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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today May 01, 2020.
I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties. Please go ahead.
Thank you, operator and good afternoon. Everyone should have access to the company's first quarter 2019 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements which are usually identified by the use of words such as will, expect, should, guidance, intends, projects and other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.
During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2020 earnings release and our supplemental information.
Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; and Gabe Wasserman, Chief Accounting Officer. Ed and team will provide some opening remarks and then we'll open the call to questions.
With that I'll turn the call over to Ed.
Thank you, Samantha. Good morning, everyone. And thanks for joining us. Here is what is foremost at this time for us and that is that we hope that all our stakeholders are weathering this crisis as best as can be hoped. Our hearts go out to any who have been stricken by this virus and to the hundreds of thousands of US gaming industry employees who have been furloughed for the past few weeks. Those stricken, we wish a speedy recovery and to those who've been furloughed, we wish for reopenings to come soon and come safely.
We held our last earnings call on Thursday, February 20th and in my opening remarks I focused on the ways in which VICI's relationships have fostered the building and bettering of our REIT. I talked on that call about our relationships with gaming operators and asset controllers, our creditors, our own people and of course you, our stockholders.
Today, about two months after our last earnings call, I want to talk about another critical VICI relationship and that is our relationship to reality. The essence of our relationship to reality is this, we don't deny reality, we don't fight reality. We manage our business so that we make the best we can, a reality.
Reality has changed a lot since our last earnings call to the point where reality can feel sort of unreal. Here's what we know with real certainty. 28 - of 28 of our assets are closed. Here's what we do not know with any certainty. When our assets will all reopen and what the recovery pace of our tenants businesses will be. There are many different scenarios for when our assets could reopen and many different scenarios for what the recovery paid to the American Regional and Las Vegas Gaming could be. We are modeling all of those scenarios and digging deep into what the implications of each scenario could be for VICI and for our tenants.
But it's too early to commit to any strategy that only works if a certain scenario prevails, because we don't know which scenario will prevail. We are working and we'll continue to work, day by day, week by week, month by month with our tenants to determine how we best mutually navigate this crisis, which may ultimately mean supporting our tenants during the short term in ways we believe will benefit us over the long term.
But there is one strategy we are committed to and have in fact been committed to since day one at VICI. And that's to be prepared for heavy weather and scenarios that heavy weather may bring.
The one strategy that works for most variety is heavy weather is a liquidity focused strategy, a strategy that centers on already possessing and having ready access to cash is sufficient to meet the company's fundamental financial obligations for a prolonged period of heavy weather.
Our cash position is supported by the way we run our business, low G&A, high margins, high flow-through of revenue growth to profit growth, strong cash retention driven by a payout ratio at the lower end of triple net REIT standards. As our CFO, David Kieske will make clear later in this call, VICI's liquidity position today is a position we will work to preserve every day going forward.
I've talked about what we know and what we don't know, the outlook for reopening and recovery. But let me close out these opening remarks by turning to what we strongly believe. We believe we own high quality, well located real estate that is and moreover will remain mission-critical to our tenants.
We believe that our tenants are in a business gaming that has proven its deep and enduring consumer appeal over decades and through February 2020 American Casino traffic revenue and profit were at their highest levels in recent years. American Gaming is a consumer sector that did not come into the COVID-19 crisis with pre-existing conditions.
And while we don't know what the pace of gaming recovery will be post COVID-19, we believe that there will come a time in the future when consumer demand for the gaming experience will return to prior levels. All of this is to say that because of the long term durability of gaming as a consumer experience we believe strongly in the enduring value of gaming real estate. VICI’s owners, you our stockholders own this fundamentally valuable real estate and we believe strongly that the value of your real estate will endure long past, the passing of this crisis.
With that, I will turn the call over to John Payne, our President and Chief Operating Officer. John?
Thanks, Ed. Good morning, everyone. To start the first quarter of 2020 remain productive for VICI. On January 24th we closed on the acquisition of JACK Cleveland Casino and JACK Thistledown Racino and a sale leaseback transaction with JACK Entertainment. We paid a total of $843 million and added $65.9 million of annual rent to our portfolio through a master lease which represents an attractive 7.8% cap rate for urban real estate in Ohio.
Just last week on April 24th, we and our tenant Caesars, announced the disposition of Valley's Atlantic City for total proceeds of $25 million. Not only will we receive approximately $19 million of the gross proceeds from the sale, but we will retain ownership of the Wild Wild West Casino area in Sportsbook, which will be folded into our Caesars asset. And importantly there will be no change to the existing annual rent under the master lease with Caesars.
