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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, and thank you for standing by. Welcome to the VICI Properties Fourth Quarter and Full Year 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, February 19, 2021.
I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties. Please go ahead.
Thank you, Operator, and good morning. Everyone should have access to the company's fourth quarter 2020 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, believe, expect, should, guidance, intend, project, or 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 conditions.
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 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 and thanks for joining us. If for any reason you hang up or the line goes dead in the next 30 seconds, here's the one message I want you to take away from this call. In 2020, according to facts that consensus, two-thirds or 14 of 21 U.S. triple-net REITs are projected to post year-over-year declines in AFFO per share.
In 2020, as David Kieske will elaborate on in a moment, VICI's AFFO per share grew 10.8% for the year as a whole, and grew 24.3% in the fourth quarter.
In the year 2020, when again two out of three peers are likely to see declines in the AFFO, we think VICI's growth is worth remarking on. But it's been interesting to see commentary so far, which can be pretty much reduced to VICI achieves consensus AFFO per share. Did VICI achieve consensus in the quarter it’s a key question. But we think it's also worth asking the consensus call for AFFO per share growing, staying steady or declining. Is it call for growth? Was it a lot of growth or a little of growth?
Once all American triple-net REITs support their 2020 results, we know with finality where VICI's AFFO per share grow stands on a relative basis. We already know where it stands on an absolute basis, and it is growth we're very proud of, especially coming out of the year so tough and so thoroughly dominated by the COVID-19 crisis.
As I said in our Q3, 2020 earnings call, what the COVID-19 crisis has taught us across the U.S. REIT management spectrum, is that the strength of the REITs business model is the aggregated strength of the REITs tenants business models. And for gaming REITs generally, and VICI specifically, the COVID-19 crisis has demonstrated that our gaming tenants have built business models of great strength and durability, and the strength and durability of their business models is derived from the strength and durability of their relationship with their customers, the end users of our real estate.
This strength of the gaming operator, gaining customer relationship is a key lesson I take from 2020. This strength of relationship and the mission criticality of our real estate to that relationship is the key reason we, VICI collected 100% of our rent in 2020 on time, and 100% in cash. This is the key reason we were able to announce what we believe is one of the larger 2020 dividend increases among the large cap American REIT. It's a reason we were able to go back on offense as early as June when our Caesars Forum financing, and later in the summer, our first non-gaming financing with Chelsea Piers.
Finally, it’s the driving force behind our AFFO growth in 2020, and our AFFO growth trajectory coming into 2021. But there's a second lesson I take from 2020, and it's a lesson, the clarity and power of which truly burst through in the second half of 2020. And that is the emerging power of sports betting within the American gaming ecosystem.
The gaming real estate owners, we aren't as focused on the TAM of sports betting revenue. So of course we hope our tenants realize as much revenue and profit as they can, from this new channel of business, whether online or in property. As real estate owners have assets that we will own and our tenants will occupy for decades to come, we believe sports betting will have the greatest long-term impact and create the greatest long-term value, by greatly expanding the audience for American gaming. American gaming is an American consumer discretionary sector. Every American consumer discretionary sector competes for the attention, time and spending of the American consumer.
If a given sector can achieve competitive advantage and gaining and sustaining the attention of a potential new customer or consumer, that sector will likely generate outsized growth and value in the years to come. So American gaming as an American consumer discretionary sector, we strongly believe sports betting represents a new competitive advantage. What we believe sports betting does most powerfully is insert American gaming more broadly and deeply into the American conversation.
Think about it. What are the two great mainstays of getting an American conversation going? Number one, weather, number two sports. To seize the day ever comes when casinos offer betting on weather, but today is now here when sports betting is getting powerfully woven into the all-consuming American conversation about sports. Just to say two examples, involving two of our tenants. Every time the Caesars sports book gets cited exclusively on ESPN, and every time Penn is able to deliver a sports betting message to REITs partner Barstool, each of these great American gaming companies is reaching an audience of potential new customers, especially potential new and younger customers.
The American gaming sports betting represents a new and technology enabled paradigm for reaching, engaging and activating a new, bigger and younger audience. This technology enabled paradigm is a new tailwind behind American gaming. And if you look at REIT asset class performance over the last few years, the winning asset classes in terms of superior total return, the tens of the asset classes with technology enabled tailwind. Cell towers, data centers, and e-commerce logistics are just three such examples.
Conversely, the asset classes that have struggled tend to be those suffering from technology related headwinds. We believe with high conviction that the gaming real estate asset class should in the next few years benefit from the technology enabled tailwind. So all-in-all, 2020 was the year in which American gaming and American gaming real estate proved its defensive strength, by enduring through one of the great crisis of our lifetime.
