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Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the VICI Properties Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 26, 2023. I’ll 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 third quarter 2023 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by use of words such as will, 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.

A skyline view of a bustling city, representing the company’s presence in the real estate market.

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 conditions. 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 in our third quarter 2023 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and or counterparties discussed on this call, please refer to the respective company’s public filings with the SEC.

Hosting the call today is Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Louie McCluskey, Senior Vice President of Capital Markets. 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. The third quarter of 2023 is a quarter most REITs are happy to be done with. The REIT Index in Q3 2023 was down 8%, swinging negative for the year after not a great year last year, and October has only continued a negative trend. But while the REIT stock marketplace didn’t have a great quarter in Q3 2023, the key question to ask is what a given REIT did in Q3 and now in October to improve its business for the future. At VICI, our answer to this question has a number of elements to it. We played offense selectively. We played defense. We capitalized on certain current conditions. We prepared for potential future conditions. We increased our dividend effective with Q3 2023 and an annualized rate that well exceeds forward inflation expectations and continued rate of dividend growth since 2019 and that is 3x greater than the largest net lease REIT over the same period.

And if there has ever been a period in which one should value a solidly covered and solidly growing dividend, that currently exceeds the 10-year rate. This is it. Finally, in a year in which REIT earnings growth has generally been difficult to come by, VICI’s AFFO per share earnings in Q3 grew 10.7% year-over-year. VICI announced within and subsequent to quarter-end, about $1.1 billion of new capital commitments. While most of you have seen the strategic and economic merits of these investments, we know there are some of you who feel that we should have left that capital in a stockpile. Some of you feel understandably that volatility is too high and visibility is too low. We agree volatility is high and visibility is low. And with the market movements of especially the last few weeks, we are sober and cautious about what the market conditions for capital allocation could be from here for how long, no one knows.

But I can tell you that we continue to have high conviction about the commitments we’ve recently made with Century, with Canyon Ranch and now with Valero. These commitments represented immediately accretive investments in real estate that should have positive impacts on 2024 earnings. These commitments also represent investments in relationships that can and will be the answer in future years to, okay, now that things are back to normal, how are you going to grow, VICI. Again, none of us know when the all-clear signal will sound, but it will in some way and REITs that continue to invest in relationships we’ll be best positioned to resume growing when market conditions and values have stabilized. That’s what we at VICI did in the recovery out of COVID.

Our situational readiness put us in the position to acquire the Venetian and MGP, investments that are a key driver of our 2023 earnings growth, and we made these investments and many other would be made [technical difficulty] hadn’t been fully readying themselves for recovery. We have been able to undertake our recent investments because of the astute and agile work of Moira McCloskey and the VICI Capital Markets team. Going back to our nearly $1 billion overnight equity raise in early January 2023, VICI has opportunistically raised a total of approximately $1.3 billion of forward equity in 2023, giving VICI a cost of funds for our recent investments to drive the immediate accretion of which we’ve spoken. We also made defense this past quarter.

During Q3 and subsequent to quarter-end, we played defense by using close to $1 billion of equity in cash and only about $55 million of debt to fund our new capital commitments demonstrating our commitment to our long-range leverage targets. David Kieske and the VICI Finance team also played defense by adding a further $200 million of swap protection since Q2 in anticipation of our 2024 refinancing of $1.05 billion of the legacy MGP 5.625 notes giving us a total of $450 million of swap protection. And while we did all this, our tenants continue to demonstrate the vitality of their businesses, as John will speak of momentarily. I’m very proud of the work the entire VICI team did this quarter against a volatile and difficult backdrop, the VICI team working within one of the lightest G&A loads of any S&P 500 REIT continue to create a culture of excellence and resilience that I’m confident will serve VICI’s stakeholders well for years to come no matter what those years bring.

With that, I’ll turn the call over to John Payne for an operating and transaction marketplace update, and John will then pass the mic to David Kieske, who will give our financial and guidance update. John?

John Payne: Thanks, Ed. While 2023 has been a volatile year in the real estate sector, as Ed just highlighted, we at VICI have put ourselves in the position on both a capital and relationship basis to not only continue our business but to expand it into new sectors, new relationships and new geographies. In the third quarter, we continued to grow with our partners at Century Casinos by closing our Rocky Gap Casino Resort acquisition in Maryland, and our sale leaseback of four gaming assets in Alberta, Canada, growing our international footprint. Subsequent to quarter-end, we were very excited to announce our entry into the family entertainment sector, through our acquisition of 38 bowling entertainment centers with our new partners at Valero, led by Tom Shannon and Brett Parker, the Valero team is a perfect example of a talented growth-minded operator that has a deep understanding of their consumer recreational trends and the value that a VICI relationship and our capital can bring to their growth strategies.

VICI’s tenants are not only continuing to show strong operating results, but are also continuing to invest in capital improvements all over the United States. Caesars is investing over $400 million into just one asset, Harrah’s New Orleans. The Venetian just announced a $1 billion plan to further enhance our asset, including almost $200 million in just convention center space. MGM spends hundreds of millions of dollars in CapEx each year on assets throughout Las Vegas and the regional markets. And even our smallest operators are investing millions of dollars each year on growth projects, thereby enhancing the quality of our assets and the productivity of their operating businesses. These reinvestment commitments add to our conviction that we are continuing to construct a high-quality portfolio of assets with the best experiential operators for our investors.

