Greetings. Welcome to Gaming and Leisure Properties Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Thank you. You may begin.

Thank you, Sherry, and good morning, everyone, and thank you for joining Gaming and Leisure Properties third quarter 2021 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 materially 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 risk factors and forward-looking statements contained in the company's filings with the SEC, including its 10-Q and in the earnings release 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 at Gaming and Leisure Properties. Also joining today's call are Brandon Moore, our Chief Operating Officer, General Counsel and Secretary; Desert Burke, Chief Financial Officer and Treasurer; Steve Ladany, Senior Vice President and Chief Development Officer; and Matthew Demchyk, Senior Vice President and Chief Investment Officer. With that, and as always, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you, Joe, and good morning, everyone. Here with our entire team, as usual, hopefully, to answer your questions thoroughly. We're very happy to report another eventful quarter. And as always, this is all well detailed in our press release. But notably, we have closed on the Tropicana property in Las Vegas with Bally's, and begun our 50-year ground lease. Pretty excited to finally put that one to bed. And we're working to close what will likely be a combination of Tiverton and Biloxi also with Bally's, of course, subject to a final approval in Rhode Island, which we are hopeful will happen fairly soon. And finally, and I think most notably, we have opened what I'll call a pipeline. It's a word that many of you know I hate as we've never had a pipeline. We kind of make it day by day. But in this case, we actually have done that with PENN National -- forgive me, Penn Entertainment, I've had 50 years to call that place Penn National. So looking across the street through our window right now, saying, I guess, it's now Penn Entertainment. So -- which is pretty exciting. We have worked with them to allow them to take a couple of properties out of our existing master lease, Aurora and Joliet, and moved to much more advantageous locations in a pretty exciting transaction. Also, we will fund a long overdue hotel in Columbus which you would recognize was much more difficult, if not impossible, for them with the lease arrangement that we previously had. So all of this transaction was done to make some of these things possible. Also, we are talking about another tower at the M in Las Vegas, which is having great success in that market. So these are some pretty exciting opportunities for us to put money to use with one of our major tenants and then consolidate all these new properties and a couple of stragglers we had out there independently under a new master lease with terms that are more fixed, which is something that we've wanted to achieve for a long period of time. So all in all, there's a lot of good stuff happened this quarter, and we're looking forward to the balance of this year into what ought to be a strong year next year as well. With that, let me ask Desiree Burke to highlight some financial items.

Thanks, Peter. Good morning. Our total revenue from income from real estate outperformed our third quarter of '21 by over $50 million. As you all know, we closed on the quarter's Live! transactions this year, which increased cash rental income by approximately $31 million. We also closed on the Bally's Quad Cities and Black Hawk properties in April of this year, which also increased our cash rental income for the quarter by $3 million. We achieved our escalators on our Pinnacle, our Boyd, our Belterra and PENN leases, which added another $3 million of cash rent for the quarter over prior quarter, and we had noncash revenue grows up investment in leases and straight-line rent adjustments of $10 million. Our operating expenses decreased by $57 million, and that's really due to the gain on sale of our Trop Las Vegas building of $67.4 million, which is offset by the gain on Perryville last year of $14.8 million. We also had a decline in our G&A expense also related to the sale of the TRS operations in 2021. Offsetting those declines in expenses, we did incur noncash charges related to our land lease gross-ups and land rights amortization of about $2 million. We have included in our lease full year 2022 guidance of $3.52 per diluted share in OP units between $3.52 and $3.54, that is, which does not include any impact of pending transactions. Lastly, during the quarter, we completed an ATM equity raise, a forward equity transaction and continue to strengthen our balance sheet. Our leverage position is right on time. So we feel very confident in our balance sheet at this point in time. With that, I'm going to turn it back to Peter.

Well, thanks, Desiree. We have Matthew Demchyk on the line from a remote location. Not too far away, though. Matt, would you add your comments, please?

