan and particularly again with a very strong stock price.
Edward Pitoniak: Yeah. Kellan Florio is not on the call. So, John will answer this for you, Neil.
John Payne: Yeah. Neil. Good morning. It's good to talk to you. I don't know if I have a specific category you've heard us talk about, we love the indoor water park business, the theme park business, family entertainment centers. There's parts of sports that I think are quite interesting that we're studying and parts of fitness that we're continuing to study. And as you mentioned, we're really pioneering some areas here that have not traditionally worked with a REIT. And so, we're working on different structures as Ed talked earlier in his comments that will eventually turn into real estate ownership. So I don't have a specific area, but it is nice to have an additional resource, because it's clearly and Kellan short time being with us, a little over eight weeks, our funnel has gotten a lot wider and we have the -- we've had the opportunity to talk to more companies domestically and internationally.
Neil Malkin: Okay. Great. Thanks. And maybe Ed or John, I don't know, but other follow up question would be along the same vein is, when you do these exercises, looking at new types of business models to put a triple-net structure on top of, can you just quickly like outline or -- how do you think about the risk, and how do you adjust, protect yourself from like unknown risks, because it's a new industry? How do you think about alternative uses replacement costs? All of those things that obviously offer downside protection, if something unexpected happens to that segment.
Edward Pitoniak: Yeah. So Neil, we use four fundamental evaluation factors when we look at any experiential category. Starting with lower than average cyclicality versus consumer discretionary at large, we -- what we really love about gaming is it does have lower cyclicality, and we generally want a trend toward segments that have that same characteristic. Number two, we want healthy supply demand balance. This usually means investing capital in assets that have a cost or complexity that tends to mitigate against unwarranted supply. We do not want -- number three, we do not want secular threat to be a big factor. We generally want the real estate to provide an out of home experience. That must almost by definition, be an out of home experience, and thus be less vulnerable to, as we say, getting Amazon by displacing the experience through putting it at a box or shipping it through a wire to your house. And then finally, number four, we want proven durability of the end user experience. Because the durability of the end user experience that constitutes the durability of the operator's business and it's the durability of the operator's business and ultimately constitutes the durability of our rent.
Neil Malkin: Okay. Okay. Thank you. I appreciate it.
Edward Pitoniak: Thank you, Neil. Yeah. Next question operator.
Operator: Thank you. We have the next question from Wes Golladay from Baird. Please go ahead when you're ready.
Wesley Golladay: Hey, good morning, everyone. I just have a question on the VICI property growth fund. How should we think about the trajectory of deploying capital? Will you expect to deploy capital in 2023 and will it ramp up 2024, 2025? And then, do you have a max exposure for the segment?
David Kieske: Wes, this is David. Good to talk to you. I mean, I missed a little tail end of that, but let try to just address â¦
Wesley Golladay: Max exposure.
David Kieske: Max. Thank you. So, well, it depends on the project. We are actively working with all of our tenants. They understand that, that we have the partner property growth fund and that we have the ability to invest into their assets, as we talked about on this call and this serves as an attractive source of funding for our tenants. So somewhat depends on the project. The Venetian, for example, we committed a billion dollar to the partner property growth fund, and that billion dollars could go into the -- or the continuation of the funding of the hotel that was stopped in 2008. It could go into some other expansion ideas and renovation ideas that the Apollo team has. And we hope that some of that may start later this year, but it's again, all up to our tenants and their timing. And then in terms of the deployment of that, the nice thing about the partner property growth fund, it's important that does not come all at once. If it's a new hotel tower or we take the Mirage where Hard Rock coming in and we've committed up to $1.5 billion, if they so choose to use that money, that's a 12, 18, 24-month redevelopment timeline where we get to -- going to deploy that capital on a monthly basis, not having to go to the market to raise large amounts of capital day one. So, it's a flow business for VICI, and attractive funding source for VICI. In terms of max size, that's -- we want to be cognizant of the development risk. At the end of the day, we are not the developer, but our capital obviously is going into projects that are being developed. And it'll depend on where that capital is, whether it's in gaming, non-gaming, if it's on the Strip or if it's regional. So, we're going to be cognizant of the total size, but right now I don't have a threshold for you. But we're going to -- we're excited to use it. We're excited to help our tenants grow.