This high-quality classification comes from not only the quality of the real estate itself, but also from the outsized productivity of these assets, productivity that is hard to come by in almost any other real estate sector. No place highlights the health and productivity of our tenants better than Las Vegas. After meeting with Caesar’s CEO, Tom Reeg at G2E, which is the largest gaming conference in the United States, one analyst noted that Caesars is on pace for its best October ever. And this is against the backdrop of current macroeconomic uncertainty. Even during these tough times, Las Vegas continues to open new world-class attractions while diversifying its revenue stream and customer base. The opening of the must-see entertainment venue, the sphere world famous events like Formula 1 and the 2024 Super Bowl and a diverse and robust convention and conference schedule all helped showcase that there’s no city performing like Las Vegas, that has clearly become the entertainment epicenter of the world.

Outside of Las Vegas, regional performance has continued to be resilient, while many operators in our discussions have cited increased expenses related to items such as insurance or unrated play normalizing against tough comps, regional operations continue to run at very strong profit levels supported by loyal consumers with their respective database. Strategically, we continue to be focused on all fronts: gaming, nongaming, domestic and international to grow our pipeline for VICI’s future. In gaming, Danny Valoy and I are in constant dialogue with new potential partners domestically and internationally, and we are just as excited by the ways we can potentially help our current tenants grow through additional tuck-in acquisitions or by utilizing our partner property growth fund in which we seek to fund our tenants high ROI opportunities at our existing assets.

Meanwhile, Kellen Floral has been cultivating invaluable connections and relationships across the family entertainment, sport, wellness, leisure and recreation sectors as we continue pursuing our mission to be the real estate capital partner of choice to best-in-class growth minding operators of unique social infrastructure properties. During this most challenging time of market volatility for everyone, it is more important than ever for our team to continue to grow and deepen our networks and to grow our breadth of opportunities to best position for the years to come. This work is intended to position us to continue to deliver the growth our shareholders have come to expect from the VICI team. Now I will turn the call over to David, who will discuss our financial results.

David?

David Kieske: Thanks, John. It’s great to speak with everyone today. The VICI team takes pride in what we’ve accomplished in 2023, acknowledging the year is not over, but the results we posted last night and last week’s Bowlero announcement are exemplary of those accomplishments, as Ed said, we are improving the business, which should benefit VICI and you as shareholders as to 2024 and beyond. Highlighting the transaction we closed last week with Bowlero and we have spoken to many of you about, the deal was immediately accretive to our AFFO given we had prepared by raising forward equity for the transaction many months earlier generating an attractive spread to that cost of capital. From an economic standpoint, the deal is very attractive.

But as John mentioned, it also builds a partnership with a market leader that we and the Bowlero team believe will grow together in the future. Subsequent to funding this transaction, we have approximately $3 billion in total liquidity, comprised of approximately $430 million in cash, $250 million of estimated net proceeds available under our forward sale agreements and $2.3 billion of availability under the revolving credit facility. In terms of net leverage, net debt to annualized Q3 adjusted EBITDA is approximately 5.7x. We have a weighted average interest rate of 4.35% accounting for our hedge portfolio and a weighted average of 6.1 years to maturity. Then as we prepare for our first bond refinancing in early 2024, we have entered into forward starting interest rate swap agreements with an aggregate notional amount of $450 million to date.

Touching on the income statement, AFFO per share was $0.54 for the quarter, an increase of nearly 11% compared to $0.49 for the quarter ended September 30, 2022. Our results once again highlight our highly efficient triple net model the increase in adjusted EBITDA as a proportion of the corresponding increase in revenue, and our margins continue to run strong in the high 90% range when eliminating noncash items. Our G&A was $14.4 million for the quarter and as a percentage of total revenues was only 1.6%, one of the lowest ratios in the triple-net sector. During the quarter, we increased our quarterly cash dividend of $0.415 per share or $1.66 on an annualized basis, representing a 6.4% year-over-year increase. Then turning to guidance. We are updating and increasing AFFO guidance for 2023 in both absolute dollars as well as on a per share basis year ending December 31, 2023, is now expected to be between $2.17 billion and $2.18 billion or between $2.14 and $2.15 per diluted common share.

Based on the midpoint of our updated guidance, VICI expects to deliver year-over-year AFFO per share growth of 11%, one of the highest expected growth rates across all REITs. As a reminder, our guidance does not include the impact on operating results from any but unclosed transactions, interest income from any loans that do not yet have final draw structures, possible future acquisitions or dispositions, capital markets activity or other nonrecurring transaction items. And as a reminder, we do record a noncash CECL allowance on a quarterly basis, which due to its inherent unpredictability leaves us unable to forecast net income and FFO 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.

With that, Elliott, please open the line for questions.

