Greetings, and welcome to the Gaming and Leisure Properties First Quarter 2019 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Jaffoni. Thank you, you may begin.

Thank you, Matt, and good morning, everyone. And thank you for joining Gaming and Leisure Properties First Quarter 2019 Earnings Call and Webcast. The press release distributed yesterday afternoon is available on the Investor Relations section on our website at www.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 Securities and Exchange Commission as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, Chairman and Chief Executive Officer; and Steven Snyder, Chief Financial Officer at Gaming and Leisure Properties. Also joining today's call are Desiree Burke, Senior Vice President and Chief Accounting Officer; Brandon Moore, Senior Vice President, General Counsel and Secretary; Steve Ladany, Senior Vice President of Finance; and Matthew Demchyk, Senior Vice President of Investments. Thank you for your patience. With that, it's now my pleasure to turn the call over to Peter Carlino. Peter?

Well, thanks, Joe, and good morning, everyone. As usual, we have our entire talented team present, willing and able to contribute to this call. And by the way, before I get started, we were joking, talking that we've got to find some livelier music to keep you guys entertained before we get started on this call, something a little more contemporary because it was killing me. Listen, we're happy to report another strong quarter here at Gaming and Leisure Properties, and of course, that reflects the benefit of the acquisition of the properties now operated by Boyd Gaming and Eldorado Resorts and of course, our adjusted arrangement with Penn National. There's a lot of activity, as you probably have heard, there's a lot of activity this quarter, and we're probably as busy as we have ever been. We'll see what shakes out from that, but I think we do need to highlight that as I've said over many, many years, if it's alive and breathing, you can imagine that we're looking at it and aggressively so. Look, our criteria is very strict. We, as I have long said, are not in the business of building monuments, but doing profitable business that will build value for our shareholders, which I consider myself to be first and foremost in my role at this company a kind of shareholder-in-chief, and that's the way I think about it and I expect that you do the same. I think we'll highlight a few things. Our quarterly release, I think, was pretty robust and thorough but nonetheless, Steve Snyder will highlight a couple of points that might be helpful to you. Steve, why don't you start?

Thanks, Peter, and good morning, everybody. Before I get started, just a quick housecleaning matter. This morning, we did file our quarterly financial report on Form 10-Q with the Securities and Exchange Commission. So to the degree there are any questions, feel free to peruse that at your leisure. It may address some things that will probably come up on the phone call. In addition to the 10-Q, which we filed this morning, you've already noticed that the level of disclosure and transparency in our Q1 2019 press release, which we're discussing this morning, is probably more user-friendly than any of our previous press releases as it relates to the real estate portfolio here at Gaming and Leisure Properties. Part of that is thanks to some accounting pronouncements, which have gone into effect, so that you don't see the gross-up of real estate on the revenue side or the real estate tax expenses on the expense side. Likewise, as a result of the Penn-Pinnacle transaction, at year-end, we were able to reclassify the Pinnacle, amended Pinnacle lease out of the deferred financing lease category and categorized it as an operating lease, making our disclosures much easier and more straightforward to convey to you, our investor community. Just touching on a couple of portfolio highlights. Obviously, it goes without saying, but our portfolio is 100% occupied, and all of our tenants are current with respect to their rent obligations. I'll get into that in a little greater detail in a moment. In Q1, we realized almost $255 million in income from real estate. You'll see the reconciliation of cash rent and interest income to GAAP in the financial, in the press release, in one of the newer tables that's been added. One thing I will highlight, during the quarter as a…

[Operator Instructions] Our first question here is from Carlo Santarelli from Deutsche Bank.

Just a quick one, Peter, on the comment you made earlier, which was you've kind of, that you guys are very busy and as busy as you've been. I'm just wondering not necessarily what you're working on, because I know you won't answer that, but more along the lines of what's changed, what do you think has changed in the environment out there that's maybe triggered an onslaught of new kind of actionable stuff?

Well, I wouldn't call it an onslaught. I mean, look, there are some big company stuff. You know which companies are involved. They're kind of out there and open, and I think everybody is aware of that. And then around the fringes, there's a number of properties that we're looking at in various states. I don't know that anything has changed. Steve, would you have a comment, I mean, a thought about that? Or Steve Ladany, you spend a lot of time looking at this stuff. I don't sense that there's been a material change, just a lot of little stuff we're playing with.