Sure. Thanks, Peter. Good morning, everyone, and thanks for joining us in these interesting times. Our core gaming triple-net lease business model is relevant now as it's ever been. And that relevance spans 2 fronts. First, with potential transaction partners. As the financial markets and broader economy have rapidly changed with higher debt costs, with unpredictability, the interest from operators in the dialogue with GLPI is robust. The same folks who saw our sale leaseback proposition as expensive debt last year, now better appreciate its permanent nature, as well as the fact that our sticker price is much more competitive with prevailing debt costs. This results in a strong value proposition for our tenants. The second area of relevance is related to institutionalization. As the world focuses on risk and risk-adjusted returns, our business model shines brightly. And rightfully so. Pound for pound, regional gaming real estate continues to stand out as incredibly attractive compared with other investments across the real estate spectrum. Since we've last discussed the topic, we've watched economic and structural headwinds significantly impact a number of property types that were long considered blue chip holdings. While our business model has remained as solid as ever. We continue to build on a track record of cash flow resilience amidst the uncertainty and stand to benefit from far greater institutionalization over time. When it comes to institutionalization, we're in middle innings at best, with a lot of game to go. I'd be remiss if I didn't say go Philly's given the baseball analogy. The backdrop of volatility and heightened uncertainty also underscores the fundamental truth. You cannot predict the future. But we believe you can prepare for it, and we've done just that. At a time when uncertainty persists, you can be certain that our do-it-right, sleep-at-night balance…

Matt, that's very helpful and appreciated. So I think with that, you've got our team here. Sherry, would you open the floor to questions.

[Operator Instructions] Our first question is from Neil Malkin with Capital One Securities. Please proceed.

Nice quarter. First one from me, I guess, Peter and then maybe Desiree tying in is, obviously, the recently announced promotions. First off, congrats. But you gave some commentary maybe a couple of quarters ago, Peter, about the sort of, I don't know, ambiguity of the C-suite in terms of titles and roles. And you really kind of hammered the point home that you were really happy with how things were going. Balance sheet was in a great place, which it continues to be. And so I'm just wondering what caused the change to name the roles officially just from that short time ago?

Well, frankly, just as time has gone by, this underscores the reality of what occurs here. But I want to emphasize one point. While we'll ultimately publish an org chart of some sort -- I guess we're still talking about internally here, we don't function that way. Not then, not now, and hopefully, while I'm around. Not in the future. We work as a partnership with co-equal players, and I can't emphasize that enough. So all the folks that you've got on this call, each one is a part of every decision we make. My mantra internally, and I think of it this way, is that I don't have to be right, but I do have to do the right thing. How we get there is what we as a group and as a partnership achieve. So what this -- nothing's changed internally. We still function the way we always did. But I felt it was time to close out those positions and to highlight the reality of kind of how it all works today. But -- and partly, it's just a matter of long-term skills, time and grade with the folks that we have here. So I wouldn't read too much into it at all. It's business as usual. We've got a great team. I think the best team, and that's all I could underscore.

Okay. Great. Peter, I think the other question I have is on development. And I guess that kind of feeds into your favorite word, Peter, the pipeline. Could you maybe -- I don't know if, Desiree, this would be your category. But could you help us understand, now that it's grown pretty recently, what are the amounts and economics on the existing and potential development? And the Casino Queen going land side, I mean the -- in Baton Rouge. I mean, the cost for the relocations in Illinois. And just kind of how you see that playing out, costs and again, economics would be extremely helpful.

Sure. So we continue to work on our relocation in Baton Rouge. It shouldn't be a significant spend. We have about $40 million remaining to spend on that project throughout sometime in '23 is when we expect it to open. As far as Illinois, we have committed to $225 million for the relocation of the Riverboat in Aurora. And then we've also committed to the $350 million for the other projects that Peter mentioned earlier. The cap rate on those other projects is to be determined in the future once we know current rates and timing of those projects. Does that answer your question or is there any other...

Yes, sure. I guess -- so the total cost, you think, for Baton Rouge is going to be, what, is it like -- you said $40 million left to spend. What is the total going to be then?

$60 million in total, we've already funded a little over $20 million, and we have $40 million left to spend.

Yes. Now I should add, there are soft costs beyond that, which we are not involved with. So to be clear, that's not the total project. That's our piece.

Correct.

Sure. Helpful. And then, I guess, just to get clear it up. If the projects in Illinois, I'm sure they're going to be great based on the commentary you gave. But if you guys don't get the returns that you are underwriting, are you still confident in the coverage you'll have on those 2 properties?

Yes. I mean we definitely expect to get a return. I mean we do have an implied cap rate there for the Aurora project for sure. And all accounts show that the project should be very successful for PENN and therefore, the coverage great for GLPI. It is also going into a master lease that has other properties that are performing well within it.

