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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 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference is being recorded today, April 30, 2021.
I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.
Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2021 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 generally identified by the use of words such as will, believe, expect, should, guidance, intend, project or other similar phrases are subject to numerous risks and uncertainties. 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 on our website in our first quarter 2021 earnings release and our supplemental information available on the VICI Properties website.
Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Danny Valoy, Vice President of Finance. Ed and team will provide some opening remarks, and then we will open the call to questions.
With that, I'll turn the call over to Ed.
Thanks, Samantha. Good morning, everyone. Some of you may recall that I started our last earnings call on February 19, by pointing out the pre-call commentary on our earnings release concerning Q4 2020 and VICI needs consensus. And me being me, I couldn’t help more or less in reality consensus kind of messes the point. This is why I actually said exactly.
Did VICI achieve consensus in the course or keeping question but we think it's also worth asking the consensus call to answer proper share growing, staying steady or declining. When we call for growth was in a lot of growth or in little of growth. Being the case, we reported what we believe at the time back again on February 19, we proved to be a loss of growth. 10.8% AFFO growth for full-year 2020 and 24.3% AFFO growth for Q4 2020. Now with the Q4 2020 reporting period is well behind us, we know with certainty that VICI did indeed pose the highest AFFO per share growth of any American triple-net REIT in 2020 for the year in Q4 2020. 12 out of 19 American triple-net REIT reported AFFO per share declines in 2020. Among those triple-net REIT that grew that closes the VICI achieved 7.0% AFFO per share growth for 2020 for the year and 11.8% growth for Q4 2020. The average AFFO per share year-over- year change and I emphasizing more change and I don’t want to use the word growth because negative growth is an act moron.
The year-over-year change in triple-net REITs in 2020 was an average negative 6.9%. As on February 19 and is one of the few resource to our guidance we announced 2021 guidance calling for between $1.82 and $1.87 of AFFO per share. In a moment David will reaffirm that guidance. As in 2021, we achieved the midpoint, our year-over-year AFFO per share growth will be approximately 12%. If you measure AFFO per share growth from 2019 to the midpoint of our 2021 guidance, you end up with the growth rate for that period that two year three year period of approximately 25%.
To group VICI's earnings growth into perspective, we encourage those who own our stock and those who follow us to thus who offset old-school metric known as the price earnings growth ratio or PEG ratio. We hate the VICI or any other REIT that reports AFFO we calculate PEG ratio by comparing the current AFFO earnings multiple to the projected AFFO per share growth rate.
These two numbers the AFFO multiple and the AFFO per share growth rate percentage are then expressed in ratio to each other. I'll leave the trades at a 16 time multiple with AFFO and has projected AFFO per share range of 16% with these said to have a PEG ratio of one to one. And reach the trades at a 16 times AFFO multiple and has projected AFFO per share earnings growth of 8% would have a PEG ratio of two to one.
Obviously, the lower the PEG ratio, the less you are paying for growth. The higher the PEG ratio the more you are paying for growth if any if there. We've heard you to look at the current PEG ratios from America's triple-net REIT because 2020 was the decline year for so many triple-nets again 12 out of 19 triple-nets are AFFO per share declines in 2020.
We suggest you look at the PEG ratio's over the period of 2019 through 2021. Take each triple-net REIT's actual 2019 AFFO per share as the base, value that against 2021 consensus AFFO per share and then compare the resulting percentage of change against the current AFFO multiple of the REIT. To make the measurement meaningful, you'll need to eliminate those triple-net REITs to show lower AFFO per share in 2021, we make that in 2019.
A lot of that means you have to eliminate eighth of the 18 triple-net REITs excluding VICI in our sample group, yes according to factors, eight of these 18 triple-net REIT shows consensus AFFO per share earnings for 2021, we had lower than 2019. Income data is a total liquidity available or to traction. Resulting average PEG ratio per triple-net REITs would show 2019 to 2021 AFFO per share growth, again actually VICI. It’s the PEG ratio of 2.5 to 1.0, many of course is the average current AFFO multiple for these REITs of 17.5, it's 2.5 times the average expected AFFO per share growth rate percentage of 7% with the period of 2019 through 2021. We heard you to calculate VICIs PEG ratio based on our current AFFO multiple and our projected AFFO growth percentage based on the mid-point of our guidance.
When we measure our growth percentage for 2021 versus 2020, a period for which the mid-point of our 2021 guidance yields 12% growth in AFFO per share or 2019 a period for which the mid-point of our 2021 guidance yields 25% growth in the AFFO per share. We are confident you will end up with a VICI PEG ratio that stands up very well to the triple-net REIT group and likely any other American REIT out there. How on question of course is well VICI, what about next year 2022 and the years after that. There would need us the second call.
I'll now want to turn the call over to John Payne. He will tell you about our drivers of there about growth in 2022. And for the period beyond 2022, we believe VICI stockholders can feel confident in our robust embedded pipeline of property acquisition opportunities and as well our strong record at sourcing, executing and funding open market deal flow.
John, over to you.
