Gaming and Leisure Properties, Inc. (GLPI) Q3 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Gaming and Leisure Properties' Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hayes Croushore, Vice President of Finance. Thank you. You may begin.

Thank you, Christine, and good morning, everyone. We'd like to thank you for joining us today for Gaming and Leisure Properties' Third Quarter 2018 Earnings Call and Webcast. The press release distributed earlier this morning is available in the Investor Relations section on our website at glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Forward-looking statements may include those related to revenue, operating income and financial guidance, as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to forward-looking statements contained in the company's filings with the SEC, as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's conference call, we're joined by Peter Carlino, Chairman and Chief Executive Officer; and Steve Snyder, Senior Vice President of Development and Interim Chief Financial Officer. Also joining we have Desiree Burke, Chief Accounting Officer; and Brandon Moore, Senior Vice President, General Counsel, and Secretary. Now I'll turn the call over to Peter. Peter?

Well, thanks Hayes and good morning to all who have dialed in. At the risk of being repetitive, let me highlight comments that I offered this morning in this morning's press release because I think they are noteworthy and worth repeating. September 26 of this year, we completed our very successful $1.1 billion note offering with the benefit of our recently achieved investment grade rating. On October 1, we announced the completion of the transactions related to the acquisition of Pinnacle Entertainment by Penn National. Together these transactions increased our annual real estate income by $155 million, while expanding and diversifying our geographic footprint and our list of tenants. These transactions are immediately accretive as evidenced by our October 15 announcement that our fourth quarter dividend would be increased to $0.68 per share, which is an 8% improvement over our prior quarter. Interestingly at least to all sitting here at the table, today this day is the five-year anniversary of our spin from Penn. And I've got to tell you as I read a couple of numbers here that even I'm surprised it is what we've been able to accomplish over this last five years. I'm not sure I've ever put it all together in a piece of paper at one time. We've completed transactions in that five-year period with approximately $6.8 billion, growing our real estate revenue by over $580 million annually and our dividend has increased 31% since our first quarter as a REIT. In the process, our portfolio has grown from 20 assets in 12 states to 46 assets in 16 states and we've expanded our tenant base from one to four. And to fund these acquisitions, we've successfully issued approximately 90 million shares of common stock and completed $3.5 billion in note offerings and notably which is critical to all of us her on this table, we've done this with a commitment to accretion and meet accretion and safety which has been I think a hallmark of what we've shared with our shareholders from the very, very beginning. So we are extraordinarily proud of what we have accomplished this enormous success and we want to celebrate that on this day at fifth year anniversary. I would ask Steve Snyder to highlight a few other interesting points about our success.