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Operator: [Operator Instructions] First question today comes from Anthony Paolon with JPMorgan. Your line is open.

Anthony Paolone: All right. Thank you, and good morning. My first question is we all could see kind of how your capital costs have changed over the last few months. But maybe can you give us a sense as to how you see your operators, capital costs changing and whether or not sale-leaseback has become more or less competitive over the last few months.

Edward Pitoniak: I’d say generally, Tony, it has become more competitive. I think as you look at, obviously, the stock trading values of the operators, but also the yield to worst on much of their credit or our capital has the potential to be very compelling in 2024, 2025, 2026. But that, of course, assumes that our cost of capital is in a place where we can generate positive spreads and accretion against that. And our confidence level in predicting or projecting our cost of capital a year from now is not high. If anyone does have my confidence in their projections, please call us immediately and let us know what we’re missing.

Anthony Paolone: Okay. Thanks. And then just a follow-up. You’d mentioned your operators putting a lot of capital into the assets. And I know you have the property growth fund to help with that if they so choose to participate. But would you all reinvest post this if they decided they wanted to pull some of their capital out? Or do you see yourselves just limiting it to being involved in the projects as they’re happening.

Edward Pitoniak: John?

John Payne: Yes. Tony, just to level set here, Tony, the capital that I went through in my opening remarks is being put in by the tenant, not by VICI at this time, just to – and I think that’s what you were asking. The other point of the question is if there’s opportunities for us to help them with larger projects in this property growth fund would we do that? We would be thoughtful in our analytics behind an investment, and we talk to our partners all the time about how they’re thinking about growing their businesses and is there an opportunity for us to deploy incremental capital for incremental rent. And we do that on an ongoing basis.

Edward Pitoniak: Tony, if I understand your question correctly, I think you’re asking us well, could there be opportunities downstream for us to buy incremental rent, if the operators’ capital went into the creation of incremental real property. And yes, that could be an opportunity down the road should they want to monetize the value of the real property they created through their capital investments because it’s all predicated, of course, on making sure we’re buying good REIT income that is tied to the creation of incremental real property.

Anthony Paolone: Got it. Yes, that’s what I was asking. So I understood, John, that those items you were listing those capital costs were being funded by the operators already. And so yes, it was a question of if you would go in later if they decided, hey, look, we put this in, and we may want some of that back. Would you help us with that?

Edward Pitoniak: Exactly right, Tony.

Anthony Paolone: Thanks.

Operator: Our next question comes from John DeCree with CBRE. Your line is open.

John DeCree: Good morning, everyone. Thanks for taking our questions. Ed or John, maybe we could talk a little bit about the Bowlero transaction and the cap rate that you’ve got to there. It’s a little tighter than what we’ve seen in some of the last regional gaming cap rates show up that. I’m wondering if you could kind of speak to how you’re looking at caps for family entertainment versus gaming and maybe more regional gaming than Vegas realizing Vegas is a bit of a different animal and other experiential real estate that you’re looking at as well.

Edward Pitoniak: Yes. I’ll start, John, and then turn it over to John Payne. So when you look at our Bowlero transaction, it represents a number of different strategic initiatives. It obviously does, as you’ve already said, represent our initiation into a new category, into that new category, we significantly expand our TAM, and we do so by investing behind a highly superior business model that Tom Shannon and the Bowlero team have created and the growth opportunity they have to consolidate a very fragmented sector is very compelling to us. It is also a sector that obviously other REITs have invested in and could continue to invest in. So it is a somewhat more competitive marketplace with a consequent impact on cap rates than you might see in regional gaming.

So it – there are times when gaming investments and nongaming investments can be a bit apple and orange-ish, if you will, given that they do represent different marketplaces with different characteristics. I do think the point of emphasis needs to be that the 7.3% cap rate was immediately accretive and a very positive spread to the cost of capital. David Moore and the team have raised over the course of 2023, and we’re very excited about the growth opportunity going forward. John, do you have anything to add?

John Payne: Yes, John, I just mentioned you asked about other categories that we’re looking at. Obviously, we’ve already placed investments in indoor water parks, wellness with Canyon Ranch, Pilgrimage Golf, we made an investment in family entertainment center, as you said, with Bowlero. But we continue to spend some time looking for opportunities to develop long-term partnerships in wellness, leisure, recreation, some entertainment sectors and some sports sectors as well. And I think it’s important. The final thing I’ll just add is it’s not an either or it’s not a pay, you’re looking at gaming, and that’s what we’re just focused on. And you’re looking at wellness and that’s what you’ve spoken on. We’ve got the capacity now to constantly look for these unique opportunities to place investments over time, as Ed mentioned in his opening remarks.

John DeCree: That’s helpful. I think that made a good point about the capital raised previously for this transaction. So I appreciate the additional color. Maybe for a follow-up, John, you’ve kind of alluded on sports and other categories of entertainment, I guess, in the context of the MSG Sphere opening in Las Vegas and has certainly rave reviews and kind of looks like the epitome of experiential entertainment to us. So curious if that changes your thinking about the category, stadium, entertainment, mixed-use and maybe the bigger kind of business model is models that more rely on ticket sales perhaps than anything else. I’m not sure if your thoughts or thinking in that category has changed at all?