This transaction helps balance our geographic diversification as we work to complete the acquisition of Harrah's Atlantic City and it's just another example of how VICI works constructively with our tenants even in this current environment.
Turning to our tenants and the outlook of the gaming industry. Unlike many other REITs who have hundreds of tenants, we currently benefit from only having five tenant and we continue to have active dialogue with each of our tenants during this unprecedented time. We've collected 100% of our rent in April, and with respect to the outlook for May we believe all - we believe all rent will be received this month.
Many of you have asked about our diversification strategy on prior calls. Specifically as it relates to investment outside of gaming, we have been very thorough in our evaluation of other sectors and have not made an investment to date by design. We believe this measured diligent approach has benefited our investors given the current environment.
While we'll continue to evaluate the investment characteristics and overall attractiveness of other sectors, we will remain intensely focused on gaming as we believe at the right time gaming will yield opportunities for VICI to continue to grow creatively.
In addition to our tenants, I am spending time with other casino operators to best understand the potential reopening timelines across the industry. As Ed mentioned every commercial casino property across the United States remains closed and at this time we're not yet aware of a definitive timeline for reopening.
As many of you know in normal times, the gaming industry operates 24 hours a day, seven days a week 52 weeks a year and operators have extensive experience developing, communicating and executing detailed operational plans. This energy, expertise and rigour will be key to reopening safely, successfully and profitably.
We are firm believers in the resilient enduring nature of the gaming industry. The game industry has an extremely loyal customer base and has proven its resilience through challenges in prior economic cycles. As Ed noted, gaming did not suffer from any pre-existing conditions heading into this pandemic.
In fact, January and February of this year were among the best months, many properties have experienced in decades and we believe customers are eager to return to our facilities, particularly at the local level upon reopening.
While we do not know exactly what tomorrow brings, we believe that the importance of our assets will only increase in the months and years ahead given the mission critical nature of the asset to the operators, the revenues collected by the states from gaming tax and the total jobs the casinos create in their respective communities.
We retain a strong liquidity position as David will discuss and we stand ready to support our tenants to the extent absolutely necessary in ways that create value for VICI over the long term.
And lastly, with respect to the Eldorado transaction. Eldorado stated in their press release last Friday morning that they continue to remain intensely focused on closing the transaction with Caesars. We stand ready to close on our portion of the overall transaction as our financing is complete, which David will discuss.
Now I'll turn the call over to David, who will discuss our financial results and balance sheet.
Thanks, John. Before we discuss our financial results and balance sheet, let me take a moment to express my sincere gratitude to our accounting, asset management, finance and legal teams for all their efforts and relentless focus closing the quarter remotely during this pandemic, truly a remarkable effort.
I'd like to point out that we added an additional schedule to the back of our earnings release, which breaks down our cash revenue by lease and the corresponding non-cash adjustments in order to tie to GAAP revenue as presented on the face of our income statement.
We also disclosed this breakdown, as well as other detailed financial information in our quarterly financial supplement, which is located in the Investors section of our website under menu heading Financials.
For the quarter total GAAP revenues in Q1 ’20 increased 19.2% over Q1 ’19 to $255 million, while total cash revenue in Q1 ’20 was $257.6 million, an increase of 21.8% over Q1 2019.
These increases were the result of adding $44.1 million of rent during the quarter from the Greektown, Hard Rock Cincinnati and the Century acquisitions which closed in 2019, and JACK Cleveland Thistle down acquisitions and related loan which closed on January 24th 2020.
AFFO was $180 million or $0.38 per diluted share for the quarter. Our G&A was $7 million for the quarter and as a percentage of total revenues was 2.8% for the quarter, which is in line with our full year projections and represents one of the lowest ratios in the triple-net sector. Our results once again highlight our highly efficient triple-net model, as flow through of cash revenue to adjusted EBITDA was nearly a 100%.
Beginning January 1st, 2020, we adopted CECL, a new accounting standard, which required us to estimate and record a non-cash provision or allowance for future credit losses relating to all existing and any future investments in direct financing and sales type leases and similar assets.
CECL is applicable to us as we account for our investments as finance leases, which are subject to the new accounting standard, as opposed to operating leases like our gaming REIT peers, which are scoped out of the standard.
We have historically determined that our leases effectively have 35 year durations, given the mission criticality of the assets to our tenants. This lease duration and other factors lead to our leases being classified as finance leases for accounting purposes.