Thanks Peter. Good morning everybody. Just real quickly a housecleaning matter, we also this morning filed our 10-Q with the SEC, so it's available at your leisure to review. To follow up on Peter's comments in terms of this being the actual date of our fifth year anniversary from the spin out of Penn National Gaming, there is just a couple of other data points I want to highlight just looking at where we were in our first year to where we are as a result of the transactions that have been announced, we are looking at nearly a 150% increase in both our EBITDA and our AFFO. And looking at the 145, 150% increase of those data points have grown by compound annual growth rates of about 20% over the course of our existence as a separately traded real estate investment trust. It's certainly far better than I think any of us expected when we spun back out in 2013 and as Peter mentioned it is an outcome that we are quite proud of but also a great foundation for that continued success into the future. So with that, I'm just going to touch on a couple of other points from the quarter. It's an odd quarter, right. All of our efforts during the quarter led to outcomes that occurred after the quarter's end. Our team did a tremendous job, our legal team, our accounting team, everyone in working through some regulatory challenges that we faced in modifying the previously announced agreements, so that we were able to efficiently and effectively get to the closings of the two transactions that Tropicana held a lot of transactions on October 1 and the Penn-Pinnacle merger with the new tenant Boyd Gaming on October 15. We also, during the quarter as Peter touched upon, were successful in getting an investment grade rating from Fitch. As a result of that, we saw some very effective pricing on our $1.1 billion in notes. It was also the first time we were ever a high grade issuer since we now have an AB rating from three of the rating agencies BBB- and of course the BA1 from the other rating agency. What we learned being a first time high grade investment grade issuer was that unlike the high yield markets, the forward deliveries, the settlement dates on high grade issues are a little bit shorter. So as a result of that, we've made an affirmative decision during the quarter to go ahead and close on the debt financings from our unsecured note offerings prior to quarter end and that is one of the drivers that you will see in the press release in terms of expenses that were unanticipated since we closed on the notes on September 26th and didn't put that capital to work on until October 1st. Moving on, just to give a real quick update on the portfolio, Penn in their earnings call this morning mentioned that on their assets through September 30, their lease coverage was 1.87 times. They also highlighted the fact that their variable rent will be reset for the first time during the primary lease term. That reset will be a one-time adjustment about $11.8 million annualized and will remain in effect. It won't be reset again until five years from November 1st, so until 2023. Also they acknowledged that there is the - we are going to be the recipients of the full escalator, the 2% escalator on the base building rent. That 2% escalator annualizes to an increase about $5.4 million in rent, so that we are looking at a net reduction of just over $6 million as a result of those two offsetting items. Moving down the portfolio, Pinnacle, the lease coverage on the Pinnacle portfolio was modestly better than Penn's. We did, as was reported earlier, receive the full escalator back on the Lease Anniversary Date at the end of April and they did reset the variable rent on the Pinnacle lease for the two-year variable period. That reset also was done back in April and resulted in a $1.14 million reduction which was offset by the escalator $5.8 million. Additionally on the Pinnacle side, which will, in the future of course, be part of the Pinnacle lease that Penn will be assuming, it's a separate lease. It's an individual lease Meadows property. Meadows will be realizing the 4%, 5% escalator that we are entitled to on its Lease Anniversary Date September 26, December or November - October 1, but they also will see a variable rent reduction of about $270,000 or their first two-year variable reset. Lastly our fourth tenant the Casino Queen folks. Their lease is current at the subsidiary level. The parent company CQ Holdings is still negotiating with its senior lenders and us as a subordinated lender on amendments through their existing credit documents. Finally before I move on to the balance sheet, both of our new tenant Boyd and Eldorado, in particular Boyd who has had their earnings call, they indicated on their call that their assets were looking at coverage for their future first year about two times coverage and they were expecting to realize the full 2% escalator on the base building rent in the Boyd master lease assets. On the Eldorado side, Tropicana closed into a coverage of just under two times at the closing on October 1. The last item on the portfolio of course is the taxable REIT subsidiary. Perryville continues to show modest year-over-year improvements in performance, not enough unfortunately to offset the headwind that the Baton Rouge team has faced in terms of the performance in that market. The management team down there still is very proactive in managing expenses in light of a market that in some months has been down as much as 22% on a year-over-year basis. Yeah, additionally as Peter points out, the smoking ban did go into effect in Baton Rouge on June 1. I'm going to wrap up and turn it over to Q&A. On the balance sheet, you can read the press release in terms of the ATM activity, the cash position; we did complete the note financings. As a result of those note financings at September 30, our fixed rate versus variable rent debt was 90% fixed versus 10% variable. Our weighted average maturity was approximately six years and our weighted average coupon is just under 5%. Finally subsequent to quarter end, we did increase our revolver by $75 million by adding a new lender to the team, the Bank Syndicate and we also subsequent to quarter end fund the balance of the transaction expenses on the revolver for $386 million which keeps our fixed interest rate debt still at 85% pro forma for that drop. So with that, operator, I would turn it over to Q&A and let the callers feel whatever they think.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Cameron McKnight with Credit Suisse. Please begin with your question.

Good morning. Thanks very much and happy 5th birthday.

Thanks, Cameron.

Thanks, Cameron.

So to kick off, in terms of the equity, the dividend is, the dividend yield is currently a little over 8%. You just issues 229 paper at 5.3%, so 330 basis-point difference. I'm assuming that you don't want to issue any equity here through the ATM or otherwise?

I think you can pretty safely assume that. Look, for what's in hand we are well covered. We'll be able to pay off enough debt this year to get where we need to be obviously if we were to do something else, we have to take a look at the equity market, but right now happily we don't need it and, yeah, it's clearly we have to do something to get people to appreciate what we have here at GLPI.

Got it and then a question for you Peter or for Steve, in terms of accretion on deals drop will be about 8% accretive to AFFO on our numbers, which is higher than you might see elsewhere in real estate. What do you think is the right target level of accretion for future deals?

Well, look, a lot depends on the scale. I mean would we do an extraordinarily large transaction to get a penny? That could be at risk. The answer is no. It's all about, I mean, transaction to transaction, what's the market, what are the properties, what's the risk profile, and what are we willing to accept and it will vary in firstly every transaction.

