The operator introduces the VICI Properties Third Quarter 2023 Earnings Conference Call and turns the call over to Samantha Gallagher, General Counsel. She reminds listeners that the call is being recorded and directs them to the company's website for the earnings release and supplemental information. She also cautions that some statements may be forward-looking and discusses the use of non-GAAP measures. She advises listeners to refer to the company's SEC filings for more detailed information.

VICI had a challenging third quarter in 2023, with the REIT Index down 8%. However, the company focused on improving its business for the future by playing offense and defense, capitalizing on current conditions, and preparing for potential future conditions. They also increased their dividend and announced new capital commitments, leading to a 10.7% growth in AFFO per share earnings. While some may question the use of this capital, VICI believes it will benefit the company in the long run.

The author acknowledges that market conditions are uncertain and volatility is high, but they remain confident in their recent investments and relationships with companies like Century, Canyon Ranch, and Valero. They believe that investing in relationships will position them well for future growth when market conditions stabilize. The author also credits their readiness and astute capital markets team for their recent investments and mentions a $1.3 billion equity raise in 2023. They also mention making defensive moves in the past quarter.

In the third quarter, VICI Properties used a conservative approach to funding new capital commitments and added swap protection for future refinancing. Despite a volatile market, the company's tenants have shown resilience and the VICI team has created a culture of excellence. The company has also expanded its business by closing acquisitions and forming new partnerships, including in international markets.

VICI is pleased to announce their entry into the family entertainment sector through the acquisition of 38 bowling entertainment centers with their new partners at Valero. The Valero team is a talented and growth-minded operator that understands consumer recreational trends and the value of a VICI relationship. VICI's tenants continue to show strong operating results and invest in capital improvements, with Caesars, The Venetian, and MGM spending hundreds of millions of dollars each year on their assets. This reflects the high-quality portfolio of assets VICI is constructing with the best experiential operators for their investors. The productivity of these assets is hard to come by in other real estate sectors, with Las Vegas being a prime example of the health and productivity of VICI's tenants. Caesar's CEO, Tom Reeg, has also noted that the company is on pace for its best October ever, despite current macroeconomic uncertainty.

Despite the difficult times, Las Vegas is still opening new attractions and diversifying its revenue stream. The city remains the entertainment epicenter of the world, with strong regional performance and loyal consumers. VICI is focused on growing in all areas, including gaming and nongaming, domestically and internationally. They are constantly seeking new partners and opportunities to help their current tenants grow. The team is also building connections in various sectors to become the preferred real estate capital partner for growth-minded operators. Despite market volatility, they are committed to expanding their networks and opportunities for the future.

The purpose of this work is to ensure continued growth for shareholders. David Kieske discusses the financial results, including the recent Bowlero transaction which has been immediately accretive to AFFO and has provided a partnership with a market leader. The company has a strong liquidity position and a low net leverage ratio. They have also entered into forward starting interest rate swap agreements. AFFO per share increased by 11% compared to the previous quarter.

The company's triple net model has proven to be highly efficient, with strong margins and low ratios in the triple-net sector. They have increased their cash dividend and updated their AFFO guidance for 2023, expecting 11% growth. The guidance does not include the impact of any future transactions or nonrecurring items, and the company focuses on AFFO as the best way to measure their financial performance. The call then opens for questions from analysts.

The speaker discusses the changing competitiveness of sale-leaseback deals and the uncertainty of predicting future costs of capital. They also clarify that the operators, not VICI, are currently putting capital into the assets, and that VICI may consider investing in larger projects with their partners through the property growth fund.

The speaker is responding to a question about the potential for buying additional rent from operators in the future. They confirm that this is a possibility if the operators want to monetize the value of their real property investments. The next question is about the recent Bowlero transaction and the cap rate that was achieved. The speaker explains that the cap rate for family entertainment properties may be different from regional gaming properties and other experiential real estate. They also mention that the Bowlero transaction aligns with their strategic initiatives.

The acquisition of Bowlero represents a new category for the company and significantly expands their total addressable market. The company is investing in this highly superior business model due to the compelling growth opportunity and the fragmented nature of the sector. The competitive marketplace may impact cap rates, but the 7.3% cap rate for this acquisition was immediately accretive and a positive spread to the cost of capital. The company is also looking at other categories such as indoor water parks, wellness, leisure, and sports for potential investments. The company has the capacity to constantly look for unique opportunities in different sectors.

The speaker asks a question about how the company is thinking about value creation, capital allocation, and risk in the current environment. They mention the company's previous investment hurdle of seeking a 100-150 basis points spread and ask if that has changed. The company responds that it is still the case in the current environment.

The speaker discusses the recent Bowlero transaction and the challenges of raising capital in the current market. They also mention the volatility of capital costs and the need for caution in making deals with longer gestation periods. The Bowlero deal was unique as it marked the company's first direct equity ownership in nongaming real estate.

The speaker is asked about the potential for more investments in the future and the recent deal with Bowlero, which represents the company's first direct ownership of nongaming real estate. The speaker clarifies that while the Bowlero deal was an immediate acquisition, the company also has call rights for future real estate ownership through partnerships with Cabot and Canyon Ranch. The speaker also discusses the appeal of the bowling industry and the opportunities for growth in the family entertainment space.