Thanks, Ed. Good morning, everyone. The first quarter of this year was a very exciting quarter for our company. On March 3, we announced the acquisition of the real-estate of the iconic Venetian Resort in Sands Expo and Convention Center in Las Vegas. Upon closing this $4 billion acquisition will add $250 million of annualized rent growing VICI's revenue base by nearly 20% and is expected to be immediately accretive to AFFO per share. Importantly, we're acquiring over 8 million square feet of world-class real-estate along the center of gravity on the Las Vegas strip. Venetian complex is one of the top revenue generating real-estate asset in the world and we are thrilled to acquire this property at a discount to replacement cost and an accretive spread to our cost of capital.
The Venetian checks many of the boxes that are crucial too successful real-estate investing. 1) Quality real-estate in a prime location. 2) Robust rent protection through an effective guarantee from an investment grade entity through 2023 followed by significant property level covenant protection. And 3) An incredible organization running the operations which will be supported by a palette of vast resources and incentivized by their own business model to grow profitably which ultimately enhances our rent coverage.
Many of you closely follow the gaming operators have undoubtedly heard that there recovering Las Vegas is accelerating. We hear customers have already returned in great numbers and convention and meeting bookings continue to grow. We are very bullish on the future of Las Vegas and look forward to growing our portfolio in this geography.
In the gaming and leisure markets, our properties continue to showcase strength driven by new stronger operating model that we believe is here to stay. Many assets continue setting records as revamped operating models meet robust and consistent consumer demand. We are proud to be partners with the best-in-class operators on our tenant roaster in wish them continued success.
They deserve the upside there currently there enjoying. Over the past 42 months, we've acquire 14 assets deploying over $12 billion of capital doubling the size of our portfolio or making us the most active REIT in the gaming sector by very wide margin. As many of you understand the nature of our triple-net business model means do not operate or asset manage our properties on a day-to-day basis.
This supports our team the ability to study and execute opportunities on behalf of our shareholders. Our diverse team of gaming hospitality and real-estate executives remains busier than ever working tirelessly to create one in America's leading REITs. We're very excited about the potential deal why and we see before, while the nature of gaming transactions are lumpy, we have delivered consistent acquisition activity enhancing our portfolio accretively on fair terms and with appropriate risk protection.
From the day we started this company, we have strived to create sustainable value for our shareholders. We believe this is the basic principle should be a fundamental goal any successful independent REIT and we will work tirelessly on your behalf to continue grow in VICI creating sustainable fundamental value by enhancing our real-estate portfolio.
Now, we'll turn the call over to David, who will discuss our financial results and guidance.
Thanks, John. I'll touch briefly on our balance sheet and liquidity and give a summary of our financial results and guidance which are fully detailed in the press release we built the last night. As we've discussed, in the first quarter we announced our biggest transaction to date the $4 billion acquisition of the real-estate of the Venetian Resort in Sands Expo in Las Vegas which will significantly grow the left side of our balance sheet.
Simultaneously, we maintain a relentless focus on our capital structure to immediately access the equity capital markets an approach we've taken to and stay one of this REIT to secure accretive long-term funding and ensure we build the right side of our balance sheet to endure any heavy weather that may come our way.
On March 8, we completed a follow-on offering of 69 million shares of common stock in an offering price of $29 per share for growth proceeds of $2 billion through a series of forward sale agreements to fund the equity portion of the Venetian acquisition. Proceeds remain subject to settlement pursuing to the terms of the forward sale agreements.
This equity along with an unsecured debt rate that we intent to execute prior to the transaction closing provides VICI with all the capital needed to acquire this world-class asset on a leverage neutral basis. Our total outstanding debt at quarter end was $6.9 billion with a weighted average interest rate of 0.01%, rated average maturity of our debt is approximately 5.9 years, nearly have no debt maturing until 2024.
As of March 31, our net debt to LTM EBITDA was approximately 5.4 times. This is in line with our stated range in focus of maintaining net leverage between 5.0 and 5.5 times. So, please note this ratio is not reflective of our true run rate leverage level as it does not include the full impact of income from the Eldorado Caesars transaction, meaning if you take into consideration a full 12 months of rent from that transaction, our pro forma leverage would be at the low end of our stated range.
We currently have approximately $3.8 billion in liquidity comprised of $323 million in cash and a $1 billion availability under our undrawn revolving credit facility. In addition, we have access to approximately $537.4 million in proceeds from the future settlement of the 26.9 million shares under the June 2020 forward and approximately $1.9 billion from the future settlement of the 69 million shares under the March 2021 forward.
Turning to financial results, AFFO was $255 million or $0.47 per diluted share for the quarter. Total AFFO increased 41.7% over Q1 2020, while our weighted average diluted share count increased approximately 17.1% as a result of the settlement of the June 2019 forward sale agreements, which added 65 million shares to our balance sheet in June of 2020 ahead of this closing of the Eldorado Caesars transaction.