And 2020 also showed, thanks to the growing strength of sports betting, that American gaming arguably represents one of the most compelling offensive opportunities in the consumer discretionary sectors in the coming years.
The next sound you hear will be the sound of the American consumer roaring back. And as many of you have been writing about, after many months of consuming many things, American consumers will return to what has been their growing preference for the last two decades. The preference for consuming experiences over things. Some of you may have heard on the Sunstone Hotel Investors earnings call last week, our good friend and Sunstone CEO, John Arabia, cited transient bookings for the second half of the year at their Maui property that are currently double-digit 13% above 2019 levels, and the outlook continues to improve on a weekly basis. We believe this is one of the many anecdotes around pent up leisure demand that will benefit the consumer discretionary sector, as large and the economy continues to reopen.
I'll now turn the call over to our President and COO, John Payne, who will talk about what we have done and moreover, what we are doing to capitalize on the roaring comeback of the American consumer. John?
Thanks, Ed, and good morning to everyone. 2020 was another busy year for VICI as our hard work continues to pay off. In 2020, our team completed nearly $4.6 billion of transaction activity, growing our annualized revenue by approximately $360 million, or 37%. Throughout the year, we worked closely with each of our tenants as the pandemic unfolded to provide short-term solutions on and as needed basis.
As Ed stated, our cash rent collection track record of 100% to-date is a testament to the quality and strength of our business model and our collaborative approach with our tenants. As you are undoubtedly aware, the recovery of the gaming industry has demonstrated that despite the many challenges over the past year, the consumer has not found a replacement with a bricks and mortar casino experience. Our portfolio of industry leading assets and regional markets continues to demonstrate margin expansion, and in some cases profitability above 2019 levels.
While our Las Vegas properties, led by Tom Reeg, Bret Yunker, Anthony Corrado and the entire team at Caesars Entertainment continue to outperform peers on the strip. As we start 2021, we have the experience and credibility to explore opportunities both within and beyond gaming. And we're very encouraged by the volume and quality of potential transactions we see ahead.
It is important to remember that for VICI, underwriting and investing in different sectors is not and either or. We continue to develop relations with gaming operators. We look for ways to support existing tenants’ growth, and we continue to spend time studying and meeting with operators in sectors beyond gaming, in order to be prepared to transact when the right opportunities come together.
Our gaming investments will likely continue to dwarf our non-gaming investments, due to the sheer financial magnitude generated by gaming assets. However, we believe that growing our portfolio accretively through sector and geographic diversification, while maintaining prudent risk levels will yield the superior returns our shareholders deserve.
We believe VICI is in great position to continue our industry leading growth. And we'll abide by the same principles that have driven our success to-date. We work hard with integrity to be the real estate partner of choice. We do fair deals, and we collaborate with our partners to create value for all parties.
Now I'll turn the call over to David, who will discuss our financial results and our guidance.
Thanks, John. Good morning, everybody. Thanks for joining us today. I want to start with our balance sheet. And since emergence, we've maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles, and provide the safety and protection our equity and credit partners deserve.
2020 put forth and VICI was able to navigate some very heavy weather, as we continue to transform our balance sheet, all while maintaining ample liquidity and never drawing on our revolver.
Just to summarize, in June 2020, we raised $662 million of equity through a 29.9 million share forward sale agreement. We still have 26.9 million shares outstanding, representing approximately $547.9 million in remaining net proceeds as at year-end. In February 2020, we raised $200 million of net proceeds through our ATM program. And as we've discussed with many of you, we're on a mission of achieving an investment grade rating, and during 2020 we continue down this path.
Last February, we closed on $2.5 billion of an unsecured notes offering comprised of a mix of five, seven and 10 year notes at a blended interest rate of 3.8%, continuing to stagger our maturity profile. $2 billion of these proceeds were used to fund the Eldorado transaction, and the remaining $500 million of these proceeds were used to retire the 8% secured second lien notes.
During 2020, we significantly improved our composition in the weighted cost of debt. At emergence, we had 100% secured debt with a weighted average interest rate of 5.49%, and a weighted average maturity of 2.9 years. As we sit here today, 69% of our debt is unsecured, with a weighted average interest rate of 4.18% and a weighted average maturity of 6.1 years with no maturities until 2024.
As of December 31, our net debt to LTM EBITDA was approximately 5.8 times. This ratio is not reflective of our true run rate leverage as it does not include a full 12-months of income from the Eldorado transaction, meaning if you take into consideration of full 12-months of rent from that transaction, our leverage would be well within our stated range of maintaining a net leverage ratio between 5 and 5.5 times. And as of year-end, we currently had approximately $1.9 billion in available liquidity, providing ample flexibility for future accretive growth.