Edward Pitoniak: Wes, let me just add. I'm sitting here with a team in our -- one of our New York conference rooms, and I'm looking at beautiful big aerial photos of a couple of our Las Vegas assets, Caesars Palace, and the Venetian. And I think one of the things we're starting to realize Wes -- and is that we need to do a better job of communicating the nature of the real estate we own, especially along Las Vegas Strip. And that when we describe it when we, or anyone else describes it as gaming real estate, we are not accurately describing it. As I look here at the Venetian, I'm looking at a complex of nearly 13 million square feet on what are we, 80, 90 acres, and gaming occupies, I think, less than about 2% of the square footage of that asset, right? And so, if you want to think about our Las Vegas assets and come up with a corollary, real estate corollary to our Las Vegas assets, I would encourage you to think of the correlate of being theme parks, right, because of the mass, the mass size complexity, layout, and development potential of these assets. And this is true of all -- 10 assets we own along the Strip or -- more true at some than others, but very true of many of them. And as an example, the Venetian -- and the photo I'm looking at, you can't even see where the MSG Sphere will go. And it represents a densification of the real estate that I think is among the most exciting development's going on in global entertainment right now. And for new music fans out there, it was just announced this last week that U2 will have the opening residency at the MSG Sphere when it opens in 2023. So, we hope in time for F1. Sorry, I got a little over excited there, Wes.
Wesley Golladay: Yes, Ed. You remind me F1. I'm looking forward to that as well. A real quick, speaking of sports, would VICI ever consider doing stadiums? I mean, company obviously has massive scale. Not anyone can do those. And it just seems like maybe an untapped market for you.
Edward Pitoniak: Yeah. So stadiums, stadiums are intriguing. But I do think we are mindful of the fact of obsolescence risk in stadiums. For every Fenway Park or Wrigley Field or Anfield or Old Trafford, there's a stadium that had proved to have about 20 years of useful life. And then -- and Atlanta, the Atlanta baseball stadium situations, an example. I will tell you that one area of pro sports globally that we're very interested in is the whole dimension of training facilities. And as you know, Wes, that's become a bigger beginning area focus of investment for pro sports teams. And we've been having discussions and doing a lot of study around being a virtuous capital provider as global sport obviously becomes more and more a focus of capital provision.
Wesley Golladay: Great. Thanks for the time everyone.
Edward Pitoniak: Thank you, Wes.
Operator: Thank you. I would now like to introduce Barry Jonas from Truist Securities. You may proceed with your question.
Barry Jonas: Thank you for that introduction. What percentage of the portfolio would you guys like to see non-gaming longer term?
Edward Pitoniak: John, do you want to do that?
John Payne: Yeah. Barry, it's good to talk to. I don't think we have a specific number. I think we've been clear that the magnitude of gaming assets and the magnitude of EBITDA that they generate are significantly higher than what we've seen in the non-gaming space. So, we may end up doing more non-gaming transactions, but they may not add up to the quantity of rent, so to speak of just one or two gaming assets. So, we're continuing to work on this. You can hear me talk and you can hear Ed talk, hear David talk in our remarks that we are spending more time in a variety of areas in the experiential space. But we don't have a specific number today of how large that will be or what percentage will be of our total portfolio. But I think as we refine this over the coming years under Kellan's leadership, we'll have a better idea of the segments of business that we'll go into and how big they can be.
Edward Pitoniak: The other thing, I just want to make sure, Barry, no one ever loses track of or sight of is that we are as excited about global gaming investment as we have ever been. And we believe our opportunities to continue to grow in American gaming and in international gaming -- represents our most exciting, compelling, large scale growth opportunity, but just want to make sure that does not get lost.
Barry Jonas: That's great. Thanks for that. And then just as a follow-up question. You've certainly highlighted the resilience of gaming on this call and in the past. But given the macro uncertainty out there, how does that impact -- how you guys think about transactions and credit quality now, especially as you're evaluating new OPCOs?