John Payne: It has not changed, but you hit on the sphere with what an amazing entertainment venue that was added to Las Vegas and sits on our land. It is truly – there’s no entertainment venue like it, not only in the United States, but probably the world. But this is a category that we have looked at. We continue to study. We clearly have not made an investment, and we’re trying to better understand the long-term economics and viability of certain projects. But boy, the sphere is amazing, John, if you get the opportunity, you should go to an event there.

John DeCree: Yes, absolutely. Thanks John. Thanks everyone.

John Payne: Thank you, John.

Operator: We now turn to Haendel St. Juste with Mizuho. Your line is open.

Haendel St. Juste: Hi, there. Good morning. Thanks for taking my question. I wanted to follow up on the questions on Bowlero, but more from me how you’re thinking about value creation and capital allocation and risk holistically in the current environment. In the past, you talked about seeking a minimum 100, 150 basis points spread as an investment hurdle. I guess I’m curious if that’s still the case in today’s environment, or would you perhaps want to seek more?

David Kieske: Haendel, it’s David. Good to talk to you. No, that is absolutely still the case in this environment. And as we talked about, obviously, we were fortunate to raise the capital this for the Bowlero transaction, specifically earlier in the year when, in fact, the Bowlero was in our pipeline back then things take weeks, months and time to come together. But we’re not — is not in the sand as we sit here today. If we look at the screen, see where the tenure is. We obviously see where our stock price is and still are on generating those types of 100 to 150 basis point spreads to our cost of capital. As we think about it, we think about the next dollar of cost of capital, where do we need to price something make it accretive based on the market that we are in and underwriting at that time and the capital that we have available to us.

Edward Pitoniak: I’ll just add, Haendel. We’ve had a few questions along the lines of, well, geez, could you have used that money to buy 9 and 10 cap assets? And our answer to that would be today and especially during the period in which you were gestating the Bowlero deal, we don’t see any really good real estate occupied by really good operators trading at 9 and 10 caps right now. The day could come when they do, but that day is not here right now. And in the meantime, with this capital volatility that we see, we will be very, very careful in recognizing that not only is the cost of capital volatile on a day-by-day basis, that has implications for any deals that have long gestation periods. So we will have to particularly take care any kind of deal making that requires longer gestation periods to account for the fact we do not have capital cost certainty by any means, and won’t necessarily have it until the day we decide to do a deal, which means we will take great care in deciding to do anything against these market conditions.

Haendel St. Juste: Got it. Got it understood. And one more something else that was unique about Bowlero. It marked the first direct equity ownership in nongaming real estate on your part. I guess I’m curious if that’s something you can expect more of going forward? And I know that deal is still a relatively small piece of ABR, about 1%, but you do have a ROFO for eight years. So curious how do you see there with either that partner and/or within that space going forward. Thanks.

Edward Pitoniak: Yes. So you’re right. Technically, that — these do represent our first direct investments, immediate ownership of nongaming real estate. What we should point out, of course, is that through our ventures with Cabot and Canyon Ranch, we have contracted for call rights that give us a direct path to real estate ownership in the future. So it happens to just be a difference between the nature of our acquisition of real estate potential acquisition of real estate with Cabot and Canyon’s Ranch versus the immediate acquisition with Bowlero. And certainly, in this case, you had an operator with a very compelling opportunity to grow, a very compelling opportunity to put sale-leaseback capital to work, which led to our immediate acquisition of the real estate itself.

Haendel St. Juste: Thank you.

Operator: Our next question comes from Ron Kamdem with Morgan Stanley. Your line is open.

Ronald Kamdem: Hi. Just two quick ones for me. Just going back to sort of the Bowlero transaction, and I appreciate all the details that you provided there in the partnership and so forth. But as you’re thinking about sort of the family entertainment sort of space, Bowling is sort of an interesting one. Maybe a little bit more color on how the deal came about and what other sort of avenues or verticals and family entertainment that you entertain?

Edward Pitoniak: Yes. I’ll turn it over to John in a moment, Ron, and good to hear from you. I do think one of the key characteristics of bowling is that it is a low barrier to entry experience, but it is an experience that you can get better at. And that’s in contrast to some other experiences that can take place within the family entertainment sector, where people might do it once or twice, and they go, okay, fun. I’ve done that. I don’t need to do it again. And Boeing is at its very heart recreation. And if you want to get philosophical about it, you can say, it goes back to our most ancient human urges to aim at a target and strike a target. And people tend to get pretty excited when they strike targets. And that energy exists within bowling.

It’s a recreational energy and not a passive energy. So we think that, that has resiliency aspects to it that are at the heart of why bowling has endured in various warrants for literally hundreds and hundreds of years, whether outdoor on lands or indoors and buildings. But I’ll now turn it over to John, who can give you more color on how we develop that relationship. John?