Yeah, Cameron, there are strategic reasons for doing transactions and there are obviously financial reasons for doing transactions and we've always used the positive accretion out of the box as the governing factor either way, whether it's financial or strategic. If we have opportunities to broaden the tender roster, if we have opportunities to broaden the asset pool, we may consider things that are more modestly accretive than certainly the benchmark that you pointed to in terms of the Tropicana transaction. So I would just leave it as and Peter does a very good job of explaining this given the dividend income that he receives. If that dividend is at least equal to the dividend before the transaction, you can assume it wouldn't happen.

Yeah, we work too hard to get where we are and to get the credit rating that we have today and still working to make it across-the-board by the way as we talk to the folks at Moody's and we think over time we'll get where we need to be there. So we work very hard to get where we are. We intend to stay there. There is really no transaction that we have to do. I have said publicly we are not about building monuments. We are about building value. And I think we've done that rather remarkably over the last five years. Nothing is going to change. And I will say this. Getting big numbers is tougher at the base we are today. The company has grown to the point where having 8% dividend increases is a challenge, but needless more is better, so, but our focus hasn't changed.

That's perfect thank you very much.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.

Hey guys, thank you. As you guys as you guys look out of the landscape right now clearly rates have risen. I know you guys have said before in prior meetings that this rate environment and this transaction and cap rate environment can't last forever. Have you seen of late especially as kind of the markets have gotten volatile. With some of the - your peers coming under a little bit of pressure, have you seen the tone of any type of discussions around Real Estate Center transaction change at all?

It's still early, go ahead Steve.

Yeah, Carlo, I think it's a little too early to tell. Obviously you saw in the gaming space a transaction announced yesterday or earlier this week of CDI buying an interest in the Rivers, Des Plaines at a valuation that was probably right there with all of the other recent prints. I think we have is - as you pointed out and said that declining cap rates and rising interest rates cannot continue into the future. I don't know if the music has stopped yet. I think obviously it takes time for seller's expectations to be tempered by other outcomes, so it's just a little too early to tell in response to your question specifically.

And look we're going to have to wait and see how some of these other transactions that is - those we're not involved in get financed. And we'll see where that leaves others with what kind of an equity overhang. So a lot of things have to happen over the next months, maybe the next year for us to get a better sense of where things are going, but look, there's always something out there that for various reasons sellers choose to do possibly with us and not with somebody else. So again it gets back to a deal by deal basis. To your broader question, I think we just have to give it more time.

Understood and guys if I may and acknowledging, we're talking about trends in two properties and two states, one of which obviously is going through some from structural change with the smoking ban in Baton Rouge, but when you think about what you're seeing from a core kind of level both in Baton Rouge and in Perry Ville. Have you noticed any kind of discernible shift in customer behavior over the last couple of months?

No, Carlo we really haven't. I mean the phenomena in Baton Rouge started in the first quarter and then accelerated with the smoking ban. Perry Ville has been going along very constantly throughout the year even on a month-to-month basis looking into October as well. So we've seen no change in consumer patterns in the Perry Ville market, but it's simply one data point.

Yeah, look I wish we could get states to recognize. We understand the health motivation in enacting smoking bans. Some states have chosen to deny it has an impact, but the evidence through many states is clear 15% to 20% loss of revenue is the norm and it doesn't come back, so we'll have to wait and see. Now, you can build smoking areas and they're getting a little smarter and a little bit better and we'll look at things like that to improve the opportunity for smokers. Look gamers are smokers and to a larger degree than maybe the general population. I've got absolutely no statistics at this point, but I think we know imperiously that that is the case, so it has an impact.

Great, thank you guys.

Thank you

Our next question comes from the line of Thomas Allen with Morgan Stanley. Please proceed with your question.

Hey, good morning. I know this is a simple question, but I mean your stocks down 1.5% today, I think on concerns around Penn's earnings. Can you just stress like the rent coverage and where - and how comfortable you are with that. Thank you.