Yes. We, I mean, clearly, the environment with the activism has created some of the items you've seen out publicly or rumored to be public. With the exception of that, I believe that the valuations in the liquidity interest of ownership is probably driven by the fact that the transaction multiples, the comparable multiples have driven valuations as well as low cost of borrowing. And at this point, the equity valuations of all the gaming industry has also performed well. So I feel like there is a good environment for sellers to look to try to find liquidity events. And I think just as much as these are these formal processes out in the market, I think that we continue to believe that the informal discussions that are constantly ongoing are what will ultimately drive many additional transactions which are maybe not as well known.

I mean, when we look at the big stuff, I consider that homerun territory if we can find it. But we're perfectly willing to hit singles, just solid safe transactions that boost AFFO and, from my greedy point of view, boost dividends which is hugely important I think and, to me as a shareholder. So, and that's our focus.

Great. And then, Steve, If I could just on the guidance. With respect to the Pinnacle escalator, is that in the high end of the range right now?

It is. Meadows is not. But Pinnacle is.

Pinnacle is. And Pinnacle is not in, at the lower end, I would imagine then?

That's correct.

Our next question is from Robin Farley from UBS.

Yes, I just wanted to hear your thoughts on, theoretically, if there were a larger company that were to sell some assets, how would you think about when you sort of unplug a property from a large marketing database and from a large maybe sourcing, cost-saving synergies of being part of a much larger company. How would you factor in what that could do? In other words, if your, would you be factoring in that a property sort of unplugged from a larger company might see a decline in EBITDA? Or is the idea that there would be, could be something done better with it than what's currently done and you'd be actually factoring an increase in EBITDA? I guess, just to think about what your expectations would be in that scenario?

Robin, it probably depends on where that property is. And look, if within Las Vegas, I mean, let's be real clear, that's one thing. Because, again, you're typically looking at properties with way higher CapEx, need bigger coverage, are hugely dependent on database marketing and so forth as opposed to a regional property. And so it's property-to-property, but one would have to be much more careful as you look at a property on the Strip for, example. Steve or...

Yes, Robin, to your question specifically, we've done it, right? When Penn spun off as a result of the Pinnacle merger, the 3 core properties to Boyd, you'll recall Pinnacle had their mychoice rewards program, they had a central database, central warehouse for everything. It really comes down to what is the strategy that the new operator has for the asset and what access does that new operator have to the database? Does the database stay with the parent? Does the database go with the selling parent? And the property, does the property get those unique visits or those customers who are unique visitors to their properties? So there is no template whatsoever that is consistent across transactions. But suffice it to say it is something that we do consider in underwriting the acquisition of real estate.

Okay. Great. That's helpful. And I don't know if you have any more color to add. I don't know you talked about Casino Queen in your opening remarks. But is there a way to think about what your total exposure there might be? Like, in other words, you talked about the Tunica property and kind of no impact on rent and just a noncash charge. What's the sort of if, a new buyer or a new operator, could you sort of talk about what your exposure is to, I don't want to say worst-case scenario, but the downside case?

Yes, Robin, it's 1.4% of the company's EBITDA. And that 1.4% is the rent that we collect from our current tenant, CQ Holdings, the parent of Casino Queen. They jumped a little too far when they bought an asset in Iowa. Their management team was stretched in and their management team has since departed. So we do feel that anybody coming in will probably be in a position to improve the operating performance of the assets such that our $14-plus million in annual rent, we would hope will survive. It is, as I said earlier, a work in progress and that progress is something that we are heavily involved with. And we'll do everything within our power, through the remedies available to us under the lease, to influence.

Our next question is from David Katz from Jefferies.

Look, I think the details are all relatively clear. What I wanted to raise was a discussion I've started to have with you off-line that may be productive. And in our travels, when we discuss the company with investors, the question comes up around the downside scenarios for regional gaming and what happens and where the protections are and where it fits in the capital stack. I think it might be helpful to discuss some of those and how yours may compare to other competing companies, et cetera and sort of where you fit in the capital structure?

Well, I mean, we love to talk about that. Although I'm surprised that this late day, David, that that's still even a question. The regional properties we argue, of course, are infinitely more stable, reliable, dependable than, let's say, Las Vegas properties, by and large. With a neighborhood store, some of our properties don't have hotels. So CapEx is much more moderate. Yet, we have monopoly positions in a whole host of markets. I mean, I, it's just not a hard case to make that our property and our portfolio is some of the finest properties in the United States with, I should point out, some of the best operators in The United States. Steve, you want to...