Just to reiterate, 2020 highlighted our guiding principles on how we approach our balance sheet, which are, to maintain a disciplined composition and laddering of debt, whereby in any one year, we strive to have less than 20% of our total debt coming due, safeguarding the company's balance sheet against future market volatility.
We're going to opportunistically access the capital markets, to lock in funding certainty for all transactions and develop continued access in partnership from the equity and credit markets to finance accretive acquisitions. As I mentioned, our goal is to maintain a long-term target leverage ratio of between 5 and 5.5 times on a net debt to EBITDA basis, and ultimately migrate the balance sheet to that unsecured issuer and ultimately achieve an investment grade rating.
Just turning to the income statement, total GAAP revenues in Q4 increased 57% over Q4 '19 to $373 million. For the full year 2020, total GAAP revenues were $1.2 billion, an increase of 37% over 2019. These increases, as John mentioned, was a result of adding approximately $360 million of annual revenues during the year from the closing of the Eldorado transaction, the Caesars Forum Convention Center mortgage, the Chelsea Piers mortgage and the Jack Cleveland Thistledown acquisition and related loans.
AFFO for the fourth quarter was $251.7 million or $0.46 per diluted share, bringing full year 2020 AFFO to $835.8 million, or $1.64 per diluted share. AFFO increased 28.7% year-over-year, while AFFO per diluted share increased approximately 10.8% over the prior year, which is due to the increased share count and resulting temporary dilution in the first half of 2020 from the June 2019 equity offering.
Our results once again highlight our highly efficient triple-net model given the significant increase in EBITDA, as a proportion of the corresponding increase in revenue, and our margins continue to run strong in high 90% range, when eliminating non-cash items.
Our G&A was $8.1 million for the quarter, which we believe represents a good quarterly run rate going forward, and as a percentage of total revenues was only 2.2% for the quarter, in line with our full year expectations and one of the lowest ratios in the triple-net sector.
As always, for additional transparency, we point you to our quarterly financial supplement for a detailed breakdown of our revenue and lease streams, which is located in the Investors section of our website, under the menu heading financials. We welcome any feedback on materials.
Turning to guidance, we're initiating AFFO guidance for 2021 in both absolute dollars, as well as a per share basis. As many of you are aware, beginning in January 2020, we were required to implement the CECL accounting standard, which due to its inherent unpredictability leaves us unable to forecast net income and FFO with accuracy.
Accordingly, going forward, our guidance will be focused on AFFO as we believe AFFO represents the best way of measuring the productivity of our equity investments, and evaluating our financial performance and ability to pay dividends.
AFFO guidance for the year ending December 31, 2021, is estimated to be between $1,010 million and $1,035 million or between $1.82 and $1.87 per diluted share, which at the midpoint represents a 12.5% year-over-year growth in our AFFO per diluted share.
These per share estimates reflect the dilutive impact of the pending $26.9 million forward sale shares, assuming settlement of the forward agreement on June 17, 2021, the maturity date of the agreement.
In addition, these estimates do not include the impacts of any pending or possible future acquisitions, dispositions, capital markets activities, or any impact in the incremental equity drawdown from these forward shares.
During the fourth quarter, we paid a dividend of $0.33 per share, which represents an annualized dividend of $1.32 per share. Our AFFO payout ratio for the fourth quarter was approximately 72%, in line with our long range target of 75%.
With that, operator, please open the line for questions.
[Operator Instructions]. Your first question today comes from the line of Rich Hightower with Evercore. Please proceed with your question.
Hi. Good morning, guys. Ed, thanks for your enthusiastic comments to start the call. It's maybe a valuable reminder that we on our side sometimes exists within our sort of narrow analysts speak bubbles, so I appreciate the reminder there.
My pleasure, Rich.
No, in all seriousness. But maybe I'm going to ask one sort of narrow question and maybe a bigger picture question. But just in terms of really quickly on the Danville ROFR. Maybe just help us understand to the extent you can explain it at this point, some of the turns around that?
And then, maybe I'm misinterpreting something here. But if I look at the roll through and sort of recontend for giving up the security of the master lease, at Southern Indiana. How do we sort of pair the value proposition on either side of that, if that's an appropriate way to think about it?
John, you want to take that?