Our next question is from Barry Jonas with Truist Securities. Please proceed.

Great. And congrats to Brandon and Desiree. I wanted to start, given the current capital markets environment, has the deal pipeline shifted at all? Do you think there's been a reset in seller valuation expectations or not just yet?

I'm going to give that to Steve for a minute. I think everything is still fluid, but we see plenty of activity out there. Steve, why don't you take -- just take that one. That's today.

Sure. From a pipeline perspective, the -- we remain very active, potentially more active than it's been in the prior quarters. I would caution that, though, to your second question, which is that, yes, I do believe sellers have not necessarily stayed connected to where the capital markets currently reside. So I do think there is a disconnect on certain instances, with certain transactions between what the seller's expectation may be and where buyers borrowing costs have moved to. So I do think we could see a little lull, even though it's very active, before everyone kind of resets new expectations and new levels. I would say the only other area that kind of falls under the pipeline is from a development perspective. New greenfield development projects where, obviously, as you would guess, starting to see more and more of those come across our desks, mainly because the financing market for project finance is either unachievable or just too expensive. So we're starting to see a bunch of those things. However, again, I would caution that we need to be disciplined. We need to get a return for our risk and compensated for our risk. So as our borrowing costs come up, the spread we would need to get above and beyond our cost of capital would remain substantial. And then the individual risk associated with each of those projects would obviously layer on another economic attribute. So long-winded way of saying we're very active. There's a lot of stuff going on right now. But I'm not sure that the marketplace on the buyer and seller side are seeing on high.

Got it. Got it. And then just as a follow-up, Peter, you've talked over the years about your preference for regional markets over the Strip, given sort of the inherent risks around destination markets. You've obviously dipped your toes in the water with Tropicana. But as GLPI gets bigger and bigger, is there more of an argument to increase your diversification into more sort of Strip assets?

Look, we've never had any ill feeling towards Strip assets, it's just a matter of cost, that we found more value in the regional markets. I will say this, I've been chasing a little bit following this latest downturn and recognizing through -- after COVID, that the Strip proved to be a lot more resilient than I would ever have guessed. Ever have guessed, quite candidly, really. I mean we knew what would happen in the regional markets and people -- the first minute they could crawl out of their door, went head over to our properties and did so with great enthusiasm. But Vegas, I was a little bit more cautious about it. And I was wrong. Frankly, you see the result. So look, it's only about money. There's nothing that we won't own. I'll go both directions. We'd love to have Strip properties. I've often said to many of you that I'd own a shack in the beach with no windows and doors if the cash flow was rock solid. We're in the cash flow business. That's kind of what we do. So big, small, it's simply can we get a proper return -- a proper spread to our cost of capital and manage our balance sheet effectively at the same time. So no, no prejudice. We look at Vegas assets, frankly, all the time.

Our next question is from Greg McGinniss with Scotiabank. Please proceed.

Once again, I like to pile on off my congratulations to Desiree and Brandon on the new titles. I've also been getting some incoming calls about the impact of these new titles as it relates to Steve and Matt. Maybe this goes back to your entire partnership, is there any change to their roles or reporting structure or ability to make decisions and influence the direction of the company?

You're reading much -- too much into this. All we've kind of done is solidify what has transpired over many, many years. This doesn't change Steve's position, doesn't change Matt's. Matt made some significant commentary earlier. Steve is pointed the spear and much of our new stuff. So again, we operate as a partnership. I cannot emphasize it. We sit around a table. Each of the people you've mentioned at every transaction, every financing, everything that affects this company involves every single person. Nothing passes that the group doesn't sign off on. That's just the way it is. it's the way we choose to operate. I've got a great team here, and it's really all I'm going to say about it. I mean it just is what it is. No diminution of responsibilities for anybody.

Got it. And then just a couple of balance sheet funding questions. One, what's the team's views on the interest rate environment and how it impacts your business? And two, on the capital raise side, the ATM usage was maybe a bit out of your historical norm and raising equity with no immediate acquisition. Just what are your thoughts on the execution of ATM and holding cash in the balance sheet as well.

Des, do you want to take that?

Sure. So our equity raises were in line with at the funding of our PENN transaction at some point in the future as well as our $500 million bond that's due next year. Depending on what rates look like at that time, we'll make a decision as to how to deploy the capital that. We were happy with the $51 price raise in order to fund those transactions and lock in some of accretion.