John Payne: Yes, Ron, I was just going to add that you’ve heard me speak about times that relationships take time. And this is one that I think I looked at my notes in my first meeting was years ago with one of the top executives at Bowlero. And we just studied the business for this long. It’s got scale. It’s got healthy credit — it’s a business that has great margin with growth potential. The one other thing I’ll add to Ed’s remarks, as we continue to study the Bowlero business was the diversification of its revenue streams. It has many cash registers how the business can get into the consumer’s wallet. It gets revenues from food and beverage. It gets a large percentage from bowling, it gets business revenues from amusement.

So we like that diversification as we dug into the business and dug into the team. So we really took time years in this case to understand the business. And then I think your final part was are there other operators over time that we could buy real estate and be partners with. And we’re going to continue to study the family entertainment center space. They’re many good operators, but we think we started our journey in the family entertainment center with one of the best.

Ronald Kamdem: Great. And then just — my second one was just staying on the pipeline of deals and so forth. So obviously, the tenure is much higher than I think most anticipated. And I’m just wondering, like when that happens, like how does that pipeline sort of evolve? Like do conversations stop? Do they pick up? Just trying to understand like what — how is that pipeline evolving and conversations that you’re having as PPR repricing capital?

Edward Pitoniak: Yes, I’ll start and then John and David can weigh in, but they definitely slow down, right? And anybody who doesn’t slow conversations down against this backdrop of volatility clearly is not paying attention. A slowdown in terms of actual coming to any kind of fixing of value and price given the volatility of capital, but I want to turn it over to John because what we don’t want to do is ever put all pens down — not all pen out, but stop all conversations because there will come a day, as I said in my opening remarks, Ron, there will come a day when we begin to recover, and we don’t want to have to call people and say, hey, you probably forgot about us because we haven’t talked in months, quarters, years, what have you. We don’t want to do that. So John, if you want to talk about the way in which we make sure our conversations continue even if they have to slow down a bit in terms of fixing value.

John Payne: Yes. Ed, you described it very well. We’re constantly looking for opportunities to have conversations, learn more about certain sectors and businesses that we’re not experts on today, develop long-term partnerships. But that doesn’t mean we transact at this moment of uncertainty. It means that we’re preparing for the time when they hopefully go from defense to offense and look at opportunities that we understand the sector of the company and we develop that relationship. So a little bit of a different time than the past couple of years, but we still are working to find opportunities for the long term.

Ronald Kamdem: Great. That’s it for me. Thanks so much.

John Payne: Thank you, Ron.

Operator: Our next question comes from David Katz with Jefferies. Your line is open.

David Katz: Hi, morning everyone. Thanks for taking my question. Just one more on Bowlero and this is not intended to be a leading question in any way, but I know you do a lot of homework around the business and the underlying real estate. I wonder if you could just talk about the durability of that real estate value, what kind of it requires relative to the other stuff that you’ve acquired so far? And just sort of give us a picture of that long-term value durability, please?

David Kieske: Yes, David, it’s David. Good to talk. I can start, and John, chime in. I mean one of the things we love about the Bowlero business model is the fact that they go in and reposition bowling outs that have been around not for hundreds of years like Ed talked about, but these assets are 10- to 50-plus years old that they buy and reposition with anywhere from $3 million to $5 million of capital and transform something that was dark and gray and a little bit dated into a very lively experience that, as John talked about, has multiple cash registers and as a draw for the local community. And they’ve done this now since the late ’90s, and they have a portfolio of 350 assets across the country and some outside of the U.S., where they continue to see opportunity to grow in white space out there, a very fragmented mom-and-pop ownership industry, they see opportunities for another 500 to 1,000 centers into their portfolio over time.

And that’s what we like about it. But [technical difficulty] to your question, David, is they take a box that’s very solid and make it even better and make it essentially brand new. And that’s what we love about the business model. And then the cash flows that come out of that business, as John said, have very high margins and very sticky recreation aspect to the cash flows.

Edward Pitoniak: David, I’ll just add to this. You and I talk a lot about my old days, way back in ski resort operations. And what I learned back in ski resort is to fall in love with businesses that respond that respond intensively and quickly to capital investment and management focus and intensity. And the difference between this and the ski business is you can make a great capital investment and operate the heck out of the business. I mean it doesn’t snow you or. And what I love about this business is that it’s very responsive to the investment of capital. You invest capital and you get pretty much an immediate consumer response it’s also a business that responds really well to management intensity. And again, Tom Shannon and the Bowlero team are very, very trued at investing capital and know how to manage the P&L every single line, top, middle and bottom lines to drive — to use that management intensity to really transform results through the transformation of the experience.

John Payne: David, the only other thing I would mention is just the detail of our underwriting. We went to all 38 assets in the 17 states. We got to meet not only the senior management team, as I talked about, but our team got to meet the people on the ground that makes these assets so productive. And it helped us in continuing to understand the durability of the business and the asset. So that just gives you a flavor of how we went about this investment.

David Katz: Thank you.

Operator: We now turn to Todd Thomas with KeyBanc Capital Markets. Your line is open.

