The operator introduces the VICI Properties' Second Quarter 2024 Earnings Conference Call and hands over to Samantha Gallagher, General Counsel. She reminds participants that the call is being recorded and directs them to the company's website for the earnings release and supplemental information. She also mentions that some statements may be forward-looking and discusses the use of non-GAAP measures. She advises caution and refers listeners to the company's SEC filings for more information.

The company is hosting an earnings call and providing additional information on non-GAAP measures. The CEO, Ed Pitoniak, will share his thoughts on the market and the company's performance, followed by remarks from other executives and a Q&A session. The recent CPI print has led to a comeback for REITs, and the company will discuss their guiding principles during this challenging market.

The author discusses whether the current state of REITs, specifically net lease REITs, is cyclical or secular in nature. They believe that experiential real estate is a sector with positive secular trends. They also caution against deviating from long-term goals and strategies during cycles, and emphasize the importance of investing in experiential buildings with good location and asset quality.

The operator quality is crucial for a successful investment. The company seeks not only AFFO accretion, but also asset quality, tenant diversity and quality, geographic and categorical diversity and quality, and balance sheet quality. The company's business development team, led by John Payne, is identifying and developing opportunities that meet these criteria. In the second quarter, the company made investments in the Venetian and Great Wolf Resorts, which align with their quality criteria and will generate a blended investment yield of 7.9%.

VICI has decided not to exercise its call right to acquire Harrah's Hoosier Park in Indianapolis because they believe they can find better investment opportunities that will generate future growth and strengthen their portfolio. They are confident in their ability to identify and invest in experiential properties that will be accretive against multiple quality factors. Additionally, VICI collects 45% of its rent from assets in Las Vegas, which continues to see record-breaking tourism numbers. There are also plans to potentially add a second airport to Las Vegas, indicating the city's continued growth and appeal to visitors.

The paragraph discusses the financial success and growth of Las Vegas, particularly in terms of the gaming industry. The company has invested a large amount of money into their properties and continues to see opportunities for growth. The focus is on maintaining a strong balance sheet and liquidity while also pursuing accretive growth. As of now, the company has $3.2 billion in liquidity and is working to improve their credit ratings.

The company has a revolving credit facility with an option for additional lender commitments of up to $1 billion. They recently received $115 million from the sale of shares, which was used for a capital investment. The company's total debt is currently $17.1 billion, with a net debt to adjusted EBITDA ratio within their target range. AFFO per share for the quarter increased by 5.9%, highlighting the company's efficient triple-net model. Their G&A expenses continue to be low compared to other REITs. The company has raised their AFFO guidance for 2024, with an expected range of $2.35 billion to $2.37 billion or $2.24 to $2.26 per diluted common share.

VICI has updated its guidance and expects to see year-over-year growth in AFFO per share. However, this guidance does not take into account any potential transactions, loans, acquisitions, or other nonrecurring items. The company places a strong focus on AFFO as a measure of its financial performance and ability to pay dividends. In regards to future deals and options, the recent decision to not execute options this year may impact how the company structures options in the future, but the decision was primarily based on strategic considerations for capital allocation and portfolio management. The company remains confident in opportunities for tenant, geographical, and category diversity.

The company is looking at opportunities for geographic diversity and is considering the length and timing of potential deals. They have been traveling internationally and see potential for growth in both gaming and non-gaming sectors, with a focus on casino gaming.

The company spends time with operators in the gaming industry and believes that gaming investments will always be a significant portion of their portfolio. They are optimistic about the Las Vegas ecosystem and are willing to invest more capital in their existing assets and potential future development opportunities. They see Las Vegas as a unique and constantly evolving destination with strong demand drivers.

The operator introduces a question from Wes Golladay about the company's approach to investments in light of recent consumer weakness. CEO Ed Pitoniak responds by saying that the company is still focused on middle to higher end experiences and that the current consumer weakness has not yet affected their investment decisions. Golladay also asks about the upcoming Caesars lease and Pitoniak defers to David Kieske, who explains that there is a variable component to the lease based on net revenues.

The speaker explains that they are still collecting data on Caesars and it should have no impact on their escalation in November 2024. They decided to announce their decision not to move forward with Centaur today because the strategic factors that went into their decision would not change in the next 5 months. This allows everyone to understand and not spend time wondering about the decision. The speaker also mentions that they have been underwriting gaming assets and looking at consumer trends and recent deals.

The speaker is discussing their thoughts on full 4-wall coverage and cap rates in the gaming space. They mention that their company always wants their capital investments to pass the test of being the highest and best use of their last dollar. They continue to refine their thinking on what will drive the strongest access to and cost of capital. They mention factors such as tenant diversity, geographic diversity, tenant credit quality, and rent coverage. The speaker stresses the importance of their discipline in capital allocation and how it can lead to a strong comparative cost of capital advantage over the long term. The next question asks if the deal is fully bedded and if there is a chance that the assets could be put to them. The answer is yes, the assets could be put to them according to the contract.