Our G&A was $8.1 million for the quarter and as a percentage of total revenues was 2.2% for the quarter which represents one of the lowest ratios in the triple-net sector. As Ed mentioned, we are reaffirming AFFO guidance for the full-year 2021, in both absolute dollars as well as on a per share basis. As many of you are aware, beginning on January 2020, we were required to implement a CECL accounting standard which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy.
Importantly, our guidance is AFFO focused as we believe, AFFO represents the best way to measure the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. We continue to expect AFFO for the year ending December 31, 2021 to be between $1 billion $10 million and $1 billion $35 million or between a $1.82 and a $1.87 per diluted share.
The pre-share estimates reflected dilutive impact of the pending 26.9 million shares related to the June 2020 forward sale agreements assuming settlement and the issuance of such shares on December 17, 2021, the amended maturity date of the June 2020 forward as well as the dilutive effect of the pending 69 million shares related to the March 2021 forwarded sale agreements.
And as a reminder, our guidance does not include the impact on operating results from any pending or possible future acquisitions or dispositions capital markets activity or other non-recurring transaction. With that operator, please open the line for questions.
[Operator Instructions] And your first question comes from the line of Barry Jonas from Truist Securities.
Hi guys, thanks for taking my question. I want you to start with the Venetian deal, congrats on that. Just curious, what are you expectations for Apollo to execute more deals down the road that could get move in to the master leaf and offer some cost collateral obligation?
John?
Yes hi Barry, good morning. Good to talk to you. Look, I won't speak for Apollo and their plans of growth. Obviously, they're excited about this asset work side to be partners with them. I'm sure we'll continue to look at this space as other because of how great the operators have been in recovering from the pandemic. But we didn’t go into it that there'd be other assets rolled into this Venetian lease, that we'll just have to wait and be there.
Got it, okay great. And then, City Center just sold two acres on a strip for $40 million each. Pretty nice count for you I guess. But where do you think the market is overall now and given that number, would you be a buyer or seller of Vegas land here?
Barry, good talking to you about this. I sent out a couple of thank notes right for $40 -- $40 million an acre. But and all shares as you know, we got land a tremendous amount of land behind our asset that Harrah's Las Vegas and Caesars outland is well behind their assets that Flamingo and the Linq and we continue to look to see if there's opportunities to expand the strip, deep in the strip there.
Whether we’re buyers or sellers will just going to continue to look ways to grow our company accretively and continue to talk to folks to see if there's opportunities to make our assets and then create value with our real-estate.
And Barry, if I could just add, this we had another example of investors in other real-estate and asset classes realizing that's how you of the Las Vegas strip, right. And I know Barry, you've heard us cite in prior time there's change here and the fact that retail real-estate along this strip has traded in the last 10 to 15 years at cap rates but start with either three or four.
And this trade of those two acres is another indication that retail will stay in investment along this strip, it's further advanced in term evaluation and gaming real-estate but that's part and parcel of the institutionalization story we're been talking about with you for the last 3.5 years. Over time, the world is going to recognize the gaming real-estate along that straight up should be considered just as valuable as retail real-estate along the strip for both fundamental reasons and frankly secular reasons.
Awesome, alright thanks so much guys.
Your next question comes from the line of Smedes Rose from Citi.
Hi, good morning. This is Stefan for Smedes. Thanks for taking my question. I just wanted to ask you, do you have any updates regarding a new tenant at the Horseshoe Hammond. And then do you think regulators would be willing to be flexible around timing given they already granted the one year extension?
John?
Yes Stefan, good to talk to you this morning. We don’t have any updates from the Indiana gaming write-downs. We'd just have to wait and see where their plans they've always operate in the state of Indiana very fairly and we'll just have to see how this ultimately plays out over the coming months.
Great. And then, you guys were creative and maybe in outside of the bricks and mortar casino business with the Charlotte peers transaction and then outside of the credit enhancing benefits of the gaming, are there any other ways they're thinking about participating in the growth of I-gaming?
Right. I think, when we look at the emerging trends in gaming, I-gaming is obviously an interesting aspect of it. And in this case, I'm not sure if you mean I-gaming to also include sports betting. And it is sports betting that we as a REIT there more exciting about as a secular technology enabled trend behind a gaming business as some of you've heard us talk about.
Gaming is a consumer discretionary sector. Gaming operators compete for consumer discretionary time and consumer discretionary spending. The way you increase your share into more discretionary time in spending is by increasing your share of mind. And when you increase your share of mind is by increasing your share a voice. So, that you are ultimately can put more in, when the consumer makes their spending decisions, spending of both time and money.
And what's sports betting is doing is giving gaming a much bigger share of voice and that was certainly demonstrated in the announcement Caesars made a week or two ago in terms of their in partnership with the NFL and I believe the seven NFL teams they also partner with and it's obviously strongly exemplified by the media REIT, the media and marketing REITs, the Barstool gives the pen another very important tenant for us.
So, that's where our greatest focus is in terms of the emerging digitization of American gaming. We think it's being expressed most powerfully in terms of creating long-term value by greatly expanding the audience for gaming.
Thank you.
The next question comes from the line of Carlo Santarelli with Deutsche Bank.