Yeah, Thomas I mentioned in my comments that the rent coverage was 1.87 times at quarter end 930, the rent coverage on the Pinnacle Master Lease was modestly better at 930. I don't know what else to tell folks in terms of our security relative to the rest of the capital stack of our tenant or all of our tenants. It sort of defies logic to see where some of our securities trade relative to quick frankly where some of our tenants subordinated note strike. But from a security standpoint, we're very comfortable being where we are at the top of the waterfall with respect to the occupancy cost that our tenants faced and we think that 1.87 times we're in pretty good shape. Now, what all of our tenants are doing and Penn sort of addressed this in their earnings release, people in the regional gaming markets are managing more to profitability, so marginal revenues which might not be profit generating you're seeing sacrificed. As a result of that you're seeing some of our variable resets decline because they are allowing revenue to burn off because they're focused on profitability and the long-term focus on profitability for us and Penn with its cost initiatives will inure to our benefit. As there EBITA margins improve some of the corporate level, but also some at the property level we will continue to see coverage improve if they hit their profit plan. So I'm not sure what else to suggest to you in terms of why the disparity, but those are the observations from a pretty high level.

Yeah let me say a little bit more crassly if I can. It would take - we root for the success of our tenant, obviously we want them to be successful. But it would take an atomic attack or something near to that quite frankly to threaten our revenue from our tenants, I mean because the gap is so, so wide and if you look at what would have to happen to their businesses it would - it's beyond any precedent that we've ever seen in history. So it would take a flat out disaster to have any impact on us, could impact them but that has no impact on GLPI. And that's a point we try to make again and again and again, they're up, they're down, we might on the margin lose some escalator, but remember then a base gets reset again almost over - well, we're going to get that all back. It just - it's going to be the next round, so it's not lost forever. I just can't emphasize enough just how stable this revenue is and so I can't say more than that, nothing that you or I could imagine will threaten our income flow.

Thank you. And then as you brought up for various cases, was that a process that you got invited to, is that something that could be an opportunity in the future?

I'll point out that the River's transaction was the sale of an equity interest in an existing partnership, so there was no real estate component to it, so CDI stepped into clear this position and stepped up by buying some of the other partners interest to get to their just over 50% ownership, so it is not something that was contemplated in terms of any real estate component as far as we can tell.

Thank you.

Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

Thanks, I mean I think the big issues have been tackled maybe just stepping back to - there's a lot of talk about potential M&A in the sector. I guess what is your appetite after digesting a bunch of transactions just in the last few weeks? How should we think about your target for growth? I know in the past you've talked about your growth will be lumpy, but you had to sort of long-term cake that you thought about, how should we think about it now looking ahead?

Well, hi, Robin. You might remember that when we started this process we set as a company an arbitrary goal of $500 million of assets a year. Now, after looking at what other REITs do and what - how we might define success, we've flown so far through that that it's a joke to sort of stick with the same kind of target that - we are as hungry as ever to do transactions without a doubt, absolutely nobody is more ferocious than we. However, finding the right transactions is unpredictable. What I'm mind saying is that through - several of us are going to get on a plane this afternoon and fly off to another city to talk to an owner about a transaction, we do that all the time. But taking - paraphrasing the Bible many are called but few are chosen so. That's a process that we get paid to pursue day in and day out and our enthusiasm for that is not going one bit. So let's have to wait and see what sort of comes loose. I wish I could tell you that we had nine things on the docket and - but it's just not the way things work. Couldn't unfold the transactions that we just closed were on the horizon a year prior.

Yeah, robin just to follow up on Peter's comments real briefly. I mean we manage what we can which is the balance sheet. We manage the credit side of the balance sheet and you see it with the investment grade rating that we've achieved in the crossover financing that we did that we closed on September 26 and we position ourselves from a liquidity standpoint and from a balance sheet standpoint to be able to be reactive. Everything else to Peter's point is just sort of stay tuned and see how things happen.

Okay, great. Thank you.

Yeah, we - I'll say it; I wish we could be more clear and less vague, but that's just the nature of our business.

Understood, thanks.

Our next question comes from the line of Sean Kelly with Bank of America Merrill Lynch. Please proceed with your question.

Hey, good morning everyone. Peter, just to kind of a return to something you mentioned around the anniversary and how much growth has actually occurred here, I think you mentioned specifically I think it was more of an offhand comment maybe something needs to be done to get people to appreciate what actually occurred in GLPI, but I go back and look and I think from where you guys started five years ago the dividend's grown like 30, almost like - probably over 30%. So I'm kind of curious is it - do you have any ideas of what some of those things could be, is it - whether it's on the investor facing front get some of the rededicated money to look at this more closely or anything else just any brainstorm you might have about what it could do to tell that story to people.