The CECL allowance is derived from estimated probabilities of lease default in any resulting losses over the full life of the leases, inclusive of all extension options. The impact of the COVID-19 pandemic has caused this allowance to increase in the first quarter of 2020 to reflect the current economic environment.
This resulting non-cash allowances recorded through our statement of operations impacting net income and FFO, but is excluded from the calculation of AFFO due to its non-cash nature. In the first quarter, the non-cash allowance related to CECL was $149.5 million drag on net income and a $0.32 drag on net income per share. Like to again make the point, that this is a non-cash allowance and as such there is no impact to FFO and AFFO per share.
Moving on to the balance sheet and capital markets activities. On January 24, 2020, we amended our credit agreement which reduced the interest rate on our term loan B from LIBOR plus 2% to LIBOR plus 175 with a LIBOR floor of 0%.
On February 5th, 2020, we closed on a $2.5 billion unsecured notes offering comprised of $750 million of five year notes at 3.5%, $750 million of seven year notes at 3.75% [ph] and a $1 billion of 10.5 year notes at 4.125%. We placed $2 billion of the net proceeds into escrow pending the consummation of the Eldorado Transaction, which amount is subject to a special mandatory redemption if the Eldorado transaction does not close. The remaining $500 million of proceeds were used to retire the 8% second lien notes which were redeemed on February 20th.
On February 7th, we sold 7.5 million common shares under our at-the-market equity program for net proceeds of $200 million. Our total outstanding debt at quarter end was $6.9 billion, inclusive of the $2 billion of unsecured notes currently held in escrow with a weighted average interest rate of 4.19%. The weighted average maturity of our debt is approximately 6.9 years and we have no debt maturing until 2024.
As the March 31, our net debt to LTM EBITDA was approximately five times, in our stated range in focus of maintaining net leverage between 5 and 5.5 times. This includes the impact of the restricted cash that sits in escrow.
We currently have approximately $1.3 billion in liquidity comprised of approximately $310 million in cash on hand and $1 billion of availability under our revolving credit facility which is undrawn. In addition, the company has access to approximately $1.3 billion in proceeds from the settlement of the 65 million shares that are subject to the forward sale agreements entered into in June of 2019.
Between the proceeds from the equity forward agreements and the 2 billion of unsecured notes in escrow, we have three $3.2 billion of capital earmarked for the closing of the Eldorado transaction.
As noted in the press release we put on April 16th, 2020, given the economic uncertainty and a rapidly evolving circumstances related to the COVID-19 pandemic together with the implementation of the new CEL accounting standard which significantly impacted net income, we withdrew our previously issued 2020 guidance and are not providing an updated outlook at this time.
As many of you know, our guidance does not include acquisitions that have been announced but not yet closed. We believe this approach to guidance is prudent and responsible though it is typically resulted in a material difference between the range we provide and consensus estimates which do include pending acquisitions. Accordingly, we will evaluate the overall structure and usefulness of guidance going forward.
Finally as it relates to the dividend, during the first quarter we paid a dividend of $0.2975, based on the annualized dividend of a dollar $19 per share, our AFFO payout ratio for the first quarter was 78%, slightly above our long range target to 75% as a result of the June 2019 equity offering.
With that, operator please open the line for questions.
[Operator Instructions] The first question will come from Smedes Rose from Citi. Your line is open.
Hi, good morning. I just wanted to ask you about some of the language in your more recent filings, were you in the context of your lease as you talk about ongoing dialogue with your tenants. So I'm assuming that rent deferrals or concessions are not on the table at this point. But could you talk about some of the things that you are considering or what you know, you might need to work with that month to help them through this time.
And then my second question, you know, you talked about liquidity a little bit and is there a point where you would consider paying a portion or all of your dividend in stock or combination of stock and cash?
Yeah. Thanks, Smedes. Good to hear from you. John, why didn't you take the first part of the question regarding how we approach tenant discussions and then David can address the dividend funding question. John?
Yes. Smedes, good morning. As I said in my opening remarks one of the advantages we do have, we have five tenants and not hundreds of tenants. So as you can imagine we are actively engaged in discussions with our tenants, not only about our leases and potential modifications, but really about their business, what they they're seeing, how they think they're going to ramp.
And we've had a variety of apps from our tenants based on a variety of potential scenarios as it relates to the openings and timelines and ramps and currently right now as you know you follow the space, there's not real clarity about exactly when these assets are going to open and then there's a variety of models that we run on how they're going to ramp up.
So as you can imagine the tenants are beginning to ask, some of they asks have [ph] included partial rent or relief or deferral of rent, but there are other temporary lease modifications like CapEx spend that could help our tenants preserve cash.