Thank you for taking my question. I don’t know who wants to tackle this one, but as you guys look out there today as kind of a new alluded where you just had in the prepared remarks say, I believe was John talking a little bit about the cost that have been taken out of has other top decision what not. When you think about in years past, synergies often grow kind of M&A activity whether it was either larger portfolio as talking first are or vice versa.
But synergies were always a big part of acquisition storage. And when you think about kind of the uncertainty of the future, you think about we're kind of trading multiples are today for a lot of these names. And you think about kind of what really is left up on the synergy store would kind of cost us as they expand. Do you how do you kind of envision the next call it six, nine, 12 points of M&A, obviously somewhat who's been able to recently get a significant deal done?
John, you want to start?
Yes, I'll start Carlo. First, I want to give a shout out and just an amazing compliment to all the operators in the gaming space and the results that are coming out that's been released are really amazing and operate in a new model in a very difficult time and showing margin improvements from 500, 600, all the way up to over a 1,000 basis points, Carlo.
It's pretty amazing and sometimes it gets forgotten how hard that is the amount of work that the teams have had to do and I just our team has just tremendous respect not only for our tenants, operators who are tenants but the others in this space. With that said, Carlo, you mentioned it right at the end is since we started the company in ‘17, we've been very active, we've been very fortunate to be able to do a large amount of accretive transactions for our company.
And I just don’t see those conversations stopping at least would might play them back on the road back meeting with asset holders and operators, I can't tell you obviously when the next deal will be for our company. But there is a great understanding now because of the time that we've spent in the other retailer space is how we of our nature can get into their capital stack.
So, I think they'll continue those run rate in front of us that we obviously have in our embedded pipeline that even and outside our embedded pipeline.
So with that, I would add Carlo is that another factor driving in M&A right now and the part of operators, that network effect is important and it's valuable if we can achieve it. In my own category is, curious on operations obviously they'll demonstrate it very powerfully. There were loads of network effect.
And Caesars, Harrah's, last Caesars historically has obviously demonstrated that power of network effect. And I think, with the emergence in sports betting and what should be a very strong tailwind for gaming coming out of COVID, I do think that network effect is a much of factor in driving M&A right now for both bigger and smaller operators, is that’s stepped my sense in specialty have.
Thanks John, thanks Ed.
Your next question comes from the line of Dan Adam with Loop Capital Markets.
My questions.
Hi Dan, sure.
So, in light of the major retail that was announced yesterday between Realty Income and very, I guess, what is your latest thinking on M&A not so much from a single property or asset standpoint but more along in the lines of our portfolio of assets or even a merger with another retail pacing triple-net. Does it make sense from your standpoint and are there any accretive opportunities out there for you guys?
Yes, this is a good and intriguing question. And first of all, hats off to Canadian, the team at Realty Income. They are demonstrating what you can achieve when you have a superior cost of capital. Basically, the better and better your cost of capital gets, the wider your funnel gets when it comes to generating growth.
I would say for the time being, we are so most fundamentally focused on defining what it will mean in the decade and decades ahead to be an experiential REIT. And at this point, we cannot identify another REIT out there that has a critical mass of experiential real-estate at the kind we want to invest in. But having said that, we are obviously very mindful at the end of every day, the beginning of every day that we work for our shareholders.
And if we determine especially in constitution with our shareholders that the time has come when we should be considering such M&A, we will absolutely do so. We're not dogmatic about anything except for the fact that we think we want great real-estate and half of our shareholders.
So again, we really do believe that experiential is going to be the best place to invest given the secular trends behind experiential. Those secular trends were already in evidence before COVID. The consumer preference for experience over things were very strong before COVID and when then our aid has proved it during COVID, we're already starting to see come back not only with our operators but other experiential sectors.
And if you combine that secular trends with the demographic trends that are in place whether it'd be baby boomers moving into their prime leisure years and millennials entering family formation. Experientials is really where we want to be. And if we're going to continue to grow our experiential portfolio, we're going to need to do it and want to do it by frankly discovering and mining white space with triple-net REITs that's not conventionally played in.
Thanks for the color, And then David, you've really done a tremendous job over the past three years strengthening the balance sheet. And earlier this month, S&P revise its outlook on VICI to positive from stable. I guess, to the extent we guys get upgraded to investment grades over the next 12 months? What does that mean from an incremental cost of debt perspective and with lower debt cost potentially expand a universe or M&A targets from an accretion standpoint? Thanks.
Yes, thanks Dan. In terms of the incremental improvement in our cost of capital from investment grade, I mean it obviously depends on the debt markets overall but if you look at historical spreads, it's 50 basis points to a 100 basis point or a 150 basis points, sometimes 200 basis points of improvement in rates for investment grades versus rates in the unsecured high yield market which we're currently in.
Yes, I think our past with investment grade is probably not quite 12 months, I mean it's 12, 24 months from now is as most folks know we need to get rid of that $2.1 billion term loan that's outstanding in on income where our balance sheet. But, the overall goal from day one is to get to that investment grade credit rating, talking really lower our cost of capital and that exactly your point and then it makes our transactions our ability to pay. Increases our ability to pay and increases the accretion that widens our funnel and allows us to do more accretive deals going forward. So, it's something we're highly focused on and we talk to the agencies frequently and we were pleased to see S&Ps and we look forward that came out to U.S.