Rich, I'm not sure that that's the exact way I think about it. I think that ROFR just as an opportunity, obviously as the operators need to decide at some point, if they ever want to monetize their real estate. We sure would like to have own real estate in a new market, which we think is going to do great. We're very excited about the new tenant that we're going to have in Southern Indiana, known as Eastern Band of Cherokee Indians for almost 20 years now from my old job when I worked at Caesars, and we're excited to help them expand their portfolio for the first time outside of tribal land.
So, again, as you've seen with other deals Rich, when we negotiate, and we do try to add to our embedded growth pipeline. And that's how this came about. In Danville, we'll just have to see if the operator ultimately wants to sell real estate.
Okay, I appreciate the color, John. And then a little bit from a bigger picture question, but also related to Southern Indiana. I know that the original press release stated 2.2 times coverage in the first year post-closing, so that puts us somewhere into sort of the mid to late 2022 by the end of that sort of measurement period. But, take us into sort of the underwriting and how you gain comfort with what stabilized cash flows on this or really any other investments are going to be over the next year or two? And how does the tenant and the landlord gain comfort in that sort of ramp up, maybe as compared to 2019? Or how do we should think about it? Thanks.
Yes. Rich, I'll go out this first and my colleagues can jump in. First, it starts with the relationship of understanding who your partner is. And as I just mentioned, I've been fortunate to have a relationship with the tribe and watch them grow their incredible business in North Carolina to record levels, as well as the regional business, Rich, as you know has rebounded tremendously when there weren't many restrictions on the business.
So the pandemic started in March and April, the casino shut down. But as they reopened in places like Southern Indiana, we've seen them open with the consumer returning to the business, as well as a margin or an operating model that's much more efficient than ever before. And I give great credit to our operators to do that.
And so, as we went into this deal, we put all of those together, we talked to the tenant, we understand how they're going to operate business, and we develop the plan from there. But critical part is understanding how this business is going to rebound as the consumer comes back to it. We're there again, I'll repeat, we're very excited to have them as our sixth tenant and running the Southern Indiana property.
Okay, great. Thank you.
Our next question comes from the line of Anthony Paolone with JPM Securities. Please proceed with your question.
Thanks, and good morning. Ed and John, you guys both talked about the importance of partnering with your tenants to drive growth. As you are thinking about non-gaming assets, is that equally important as you try to go down that path? Or do you think you may just have to bet on assets and other product types and try to get it going that way?
Yes. Tony, the way we are approaching non-gaming is that we really want to pioneer into categories where REITs may not necessarily have been heavily trafficking and bidding and buying. We really have no competitive advantage in heavily marketed, heavily bid categories. And so what we're working hard to do, as we did in the case of Chelsea Piers is identify either categories or subcategories, where we believe there are operators who have uniquely powerful, enduring relationships with their customers, and are producing economics that can support more REITs they support an OpCo/PropCo structure.
It obviously takes a bit more time. But we're very excited about what we are learning and who we are meeting and who we're getting to know, and the opportunities they represent.
And I think, Tony as we talked about with you around the whole technology tailwind theme, there are also cultural tailwinds out there, and we think there are certain experiential sectors, especially at the higher end we're going to have tremendous cultural and demographic tailwind behind them for the next 10 to 20 years. And that's where we see our opportunity. It's really not in the commodity categories of triple-net.
Okay, great. And then, David, on the balance sheet, I mean, given what unfolded in 2020, and the performance of the portfolio. Any sense as to just how much more attainable IG might be in the near-term?
Yes. Tony, it's something that we've discussed the depth with rating agencies, we met with the agency several times during 2020, both on our regular checkup, but also as the pandemic was unfolding. And for us, it's really around the term loan. The term loan is secured by all but one of our assets. And so we do not have a typical unencumbered asset pool like most traditional REITs do.
So we need to refinance out of that secured term loan into the unsecured debt markets, and as we move into 2021 and into 2022, we will sequence that refinancing and that term loan, potentially into 2023, part and parcel with what may come in the acquisition in the pipeline, what sort of funding we may need for additional acquisitions.
So, there's a clear path. GLPI has paved it and has proven that it's achievable tenant concentration in of itself is not a gating factor, but just simply for VICI's cap stack, and that term loan against securing of our assets is secured by all of our assets, is the gaining item.
Okay. And then just one last follow-up, on the other side of things. Just again, given the performance of the space through the pandemic, do you think that changes the discussion around yields on investments as we look ahead?
It should. If this category behaves the way, certainly so many other categories have Tony, that have undergone an institutionalization process. Yes, the prices should go higher. Our mission, we would work hard at every single day at VICI to make sure our cost of capital improves at a rate equal to or in excess of the velocity of cap rate compression.