Okay. And how are you thinking about interest rate environment impact in the business or [indiscernible].

Capital markets are affecting all of us quite a bit. The interest rate environment is something that we need to be cautious about and understand and prudent and disciplined. In our financing our transactions, we look at it. Every day, it changes. So trying to pick a cap rate to finance a transaction at this time is definitely a challenge. But we are working through it and we are continuing to look at all deals that we think we can get done in active manner.

Yes. Look, we have two formal meetings over the last couple of days. We involved everyone on this team aforementioned around that very subject. I mean, we don't have a crystal ball as do none of you. And we spend a lot of time talking about what the possibilities are, how we protect ourselves. Because, look, we're in the long-term business. Short-term borrowing is not an answer to the kind of stability that we're looking for. So I'm not sure we can answer anything until we actually get confronted with the next transaction, what's the market look like at that day and time. This is kind of an hour-by-hour, day-by-day situation that we find ourselves in. Gratified to see, however, that the market is up today and that our stock is trending in a positive way. So I wish we could give you a clear answer. It's -- I think Des answered it correctly, that we'll see as we get there.

Our next question is from Haendel St. Juste with Mizuho. Please proceed.

So I guess stepping back for a second, perhaps what can you tell us about why you don't expect Lincoln to close now because of the Biloxi. And I assume you still retain an interest in acquiring Biloxi it were to become available. How much notice would at least be required to give you? And how does that impact your thinking on balance sheet strategy?

Let me -- Steve, do you want to handle that or Brandon?

Yes, I'll take a shot at it. So I think the short answer to your question on why we -- why we're decided that we're buying Biloxi and Tiverton is just the lender consent has not been achieved by Bally's. So they do not have a lender consent in hand, therefore, they cannot sell us the real estate in Lincoln at this time. What that does mean is we'll have an option to acquire Lincoln at the same terms that were negotiated originally with respect to the acquisition. And we'll have, through December 31, 2024, so we'll have a little more than 2 years, with that option with that fixed price locked in. I don't know -- was that at all the questions?

I was curious also as well as how much notice would they be requiring to give you if at some point they did get levered and how that kind of impacts your thinking of balancing strategy here over the next period?

I don't remember. You have to go back and look at the agreement, I don't have it off the top of my head. I think it was 60 or 90 days, but I think the reality is that we're in constant communication with the Bally's team. We understand the complexity of this lender consent process. And the reason I think you're seeing a 30-month option in there is we didn't want to get in the way of Bally's business decisions and their relationship with their lenders as they navigate those waters. So from our perspective, the Biloxi and Tiverton acquisition is a good acquisition. Those are good properties. And we feel as though the Lincoln property will eventually be in our portfolio, but the Bally's team needs time to get through their other issues. And we felt 2.5 years was a lot of time to do that.

Yes. Look, they may have to reset their financing along the way to make moot the lender consent. They've got a lot of stuff on their plate, and I suspect they'll be back to their bank group often over the next year or so. So that we're quite happy to take the assets we can take today and looking forward to achieving Lincoln later.

Got it. Got it. Okay. A question on the $500 million maturity next year, I see the rate 5.38%, which, I guess, looks pricey in the rearview, but offers less refinancing headwind than many REITs are facing today as lower cost that comes due. I guess can you talk a bit more about what options today you're considering for the refinancing, where you could issue 10-year unsecured today? And would you consider perhaps shorter term?

Right. So we haven't -- as I said earlier, I haven't made the decision on what we want to do with that. There is a potential that we use our free cash flow and the forward equity that we have out there that is scheduled to mature in August of next year when we have the no par call date on the $500 million bond. I think our rates that we would be looking at is probably 7.5% or so for a 10-year bond, but there's nothing to say that we would actually enter into a bond at that yield.

Okay. And then last one, if I could sneak it in. Peter, for you. Last week's chatter about new casinos here in New York City. I guess I'm curious how do you rate the prospects of that occurring? Any possibility that you can be involved in any way? And then how do you think that would impact the broader freight area and maybe a ripple effect in the Northeast, your assets included?

Why don't -- yes, it's going to have an impact. There's little doubt about that. That's why I'm arguing for years that Northern Jersey, ultimately, is going to have cave and figure out a way to keep some of that business close at hand. But let's say this, I don't want to say too much, except to say that we've had some conversations with prospective developers. That's -- Steve leads that process, but I've been with him on occasion. So Steve, what are you prepared to offer on that? I don't want to say much.