Awesome. Thanks, guys.
Thanks, Dan.
Your next question comes from the line of Rich Hightower with Evercore.
Good morning guys.
Hi, Rich.
Hi, Ed. I was going to say thank you for your profits surreal treatment of the humble PEG ratio. I'm sure that was helpful for everyone.
You couldn’t see it, Rich. But I was actually smoking a pipe when I did that.
That's awesome. I wish I could see that. Well listen, I want to go back to the Venetian deal for a second. And when we think about other private equity involvement in gaming REIT structure so far, it's been in a I guess what I would call a permanent capital structure which I believe might be the thing from Apollo structure and having investment from one of their sort of traditional private equity fund.
So, as you think about maybe the risk down the road of a potential exit by Apollo. How do you sort of underwrite that risk and replacing the operator if I'm thinking about that correctly, how do you sort of PEG that, guys?
Yes. I'll start Ed, and turn it over to John and David, Rich. It is obviously a question that we're dealing with or that these dealings will be. What we're very confident at is that Apollo is coming into this with a very clear vision of how to value that how you had been always been working a lot of sectors. And I have never seen the depth of Bill Johnson fall in when underwriting like ISR in this case.
They did very much of their credit, they did primary research. Primary, proprietary research to determine among other things what exactly is the outlook of meeting players across America. And I'd say that is one example of the depth that Bill Johnson did lots of this and the credibility they’re bringing to their strategic and their business plan.
And then, when it comes down to it, private equity firms obviously tend to exit when they created a lot of value and conceptualize that value. So, our prevalent assumption is, they will exit when the asset is performing very well and when the asset will be very attractive. Would be in whatever structure the exit takes place. And at this point, I don’t think that's predefined, whether by then it's been a platform that gets taken public or whether it's still a single standalone asset.
It'll nonetheless be a single standalone asset as John has said in his remarks is, we believe the highest of using few more assets in America's real-estate. So, we really think when about this Rich and excited to see what they're going to do especially --
Ed, you still there, sorry I think it's breaking up on me.
Rich, this is John, I think we lost Ed in that answer. I think you just going to add an excited, as you've been following the rebound in Las Vegas and I'll quickly that various business obviously the regional business as we've been talking about, quickly that the businesses are rebounding there and the rebooking windows that people are seeing are filling up. So, I think that's how we could end that question.
Okay. It sounds very right. Thanks John, I'll hop out of the queue.
Your next question comes from the line of R.J. Milligan with Raymond James.
Good morning, guys. I have a question for Ed, because we have the analyst add on at the start of the call, but John I guess you're going to get it for me.
I'll get that one, that won't be as fine with that. So, go ahead.
I'm sure it'll be a great answer, John.
Yes.
We're still seeing cap rates north of 6% for gaming assets in general and at the same time we're seeing some retail assets, net leased assets trading on the five some even in the fours. And I guess, John do you think cap rates for gaming assets accurately reflect risk today, what potentially pushes them lower and then do you think that would be a positive or negative for VICI?
Well, I'm actually going to, David's going to take this answer that we've been talking about this quite a bit. So, David you want to step in and try to get some color while we wait for Ed to come back?
Yes. R.J., I get to get here. And we do first part is to be actually accurately reflect the risk. No, I think we've then why we want to acquire as much as we can in that as we can you really think the risk is mispriced. I think ultimately, people will continue as they have done over the last three plus four five years understand the strength and really demonstrated by the last 12 months if we go back to our call a year ago what we were talking about closings and some every casino in the world.
And the business model and the resiliency of our operators with the ability to maintain rent throughout one of the worst pandemics in history highlights the strength of our cash flows and obviously the resiliency of our real-estate. As John mentioned in his remarks around the levels of conversation and we've factored all of you let this before that there are new entrances looking at gaming because they realize well that's the sector where the consumer hasn’t done the replacement for the experience. And it's a sector that is making money versus other entertainment leisure hospitality sectors that are still talking about cash burn around on turned finally turning the corner from cash burn to slightly cash burn positive.
So, I think that's the opening driver that continues to push cap rates lower because you have more entrance and more fluidity in the transaction market like you see in broader real-estate sectors.
And so, if that does happen over time, do that then increase the desire for which you'd go out and look at non-gaming assets?
I don’t think it's in either or gaming by the magnitude is the of the assets and the cash reserves, the majority of our spectrum, but -- mostly peers and we've talked to with all of you in the past.
We stood the other sectors and meet with other operators to understand where we might be able to expand into non-gaming and states that may not have gaming to give us a diversified portfolio real-estate or with operators like the Chelsea Piers team, does have a have a phenomenal business model that are essentially casinos without gaming that have multiple levers, multiple business drivers, multiple revenue streams and a customer base that is very varied resilient and some loyal to that experience.
Great, thanks David.