So we're looking at this holistically, it is important to realize that we think that value needs to be traded for value and we do think that this is a temporary problem, so temporary problems need temporary solutions.
And so that's how our discussions continue to go. They've been productive and hopefully we'll continue to have greater visibility in the next day or in weeks when the assets will open and then we'll get a better idea of how the assets will ultimately ramp. So Ed, I'll turn it back to you.
Yeah. David, you want to address the dividend funding question.
Yeah, thanks Smedes. Hope you’re well. As most people know or as you know, we set the payout ratio very low from day one. We've always had a targeted payout ratio of in around 75%. Obviously, we're a little bit above that given the equity offering from last June.
But part of reason - part of the reason we set the payout ratio low is to be able to weather all storms and to maintain the dividend. And we're obviously in a hell of a storm right now. And so we're relentlessly focused on maintaining that dividend and as we work with our tenants we feel confident that we will be able to maintain that dividend as we sit here today.
We have the liquidity to maintain that dividend. I think for me, it's part of your question was, would we consider paying some of that in stock, if needed we might evaluate that option, that would not be our first choice. But if things continue on and if we don't know what tomorrow brings, that's something we might evaluate. But at this time as we sit here today, we're very focused on maintaining that cash dividend.
Great. Thank you.
Your next question will come from Carlo Santarelli from Deutsche Bank. Your line is open.
Hey, everybody. Good morning. Guys, obviously you know, with the deals that you did both the equity and some of the capital markets transactions in preparation for the acquisition that you guys have closed on and plan to close on, you've let yourself in a very nice liquidity - a very nice liquidity position.
As you think about the balance sheet and going through these upcoming transactions, whatever it is that they closed, you'll still - it seems [ph] have a pretty good buffer of cash. And I guess my question is, is there anything that that you guys could consider in terms of maybe some creativity around how you put that cast to work in the short term, whether that is you know, cash need to potentially support some of your tenants or cash to go out and kind of looks to be a little bit more aggressive on the M&A front as one could surmise that there will be other – other assets out there that are in need of some form of capital markets help or liquidity?
Yes. Carlo, I'll start on that. And good to hear from you Carlo, hope you are well. Maybe I just want to start by actually recognizing David Kieske for his leadership on that – the bond financing we did in late January. I remember talking to David in early January going really, you really want to go that soon and he said yeah, I want to go that soon. And God bless us that we did when we did.
You may have seen that Netflix which is obviously a pretty good credit these days went out to raise money last week and they still couldn't reach our benchmark on our five year. So anyway, again, thanks and thanks to David for that.
In terms of how we think about use of our cash Carlo, the general approach we're taking right now and it's an approach we really dug into with our board yesterday on our Q1 board meeting, is an approach that we define as situational readiness.
At this point given the uncertainty of reopening, given moreover the uncertainty of ramp back, we have to be ready strategically and economically for the broadest possible array of situations or scenarios and that array ranges from the highly, highly defensive on one end to the highly offensive on the other. And at this time we really can't pre-commit to being highly, highly defensive or highly offensive, because it's again too early to tell.
But if things start to show green shoots, if we see the consumer coming back, if we see the assets reopening and producing good results, you are absolutely right, our liquidity position puts us in a position where we can make the jump into offense potentially before others because, again, thanks to David's leadership on our balance sheet, we got a totally undrawn revolver and we have that ample cash that you referred to.
But at this point, what we really like about our position is it makes this situation really ready for the broadest array of situations from again be extremely defensive to the highly offensive.
That's helpful. Thank you very much, Ed.
Thank you, Carlo.
Next question will come from Rich Hightower from Evercore. Your line is open.
Good morning, guys. Trust everybody is doing well.
Yes. Thanks, Rich.
I guess, Ed just a thought - go ahead.
All yours.
Okay. Just a follow up I guess on that last question, as we think about longer term, maybe with respect to the external growth prospects for this sector, to the extent that you are having you know, those sorts of discussions right now with potential sellers you know, depending on their situation, do you detect an extra sensitivity around maybe layering on the added fixed costs of at least to an operators capital structure. Do you think more equities capital structures will be the norm going forward?
And then maybe as we think about how coverage ratios and everything - everything along those lines will change just in the context of greater uncertainty. Obviously no one runs a business with a zero revenue outlook. But you know, just that added level of conservatism as we think about the potential rent revenue that could be out there. Does that diminish kind of you know, in light of what's happened.