David, let me give you a couple of data points. I'm looking at pricing from Friday and I'm looking at the longest-dated senior unsecured credit of our 3 largest tenants. And those yields to worst as of Friday ranged from 5.07 for Eldorado out to 5.81 for Penn National Gaming on their senior unsecured notes. Our equity closed yesterday with a dividend yield of 6.71%. And I assure you the experience that we're going through in Casino Queen, we hope not to repeat, but we certainly understand where our tenant's occupancy cost lies with respect to priorities. If they don't pay our lease expense, they don't have a building to operate. If they don't pay their unsecured creditors, they run into bankruptcy court and they reorganize. But even when that happens, I'm not aware of any lease payment that was not made throughout the pendency of the Caesars bankruptcy to any ground landlord or anyone else who had a real property interest in anything that Caesars operated through its bankruptcy. So to your point in terms of where we stand with the capital stack, and then to your second point in terms of regional gaming, we feel strongly that these regional gaming assets, because of the tax they generate for the states in which they operate and the employment that they create in the communities in which they operate, is something that will be, it won't be protected but in some way, shape or form will be preserved because of the reliance of those communities in those states on those income and employment streams. So time will tell. And unfortunately, we've talked about this, as you have mentioned off-line, maybe cycle testing our business will alert people to the durability and the resiliency of the cash flows that we have and to the value of the master leases in the cross collateral and coterminous features of our master leases. But we remain at it every hour of every day educating people on the merits of this business.

This is Matt. I'd just add to Steve's point on the master lease point. We've added the table in the release so it's easy to follow, but 40 out of our 46 properties are in these master leases that Steve referred to with the high-credit quality tenants. And if you look at what happened at Tunica, it's probably a great example. There's a very different risk profile at the individual asset level and at the master lease level. So in that situation, we have an asset that's closed that actually should enhance the EBITDA and improve the coverage of our rents versus if it were a one-off asset that we held outside of a master lease, it'd be a lot greater option for the tenant to do what they wanted and wouldn't have that outcome. And our goal is really to focus, as we do our underwriting and capital allocation, on getting more capital into that master lease credit-enhanced bucket. Because I think you're right, there is a significantly greater value and should be a lot greater multiple applied to that.

Let me highlight too that the closure in Tunica was not unanticipated. It was something that was considered from the very, very first as a possibility. They share a parking lot, look closely at cost structures. So we went into that transaction frankly with a clear awareness that, that may have been the smarter choice. It eventually evolved to be that, so there's no surprise to us here around that. It's probably a good move for Penn. Doesn't hurt us.

Got it. I, look, I appreciate the repetition of the information. I hope that's constructive we sort of all repeat ourselves for living a little bit.

Our next question is from Barry Jonas from SunTrust.

Would love to get your thoughts on another REIT reportedly interesting, interested in gaming assets.

Barry, it's Steve. Listen, any institutional investor, whether they are an investor in public securities or in private real estate, that looks at our asset class and sees the underlying value of the asset class and makes an informed decision that they see an opportunity to deploy capital there should over time help us compress the cap rates on our business such that it enhances our buying power. So at the end of the day, everybody starts panicking, there's another entrant here. Well, first of all, when there's a corner CVS that's up for the bid, there are probably 100 bidders. When there is a casino up for the bid today, there are 3 or casino style real estate, there are 3 and maybe they will be 4 with some folks out of Kansas City dabbling, it remains to be seen. But I think, anything that brings attention to the asset class and lends credence to the institutional quality the cash flow that these leaders produce is over time a good thing for us at GLPI.

But let me highlight that, and we did a report, we had unearthed that, Matt, again, a couple of years ago looking at the experience of non-gaming people buying in the gaming sector. It is a wasteland of huge loss of people who thought it would be fun, kind of cute to get in the gaming business. Isn't this exciting? And look at the results. I mean, so as they say, there's a lot of dead bodies lying out there for folks who've tried to get into this space and done some stupid things.