But it just stands to reason that these assets should attract higher prices as time goes on, as everyone recognizes that they came through really, a totally unforeseen magnitude of crisis. And making to better than just about any consumer discretionary sector out there as a real estate asset class, so yes, you have to think, especially as people truly start calling out from under the rock to COVID, that we should see what -- but frankly, I joined VICI four years ago, which is to take part in the next cap rate compression story in the American commercial real estate.
Great. Thank you.
Your next question comes from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.
Good morning. I guess a couple of follow-ups on the last few questions. First, as you think about any potential acquisition opportunities within gaming, are there any markets that you feel are more or less attractive or easier to underwrite given your current exposure? And can you weigh in on how that resilience of cash flow from operators may be impacting seller expectations around price relative to perhaps where the broader cost of capital is moved?
John will take the first part and David can take second.
Yes. Absolutely. Good morning, Stephen. Look, there aren't any markets that we look at that we wouldn't study right now. We'd like the fact that we have a balanced portfolio. We've said that since we started the company, and I think we'll continue to have a balanced portfolio. We'd like to own assets in these regional markets, and we've talked about how resilient they've been and we've talked about how they change with operating model. But we're also big believers in Las Vegas ever since we started this company, not only assets on the strip, but also in downtown and local.
So Stephen, we'll continue to turn over every rock and look at opportunities and all of the gaming market. That doesn't mean that we'll invest in every market, but we are sure we will take the time to meet with operators and talk about how they're thinking about how we can help them grow.
And I'll turn it over to David to take the second part.
Yes. Stephen, correct me if I'm wrong, I mix with pricing and kind of always think about capitalization. The pricing is maintained. The regional markets has come back. There is the level set, obviously not a lot of transactions, but the pricing in the regional markets is that or near where it was pre-COVID. TBD and Las Vegas, given a little bit slower ramp there. But as we think about our capital and our leverage, we're very focused on maintaining our leverage between that 5 and 5.5 times that we've talked about, that's back to Tony's question, something that's important for the agencies.
And then a deal has to be accretive, where we talked with you all a lot about what we buy day one is what we live with for 35 years. So we have to ensure that we have the capital and underwriting is done on an on accretive basis to continue to grow our AFFO.
That's helpful. And then a follow up on the comments around non-gaming, kind of non-heavily bid market opportunities. Should we interpret that any cap rates that you'd be pursuing in those markets could be equal or higher to those that you were pursuing in gaming? Or they're even a tolerance that as you look at some of these, because they are a huge asset classes that you could actually move down the top rate spectrum.
It could be. It could be all of the above, Stephen. The fact that they're not heavily bid could mean there are better bargains to be had. But it could also be exactly to your last point that that we can afford to pay and justify paying maybe a somewhat tighter cap rate, because of the nature of the asset, the risk profile of the asset, the barriers to entry, and what is very proven durability of the asset over the long-term.
So, I hope this doesn't sound like sort of vague answer, but it will be so situation specific.
Fair enough. That's helpful. I'll jump back in queue. Thank you.
Thanks, Stephen.
Our next question comes from the line of Barry Jonas with Truist Securities. Please proceed with your question.
Great. Hey, guys. I wanted to start on your embedded growth profile or sorry, embedded growth pipeline. Any thoughts on timing there? Caesars has been talking about selling a strip asset. And I believe the Centaur call option could kick in starting next year. Thanks.
John?
Yes. So, you talked about something we're very proud of that we've worked on three years is building this embedded pipeline, with the deals that we've announced, and though we will continue to talk to our partner in Caesars about what they are seeing ahead, and what they are feeling about the Las Vegas market. And do they still see LA as they did when the Eldorado team took over Caesars but they may have one or two incremental assets that they don’t feel like they need in their portfolio, and they would end up going through a sales process.
As I mentioned a few minutes ago, we're big believers in Las Vegas. We think that's the market that is going to rebound in all segments. And so they want to move forward with the sale. We're obviously very interested in owning more real estate of those assets that we have ROFRs.
You also mentioned the put call of the two great Indiana assets in Indianapolis that come due, you're right on point, next year. And again, we'll continue to have talks with our partner about that. So two tremendous opportunities for us that we really worked on to develop over the years, with our embedded -- creating our embedded pipeline. As it pertains to timing, we'll just have to continue to have discussions with our partners on that.
Barry, if I could just add on something that kind of goes back to my opening remarks around VICI's growth in 2020. Someone could rightfully say, yes, okay, well, the markets already priced that growth in. And yet, what I don't think is being fully appreciated or valued in VICI is not only the growth we produced in 2020, and the growth trajectory that we bring in, in 2021. But the growth it is represented by that embedded growth pipeline, and just to get a little old school on you here, which I'm allowed to do because I'm really quite an old guy.