Yes. No we've met with a number of the parties involved. We're not exclusively tied to anybody, and we're anxiously watching what's unfolding. I think at this time, I think we -- back to my comments earlier about greenfield development project financing dollars, I think we continue to think that some of those projects could have some difficulty with their financing if it is a $3 billion number. But we're close to the situation. We're talking to a number of folks, and we're anxiously awaiting to see how it will play out.

Our next question is from Jay Kornreich with CMBC. Please proceed.

I guess going back to the going back to the pipeline, can you provide any update in terms of further potential opportunities with Bally's and the Cordish company? And in addition, any further interest into nongame investments they might be looking at?

What was the last question? Oh...

Any further interest into nongaming opportunities.

Yes. So maybe I'll touch on Bally's and the Cordish side from a gaming angle, and then maybe I'll let Matt touch base on Cordish and the nongaming piece as well. So from a Bally's perspective, we're in constant communication with the company and their -- and some of their stakeholders. I think we're always trying to be helpful to any of our tenants, not just Bally's, but as you can see with the transaction with Penn, we've had conversations with Boyd. We're always trying to be supportive of our tenants in whatever capacity we can be. And so we'll continue to have dialogue with them. I don't think right now there's a current need for us to be involved in any capacity with the current assets they own and run, other than the ones we've already contracted with. And so that's kind of our focus now, is getting those things to the goal line. With respect to Cordish, we've worked closely with them on a number of different potential acquisitions in the last few quarters and have not gotten to the finish line. But we do have ongoing dialogue with them and look to try to help them grow and expand in the ways in which they aspire on the gaming front. Matt, maybe I'll turn to you now.

Sure. Yes. So on nongaming, we continue a very robust dialogue across opportunities with all the right folks. But you have to remember, our base case is bottom-up decision-making. And the question is, is whatever we're going to do going to increase long-term intrinsic value per share. You know or cost of capital, pricing of opportunities in gaming, outside of gaming. When that algorithm flashes a green light, we're more than happy to move and do it at scale. That said, we're also not pressured to keep up some pace of activity or do things for the sake of doing them. Our goal is not activity, its progress. So I'd say more broadly, the fact that the Fed has effectively lifted their thumb off the scale and the subsidy for debt across the capital markets is now somewhat, in volatile way, being removed from the market, they very well could be opportunities. Where our mentality around making bespoke structures for folks that are a win-win helpful to them, but also achieve our economic goals, maybe more and more relevant, the reason we're at the table for the conversations. And that, by the way, is the same in and outside of gaming. But at the end of the day, if we're selling a piece of our portfolio in the form of equity to do something new, its merits have to be more attractive than our starting point. And we haven't found anything to date that's check those boxes. But we'll see. This next 6 or 12 months could be really interesting depending on just how dislocated aspects of the capital market get, and how big the advantage we have because of our solid and dependable balance sheet and access to capital compared to some of the folks that may not be in that position. It might make great partners for us for the long term.

Matt, let me add to that, look, as much as we'd like to find and continue to look for other opportunities, it makes more sense for us to put money and, say, a hotel in Columbus, Ohio at that outstanding property that -- an enhanced performance there, then to go off in some other area. We haven't run out of gaming opportunities yet. I mean maybe that day will come, but it certainly hasn't happened now. And we have several years of visibility ahead of us of some pretty nice projects. So we're quite content to suffer along with where we are in the gaming space, if you will.

And then as a follow-up, going back to the development time after recently announced. Can you maybe talk about just how that process came together and if it's replicable for other operators that might be looking to tap your capital for add-on opportunities instead of the debt capital markets?

Well, let me say this. We're highly motivated to work with our tenants. I mean that's kind of our job, to be -- we want to be the REIT of choice for our tenants and develop a reputation as people willing to make things happen. It was no small deal to take an unwind -- turn you over to Desiree to talk about how difficult it was the pull properties out of our existing master lease. It is very, very complicated. But Penn had an objective that they wanted to achieve. Our job is to try to figure out how to help them do that, which I think we've done. Now part and parcel of that, by the way, were some lease adjustments that were favorable to us, that we wanted and I think we achieved, to get less variability, which was a long-term goal of ours. Plus, we took some disparate properties that were outside the master lease and rolled them into the master lease for strength and stability. So I mean we're constantly on the lookout, if you will. Clearly, for Bally's, we've been an answer to a whole bunch of things that they have asked us to support them with, and we'd like to be in the future. Where it may apply to us, may not. But where we can, we're highly focused on being supportive of our tenants, and we talk to all of them.