And your next question comes from the line of Jordan Bender, Macquarie.
Hi, good morning. Are you starting to see the number of companies looking or bidding on the assets increasing from pre-COVID levels? I guess, what I can make here is was the Venetian bidding process more competitive in what you've might have seen pre-2020?
This is John, I'll answer that. We've seen many competitive good processes during our time over the past four years. Obviously, if you're in the business of gaining or you're in the business of real-estate that by the gaming assets and you're not interested in the Venetian, I'm not sure where you're spending your time. I mean, this is an irreplaceable iconic world-class asset center-of-the-strip located.
And so, it was a competitive process. There were people who were interested in this asset as many would be and we're again we're fortunate to partner with Apollo and come up with the structure that ultimately got the transaction done. I don’t know if there's more or less folks that would be involved in the processes. I will say I'll reiterate what David said, which is because gaming has performed so well coming out of the pandemic and there's still many hospitality or experiential companies talking about cash burn. Compared to the gaming companies, our tenants who are talking about record EBITDA levels, all-time record EBITDA levels and all-time margin heights that I do think it's caught many investors eyes that say well this is a business that the consumer did not find a substitute during this pandemic, we should look into it. And so, that leads to more competition, we'll just have to after see.
And then well, coming up on your seven eight years for the whole gaming REIT sector and we're sitting there roughly $3 billion to $3.5 billion of rental revenue across this space. I was just wondering you can go over kind of your term and what you might think is left out there in terms of something that you would look at?
You want to take that, David?
Yes. I mean, I think what this continue to be as we talked about, more folks looking at gaming, but the overall term continues to grow as you see the expansion of gaming in new jurisdictions, the Dallas and last November where there's six new jurisdictions in new entrance or new proposals for to seeing as Richmond, Virginia, obviously were we have to go for in Denver.
So, as we think about the investible universe, we talked to you about $4 billion to $5 billion of buyable rents that's $50 million to $60 million, $70 million in buyable real-estate. But it's not a static number, it's a number that it was beyond that because you think about the ability for operators to add towers, add rooms, add convention space, and that gives a great funding opportunities for VICI and then the new supply that comes in. Supply can cut both ways, we need to be cognizant of where the new supply is relative to our existing assets.
But generally, it's a positive because it creates funding opportunities, increases the term. So, we're very optimistic about the future and our ability to continue to grow consistently year-in and year-out as we've done from day one with this REIT.
Awesome. Nice quarter and thanks for the color.
Thanks, Jordan.
Your next question comes from the line of Stephen Grambling with Goldman Sachs.
Hi, Stephen Grambling.
Hi, Grambling both in our -- follow-up through, I can put as Carlos question on the regional market and strength in margins. As you look at the pipeline, kind of the strength in the regional markets impact, how you think about underwriting corresponding EBITDA coverage on rent.
It's a great option, I mean this is where having expertise in-house that have run these assets with myself and Danny and in understanding how they're increasing their margin, where they're increasing their margin, which part of that margin is sustainable, where do we see there would be the risk.
And so, as we think about any individual asset or combination of assets, where the margin has increased over the previous year, will study where we think it ultimately land the work with the operator. If it's a bid process to see where they think it'll land and we'll underwrite accordingly.
And then have seller expectations generally set, had been reset to that same level or how does that as negotiations been evolving?
Well, it's not necessary that they set the level. They are forecasting where their business is going to be. They show what the previous three months or six months has been. So, there's actual numbers the forecast numbers. And again, if we're digging into the purchase of the real-estate of an asset with an operator will dig into the historic EBITDA levels and margin levels where the new levels are and really study what is going to be sustainable. And that's how we'll ultimately come up with the appropriate starting EBITDAR that we underwrite the asset with the tenant if it's the sale I mean, with a current operator, but say a lease back or with a new tenant, new operator if it's a complete sale that we're going in with in our scope.
Yes, I guess the question is, is there a aligning spread in terms of expectations from the operators versus, I mean, the sellers versus what you're thinking here?
We'd have to take, honestly you'd have to take that asset by asset and it's hard to say whether there's a widening or not, again will follow our process that we've done to acquire assets over the past three years.
Makes sense.
Thank you.
Your next question comes from the line of Thomas Allen with Morgan Stanley.
David, one for you. I know it's talking about escalators have CPI kickers in that. And can you just remind us what one could kick in near term, I think some are after a few years. Thank you.
Yes, thank you Thomas, good to talk to you. Overall, 92% of our rent is subject to CPI kickers. And the biggest one being Caesars both the Regional Master lease and the Las Vegas lease which takes effect every year November 1, so that kicked in that escalated last November.
And in terms of, if you look at what didn’t hit it CPI's last year, but just given where CPI was versus the 2% bump in Las Vegas and the 1.5% bump in the regional leases. But, we like our CPI protections at something that we focus on in our leases and something that we think just given with all the talk around inflation out there. It differentiates such from the other two gaming REITs.
And then, I have some that don’t kick in for a couple of years or they all good to go this year?