Yeah. It's a really good question, Rich. And I think the answer could be very complex and fairly variable based on that situation of each operator. I think one point you make is absolutely right. I think you could see for both operators and REITs a more conservative approach to balance sheet management and cash flow. I think in the hedge fund - after this Lexicon [ph] the term lazy balance sheet is not going to get used for a while here. I think companies will generally get rewarded for being conservative.
I do think where gaming REITs could have appeal to gaming operators who are still on the critical amount of property is that we can be another form of capital. I think you can presume their equity is going to be quite expensive. Their debt has gotten more expensive, to the extent that we can provide another form of permanent capital at affordable prices.
That could be appealing, especially when combined with the fact that our capital does not bring with it any kind of bullet maturity. And I think anybody right now who is facing any kind of bullet maturity is in probably a pretty high state of nausea and we are a form of capital that does not bring that kind of anxiety with it.
Yeah, I think that makes a lot of sense. And then just a quick a quick sort of modeling question. I know you've got some time before the coverage test on the Caesars leases and certain other leases, before those tests kick in. But I think on the two Penn leases those come up in year two, do you care to sort of ballpark where we are maybe with respect to getting those escalators by that time?
John and David?
Yeah, Rich. Its David. Hope you’re well. The two leases you're referring to obviously Margaritaville and in Greektown. Margaritaville reset earlier this year, 1/1/20 and we got that escalator. We're coming up on your two Greektown. We closed at May of last year, so June 1 of this year will be the reset - yeah the reset, excuse me. And we are in discussions with Penn around that, unlikely that reset happens just given the performance of the asset.
Okay. Thanks, David. I appreciate that.
Your next question will come from Stephen Grambling from Goldman Sachs. Your line is open.
Thanks for taking the question. I guess, my first is for John. I guess, given your experience as an operator, how would you generally think through cash needs to reopen some of these properties and how cash generation or breakevens might change in an environment where there's just lower occupancies due to social distancing?
Well, to remind you, I'm recovering operator, so you can only take what I said with - that I've been there. Look, I think that I've got great confidence in these operators. You know, it reminds me of the time Churchill said, never let a good crisis go to waste. And what I mean by that is, this is something that no one would ever wish upon an industry or a country.
But these operators have now had a few weeks without operating business to think about how they reopen them in new ways. And I think what you're going to see is obviously there's going to be restrictions on whether that's mask or social distancing restrictions. But they're also, as those pass over time, different ways of how the companies think about operating the business.
So to answer your question, I think that will in the short term when revenues aren't going to be the way they were in 2019, you're going to see some margin differences in those performances, but I think that over a long period of time you're going to see those businesses come back. And teams are laser focused, the operating teams are preserving cash, ensuring they've got the right amount of cash in the cage, not too much, not too little. And we'll just have to see again how these businesses ultimately ramp.
And then a…
Stephen, if I could just add a little more color to that as a fellow recovering operator in this case schemed off in my case. You know, when you're an operator your two main inventory items are the utilization of space and the utilization of time. The social distancing strategies that our operators undertake, as John has spoken of, they will obviously reduce space utilization at one time.
But we were talking to one of our operators the other day and it's an example of how energetically and vigorously gaming operators think about the management of their two key inventory items, space and time. That they're taking a very innovative approach to how they manage the utilization of time and have identified segments in the day where specific customer demographics will be given a specific invitation to come at a specific time of day.
And thus while the overall space utilization may be somewhat lower, you could potentially get higher utilization of day parts than you had previously because of the customer's willingness to adapt their behavior in order to safely visit and enjoy the casinos.
And again, I take a lot of - I take a lot of encouragement and – well, not solace. But I think a lot of encouragements on how are operators are thinking about how they're going to manage their business in that respect. We're seeing the example close to home. As you know, within our TRS we own four golf courses, two of which are going to reopen tomorrow.
And in southern Indiana, our tee sheet is full for the day and we're selling tee times based on social distance practices, right up until the 4 o'clock time slot. And any of you who ever been in golf course operations know, it's usually very tough to book the 4 o'clock in the afternoon time slot and it's an example of how I think the American consumer will adapt their behavior in order to enjoy what they really want to enjoy.
Great, thanks. And then not to beat a dead horse, but with the stock trading where it is it seems like the market or investors are expecting some kind of relatively permanent rent reduction. I guess, are you considering or how are you thinking about permanent amendments such as rent coverage floors or just an outright change in leases at this point?
David?