David Kieske: Barry, it's David. Good to talk to you. As Ed alluded to, and as we talked about a lot, right, the gaming customer will always game. And one of the things that's going on in our underwriting more specifically is obviously there's been a ramp up in EBITDAR over the last -- post COVID. EBITDAR is much greater than it was in 2019 and before. And so one of the things that we're working with, anything we evaluate is what is the true run rate? What is -- where does the margin settle out? And I think, we're all comfortable that EBITDAR is going to be greater than 2019, but is it really going to be double or triple, or is it more, one in three quarters times or two times. And so, we're spending a lot of time with the operators on their belief of the future -- the market, and it all depends on the market, the asset and the opportunity. And in terms of credit quality, that's of us -- a big focus of us and with our master leases, our corporate guarantees and knowing the operators, the way that John and Danny and team know the operators we're able to underwrite the overall opportunity. And we talked about the acquisition environment. We continue to believe our ability to put points on the board here as we go forward.
Edward Pitoniak: Hey, Barry, let me just add. The -- I think there's another dimension to this, that also speaks to the opportunity for gaming operators to continue to grow their competitiveness and consumer discretionary, and that relates to sports betting. And I feel like sports betting in the last, I don't know, six, nine months Barry, it feels like the dot com explosion, right, of the early 2000s when every baby got thrown out with the bath water. Right? And if in 2000 you said, okay, dot com blew up. I'm never going to own Amazon again. You just -- you don't even want to think about the value you missed out on. Right? And I think one of the things that's being missed here is that the gaming operators have made investments in increasing their bandwidth, increasing the bandwidth with which they can reach, activate, engage, and generate business from a much bigger, deeper consumer market in America. And I think we're going to see the benefits of that in the years to come, especially by the way, in which gaming, sorry, sports betting has enabled the gaming operators to activate the next-generation of customers. Again, I think the whole kind of cloud over the sports betting investments is, is really gone too far. And people are losing sight of the fact that it is going to be a key, key means by which gaming competes in the American consumer marketplace.
Barry Jonas: Great. Great. Thank you for that.
Operator: Thank you. We now have David Katz of Jefferies. Please go ahead.
David Katz: Hi. Good morning, everyone. Thanks for taking my questions. Ed, earlier on, I think I forget exactly how you phrased it, but in reference to Cabot, you talked about the possibility or the expectation that that is a relationship that continues to grow and broaden over time. Would you mind coloring that in just a bit? Cabot is somewhat new on our consciousness for those of us that aren't pilgrimage, golfers.
Edward Pitoniak: Yeah. David, good to hear from you. I'm going to ask my colleague and partner, Samantha to offer her thoughts here, because she was our business leader on developing and creating our Cabot partnership. So Samantha?
Samantha Gallagher: Yeah. Thanks Ed. So, we are very excited about this partnership. And as -- if to the extent you have followed Cabot, they have opportunities and growth opportunities internationally beyond just the United States that we certainly would look at with them. If there's -- they've an asset in St. Lucia, they've just announced an asset in Scotland. And so, we think there's growth opportunities together there. And one of the things we love about what we've done with this transaction is we've created a template that we can really follow. So, as we discussed earlier on the call, this loan, because it is development, but it does convert into real estate ownership and we have the documentation already in place for that. So, we're excited to use that template to grow with them.
David Katz: So if I -- as my follow-up, you noted that there are two that are underway, is it fair to assume that they Cabot have a vision for, what eight, 10 long-term, and you would walk along that journey where it makes sense?
Samantha Gallagher: Well, I think they have great expansion and growth opportunities. I can't speak for how many, but certainly we would love to walk along that journey together. And we've developed a really strong partnership. This was a relationship that we've been working on for at least 18 months before we signed the deal. So, this is now a very strong relationship between our two teams and we look forward to growing together.
Edward Pitoniak: Yeah. David, I would encourage you and everybody else, they're just beginning to get to know who Cabot is, to go to their -- and I can't remember the corporate website for Cabot. Do you remember the address?