Look to some degree I think we are surprised that the market reacts and to our extraordinary performance. It has been terrific, it has been - well, the numbers speak for themselves. I think Steve and I and the entire team here have agreed that part of our responsibility over the next 12 months is to step up the pace of our outreach to get people to recognize, but growth for the moment. Just the stability - the absolute rock solid predictable stability of our cash flow is something you ought to have in your portfolio, but think at these levels I mean it's a joke. Say hi and it's - and so we scratch our head here. Keep putting one foot in front of the other as we work at developing and building this company, but we do scratch your head and say what - what else can we do and this year is going to be a lot more outreach. Steve?

Yeah, Sean, I think Peter sums it up well. I mean we - again we're proactive with the credit rating agencies. We've been able to drive down our cost of debt capital. Now, we've got to be as outward facing and as interactive with the equity investor base whether it's dedicated REIT investors, whether it's income investors, whomever it may be, we've been doing a lot of communications with folks and we recognize that people don't really fully appreciate the difference between our regional assets compared to strip assets in some of our peers that's portfolios. People don't appreciate the maintenance CapEx requirements in the regional gaming space relative to a 3000 room hotel on the strip. You look at Penn's earnings announcement this morning, I mean their maintenance CapEx expenses for this year been 2.25% of their revenue. It's just much more modest, it's a very different business than the folks that look at Los Vegas strip assets and we just have to continue to educate them as to those differences and you can take Peter's word for, we are and we will.

And sort of great segue into second and follow up question should be around Las Vegas, there's continue to be a lot of activity out there in the spaces, clearly accretion is going to be the name of the game is year in terms of your first overarching goal, but how does Las Vegas kind of fit into the portfolio for you guys, I mean to the extent you can meet other criteria out there and is there anything you take a shot on in terms of trying to change or tweak the kind of the portfolio as it relates to getting access to bigger size - bigger scale strip assets.

That's an easy answer to provide. We have no special interest. I mean, I'll speak for myself maybe Steve can answer or others at the table differently. I have no special interest in Las Vegas. It's just another place where we might find properties that could be accretive for our shareholders. Now, I have said at many of our meetings and I mean it's not [indiscernible], but look I buy a shack on the beach and I mean a shack with no windows and doors if we could be persuaded that the cash flow is solid as a rock and certain and that's all it's about. How predictable, how certain is the cash flow and then you take all other factors into account, how stable the market, the kind of risk that might one might have with capital expenditures and so forth. So I mean, we have no particular interest in going anywhere. I go to the moon if there was something up there that we could reap, so name of the game is to find asset opportunities that we can purchase at the right price with the confidence it's going to produce income for us year in, year out over the term of our lease. I mean, the obvious answer, but I'm trying to underscore it. Yeah, Sean, the question that came up - the question came up earlier and the bottom line is a creation is not just one of our acquisition criteria it is the critical acquisition criteria, so we don't feel any need to grow just for the sake of growing. We don't feel any need to get any larger for the sake of getting kind of multiple expansions because we hit some critical mass. We think we're there in terms of the size of the portfolio, the diversity of the holdings across the United States, the diversity of the tenant roster that we've developed. Look we've got three of the four largest regional gaming operators in the United States as tenants now. So we're very comfortable with where we are, but we'll as we've said, continue to look at opportunities across the board with no particular focus on the Las Vegas Strip

Thanks you, very much.

Thank you

Our next question comes from John Massocca with Ladenburg Thalmann. Please proceed with your question.

Good Morning, everyone.

Good morning, John

I mean, touching on that last point about accretion, is it may be difficult for you guys to find accretive transactions out there given your cost of equity capital and you're pretty much at or thinking slightly above where you want to be from a leverage level and the potential competitive - competition out there from some of your re-peers for asset.

Look there are other tools in the tool box, we have an operating partnership that we can activate to issue OP units. So you should not think of the balance sheet as constraining and obviously given the liquidity that we've got on the balance sheet with no near term maturities, our next maturity isn't until 2020, it's really not a balance sheet question, it really comes back to being disciplined in terms of driving shareholder value through growth in AFFO. It's as simple as that

Okay and then little more of a technical one, I know you have kind of raised agreements that floors on the kind of rent resets with existing tenant if they build a new property within a certain in mile radius. What happens to those floors theoretically speaking if you buy the new asset they're developing?