Yes. Stephen, hope you’re well. And to use a business full answer it all depends, right? It's tenant by tenant specifics and what the individual circumstances are. You know, I think you heard John say, you know, could it be a form of temporary liquidity to bridge them you know, through a period of - back to Carlos or back to the question around what what's the cage cash and what are operating needs for the couple - next couple months. You know, we do benefit from the fact that we do have liquidity, so could we buy additional assets from our tenants, could we provide some form of true liquidity versus trading an asset for rent, deferred rent.
And I guess, it would - it comes down to as John said, making sure that we trade value for value. The unique aspect about the sector is that these are mission-critical assets for the tenants. And unlike the broader triple net sector, where a lot of tenants are just walking and not paying - not going to pay rent and may not ever come back, you know, given the licenses, given the importance of the assets to the tenant, to the employees, to the states and the tax revenues they generate, the tenants need to maintain these boxes and need to stay in these boxes.
So you know, we will find ways to help support our tenants if needed. But you know, we're still in the early stages here as we sit here May 1st and you know, the outlook for opening is still a little bit unclear, but there's some green shoots out there.
Great. Thanks so much.
Next question will come from Todd Stender from Wells Fargo. Your line is open.
Thanks. Just on that theme of cash in the cage you know, obviously visibility when states will reopen, can you speak to what states - what else they can do to lower the barrier to re-entry, modify or loosen regulations? Heard about cash in that cage, but anything else that you can think of?
John?
Yeah. I mean, I think you're thinking about this correctly. Again, we are not the operator, our tenants are, but we stay in contact and I think you're thinking about it right and that these operators are going to these states and saying look, this is unprecedented time. We don't know yet exactly the demand from our consumers when we first open up. Are there some things here that can help our liquidity position that ultimately over the next month, two months, six months, year, we'll get back to “normal operations”.
So I don't have the specifics. Cash is obviously one that's been. But there are other regulations that have put in place over time. Remember many of these regulations in these states were created 20, 25 years ago and made sense. I do think that there will probably be a push over time to continue to find new ways to make it more efficient for the property.
So I don't have any specifics, but I'd tell you that is what the operators are doing, are pushing the states to find ways that they can have some temporary solutions to this unique situation.
Great. That's helpful. Thank you.
Thank you, Todd.
The next question will come from Thomas Allen from Morgan Stanley. Your line is open.
Morning. Could you talk a little bit more about the Bally's Atlantic City transaction and how you got the results that you did?
Thank you. Yeah. Good to hear from you Thomas. John?
Yeah, I mean this is a discussion and when we announced it as I said on April 24th, as we continue to look at that market, as you know, Thomas we’ll be acquiring as part of the Eldorado deal, Harrah's Atlantic City. We saw this unique opportunity to kind of decrease our position there. Well, at the same time the Wild Wild West casino and its sportsbook will be rolled into Caesars. So not all of the real estate or the asset is being sold and it also was a negotiation that allowed our rent out of the non-CPLV lease to remain the same. And we just saw this as a unique opportunity to make that transaction and for those reasons I thought it was good for us to do that.
I guess, you have the expectation that your tenant income will go down because of it and you wanted to get some incremental cash to defer that or how did you get to the $19 million calculation?
Splitting of the - go ahead, David.
Yes…
Go ahead, David.
That was similar that the Reno transaction where we split the proceeds 75, 25 with Caesars that we announced at the end of - the beginning of this year. Similar proceeds split roughly 75% of the total consideration went to VICI's landlord in Caesars, as operator.
Okay. Thank you.
And your next question will come from John Massocca from Ladenburg Thalmann. Your line is open.
Good morning.
Good morning, John.
I know we've kind of belabor this point a little bit, but just given some of your commentary on prior questions, I mean, is it fair to categorize your view of negotiations with tenants that you would prefer some kind of asset for you - asset exchange or assets or liquidity exchange to the traditional deferral that maybe we're seeing more of in kind of the retail oriented net lease space?
John?
I think yeah, I think that's the way you should think about it. I think it's important understand also for us that it's May 1st today, the clarity on when the assets are going to open is not great. Hopefully in the next week or so we'll get greater clarity.
And then how these assets ultimately ramp is not real clear. I mean, you can see there's numerous scenarios run by every operator and by us. So it's important for us to continue to see how this ultimate is going to play out. But your description is exactly how we've been thinking about it is, that these are temporary issues, there needs to be temporary solutions and those temporary solutions have to have value for value trade and that's how - that's a quick way of our overview of our philosophy.