I really encourage everybody to look at VICI on that old fashion, old school, price earnings growth ratio basis using our AFFO multiple in place of a PE multiple. And what you'll find especially looking over a multiyear period is that we will likely have in your calculations lowest peg ratios, you will find across the American REIT spectrum and certainly substantially below the peg of the S&P 500 at this current point in time.
And again, I encourage a multiyear view because a lot of REITs are going to grow in 2021, because they shrank in 2020. And what you're getting with VICI a multiyear growth profile that goes into the future and just the way described Barry, thanks to the fact that in 2022, even if we couldn't get anything else done, we have got Centaur and the opportunity to call.
Yes. And then just one follow up, recognizing it's been done so far in concert with your tenant. But do you foresee any more dispositions or prunings in the portfolio?
John?
Barry, I will have to continue to study that, but not specifically at this time. But we'll have to continue to understand would there be an opportunity.
Great. Thanks so much, guys.
Your next question comes to Smedes Rose with Citi. Please proceed with your question.
Hi, thank you. I wanted to ask you, you added a second native American tenant. And I just wondered, do you think this will be a trend to see more Native Americans moving away from tribal gaming into commercial gaming? And do you think you have maybe an advantage with two tenants in that wheelhouse already or sort of just touch on that a little bit?
John?
Yes, it's a great question. It's exciting to see the tribes move into commercial gaming, because they've done so well in their original casinos. And so you're asking, will there be other tribes that will look at commercial gaming opportunity? I think there will be. And I think we do have relationships with numerous tribes, just based on my experience path, about 20 years’ experience working at Caesars and working the Native American tribal developments.
So, we'll continue to, to meet with them, understand what they like to diversify outside their nation. And if they do, look for opportunities where we can work together. And I hope that trend continues, because I think it's quite exciting for the nations that are doing this audits that we've got a relationship with the Seminoles in the Eastern Band of Cherokees.
Okay, thank you. That's interesting. And then do you see, John, maybe are you seeing any sort of other entrants that have an incremental interest in their gaming industry now, given where cap rates are? And how, we will begin to expand on a relative basis? I know that sort of regulatory hurdles, but would you expect to see more foot players coming into the space?
Yes, it's a great question. There's no doubt that the resiliency of the gaming operators during the pandemic has caught people's eyes. When a lot of industries are -- some are still talking about cash or burns, and regional gaming companies are talking about record EBITDA, it's going to catch the attention of many people that invest in the hospitality or experiential space.
So, your question is, will others come into the space, there's no doubt that others are looking at it, because of how well these assets have performed and the magnitude of cash flows. But as you know, the operating business is quite complex, and it had some licensing requirements. But I do think over time, you'll see more groups getting into the business because it's not only the bricks and mortar, but to the Ed's comments at the beginning how exciting the growth path is, when you tie in sports betting and potentially I-gaming.
Thank you. Appreciate it.
Your next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.
Hey, guys, thanks, John. I was wondering if maybe you could just address from a high level or almost a year, roughly into the pandemic era, and maybe go back to kind of prior to that and the nature of your discussions around deals. And I'm referring more towards terms whether it's coverage, things like that.
And maybe just anything that's changed in the aftermath. Are people, potential sellers looking at different things? And I need that both from the Opco perspective, seller’s perspective, your perspective. Is there anything that stands out as having maybe been tweaked a little bit given the circumstances of pandemic, as well as the higher margins that we're seeing now, as well as the ancillary business lines and whatnot? Is there anything that you've noticed that's been dramatically different?
Well, I'll start Carlo. I can't remember before the pandemic, what went on. I seem to have forgotten all of that. But no, look, I tried to have a constant dialogue, not only with our current tenants, but with all the operators in the gaming space. And I think as we think about underwriting, maybe we've talked more about rent coverage just due to what happened in the pandemic.
But I think, Ed touched on this as well, it's just been exciting to watch the operators change their business model, or refine their business model so that when they come out of this pandemic, and I do believe we're going to come out of it, that they're operating these businesses just so much more efficiently than guys like I did 15-years ago. And that's exciting Carlo, and those are the type of conversations that we're having.
As it pertains to transactions, I mean, we just continued to try to understand how the OpCos want to grow their business and is there an opportunity for our company to help them do that.
And then obviously, there's a few levers of, if we do get into negotiations that you talked about, cap rate and coverage and escalation, all that. None of those have necessarily changed. So that's how I'd answer that question, Carlo. I don't know if Ed wants to add anything or David, but that's how I leave it.
That's helpful, John. Thank you.