Todd Thomas: Hi, good morning. So first question, Ed, maybe, John, it sounds like the company may slow down on investments in the near term until visibility improves, which would make sense. But the ongoing conversations that you are having as you look to keep the lines open, with new and existing relationships on potential opportunities. Do you expect to see investment yields increase sort of commensurate with the increases in capital costs across industries?

Edward Pitoniak: Todd, I believe they will, but it always takes time. Sellers always tend to take more time to come to grips with reality than buyers would be sellers, would be buyers. And obviously, we’ve seen some cap rate expansion over the last year. And I’m very confident in telling you that a year ago, we would not have been able to buy 38 Bowlero assets at a 7.3% cap rate. Very confident that we could not have done that. These assets would have traded tighter a year ago as they traded considerably tighter a couple of years ago when Carlyle bought a large portfolio of Bowlero assets. So as we look over the year to come and maybe years to come, I think you can expect markets eventually to accept realities, but markets tend to take time to accept those realities, and we’ll be patient for that acceptance to take place and enjoy the benefits of same-store growth that we, as a net lease REIT enjoy to a very rare degree thanks to our lease escalation and especially the CPI component of that escalation.

Same-store growth is going to mean something in the net lease space over the next year if things slowdown in the way they might. And we’ll cite a report from our friends at Green Street that showed that both VICI and GLPI enjoy same-store NOI growth that is about 4x the standard net lease REIT.

Todd Thomas: Okay. That’s helpful. And then I guess within that context of sort of looking at potential investments, can you provide an update on the call right agreements and sort of current thinking on Hoosier Park and Horseshoe, Indianapolis, the potential timing there and how you’re thinking about potential capital raising that might be required to the extent something were to happen there?

Edward Pitoniak: David take that first. The last half of that first and then John can take the first half.

David Kieske: Yes, Todd. And those who have been with us since the beginning, in the early days, we had call rights at a 10 cap. And as we talked about then, we said we’d use those to layer into our growth when the pipeline may be slower or there may be less opportunities in the marketplace. And we take the same approach with the call rights in Indiana. That runs till the end of next year, end of 2024, and we just have to call it by the end of 2024. So as we look into the future, we’ll be very disciplined with where our cost of capital is, but also very kind of methodical about how we layer in into our future AFFO growth.

John Payne: And then on the operating side, we just — like we do with our current assets that we own. We’re continuing to monitor how the business is performing in Indianapolis. As I’ve mentioned on other calls, Caesars has put in significant capital to both the assets and those businesses continue to be rewarded based on those capital improvements. So we’ll continue to monitor that.

Todd Thomas: All right. Thank you.

Operator: Our next question comes from Greg McGinniss with Scotiabank. Your line is open.

Greg McGinniss: Hi, good morning. Looking at the future opportunities with Canyon Ranch or Bowlero, is finding the incremental investment contingent upon the operator? Or is your team working with them to help find some opportunities. And then also for any potential ROFOs or investments, those cap rates will be negotiated in real time. So can we assume maybe those would be 50, 100 basis points higher than where you’ve invested previously?

Edward Pitoniak: Yes, Greg, it’s a good question. And to take the first part of your question, we very much partner with our partners like Canyon Ranch at developing investment criteria applying those criteria to marketplace to figure out where the best opportunities may be. And I think I mentioned back when we announced our — the expansion of our Canyon Ranch partnership back in late July, that John Goff and I share a conviction that the coming years, ’24, ’25, ’26 and onward, could represent the kind of opportunity that John Goff and Richard Rainwater saw in the Resolution Trust days in the early 90s. There could be some very compelling acquisition opportunities that are born out of not necessarily operating distress, but what could be a certain element of financing stress.

So we’re excited about that. We’re patient. We’re willing to wait for the right opportunities to come along in that vein. And when it comes to figuring out pricing and ROFOs and call rights, I think what we’re increasingly focused on is the degree to which we may need a certain amount of flexibility between us as buyer and any would-be seller account for the unpredictability of capital cost and resulting values. So we’re going to be careful that we don’t lock in to a cap rate for a future acquisition that may turn out at that time to be dilutive.

Greg McGinniss: And I guess in looking at those potential Canyon Ranch opportunities, is there a around the balance size on a per asset basis that they’re looking at in terms of making investments? Obviously, that will change based on cost of capital and expect — but just trying to understand the size of the assets they’re looking at.

David Kieske: Greg, it’s David, good to talk again. Thanks for joining the call. For our canning range, it’s somewhere 120 to maybe 150 rooms, but kind of 30, sweet spot. One of the things is they want to insure asset utilization. So if you look at Lenox and Tucson in the room counts right around there, what they’re working on and developing in Austin will be right around that size. And so as we think about potential other dots on the map, whether it be ski or beach or potentially even international one day, it’s how do you find — how do you focus on assets of that size? And given the economic magnitude or vitality that comes out of that business, you can take a conventional hotel that has similar room sizes and make the economics so much greater and so much better than what was out of a traditional hotel.

And so that’s part of the excitement part of the opportunity that we potentially see together in the future. And some of the distress or malaise that may be coming from that sector.