Very helpful. And then switching gears a little bit, as you kind of enter what might be a more challenging environment for kind of Las Vegas and the Las Vegas Strip market. How does that change maybe philosophically the way you look at your Roper's there and maybe make it more attractive because you might be able to potentially get into a property at a lower basis or you know with a little more uncertainty would you potentially think about you're not executing on those if the opportunities arose?
Yeah. I'll turn over to John Payne in a moment. John, let's talk a bit. I think our starting point would be that while Vegas may indeed recover somewhat more slowly than the region over the long term we have no - there is no flagging of our conviction. It is one of the world's great destinations but John Payne, I’ll turn it over to you for more color.
Yeah, I think Ed you started out answering the question perfectly. I mean we are long term investors of real estate. As you all know as David opened up by saying, we look at our leases over 35 years. This is pandemic has been just awful and unprecedented. But we do think that it is temporary. Now whether temporary is months or temporary is a year or year and a half, we'll have to wait and see that ultimately plays out. And I sure can't predict that.
But it doesn't change our long term view of Las Vegas and our long term view of the very limited amount of assets that are on the strip in Las Vegas. So we still think that that is a community and a destination that over the long term will continue to perform and we'll continue to evaluate opportunities there, whether that's in the short term or in the long term. So I hope that gives you some visibility on how we're thinking about it.
I appreciate all the color. That's it for me. Thank you guys very much.
Thanks, John.
Next question will come from David Katz from Jefferies. Your line is open.
Hi. Good morning, everyone. You know, covered a lot of detail, but I wanted to just follow up on CECL and I did get on a minute or two late, so apologies if you've touched on this. But just a thinking and recognizing that it is non-cash and optical and what it represent. How could we think about what that will look like a quarter from now, two quarters now, three quarters from now on the assumption that we start to move down a road toward properties starting to open up.
You know, is this kind of the one big shot for it and what we see is an incremental from here, is that we might expect that to look?
Yeah. David Katz. Good to hear from you. I'll turn over to do David Kieske in just a moment. But let me give you my perspective as a non accountant, my perspective as an asset manager. And when CECL first came along, I will confess I went really – we go to do that, why. But what I've come to appreciate about the CECL practice if you will, is that it is I believe a valuable management tool when it comes to being situationally ready.
What CECL requires us to do is first of all to look forward, which is always valuable in and of itself. And as we look forward at the credit quality, credit condition and operating performance of our tenants, the forecasted performance of our tenants, it requires us to be honest and rigorous about what the various scenarios could be. And it is a further tool in our tool kit to make a situation only ready for what may transpire in the coming period based on a reasonable and rigorous forecast. As to the volatility, the CECL could bring in coming quarters and years. I'll turn that over to David Kieske.
Great. Thanks, Ed. And David Katz yes, as Ed said, CECL reflects the deterioration especially in Q1 in the broader economy and it's not management's expectation for any losses in the current portfolio, it is simply an accounting standard, it's a non-cash allowance.
And if you look at you know, note 6 page 28, 29 of our 10 Q, we've put some good disclosure in there around how CECL evolved over the first quarter. On 1/1/2020, we had to record an initial allowance, that was 2.88% of our total investment balance. That number on a normalized - normal economic environment should answer your question David, should move around 5, 10 maybe 15 basis points a quarter.
Given COVID, given the downturn, it spiked up to about 100 basis points this quarter, so that it's - the model is all identifiable inputs really around credit rating and the economic outlook of the economy. And so that's what drove the change.
But once we get back to normalize run rate, you're right David, it should be much - it will be less volatile and stay within a little - more of a stated range.
Okay. Perfect. Thank you. Appreciate it.
Thanks, David.
Your next question will come from Barry Jonas from SunTrust. Your line is open.
Hey, guys. Good morning. I guess, just at a high level, any color on how this crisis may change or say influence thoughts on how a structure deals in the future?
Yeah, I'll give you some first thoughts. Barry, good to hear from you. I hope you're well. You know, as I said in regard to what Rich Hightower asked about you know, I do think you know this whole experience will cause all of us to expand the rigor with which we account for you know, extreme scenarios of performance or operating conditions.
And so I think you know there will be a lot of focus, obviously on tenant credit quality, as there always – already was with us and coverage and various lease terms and conditions that give us and the tenant comfort that - that even in the most dire times we can each mutually survive and ultimately thrive. John and David Kieske, do you want to add anything to that.
No I think you described it well. Ed, I think will – I have nothing to add to that.
Great. And then I guess, just a follow up for me. Any color on golf operations. Just curious any expectations on when that business could reopen and what the ramp could look like for that particular business?
John?