Your next question comes from the line of at Todd Stender with Wells Fargo Security. Please proceed with your question.
Hi, thanks. Do I have it right, the Caesars Southern Indiana is not on tribal land? Is that the case?
Correct.
Okay. Now does Eastern Band of Cherokee Indians, does they benefit from lower regulations, lower taxes? How do you actually underwrite that one? That seems pretty unique.
If you're asking about when they're the commercial operator Southern Indiana, they'll follow the same rules a commercial operator, whether it's Caesars or Penn, or any of them, the same rules will apply to them because the facility is not on tribal land.
I understood. Okay. So as a tribal operator, you don't get all those benefits, if you're off of tribal land?
They're very similar to the Seminoles in they are Hard Rock brand. I think you've probably followed that they have numerous casinos around the United States that they operate.
Understood. Okay. Thank you, John. And did you share any information on the land and plans around the Danville, Virginia Casino Resort?
Can you repeat? Did we share the what?
The proposed plans. There's the right of first refusal around the Danville property. Are there any…
Yes, that's a development project that is just getting started. So there's information about Caesars and they won the license and their development plan is there, but it's just getting started.
Understood. Thank you.
Thank you, Todd.
Your next question comes from the line at Daniel Adam with Loop Capital Markets. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my questions.
Our pleasure.
So, you ended the quarter with $1.9 billion in total liquidity, including over $326 million in cash and $547 million that you have coming in from the forward share sell. You're in an envious position from a balance sheet perspective obviously. You're also arguably over capitalized right now. I guess, given your balance sheet strength, had you intend to deploy excess cash? And are there any near-term deals maybe in the next one to two quarters that are currently in the pipeline?
Yes, I'll start there, Dan. I mean, Gabe and John can talk about the M&A landscape and outlook. But we have always historically I should say, we've kind of silly to use word always when the company is only about three years from its IPO as we are. But from the beginning, we have always tended to over equities the balance sheet in the interest of having firepower when opportunity strikes. And there may be a time -- there may have been a time some near-term dilution taken on, but that was near-term dilution endured for the sake of having a firepower to create long-term accretion to our ability to move very quickly when opportunity presents itself.
We certainly do not intend to short change our shareholders, like keeping excess capital on the balance sheet for prolonged periods of time. But we're pretty confident, we're going to be able to put that capital to work.
Okay, great. I don't know. I guess, John, nothing to follow up on.
No, I think Ed had talked about. Look, I'm spending my time, it's nice to be able to talk to the operators where, they're now focused on how to reopen and how to be safe. And they've done all that. Right now they can begin to talk about how do we grow and where do we want to go and how is the sports betting helping attract new customers and those things. And so it's nice to begin to have the growth conversations again.
Okay great. And then -- I'm sorry. Go ahead.
Yes. Dan, I was just going to add, I think one of the emerging dynamics that is powerful and positive is the growing recognition of the value of network effect in American gaming. Harrah's and then Caesars, obviously were the pioneers of true network effect in American gaming, and would still widely be considered to be the leaders through the power of Caesars rewards.
But I think increasingly operators are recognizing in part because of sports betting that there is genuine value in creating network effect, and being -- having stores in as many jurisdictions as you can. And that we think is going to be a powerful force, especially once COVID clears away and continuing to drive M&A, and with a lot of the M&A driven not so much by the sellers need to get out as the buyers intense desire to get it. And there are markets in which buyer demand can create incremental supply.
That makes sense. I think you're alluding to market access, right, if I'm not mistaken.
Yes. For our market access, also, and true market access being more valuable onto yourself and more valuable to your partners. Whether it be Barstool or William Hill, FanDuel, DraftKings, whoever your partner may be.
Great. And then just turning to the non-gaming side. So last quarter, you alluded to the potential for follow on transactions with the Chelsea Piers. Do you have an update on the timing of any such follow on deals? And how might a transaction be structured? Thanks.
David, do you want to take that?
Yes. Dan, good to talk to you. Look, as we've talked about with Chelsea Piers, it's opened the doors open their eyes open increase the dialogue around non-gaming in a descriptive way in the beginning, right non-commodity, high quality real estate. And with any deal, we can't talk about specific timing and whatnot. But we would continue to meet with, discuss with and have conversations with great operators that have great real estate that might fit in our portfolio.
So, can't say exactly when the next deal will come. But we're optimistic that there will be some more non-gaming this year. But again, it's just to reiterate what John said, it's not an either or. We're very active on the acquisition front and as we've started the conversation working to deploy that capital that we have on our balance sheet.
Thank you.
Your next question is from the line of John DeCree with Union Gaming. Please proceed with your question.