Samantha Gallagher: It should be Cabot links.com, but.
Edward Pitoniak: Yeah. And anyway, David, as you well know, having covered the depth and breadth of hospitality and recreation that you do, so much of the scalability of a business in leisure hospitality, recreation is based upon the scalability of the management team. And one of the things I think you'll be very impressed by is the caliber of the management team that Ben Cowan-Dewar, the founder of Cabot, has put together. Because that is the limiting factor, right? That is the biggest constraint for organizations like this in terms of the scalability of their portfolio, is the scalability of their management team. And they have built an outstanding management team, as you will see when you look at their website, which is â¦
Samantha Gallagher: It's the cabotcollection.com.
David Katz: Got it. Okay. I have probably five more, but I'm not allowed and I'll circle back. Thanks.
Edward Pitoniak: Give us a call, David. Give us a call.
Operator: Thank you. You now have Ronald Kamdem of Morgan Stanley. Please go ahead when you're ready, Ronald.
Ronald Kamdem: Great. Just two quick ones for me. The first is following up on the non-gaming opportunities. Did a good job, giving us some examples of the verticals. But when you sort of put it all together in your mind, just how -- just broad strokes, how big do you think that TAM is as you guys are attacking that opportunity?
Edward Pitoniak: Yeah. Ronald, it's a question we're working on. The thing we would most emphasize is this would be global TAM. These are categories of leisure, entertainment, recreation, that we see investing in on a global basis. And we are only at the beginnings of determining what that TAM would be. But I think you can be confident that when looked at globally, it represents a very big universe of potential investment.
John Payne: And Ronald, I'll just add that. If you had asked us this question last quarter, we've probably added two or three other categories that we're now studying. So, the TAM is going to continue to, to ebb and flow as we continue to find new categories that our capital could be put to work.
Ronald Kamdem: Excellent. And then my quick follow-up would be, you talked a lot about sort of international opportunities, obviously add into the TAM. But as their markets that are closer than others, you provide more details there, is it Europe, specific country, so forth would be helpful. Thanks.
Edward Pitoniak: John?
John Payne: Yeah. We've been on the road for -- Kellan started, as I said, eight weeks ago in his first week, he was with me on a trip to Europe to look at numerous assets. We've spent some time in Canada as well. We like the country of Australia. So, we are out and about better understanding opportunities. Again, as Ed mentioned earlier, not only in non-gaming, but the opportunities in our core of gaming. So, we're active in these spaces right now and the funnel is just going to get wider as we've added more resources to our development team.
Ronald Kamdem: Great. Thank you.
Operator: Thank you. We now have a question from Spenser Allaway of Green Street. Please go ahead when you're ready.
Spenser Allaway: Thank you. Maybe just staying on the international theme. I'm just curious if you guys look at the Crown Resort sale in Australia, and could there be a potential to JV with a partner like Blackstone to eat some of the tuition costs that come with expanding abroad.
Edward Pitoniak: Yeah. Good to hear from you, Spencer. John, you want to take that?
John Payne: Yeah. Good to hear from you, Spencer. As you know, we never comment on specific deals that are out there, but I think you're asking us, are we aware of the Crown Resorts and do we like a market like Australia and would we partner with a company like Blackstone, which obviously we have in a couple different occasions in gaming and a non-gaming. So, the answer is, would we have interest in those areas? Absolutely. We think they're wonderful assets. We think that Blackstone is a great operator. But is there an opportunity for us today? I can't comment on that, but those are areas that we would've interest in.
Spenser Allaway: Okay. Thank you.
Operator: Thank you. We now have Jay Kornreich from SMBC. Jay, your line is open.
Jay Kornreich: Hey, thank you. Good morning. As we look at gaming, you guys spend a lot of time during the first few years in the business, educating investors about gaming real estate. And at this point, I think generally everybody's a good understanding of the asset class and safety of flows. But as we now transition to the potential size of non-gaming, how do you guys kind of evaluate the opportunities to grow in that segment with the risk of investors needing time to digest and understand new asset classes and restarting that education process?