Our next question is from Brad Heffern with RBC Capital Markets. Please proceed.

I know in the prepared comments, you said you're hopeful that the Rhode Island assets will close soon. I'm just curious if you can give a more detailed update on where exactly we are in the regulatory process there.

Brandon is best equipped for that?

So we have -- at GLPI, we've made all the applications and submitted all the documentation that's been requested of us in Rhode Island. Keep in mind, Rhode Island with only 2 assets has no REIT in place at the moment. And so we're the first REIT to come to Rhode Island. We're working closely with the regulators. I think we are optimistic on our side, having been licensed in all the other jurisdictions that we're licensed in, that this won't be a problem for us. But I think it's a process in each new jurisdiction. We went through it in Delaware, now we're going through it in Rhode Island. It's hard to predict exactly when that will occur. We're still hopeful that, that will be into the year, so around the end of the year, and put us in a position to potentially close on those assets in early January. But I hate to get in front of a regulator in doing their work, and there's clearly a lot of work to be done and getting us to the finish line. But we have no reason to believe we won't get there on a timely basis at this point.

Okay. I appreciate that. And then the forward equity raise was a little bit different during the quarter. I'm curious if you see that as a preferred way to raise capital going forward in order to manage the dilution when you typically have deals that don't close for a number of months.

I can take that, Matt, if you want to.

I'll start.

Sure.

I'll start, you're free to add. The simple answer is yes. I mean the fact that our business model necessitates some very long period between the issuance of -- or the placement of the equity and the actual need for the cash, it's a model that certainly people have used widely. And in our case, once we used up the, call it, capacity we needed towards the Bally's transactions to fund them and keep us well within our range, the excess we then pivoted to using that as a tool. And as we go forward, it will give us the ability, when thoughtfully used, to effectively prefund opportunities and have some optionality, to Desiree's point with the balance sheet, given where debt costs are. And it just gives us another tool in the tool chest for us to be able to better and more cleanly fund future growth.

Our next question is from David Katz with Jefferies. Please proceed.

Can we just talk about one of the avenues of extending capital on a credit basis, effectively issuing loans or notes as an avenue? Can you just talk through sort of the puts and takes of using that as a vehicle for growing the business, growing revenues?

Look, I'll give you a quick comment that loaning to own can make some sense. But we're not a bank, we're not in the straight loan business. Matt said something important earlier, of course, that our cost of capital now is a lot more appealing than it was a little while back. So that we can be more competitive now. And yes, we would consider and have talked with folks about that very possibility. But we're real clear, we have to own the real estate at the end of the game.

Yes. And I think you've seen in our history, historically, we have got loan-to-own basis. I mean, that is how we got the Lumiere asset, the Belterra Park asset, and they were both loans that got transferred into our REIT and our lease restructure.

Yes. I mean I think we use loans strategically. So we use loans as part of a way to solve problems or as part of a bigger transaction. And sometimes, you'll probably see us use them as an element of safety. So if we're not sure when the asset will start generating revenue or something like that, a loan permits us to put capital to work at an interest rate during that period. So I think loans can effectively be used in our business to as a means to an end, but not as an end themselves.

I think that's totally fair. And do they -- I mean it would seem that, that evolves a bit more favorably in the current environment. Is that a fair perspective?

Yes. We're all looking around the table who wants that one. I mean the answer is yes.

[Operator Instructions] Our next question is from Smedes Rose with Citigroup. Please proceed.

I guess just thinking about your thoughts on capital and some of the things that you've said on this call. When you look at gaming operators, maybe smaller ones that are sort of outside of your sort of current tenant base, I mean, do you have a sense of that maybe they'll need to kind of reset expectations more quickly given sort of looming refinancing issues on the horizon, and we're hearing that credit is very much pulled back into that sector? I'm just wondering if you're sort of seeing that. And maybe -- and just maybe there'll be a realignment of expectations like more quickly relative to what we might see in other asset classes. Just kind of wanting if there might be more opportunity over the next year than we all realize.