The speaker discusses how bowling is a resilient form of family entertainment that has endured for hundreds of years due to its recreational and active nature. He also mentions the importance of building relationships and diversifying revenue streams, and hints at potential future partnerships in the family entertainment center industry.

The company has had a good experience with a family entertainment center operator and the pipeline of deals has slowed down due to market volatility. However, they are still having conversations and building relationships with potential partners in preparation for when the market recovers.

The speaker discusses the durability and value of the real estate owned by Bowlero, a bowling business. They mention how Bowlero acquires and repositions old bowling centers, investing millions of dollars to transform them into modern and popular destinations. This has been a successful strategy since the late 1990s, and Bowlero plans to continue expanding their portfolio in the future. The speaker emphasizes the potential for growth and the improvement of existing properties through Bowlero's business model.

The paragraph discusses the recent acquisition of a bowling alley business by the company and highlights the attractive aspects of the business, including high margins and responsiveness to capital investment and management intensity. The company's CEO, Edward Pitoniak, compares it to his previous experience in the ski resort industry and emphasizes the importance of management focus and intensity in driving results. The company's CFO, John Payne, mentions the thorough underwriting process and meeting with the management team and employees at each of the 38 assets. The company may slow down on investments until there is more visibility in the market.

Pitoniak believes that investment yields will eventually increase in line with capital costs across industries, but it may take time for sellers to accept the reality. He cites the recent purchase of 38 Bowlero assets at a 7.3% cap rate as evidence of this trend. He also mentions the potential for same-store growth in the net lease space and cites a report from Green Street showing that VICI and GLPI have 4x the same-store NOI growth of standard net lease REITs. Thomas asks for an update on the call right agreements and potential investments in Hoosier Park and Horseshoe, Indianapolis, as well as potential capital raising that may be required.

The speakers discuss the future opportunities with Canyon Ranch and Bowlero. They mention that finding incremental investment is dependent on the operator, and their team works with them to identify potential opportunities. The cap rates for potential ROFOs or investments will be negotiated in real time, and may be higher than previous investments. They also mention their partnership with Canyon Ranch and their approach to developing investment criteria.

The speaker discusses the potential for acquisition opportunities in the coming years, similar to those seen in the early 90s. They are patient and willing to wait for the right opportunities, and are focused on maintaining flexibility in pricing and ROFOs. The Canyon Ranch partnership is looking for assets with around 120-150 rooms and a focus on asset utilization. They are considering potential locations for expansion, including ski, beach, and international destinations.

The company is excited about the potential opportunities with Bowlero and sees potential for significant economic growth. They are also in talks with MGM about potentially investing in Empire City if they receive a license. They have a strong partnership with MGM and are open to discussing potential opportunities. They have studied Bowlero for a couple of years and are comfortable with the current coverage levels.

The speaker talks about the company's strategy of investing in assets with low 4-wall coverage and transforming them into high 4-wall coverage. They also mention the benefits of having a master lease and corporate guarantee. The company targets assets with high 2s to low 3s 4-wall coverage and a corporate guarantee. They also discuss their growth-minded operators who understand the sale-leaseback model and have the capital to grow their business. The speaker then addresses the company's leverage and mentions that it only ticked up slightly due to a decrease in cash. They also mention the split rating between S&P and Moody's and the ongoing efforts to educate Moody's and potentially achieve an investment grade rating in the future.

The company is educating agencies on the gaming net lease model and hoping for an upgrade in credit rating. They have been diligent in proving the merits of their business model. In terms of pricing, the recent trade in big box gaming suggests that gaming real estate is still being positively repriced relative to traditional commercial real estate, with a recent cap rate of 5.2%. The company acknowledges that there is resilience in the gaming real estate market.

The speaker discusses the lack of data on investments beyond Bellagio, but emphasizes the vitality of Las Vegas and its drawing power for global artists. They also mention the strong operating performance of casinos in Las Vegas and the resilience of the gaming business compared to other sectors. The questioner asks about the company's leverage band and debt maturities for next year, and the speaker mentions the use of swaps and potential pricing for borrowing.

The company has been vocal about reducing their leverage and has exceeded their original plans to do so. They have a maturity coming up in 2024 and are currently assessing the market to determine the best way to refinance. The recent accretive capital investments will have a forward deleveraging effect. The potential growth opportunities with Bowlero will come from future sale-leaseback opportunities.

The speaker discusses the relationship between VICI and Bowlero, highlighting VICI's access to capital and Bowlero's desire to grow. They also mention that VICI is the market leader in a largely unconsolidated category and has the opportunity to continue to acquire assets and transform experiences and economics. The speaker also mentions that VICI has expanded internationally, specifically in Canada.

The business development team, led by John and Kelyn, is researching international real estate markets and the experiential categories within those markets. They are committed to making wise investments based on deep knowledge of the market before committing capital. The call has now concluded and participants are thanked for their time during this volatile time.

This summary was generated with AI and may contain some inaccuracies.