There are certain leases that have kind of a one or two year, three year holiday depending on the lease. Hard Rock is 1.5 for the first four years and it's the greater is 2% of CPI after the Century leases 1% for years two and three and then one in the quarter or CPI had after. So, there is a holiday for depending on the lease and when we end close the transaction for a period of time. So, it somewhat tagged to other portfolio.
Alright, thank you.
And next question comes from the line of Rich Anderson with SMBC.
Yes, SMBC. Good morning, everybody. So, on the Venetian, I'm wondering if you would be able to comment on what the cap rate might have been had Sam state on as the operator. I know you're getting their backing for a few years. But perhaps, the market would have for everything that Apollo is and I don’t mean to throw them under the bus at all but that I wonder if it would have been a different price as Sam state on. Do you sense that or do you think it would had not add an impact on pricing of the asset?
Yes, it's Ed, Rich. Because its talking is bad and I apologize everyone for dropping off hearing my answer to Rich Hightower. That is a very interesting question that no one's actually asked before. It probably would have been a factor given their investment grade. They're obviously very well serviced, they are the I guess multi cap gaining company in the world.
So, hypothetically yes potentially. I do think though Rich, it's also worth reiterating that this deals have placed at a very idiosyncratic time in the market. A time in the market where a whole lot of would be bidders or sidelined because of uncertainty. This full process began at a point in late mid-to-late Q4 when the world was well when the U.S. was at a point of COVID resurgence that was causing a lot of uncertainty. And that's we were able to take action with Apollo at a time when many others couldn’t or wouldn’t. And that is that too was a fundamental factor in the price we ended up paying.
They say never waste a good crisis. So, obviously excellent transaction for all parties. The other question I have is and sort of alluded to earlier in the call, but I didn’t really get quite the answer in terms of future M&A and other operators engaging with REITs.
What do you think the main holdback is for anybody who's not sort of done business with the gaming REITs. What's the negotiating hiccup has kept them on the sidelines to this point in and do you expect that you'll see that sort of answer get that question gets answered so that there is even more players involved?
And just be clear in terms of what you're asking, Rich. This would be what is kept would be sellers from selling?
Yes, or operators you know win for example. Those that have not engaged the REITs in any way to finance their assets.
I think the most fundamental issue Rich, or the most fundamental question for any operator is well what would I do with the money. Right?
Yes.
And selling simply for the sake of selling, selling for this simple sake of finance or engineering nonetheless take the question what would I do with the proceeds. And frankly, when John and the rest of our team, we are the operators. We always say you need a good reason to sell. And that really then breaks into next question is what would you do with the proceeds. And what we really preach frankly is we should have a compelling use for the proceeds and we fundamentally believe that funding growth is a tremendous use of proceeds because if you receive proceeds or a sale lease back, you're receiving proceeds that have the fact though equity. Because we never ask them the money back.
And you can then deploy that the factor or preferred equity at a price that is even with the training up or begin your operators there's still deeper equity and make a raise and we open the market. And I do think one of the dynamics that’s had work right now is the dynamic of network effect of growing store count. And that I think is already creating and we'll continue to create transactional liquidity.
Alright, good stuff. Thanks, very much.
Your next question comes from the line of David Katz with Jefferies.
Hi, everyone. Thanks for taking my question, you've covered a ton of ground. I just wanted to ask quickly whether there are mature international markets that would be inside or outside the boundary of consideration. Not that you don’t have quite a bit to do domestically but it's just sort of crossed the consciousness.
John?
David, and good to talk to you, wish I could see you all. Yes David, and these are areas that we continue to looked at, if there's opportunities north of us in Canada or other countries that could fit into our reformat and be good REIT income. We'll continue to understand if there's an opportunity for us. So, we got to pass it at you that we got expertise to look there. You all rightly do have a strong embedded pipeline to continue to grow our company in the coming years without any new deals. But that does not stop, it's from understanding where there could be opportunities more we could help a good sent company grow by monetizing their real-estate.
Right. And that could encompass pretty much the entirety of the planet so to speak as long as it meets the criteria?
Yes, as long as it meets, we got to understand the tax situation, it will lull the only real-estate, a variety of other things, if they can work we'll tend to look at it.
Got it, perfect. Thank you, very much.
Thank you.
I'll just add to David's question that. Our business model is one as well that it enables us puts us in a position that could pave to grow internationally very cost effectively. And just to dramatize the efficiency of our business model.
If we use 2018 as a base year, since then on an annualized basis, we’ve grown our rent and because of triple-net that’s our NOI by approximately a billion dollars. And growing our NOI by a billion dollars has passed us only about $1.5 million to $1.8 million of incremental cash to G&A. I feel like, I’m glad it went to heaven with VICI because we can grow and grow very quite protectively and there is no reason that lies well to creating global reach, David.
Your next question comes from the line of John DeCree with Union Gaming.
Thanks for taking my question. Covered a lot of ground as David had indicated. So just two questions maybe. One, first on construction costs, we’re seeing those creep up and I think some of your operators are looking at developing projects. You mentioned a comment in your prepared about the purchase price of an issue being below replacement cost. So, we think about M&A activity and cap rate compression, I think we’re seeing some of the highest increase in construction costs that we have since you guys became public. Are you hearing that from your partners, is that pushing more people to M&A, would you expect that to be a gating factor going as some of your partners look to grow?