Well, Smedes, we're hopeful that's the case. I mean it comes down to what do people want versus what do they need. And you're right, to the extent there's any looming maturities, the cost right now is certainly not what people pro forma back when they entered their investments. And that's where the dialogue that we talked about previously on the call really comes into play. And to be able to structure a solution that gives us the back-end look at the real estate, but in real time gets them a bridge from here to there, it's really important. It was even, frankly, a piece of the dialogue with Penn, right? I mean they're in the market, where incremental development costs, to Steve's earlier point, is a little more expensive than they like, and it made a lot of sense for us to figure out a way to help them permanently finance those properties. And that's the flavor of the conversations in real time. The question though is, yes, price discovery. And it's our job to stay disciplined on how we price our capital, and we've got to wait for the game to come our way in some cases because there's some bid-ask gap. It's like the house sale looking backwards, and knowing what his house was worth 6 months ago and the fact that mortgage rates have doubled and probably not worth that anymore. But that doesn't matter until the person to sell the house, someone has to buy a house. We're in that phase, but at the same time, it feels like fertile ground for things to happen.

Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed.

Two quick ones from me. Just going back to the pipeline. You talked about sort of loan-to-own opportunities and stuff. Can you just contextualize just how much is that taking up versus just straight sort of real estate buy?

Every one of these is kind of -- it could span the spectrum. I mean people have something they're trying to solve for, and we step in with a solution that directly your, in the future, ends of the real estate. So I don't know we can tease out and say this is specifically to that. The only exception is related to developments maybe where there's some more dislocation in real time, that people may be at first looking for a loan solution before and sort of sale leaseback or 2-step process. But broadly, it's really the conversations are, hey, how do we permanently solve our debt position.

Yes. And I think from a broader context, our goal is always own the real estate, right? So first and foremost, in any transaction we're looking at, our goal is to add a real estate asset to our portfolio. And if the loan is an avenue to do that based on the facts and circumstances with whatever tenant it is, a current or a new tenant, that's something we'd certainly consider. But it doesn't change our goal of owning the real estate.

Great. And then my last one was just on the new Penn Mass relief, obviously reduced some of the variable rent exposure. Is it -- just from going forward, is the thought that now you're at a level that you're comfortable and that will naturally decline as you sort of do more deals? Or is there any thinking to potentially trying to get that a little bit down even more?

Yes. So I'll take that. Basically, we reduced our variable rent component from around 12% to around 6%, right? So this transaction significantly reduced our exposure to the revenue reset, the percentage rent reset. It also shored up our escalation as we have guaranteed escalation on the entire balance of that new lease rent rather than just a component of it, and it is fixed escalation as we move forward. Both of those were a lot of our goals. We don't have an extreme amount of variable rents in the future that we would be concerned about. So I think that we're happy with the position that we're currently in.

Yes. Look, we love the variable rent when it was going up. Made us very happy. But look, what goes up can also come down. And look, in this REIT world, as we well understand, certainty is a lot more important than maybe the opportunity. So nailing this down has been a long-term goal at the request, frankly, of many shareholders. And so we got there, and we got there at a good place with where those properties were performing at the time. And we feel pretty good about that accomplishment. And really, excited about the good stuff this means for Penn. And having developed many -- most of the -- well, frankly, all of the new Penn properties over the years, I'm excited to see hotel go up in Columbus, better and newer facilities in Aurora and Joliet. And the M has long needed a tower, that property is doing extraordinarily well and needs more capacity. I mean, literally, their -- well, I'll just leave it at that, desperately needs more capacity. So these are all good things that are going to unfold over the next couple of years, and we're quite excited about that.

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

So in terms of the smaller Bally's transaction, what are the debt needs associated with that investment, especially in the context of the kind of tax indemnification, negotiations with the tenant? Is that kind of covered by a smaller debt amount that was kind of originally contemplated in some of the documents released around the original deal?

Yes. That smaller transaction requires $600 million of debt financed proceeds, and that $600 million is coming from the new term loan credit agreement that we entered into in September and announced that allows Bally's to guarantee GLPI's debt for that transaction.

Okay. Perfect. Is financing on that -- is the rate on that term loan fixed at this point? Or is that something you need to go out in the market and fix as we get closer to closing?

No. Our term loan is the same basic floating rate that is exactly what is in our unsecured credit facility today.