If we do buy the new assets that they're developing it would be because we've modified the master lease and incorporated it into the master lease, so that would not be subject to that limitation. I think the easier one to look at and I think what you're referencing is Penn's announcements of their York and their Morgantown Pennsylvania facilities as a result of the opening of those facilities, when they open the portion of the master lease rent that is attributed to or generated from Grandville from Hollywood Casino in Grandville will be set as a floor for all future annual obligations from that facility. So at that point in time no more variable piece, it will all be a floor based on the 12 months prior to the opening of that competing facility inside that 60 mile radius restriction.

Thank you so much, very helpful.

I'm looking at the accounting team and the legal team here to make sure I haven't misstated anything and I'm getting thumbs up the point being that it can only go up it can never down.

That's perfect thank you, of course very helpful. That's it for me.

Thanks, John.

Our next question comes from the line of Barry Jonas with Sun Trust. Please proceed with your question.

Thank you, most of the questions have been answered, but maybe just two quick ones. In terms of the variable rent structure in Ohio for the Penn master lease, is there any interest by you or the tenant to maybe change that now that the property is a bit more mature to a more fixed sort of standard structure.

Barry, good morning first of all, it's a fair question, we think there's still room for those facilities to ramp. We do think that when Ohio does adopt sports betting and some other internet wagering and other alternatives that those revenues will flow through the building and therefore flow through our variable - our 20% variable land base rent. So we are not in a rush for any reason to go ahead and modify those - that lease as it relates to Toledo and Columbus.

Great and then I guess Steve, you really haven't missed a beat in the new interim CFO role, just curious what the latest status is for a permanent search.

Yeah, I guess I can answer that. Look we've I think publicly said, we've engaged Spencer Stuart. They of course - if you know the process will scour the planet and suggest a very broad list of names, which they have only now begun and I don't know how to say, I mean, we don't need anything right now at all. I mean we do we need a new person at this instant, we don't the company is no –I mean, with our entire finance team all of whom frankly are present in this room, we're fine. I think what we look at, however, we would reallocate people. It is just maybe getting one more person to put a little more muscle on the front line so we could spend more time on business development and so forth. Steve has historically spent most of his time in business development, I mean that's the way it's been and now with - he's focused in both areas. So as we look ahead and we think about the direction of the company going forward we think and I suspect the board thinks that we should see what's out there, but we're under no desperate interest to do anything in a rush. We'll find a right person or we won't, we'll find if we don't, we'll find somebody who really can put a very positive light on this company and help us get frankly the recognition in the reap well that we think we deserve that's the kind of person we might want. So that - and I'll put it pretty plainly my challenge to Spencer Stuart is pretty much we need somebody luminary enough, who would cause the market say, wow they've got Harry or Sally or somebody who had an immediate impact less than that frankly we don't need to think.

Understood. Alright, thanks and Happy Birthday.

Thank you.

[Operator Instructions] Our next question comes from the line of Daniel Adam with Nomura. Please proceed with your question.

Good morning everyone and thanks for taking my question. Can we talk about the amended Eldorado and [indiscernible] in Missouri and Ohio and specifically to what extent do you think your current concentrations of gaming real estate might limit your ability to transact in certain jurisdictions?.

Well, Daniel, good morning, it's Steve. Obviously the amendments generated - the identical economics for us that we had originally contemplated in both the Ohio and Missouri situations. They were done in a fashion of facilitating the regulatory approval in both jurisdictions, so as not to delay the transaction. They were done outside of the master leases with Boyd on the three properties that were transferred over from integral and outside the master lease with Eldorado on the six properties - the five that actually ended up in the master lease that were transferred over from Tropicana. In terms of the limitations or the impact in the future we really think that we've got to continue to educate folks to help them to understand what role we as a passive landlord have in terms of the day-to-day operations of the operator, the licensee in those facilities. But I don't want to leave anyone with the impression that it's smooth sailing I mentioned in my introductory comments that our team here spent countless hours at the end of Q3 modifying those transactions to satisfy the regulators that was first and foremost in our priorities, is making sure that everyone was comfortable and ready to go. I think it really is a question of how individual regulators in each state will interpret their laws relative to our transaction structure. Brandon Moore, is there anything else you would add?