I'd also add to Peter's point that there are hurdles that make entry uncomfortable, especially in the majority of the limited license jurisdictions that we find most mispriced and that typically means going through the licensing process for the management team and the Board members. In addition to that, it is clear that when you've got an institutional cash flow trading at a significant discount to all other institutional cash flows, it's inevitable that you're going to have other folks validate those cash flows. But the reality here is that our management team has something like 95 years I did this math of collective gaming experience. And that means better relationships, better operational understanding, better underwriting capabilities than anyone. And our goal is not to do the most deals, but do the best deals and we're structured to do that regardless of the number of competitors.

Great. And then just on Casino Queen. I think you're clear in terms of limited exposure. But is there a scenario where you would take over operations and maybe put this in the TRS?

Barry, we are exploring all options.

Got it. Okay.

Listen, we're laughing with you. Very cryptic, but pretty clear, Steve. Thank you.

Okay. Last one for me. Just on the guidance range. So just to be clear, the difference between the high end and the low end, that's all escalators? Or is there anything else around Ohio or anything else in there?

No, it's all escalators, Barry. It's pretty straightforward math.

Our next question is from Thomas Allen from Morgan Stanley.

So when you bought the Tunica assets, you obviously paid a lower price than any other, gaming retransaction that's happened. Have you looked at it, assuming the revenue goes away on that it impacts the 5-year reset, have you looked at what the new, what like the implied multiple is? I think originally, the going-in multiple was 9.2 times. Have you thought about what the new multiple would be?

Yes, again, Thomas, Penn made a conscious decision that it appeared that they were performing at an EBITDA-neutral level. They made the decision to close this facility, recognizing that they have 2 others in the market. I believe, and you'll have to ask Jay and the operating team at Penn, I think they're very optimistic that they will capture most of the revenue from the closed facility at the 2 facilities that remain open. And I'm certain, they expect to enhance margins market-wide with 2 properties compared to the 3 that they've been performing at historically. So there is no impact, first of all, on our lease income currently. Your question is at the 5-year reset for variable rent, which will not be until 2023 at this point in time, do we believe Tunica will have an impact on the variable reset? The resorts casino in Tunica is, I'll say this, it's really immaterial, it's relatively modest. I would not expect that to drive the outcome of the variable rent reset in Q4 of 2023 in any way, shape or form.

Okay. So worst-case scenario, it probably went from like a 9.2 multiple to still sub-10 times multiple, I'm guessing?

Yes, absolutely. Absolutely

Okay. And then just in the press release, you highlighted that, you added some new language here, highlighted that you may, we simultaneously pursue transactions for assets owned and operated by entrepreneurs. That entrepreneur comment kind of stood out to me. Can you just talk about like the underwriting thought process by partnering with entrepreneurs versus one of like the more institutionalized operators?

Go ahead, Matt.

I mean, I think the key thing is to break it into pieces. The first thing, we look at the operational competency of the operator and we try to ascertain how well they'll run the operations. And then separate from that, we do have to consider the things we've brought up. So ideally we have a master lease, ideally we have a credit enhancement. There's also a market exposure question that we need to kind of consider. And we need to risk adjust all those factors to come up with what the appropriate multiple on pricing would be for any transaction. And the other piece of it is to consider any potential future business that we could do with the tenant and how that could be structured and how we should value that as well. So it's kind of a holistic consideration with all those attributes. But all things considered, I mean given our starting point, it's important to us to balance the credit enhancement strength of our public tenants with also potential growth vehicles and best potential partners that could be larger companies in the future.

Our next question is from Shaun Kelley from Bank of America

Maybe just to stick with the same kind of, the same thing as the last question. We obviously see, I think, pretty liquid market as it relates to the interest in the cost of capital for all of the gaming REITs and as was referred to as well maybe some other non-gaming triple nets looking to get into the space. But what's the appetite right now you're seeing from the opco side? Because I think in some of the transactions that some of us know are being contemplated out there, we struggle a little bit with a really deep bench on some of the operator side just given some of the same challenges that present, the barriers to entry being the licensing and all the things that you guys know well from your time as operators. So can you just comment on that, are you guys seeing appetite from any new or incremental parties that could be interesting here, that those of us in the public markets may not be as familiar with?

Yes, we looking at each other. I mean, it's still a pretty small crowd. There is no doubt about that. And I will say, there are some states where certain companies are maxed out. So you have to look a little bit more selectively at who's left and who's left standing. It's going to be interesting in the next couple of years. I think I said 5 or 6 years ago that we'll eventually have 5 major gaming companies, maybe fewer when the smoke settles down the road. It's a consolidated industry, very mature industry from the days we first got involved. So I mean, if your point is that the selection of operators is narrow, I kind of have to agree that's the case.