Edward Pitoniak: Yeah. It's a good question, Jay. And the responsibility lies with us to explain the nature of the business we're investing in, the nature of the operator's business model and the credit worthiness of the operator. And we realize -- we own that responsibility and we'll exercise it very diligently. Obviously, helping people understand the gaming story was good training for what we need to be able to do and what we're responsible for doing in non-gaming. I will say, I think there's a bit of a mitigant, a positive mitigant at work, Jay, insofar yes, we have the obligation to help investors understand this new category, but with each new category, assuming we can convince them quickly that this is a category worthy of investment. It obviously also helps them answer the question, how does VICI continue to grow now that it's gotten so big? So, again, we won't shed the responsibility to educate, but we think with each new category we go in, we prove that there is a lot more we can do to continue to create value and growth at VICI.
Jay Kornreich: Okay. Understood. And then just as a follow-up with the potentials -- potential Caesars in Las Vegas sale, I know your product comment on that. But just in terms of the current marketplace with interest rates where they are, how do you guys kind of assess your willingness and ability to acquire Las Vegas real estate in an accretive manner at this point?
Edward Pitoniak: Yeah. It obviously needs to be accretive, Jay, that's absolutely the requirement. And I think that we're in a very interesting period right now. It's a period in which some people realize, it's not 2021 anymore, and other people haven't quite figured out it's not 2021 anymore. What I would say is that the marketplace of borrowers or those who need capital, has more quickly figured out that the world has changed. And with it, the pricing that goes with that change, and then there's others -- potential sellers, some of whom haven't really figured out, it's not 2021 anymore. So, it's really going to be highly circumstantial as to whether or not there's the potential to get a deal done. And it will only get done based upon mutual recognition that the world has changed and prices need to change accordingly.
Jay Kornreich: Okay. Thanks very much.
Edward Pitoniak: Thank you, Jay.
Operator: Thank you. Our final question comes from John Decree of CBRE Securities. Please go ahead when you're ready, John.
John Decree: Hi, everyone. Thank you for taking my question and all the questions. Maybe I'd just piggyback on your last response there about how the world has changed and to revisit your earlier discussion on cost of debt, the yield to worst of your tenants and potential tenants. You've often get compared to debt capital, but your source of financing is typically more permanent than debt. And we've had a recent conversation about your partners and how they should consider their overall cost of capital, given the longevity of your financing. I'm wondering in this environment, if you've seen partners and perspective partners starting to compare your capital to their overall cost of capital, or are you still competing with just debt capital at this point, how has that kind of education process gone and has anything started to change given the current environment?
Edward Pitoniak: Yeah. So, John always good to talk to you. It's our responsibility to educate, whether it be existing partners or potential partners and we're doing the work, as we speak of making sure that they understand not only the nature of our capital, which you're absolutely right, John, it is permanent, but also the cost -- the comparative cost of it to their, exactly your point, to their weighted average cost of capital. If you take their current yields to worst on their benchmark bonds, and then take their implied cost of equity, most of our would be -- and existing partners are looking at weighted average cost of capital that tend to be in the 10%, 11% range, right? And needless to say with good quality assets under the right leases, we can beat the hell out of that cost at the right cap rate, a cap rate that's very accretive to us, but representing capital that is very attractively priced for them. And that's again against their weighted average cost to capital. As I alluded to earlier in the call, John, there are situations where their debt in some cases is trading so wide and probably unfairly wide that in there will be cases where we can even beat the cost of debt, never mind the way -- the blended cost of debt and equity.
John Decree: That's a good point. Ed thanks. I appreciate the additional color on that.
Edward Pitoniak: Thank you, John.
Operator: Thank you. We have no further questions in the queue. I'd like to hand it back to Ed Pitoniak for some closing remarks.
Edward Pitoniak: Yeah. Thank you, operator. And thanks to all of you. We're sorry to keep you a little long, but it's great to engage with all of you and we look forward very much to talking with you again next quarter. Bye for now.
Operator: Thank you, all. That does conclude today's call. Thank you again for joining. You may now disconnect your lines.