No, I mean I think both of the situations in Ohio and Missouri were somewhat fact specific and anomalies compared to other states. I mean obviously the FTC and others have taken a view and these transactions previously in our pentacle transaction and this one with regard to what effects we can have on competition in those markets and those are the only two states we've got a problem. In Ohio it was very specific to a racing statute that was not directly tied to competition or anything that you saw with the concentration level of our portfolio. So I think they're both somewhat unique, but we're obviously concerned about educating the market as Steve has mentioned and we believe that our leases and our position in these properties is such that we are very much a passive land owner. We don't have any intention, expectation or ability to control competition in those markets and we don't see that changing and the way we do business is just a matter of making sure that everyone understands the limitations we have as a passive owner.

And Daniel different people will interpret things differently unfortunately and you see it in Louisiana where we own two properties - we own three properties in Baton Rouge and we operate one of them, so the FTC has looked at that market, that transaction - those transactions. The Louisiana Gaming Control Board and its staff have looked at that market and those transactions and obviously we're comfortable approving the Eldorado acquisition of Tropicana. So each state is going to be its own set of circumstances and we understand that.

Yeah, to be clear, we have no operating responsibilities, no operating opportunities and no interest frankly in any operating question. We get no nonpublic information nothing zero zip. We find out - when you all find out how these properties are doing, so I think the FTC of course has done extensive work. They've not been shy in squashing transactions by the way that they thought to be any competitive. They clearly understand that there is no ability on our part to or desire for that matter. I think the one thing we do get to approve our architectural changes, but even those a very broad in the sense that our only interest is that they don't paint the facility pink for example that might be something opine on, but that would be true of any landlord in what they might allow a tenant to do with the space. But that's the rarest of exceptions I - there's not another thing that we would - and frankly anything that they would do and spend to improve the quality of the property only improves our cash flow. So we're completely aligned with the tenant in that regard, we want to maximize performance.

And there have been a number of capital improvements across our portfolio over the past five years we have not been in the way of any tenant capital improvement as Peter said, we're happy to have them improve our buildings and if they wanted to paint in pink even, they might be able to do that in the short-term impact the structural integrity. What was there and they painted it back before they left, but that's really our goal of the path of landowners to protect the structural integrity of our asset that.

Got it and just with respect to the tax treatment of the mortgage interest payments is that - will that be the same as rental income or -

Both of those loans at least on the onset are secured loans and therefore it is good REIT income and will not be part [ph].

Understand, thank you very much.

Our next question is a follow up question from Cameron McKnight with Credit Suisse. Please proceed with your question.

Thanks very much. Just wanted to circle back on Penn and the five year rental rate set, specifically just wanted to wanted to confirm the one - the reset and that will occur five years from today is dependent on where revenues stand at Penn's legacy properties relative to revenues today and secondly that the reset that's occurring today reflects really the views that that you and Penn had on revenues back in 2013?

It does reset five years from the anniversary date based on the average of the five years between now and 2023 in terms of where did we land relative to where we thought we would land, quite frankly, Cameron, this was meant to give pain relief for events like National Harbor opening and having a much bigger impact on Charlestown than it did. So if you are asking the question 'is this reset less than we expected five years ago?' Quite candidly I think it is a little bit less of a reset. We all thought that the impact on Charlestown and other competitive environments around the United States was probably going to be a little bit greater. So it's hard to go back and look five years ago what the crystal ball was like, but that's my initial sense in terms of responding to your question.

Well, and I think Brandon was just pointing out sidebar here to me that we really, really were interested in a long-term stability of our tenants. So it was kind of an interesting process. I'm just looking back those years and a couple of years it took to make this spin. We had people sitting around the table arguing for one side for the other. So it's actually a very iterative negotiation from them. So we are going to stay with Penn and those - and some didn't know which side they are going to end up. There's an echo at the table here shaking their head, pretty hard for what Penn would get and what we got. But the goal was always to get a balanced transaction that treated both companies fairly and anticipated what could happen in the marketplace up and down and to make sure that we never put our tenants under any untoward strain.

Yeah and I think just to amplify Peter's point a little bit or Peter said [indiscernible] follow, right. So it sort of amplifies the fact that giving the tenant a little bit of cushion in how they react to competitive situations that are beyond their control, they have some relief, however modest it may be.

Thanks, thanks very much.

Thank you.

Thank you. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Well, make it simple. That was a pretty robust Q&A period which we appreciate and thank you all for your interest and it looks we will be talking again after next quarter. So thank you very much. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.