No, it is, to Peter's point, Shaun, it is a shortening, it is a list that shortens itself every calendar year it seems. But then you see folks like the Seminole stepping into Cincinnati, you see the Tribal interest that is going to be stepping into Bethlehem, Pennsylvania. There are a number of nontraditional, let me say it this way, nonpublic operators that do continue to remain interested in and do continue to deploy capital into the gaming space. So I'm not worried that our list of potential tenants is too finite to facilitate our continued growth by any stretch of the imagination.

And then just the other area I wanted to touch on maybe was obviously, the company's name being Gaming and Leisure Properties, we've heard a little bit more going on, on the leisure side as we look out there and some names being, starting to be thrown around there. So can you just talk about broad activity levels on things that would be non-gaming? Or is your plate pretty full just by sticking with the knitting on the gaming side right now?

Look, I mean, I think, we'll always be primarily focused on gaming. We look at various leisure things, a whole host of things almost from the day we split these companies. It's been an ongoing process. The problem is finding something that has the stability, longevity and certainty of the kind of cash flow we get in the gaming world is very, very difficult. We're looking at horizons that, in gaming that we expect to be here 20, 30 years from today. There aren't a lot of businesses where you can say the same thing with any real certainty. So we look, and I suspect that somewhere down the road, we'll find another place to be. I think it's almost inevitable if we want to keep this company growing. But for the moment, we haven't seen a better opportunity than what we've got in hand.

Our next question is from Joe Greff from JP Morgan.

Most of the things I wanted to ask have been addressed. But I have 2 quick ones for you. With respect to the Tunica closing, obviously, it doesn't impact the rent but it impacts the numerator in the rent coverage. If we were to go back over the last 4 quarters, what would that sensitivity and rent coverage be if we 0 out the property-level EBITDA related to that asset.

Joe, it's immaterial. As been commented on by Penn National, they made the conscious decision to close the facility because it was, I think they have stated publicly, EBITDA-neutral or very modest. So in terms of any negative impact from either the variable rent or the coverage and therefore, our ability to realize escalators. I would hope long term that this is a decision that's being made with an expectation, as I said earlier, to improve market-level margins in Tunica across the 2 remaining properties and should be portfolio enhancing for us even though it is really a small component of what we do at Penn.

Great. Okay. And then another sort of relatively nonessential but smaller question is. With respect to the guidance, you mentioned the change versus the last quarter as it relates to Penn's Ohio casinos. Can you just quantify that amount? How much of that relates to weather in 1Q versus anticipation of performance there in 2Q to 4Q?

I would have to leave that, Joe, to the Penn guys to address. And I think they touched on it briefly in their call.

Okay. And but then the rent impact to you then versus a quarter ago?

A quarter ago or year-over-year...

Just the guidance today versus in February.

To guidance in the quarter, it ended up being about just short of $1 million in negative impact.

Our next question is from John Massocca from Ladenburg Thalmann.

So most of my questions have already been answered as well, but on a detailed level has there been any progress on making kind of regulatory headway towards getting Lumiere on a true lease or to kind of finding a suitable substitution property?

John, as you know, Lumiere has a mortgage under it to its first anniversary. It's got a note that matures on its second anniversary. We have had some discussions with our, operating tenant, with out operating partner, Eldorado, about the various alternatives that are available. There has been no material progress. When there is, rest assured you will hear from us.

Okay. Understood. And then do you have any power as the landlord to kind of influence the sign-ability of a lease and therefore, who your tenant can sell their operations to? Both with regards to maybe Casino Queen specifically, given the current situation they're in and then maybe more broadly across the portfolio?

Yes, we do. Each lease has different successor tenant stipulations built into it. Some are straightforward hurdles, I wasn't going to say simple hurdles, but straightforward hurdles with respect to licensing, with respect to operating history, with respect to size and scale and scope. Because obviously, we're much more concerned with a Boyd successor, an Eldorado successor than a Casino Queen successor. But each lease has its own unique set of standards and stipulations for a successor tenant.

This concludes the question-and-answer session. I like to turn the floor back to management for any closing comments.

Well, if that's it, we thank you all for dialing in today. I hope it was helpful, and we look forward to seeing you next quarter. Thanks, again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you, again, for your participation.