Greg McGinniss: Okay. And just a final one for me. may not have an answer on this one, but have you guys been in talks with MGM about their perceived likelihood of receiving the license at Empire City and your potential investment there? Any updates?

Edward Pitoniak: John?

John Payne: Yes. We — well, first of all, MGM has been a great partner since we were able to acquire MGP and those assets. And obviously, the New York process is going on right now. There’s some who believe, as you said, that the two current racinos will get two of the three licenses. And should MGM be one of those, and they’re looking to build that business, and we see an opportunity to use our capital to build and get incremental rent. We’ll absolutely talk to the partner about that. So we’ll just have to see grain how this process plays out over the coming years.

Greg McGinniss: All right. Thanks, everyone.

Operator: Our next question comes from Smedes Rose with Citi. Your line is open.

Smedes Rose: Hi, thanks. I just wanted to ask you a little bit about how you think about the scope of the opportunity with Bowlero over time, I guess, against coverage levels, I think you said about 3.2x coverage. So a lot of cushion in there, but where would you sort of be comfortable, I guess, continuing to kind of buy up their EBITDA and converting it into rent relative to the coverage levels.

David Kieske: Smedes we studied — as you heard us say, we studied the business in the company for a couple of years now. And the their ability to go into an asset with very low 4-wall coverage and transformed that asset into very high 4-wall coverage, gives us a lot of conviction in the business. And then obviously, with the master lease and the corporate guarantee that we get out of the — incremental protection we get gives us a lot of comfort. So that’s the area that we target, how kind of high 2s, 4-wall coverage, low 3s and then obviously, the corporate guarantee. And they’re a growth-minded operator who understands the merits of a sale-leaseback model and ensures that they have the capital available to grow their business and the way shapes or forms that they want to do and they want to size the rent in a way that gives them protection to make sure that they’re creating and benefiting from all the upside that they generate, given their business model and the economics that they do produce.

Smedes Rose: Okay. And then I just wanted to ask about the balance sheet. Leverage just ticked up slightly to 5.7 from 5.6. And you still have the split rating between S&P and Moody’s. What do you think are kind of — what’s the kind of the path, I guess, with Moody’s? I mean did they want to see continued diverse diversification away from gaming? Or — and I guess, kind of what’s the sort of leverage metric that you think that they would need to see in order to move into investment grade?

David Kieske: Yes, Smedes, just to hit on your first point. I mean the leverage ticked up quarter-over-quarter really good cash went down, right? If you look at our supplement quarter-over-quarter debt only went up $55 million. That was the fund of Century Canada asset and cash went down $230 million. As Ed talked about the equity and the cash out the door to fund the acquisitions that we closed during the quarter. So really a de minimis move in leverage Look, in terms of Moody’s, it’s a continual education and it’s just — it takes time, all right? We’ve been around for six years. We’re educating the agencies on the gaming net lease model educating Moody’s in particular, on gaming tenants. And as we’ve talked about, I think with many of you in the past, they took our rating up two notches when we did our inaugural investment grade offering back in April of 2022, we’ve been in touch with them consistently, and we will — for an agency to make a move, it often takes an event.

So we’re hopeful in the coming months or a period of time, there will be an acknowledgment of the sanctity of our cash flows and an upgrade coming. And it’s — there’s really no real kind of black and white trigger. It’s a little bit of just do what you say, say what you do and continue to prove the merits of your business model, which we have been very, very diligent and working hard at.

Smedes Rose: Okay. Thank you

Operator: Our next question comes from Chris Darling with Green Street. Your line is open.

Chris Darling: Thanks. Good morning, everyone. Going back to the pricing environment, but thinking about traditional gaming real estate, specifically. It seems like there’s been this dynamic over the past, call it, 18 months or so, where gaming real estate has been positively repriced relative to traditional commercial real estate. And I wonder if that dynamic is still playing out in your mind? Or if you think cap rates are maybe moving in a more commensurate fashion 10-year right now?

Edward Pitoniak: Yes, Chris, good to talk to you. I think the honest answer would be, we don’t know. The most recent trade in big box gaming, obviously, was a realty income investment in Bellagio, where I believe it took place at –

John Payne: 5.2%.

Edward Pitoniak: 5.2% cap rate. So exactly to your point. There’s not a lot of the real estate categories covered by Green Street, where you’re seeing those kinds of cap rates right now, perhaps outside of industrial and maybe data centers. So there is resilience there. But beyond that Bellagio investment, I don’t think we have a lot of data to point at. But I do think, going back to what John has been saying, about the vitality, especially of Las Vegas, where so much of our capital is invested. There’s really no other place on or like it. And it may sound a bit trivial, but I’ll point to, for instance, PINK, having just performed last week at Allegion announcing, I want a residency in Las Vegas, and I want it now because she’s recognizing as a global artist that Las Vegas is the place for global artists to situate themselves right now because of the drawing power that Las Vegas has on a global basis.

So you’re seeing a resiliency of economic activity that should constitute some degree of resilience of value that you’re not obviously going to see in a lot of other sectors where you are facing either secular headwinds or supply-demand imbalance.