Yes. John, I don’t know that we’ve seen a lot of evidence yet that commercial construction costs are accelerating anywhere near the way that residential construction costs are accelerating, I mean, like to deploy was gone from 17 bucks to 42 bucks in recent months. But, there is no lot of commercial construction that deals with whole lot of plywood. So, it remains to be seen what will be, in fact, in commercial construction. I could just say though, being in the meeting, convention business as our operators are especially in Las Vegas.
When there is a glorying construction sector in the US that tends to be a very good thing for Las Vegas and for the regional market and not just when Con Agar connects both or the world of concrete shows up. That’s all part and parcel of growing it, really good for our operators and that’s it for us.
Very true, thanks Ed. And just separate note, the Venetian acquisition increases your exposure of rent going to Las Vegas quite a bit, you probably get this question every quarter and in some capacity also. Lot of your ropers and contracted opportunities are around the Las Vegas strip, we had talks at length of how attractive the market is. But in the near to medium term, in your M&A or your acquisition approach, do you look to maybe be a little bit more active away from the Las Vegas strip or is that less of a consideration just given the favorable dynamics that the strip has right now?
Yes. John, good talking to you. When we announced the Venetian, we were very clear that we, after the Venetian is closed, we will still be getting 58% of our rents from regionals and 42% from Las Vegas. And as you mentioned, we do have ropers, but don’t forget the very exciting foot call that we have and two large Indianapolis asset that would be in region.
So, I think our plan continues to be to have a diverse portfolio as a mix of Las Vegas and again, you heard me say John, I like the downtown area of Las Vegas, I like the regional part of Las Vegas and I like the strip where we’ve asset today. And then, I think you all see us continue to add to our portfolio in other region. So the key is that we’re going to remain balanced and diverse as we’ve since we started the company.
Very good, thanks John, thanks Ed.
The next question comes from the line of Peter Hermann with Baird.
VICI open in a mall in Western Pennsylvania of all places, I was wondering if you give us sense for the kind of appetite you think operators would have in expanding the real said footprint into malls at this particular asset, would form well down the road? Thanks.
Yes, it’s a good question and you’re correct. [Indiscernible] opened a live asset in west mall in Pennsylvania. It would be interesting to watch it with a supplement license in Pennsylvania where they add it, somewhat they call smaller like and you mentioned they’re opened in a mall whether other state beside the licensing process, either add to licenses that are in restrictive stage 4 as new states open specifically saying, we’re going to use it as a redevelopment tool and the site is this mall that’s not doing too well.
We just have to wait and see the asset that they built and my understanding is very naïve and is a unique way of using real estate in different way and we will just continue to monitor and I am sure other states are looking at how that all plays out, but I think we’re in early innings there.
I appreciate the response, thank you guys.
And your last question comes from James [Indiscernible].
James, are you there.
Yes. Can you hear me?
We can now, yes.
Following the Venetian transaction, when do you think that implies the value of Caesars power?
Yes that’s a great question that goes out with James. One would think, the value of Caesars power is quite high and it should be as was obviously the value of the garage here when Blackstone made what we think is a tremendously attractive and valuable purchase of brand. And then again MGO brand. Again, doing comparable commercial real estate asset, the revenue productivity, the profit productivity of these assets was really unviable by just about anything else there. When we announced to the nation, we invoked iconic examples or analog like the GM building, like the biggest Amazon distribution center that [Indiscernible] has owned outside of Seattle.
These are assets that are just tremendously valuable and we own them and they’re occupied by tenants that are on leases that are effectively 35 years to 5 years and the like. I need to put a fine point out, contracting to buy the Venetian at $4 billion and $250 million of rent, we watered amount of rent, the average triple that we have to do a thousand. A thousand store acquisitions to equal what we bought in the Venetian, right. The top triple-net REIT in America, the average rent per store is $250,000, right.
We bought $250 million in one asset and we bought it with the lease term of effectively 50 years weighted average lease term, a lot of these $250,000 boxes is in the same digit. And I think James, as more and more investors into real estate to public equity understand our model of tremendously resilient, a 100% rent, cash rent collection for VICI in 2020 as they realize our weighted average lease terms and they realize that we escalate our rent with GPI tickers. I don’t know if you can find a better viability matching real estate investment especially if you’re a long viability investor like a pension fund, then gain real estate.
Thanks for the color Valoy, I’ll leave it on that.
And there are no further questions at this time.
Thank you, operator. Let me just close out by reiterating our thanks to all of you for being on today’s call. We’re proud of the growth that we provided to our stockholders this quarter and believe they’re very well positioned to continue delivering industry leading growth and driving shareholder value. And as John pointed out, we’re very excited about continuing growth prospect of our tenant partners here at the forefront of the reopening of America’s leisure economy. Again thank you and good health to all.
And this concludes today's conference call. You may now disconnect.