Tom Reeg at Caesars has stated that they have no plans to sell their assets, but the contract lasts until the end of the year. The company is also keeping an eye on legislative issues and potential opportunities for investment in new locations and categories, including online sports betting. They are also monitoring the process in New York for the awarding of 3 licenses.

The speaker discusses the importance of being mindful of supply and demand trends in regional gaming markets, as they have more limited catchment areas compared to Las Vegas. They also mention their decision not to invest in Indiana assets and the factors that influenced this decision, such as the cap rate and potential impact of new competition.

The cap rate was not the main factor in the decision not to call the Indianapolis asset. The location of the future casino in downtown Chicago will not have a significant impact on the Indianapolis market. The experiential credit solution strategy is currently at $2.2 billion and is an important tool for expanding relationships and learning about new businesses. It has been effective and will continue to be used in expanding domestically and internationally.

David Katz asks a question to John about the recent outlook shift towards a more moderate or even down outlook for leisure transient activities in the hospitality industry. John responds by discussing the potential for owning real estate in indoor water parks and the success of Great Wolf in past economic cycles. He also mentions the quick cash flow generated by these businesses and their potential for growth.

John Payne, who has his finger on the pulse of the industry, agrees that there may be some softness in certain businesses and among lower-end consumers. However, he shares a personal story about the popularity of Las Vegas as a destination and how it has become more diverse in attracting different types of visitors. He believes that Las Vegas is a strong investment and is excited about the potential for continued growth in the city. While he acknowledges the importance of understanding consumer spending in other sectors and parts of the world, he remains confident in the potential of Las Vegas as a destination.

Ed Pitoniak responds to a question about the potential economic volatility and highlights the value of dividend-paying stocks in reducing this volatility. He explains that the company is careful in their investments, seeking real estate that can endure cycles and has positive secular trends. The next question is about the company's balance sheet and the $2 billion in notes coming due in the first half of next year. Pitoniak explains that this did not factor into their decision to not exercise call rights, as they are focused on other compelling investment opportunities. David Kieske adds that the company is mindful of the obligation to refinance effectively, but the decision was not constrained by this factor.

VICI Properties is actively managing its portfolio by not exercising the book call and planning to refinance upcoming maturities in 2022 and 2025. They have a strong credit profile and feel confident in their ability to refinance and lower their cost of capital. In regards to potential M&A activity among operators, VICI has protection in their master leases to mitigate any potential changes of control.

The speaker, Samantha Gallagher, compliments John on his work and mentions that all of their leases have strong protections in case of a change of control. They have already gone through a change of control with one of their tenants during the Caesars Eldorado merger and are comfortable with their lease structure. The next question from Jim Kammert asks about the increase in guidance and Ed Pitoniak explains that it is due to funding timing and recent announcements. Jim also asks about alternative investment opportunities and Ed mentions that they are not able to provide much detail, but they are considering both credit book and fee interest opportunities.

Ed Pitoniak answers a question about capital allocation and says that the company will focus on fee-based investments. He also mentions that the company will take its time with developing assets like Cabot and Canyon Ranch.

The speaker, Ed Pitoniak, is confident that the company will exercise its call right at Cabot Citrus Farms in the future. He asks Samantha Gallagher to provide more information on the company's mind share and market share. Another speaker, John Kilichowski, asks about the dilutive effect of the company's for sale agreements on their guidance. David Kieske responds that it will have minimal impact. The next question is from R.J. Milligan about the impact of the uncertainty surrounding the Centaur assets on the company's decision not to call them. Ed Pitoniak says it was not a deciding factor.

The company is aware of the perception of overhang on their stock, but it was not the deciding factor in announcing their decision. They are comfortable with their decision and have other opportunities to allocate capital. They want to have a sustainable and balanced approach to raising equity, and will be cautious not to develop fatigue in the market.

Dan Guglielmo from Capital One Securities asks about VICI's recent growth in mezzanine and preferred investments, which carry more risk. David Kieske, VICI's Chief Accounting Officer, defers to Gabe Wasserman, who explains that they are very thoughtful with their underwriting and have protections in place in case of a downturn in the macro economy. Ed Pitoniak, VICI's CEO, adds that they always lend against experiential assets that meet their strategic investment criteria, even in a worst-case scenario. Chad Beynon from Macquarie has the next question.

Chad Beynon asks if VICI Properties is looking to do deals with live entertainment businesses in Las Vegas, given the growth in sports and entertainment that has attracted non-casino visitors to the city. John Payne responds that the company is studying the sector and its economics, and may consider investments in the future if the cash flows are durable and the operator is a good long-term partner. He notes the exciting diversification of Las Vegas's revenue stream through sports and entertainment.

Edward Pitoniak is being handed over the floor for any final remarks. He thanks everyone for their time on the call and wishes them a pleasant summer after earnings season is over. The operator then concludes the call.

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