Okay. And then in terms of the $350 million of potential kind of development funding beyond Aurora that's in the Penn deal, how is the cap rate for that going to be determined? It's in kind of market cap rate, but is that something that's a de novo negotiation? Or is there some kind of economic parameters put in place to determine that?

John, I'll just say it's a nonpublic dynamic pricing structure that's pretty discrete. There's not any qualitative factors in it, but we haven't given specificity. I will say it's based on spread to our permanent capital cost to make sure that we'll have an appropriate spread for our shareholders. What we didn't want to do upfront was lock in the cap rate on the entirety of projects that would go well into the future, because the backdrop like we talked about, is pretty volatile. So we broke things up to the 2 25 at the prescribed 7 75 cap rate, and then structured this other piece so they could be sure that they have capital, if they ask for it, at the current price, and we're not obligated, but we give a price outside of what we've put in place.

Okay. And then in terms of some of that funding. I mean how contingent are some of those projects on you providing the funding? I'm just thinking, Columbus, for instance, do they have to come to you to fund that hotel expansion? Or if whatever reason they can find a better pricing out there in the market in the future, is that something they could do without tapping that $350 million?

Yes. The answer is yes and yes. I mean it's completely at Penn's discretion whether or not to take our funding and whether or not to do the project.

Our next question is from Robin Farley with UBS. Please proceed.

Actually, my question has been answered offset.

And our final question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.

In terms of the new Penn lease, right now, as it's structured, I guess, it looks like the dollar amount actually maybe slightly higher, if I'm not mistaken, on an annualized basis. And you mentioned that you shifted a lot of the variable rent to fixed rate -- to fixed rent. So bigger base for the escalator, which came down, I think, about 50 basis points, right? And Peter, you mentioned the variable rent is good when revenue is rising, but can cut both ways. I mean how do you feel about the variable rate portion today, which, Desiree mentioned, still a little over 6%? Any sense what's going to happen there? And can you remind us on the timing of the next reset?

Yes. So obviously, the remainder of the PENN lease, the percentage rent resets happen and they happen in 2023 in November. And that is a five-year period that you will be looking back on that transaction. And in that 5-year period, we had COVID. So we certainly expect a percentage rent reset down next year. We haven't quantified the amount, and so we have a full trailing 5-year history.

Yes. But you're right, five years later, it can go back up as well. So it does go both ways.

I would expect it to. We won't have 0 in the next 5-year period.

Exactly. Exactly. Although I think, on balance, this is a good transaction for us and for shareholders.

Okay. In terms of the variable rent though, that remains in the newly structured lease, any sort of sense or maybe if you could book-end what type of adjustment or range that you might be looking at today? Realize there's still a bit of time between now and the next reset, but how should we be thinking about that?

Yes. So it's a nonpublic number, and we don't know the number yet. So I'm not really ready to book-end it. Well probably when we put out our guidance for 2023 in the fourth quarter, you can look for what that number will be.

Yes, we're not privy to any information that you don't have. So...

Okay. Understood. And then just last question. I just wanted to go back to Lincoln real quick. And I'm just curious, what exactly -- what hurdles or why was lender consent not necessarily achieved? I mean any color there in terms of what happened or why you -- lender consent was not necessarily achieved by so far?

Yes. Look, it's Steve. I can only speculate, right? It's not our lender consent. We're -- it's not our lenders. So we can only speculate. Look, I think I think it was tough timing when they launched their amendment. It's kind of when the market started to show some cracks. I think there's -- obviously, with all amendments, there's a level of paydown that was probably anticipated, a certain amount of fees and expenses that were anticipated and then whatever other qualitative changes were being requested. So where it all did not align, I can't really speak to that. I think we feel very comfortable, though, that in the next 2 years, there'll either be in a moment in time where all parties, the lenders and the company, company being Bally's, decide that it makes sense to reengage and cut a deal on their current credit facility; or we feel comfortable that the parties and Bally's effectively needs to recut a brand-new credit facility, in which case, they'll then make sure that they remove the language and will accommodate us acquiring the assets. So I think we feel good going forward over the next 2-plus years, but I don't have a perfect answer for you as to why it didn't align.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mr. Carlino for closing comments.

Well, thank you, Sherry, and thanks to all of you who have dialed in this morning. We're happy with this quarter, looking forward to next and we'll catch you in a couple of months. Thanks, and have a great weekend. Bye-bye.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.