Yeah, I'll take - I'll take that. As Ed mentioned, we're opening two of our courses today and two of our courses tomorrow. And Nevada just gave the go-ahead two days ago. So we've not had a lot of pre-selling there and those will open tomorrow of course in Mississippi and our course in Indiana open today. And as Ed mentioned the tee sheets were quite full.
So we'll continue to watch that. The operations like we're seeing in other hospitality areas are not full operations, meaning our clubhouses are not open our food and beverage are not open. I think we'll have some really good visibility over the next six weeks, as we're able to start marketing to consumers in our destination courses in Las Vegas.
We'll obviously be more focused at the time on locals and in some of these courses like Cascata, which I'm not currently a golfer, but I know from golfers that's a bucket list course that we'll price at a fee to allow locals to come out and play. So we should see some good demand to start getting that business up and running.
So to answer your specific question, I think we need a couple of weeks to better understand how it's going to ramp, but the early results at least what we're seeing in Indiana and Mississippi are quite encouraging.
What I would just add is that, while obviously the economic impact of this VICI is not all that material, I think the greater meaning for us and perhaps for you as well is that the pent up demand to get out of that damn house that it so strongly exist in America right now.
I mean you're seeing it manifest itself on beaches, people just want to get out and while we see data that measures public perceptions of safety and their willingness to go back out again, while we do see a high percentage of Americans rightly saying they are going to be careful in how they return to leaving home, there's a lot of people who really, really want to leave all.
Including me. Okay. Thanks so much.
Next question will come from Sean Kelley from Bank of America. Your line is open.
Hi, everyone. Good morning. I'm not sure who this question is best for, but I'm just kind of curious as we think about the reopening plan from the operator perspective. You know, just wondering if you guys have any thoughts about how like - you know which properties reopen by the operators could - could impact sort of the difference in coverages between sort of four wall properties and the broader corporate guarantee.
So maybe just your broad view on sort of how does the corporate guarantee help you in the kind of and this type of landscape and how could that fluctuate around the portfolio or impact operator decisions? Thanks.
Sure. David, you want to take that.
Yeah. Thanks, Seam. And as Yogi Berra once said, it's tough to make predictions, especially about the future, so you know this is where we think - this is where we take comfort in the master lease and especially across the Caesars portfolio which obviously has assets all across the country, Vegas and in very, very good regional network.
So we came into this you know north of three times on a corporate coverage, given the wholly owned assets in the Caesars - in the Caesars portfolio, primarily on the Vegas strip, that corporate coverage will come down and nobody really knows where you know what the ramp will be what EBITDA will be.
But you know the corporate coverage is key to us and obviously we have that with Century, Penn and you know we have the individual leases with Penn where we are [indiscernible] corporate coverage and then Hard Rock is also a corporate coverage.
But given the investment grade nature of that and then we feel very, very comfortable with that and we have a corporate coverage on a smaller entity with JACK, very meaningful investment where Dan Gilbert one of the owners there. So we'll have to see. It's hard it's hard to take. It's hard to predict, the coverages will come down but we don't really you know, we don't have a good sense as John talked about how this ultimately opens and ramps.
Thanks. Thanks for entertaining that David. And then my other question was just on the JACK portfolio specifically, can you just remind us of what sort of the extra collateral or what is kind of you know what may be in that corporate guarantee beyond the you know the obvious operating properties. That's it from me.
David or John?
Yeah I can do it. Sean, couldn't think of another entertain that. Look its an entity called Rock Ohio Ventures, ROV. It owns the two casinos Jack Cleveland, JACK Thistle. JACK Cleveland actually sits within the Higbee building, which is part of ROV, Rock Ohio Ventures, as a garage next door. And then some additional land right in that area. So that's part of the reason we ultimately did that loan to JACK is there's additional real estate collateral within that entity.
Thank you very much.
I have no further questions in queue. I turn the call back over to the presenters for closing remarks.
Thank you, operator. This is Ed I hope all of you found the call to a value today and maybe even a little bit entertaining one of our owners texted me during the call and let me know he was pretty sure this was the first earnings call that invoked both Winston Churchill and Yogi Berra. So again, we hope you found the time value. And let me just close by reiterating our thanks to all of you for being on today's call. With each passing week we will learn more about what our collective recovery from COVID-19 will look like as quietly as an economy and the gaming industry and as the coming period unfold we will share along with you as we can assist you always feel you can reach out to us whenever we can be a help to you. Now you have our best wishes for good health. Thank you very much.
Thank everyone. This will conclude today's conference call. You may now disconnect.+