John Payne: Yes. Ed, the other thing that’s unique in the gaming business right now than other businesses, right, is that the operating performance of a lot of these casinos, particularly in the city you called out in Las Vegas are doing incredibly well. right? So yes, there’s a lot of volatility in the markets, but their core business is really performing quite well. So we’ll see how this plays out.

Chris Darling: Appreciate all the thoughts. That’s it for me.

John Payne: Thank you, Chris.

Operator: We now turn to Nate Crossett with BNP. Your line is open.

Nate Crossett: Hi, good morning. Maybe just one quick one on the balance sheet. If you could just maybe remind us the guidance for your leverage band and then just address like talking about debt maturities for next year, I know you mentioned the swaps, but can you just tell us how you’re thinking about addressing that maturity? What would the term be? And maybe where you think you could price money today?

David Kieske: Yes, Nate, it’s David. It’s a yes. I mean we’ve been very vocal and committed to getting leverage back to our 5x between 5x and 5.5x net debt to EBITDA Obviously, we ticked that up a little bit with the MGP acquisition and the agencies acknowledged that and understood we would work very hard to get that leverage back down and we’ve kind of exceeded the pace that we originally told the agencies in the summer of ’21. And then in terms of our 10-year money, we do have a maturity that comes due May 1, 2024, the window opens on February 1, 2024. We talked about, as we’ve mentioned collectively, we have $450 million of notional forward starting swaps out there. We’ve been legging into a hedge policy to get ahead of that refinancing.

That 10-year money today spreads somewhere 2.20, 2.30, give or take, 10 or 20 basis points over the 10-year. And so as we sit here today, with a 10-year 5, that’s kind of low to mid-7s capital. But we’ll assess the market is that a mix of 5, 7 or 10, is it all tens – we do have access to the term loan market that a lot of REITs do not have access to. So we’ll be very focused on ensuring that we extend the tenor, but also take advantage of the kind of the best pricing and the best laddering of our maturities as possible.

Edward Pitoniak: And I’ll just reiterate, Nate, that while it does not obviously show up in trailing leverage numbers when we invest $1 billion of equity against only $55 million of debt on our recent accretive capital investments, it will obviously have a forward deleveraging effect.

Nate Crossett: Okay. That’s helpful. Maybe just one more on the Bowlero. I think it’s about maybe 10% of their portfolio. Have they given you any indication how much they would be willing to do over time, just trying to like size the potential opportunity here?

David Kieske: Well, as we sit here today, Nate, almost all of their assets are in a sale-leaseback format. So it would be potential future growth opportunities as they find opportunities in the marketplace. And one of the reason we were able to build a relationship and develop this transaction over time is VICI’s desire to grow, VICI’s access to capital. And obviously, Bowlero desire to grow. And as you saw in our materials and the commentary. If you look at the Bowlero announcements, they’re very – they’re thrilled with the deal that throw the partner with VICI and the we’re optimistic there will be more to come together, but there’s nothing directly off the Bowlero balance sheet as we sit here today.

Edward Pitoniak: Yes. And I can’t remember the exact numbers. So hopefully, David or John might, Nate. But the thing to keep in mind is that Valero is the market leader in a remarkably unconsolidated category with Valero owning – do they even own 10% of the category, I think they own 10%. So their opportunity to continue to roll up assets can transform the assets, transform the experiences and transform the economics is where the future growth between Bowlero and VICI will take place And again, thanks to a basically a right of first offer. What amounts to an exclusive financing partner restate financing partnership, that we’ll enjoy with them for the next eight years.

Nate Crossett: Okay. I’ll leave it there. Thank you.

Operator: We now turn to Chad Beynon with Macquarie. Your line is open.

Chad Beynon: Good morning. Thanks for taking my question. Just one for me this morning. Different markets and countries are obviously going through different phases of economic cycles. And I know in the past, you’ve talked about growing outside of the U.S., understanding that these relationships take time – has anything changed in terms of how you’re thinking about non-U.S. versus U.S. opportunities with respect to current cap rates, multiples relationships? Thanks.

Edward Pitoniak: Yes. And I will point out as someone who carries both the Canadian Passport as well as U.S. passport, we have expanded internationally. Canada is another country and we’re very proud to be invested there. And John and Kelyn and the business development team continue to research international markets as overall real estate marketplaces and then the categories of interest the experiential categories of interest within those markets. And again, those are situations where we will make sure to take the time and take great care to make wise investments given that they need to be based on deep knowledge of the market before we ever commit capital.

Chad Beynon: Appreciate it.

Edward Pitoniak: I think, Elliot, that will wrap things up, correct?

Operator: Yes, this concludes our Q&A. I’ll now hand back to Edward Pitoniak, CEO for closing remarks.

Edward Pitoniak: Yes. Thank you, Elliot. Thanks, everybody, on the call today. We really appreciate you being with us, and we wish all of you the best during this very, very volatile time. It is a time we will get through. And again, we thank you for your time today.

Operator: Ladies and gentlemen, today’s call has now concluded. We’d like to thank you for your participation. You may now disconnect your lines.