Hi, everyone. Thank you for taking my questions. Maybe one for Ed, and then a follow up for John. Ed in your prepared remarks, you talked a bit about the sports betting expansion and how that's such an exciting opportunity for the industry. I think a lot of folks can really see the clear picture of how that benefits your tenants and indirectly you guys, with higher rent coverage and higher revenue.
But I'm curious if you have thought of or identified any ways that if VICI could benefit directly, and not referring to sharing in revenue or anything like that? But if there's an opportunity to fund themed sports books or look at your leases a little differently, given the earnings growth potential of your tenants and potential tenants. And just seeing if there's ways you can maybe find direct ways to benefit from this big industry trends.
Yes. No, it's a very good question, John. And that would certainly be probably the most meaningful way, which would be a capital provider as great operators envision and execute what the whole sports betting sports culture sports viewing experience can be within a casino.
John, I don't know if you've had a chance yet to go to Derek Stevens, new asset in downtown Las Vegas. But it is a great example. John has been there. John, our John Payne has been there. And John, maybe you can talk about it as an example of what we would certainly be happy with our tenants to fund, given the magnitude of vision that Derek has realized there. John Payne?
John, you might have been there. It's a really well done brand new facility in downtown Las Vegas that is centered around really a lot around sports betting and the uniqueness there and the type of customer that likes that type of facility.
And so, anyway, it's just a great example of the trends that are going on right now in the first build from scratch casino during this what I'd say, sports betting trend or let's say since it's a really neat place.
It is. It's a great place. I was thinking that. I was thinking Barstool teams sports books and those types of things. So it sounds like, let's say if a large tenant was going to refresh and rebrand, VICI could be a capital provider for that shareholders in exchange for some of it.
Great. John, a question for you. You've experienced this through quite a few development cycles nationally. And it seems like we're on the horizon of one here in the U.S. And a lot of investors new to the space are always trying to calculate the PAM and number of assets. And we've got some developments, Nebraska, Virginia, Danville for you guys. New York talking about expanding casinos downstate. I mean, Texas is one that I probably would have never thought I'd be having that conversation again. But it's being talked about.
So in your experience, kind of curious to get your thoughts realizing no crystal ball here. But are you seeing a push towards development? I know Red Rock, on their call called has a site in Las Vegas that's very interesting. So curious to get your thoughts on your outlook for gaming expansion in the U.S.?
Yes, John. It is an exciting time. I mean, again, I'm 25 years into this, and I can't think of a time that has so many different levers of growth for this industry. Most calls are talking about sports betting and iGaming. And you just brought up a whole another opportunity that is out there where there's the new development opportunities for operators to expand their network. And it is quite exciting, and whether Texas comes but there's already the states that you mentioned with its Virginia and Nebraska, potentially New York that are three big opportunities.
So, it is an exciting time. It's obviously something that we talk to our tenants or future tenants about to see, is there a way to structure that makes sense for VICI and our triple-net model, and we'll just continue to study.
John, the normalization of gaming throughout the United States, it's just amazing right now. And it's great to be in the space that we're in, and it's great to see the success of our operators.
Thanks, John. And, David, appreciate the insights.
Thank you, John.
Your next question comes from the line of John Massocca with Ladenburg Thalmann. Please proceed with your question.
Good morning.
Hey, John.
So just one for me. Maybe touching on the opportunity in Central Indiana again, how do you think about timing of potentially pulling down that transaction? I'm just thinking about this given rent to EBITDA level is already predetermined in that transaction, and record EBITDA results out there and maybe some questions about how sustainable those are and how sustainable those margins are.
Does it make sense to maybe wait a little and see if EBITDA normalizes and get at a rent level that's really appropriate for the property? Or is it kind of the time you had with the time to collecting rents and there's no real reason to wait if you like the properties per se?
John or David?
Well, the process is it -- right now just so we're clear, I mean, we own Southern Indiana right now. I think you know that.
Central Indiana.
Central. David, you want to take that?
Yes. John it's a question that we -- the similar questions that we got a lot when we merged right, as people recall it. We had the three call properties that we could call it a tent gap, which ultimately folded into the other auto transaction that we announced in June of '19.
But John touched on it. We've worked hard to build this embedded growth pipeline. So it's a combination of ensuring that we have consistent annual growth. It's working with Tom and Bret and Anthony and their team and what makes sense for their capital needs and their ultimate sale of those assets.
And then you're right, the performance of the assets will be kind of a third factor and a third lever, but those call perhaps for that put call runs from January 1, 2022 to December 31, 2024. So, at some point between that period of time, we're going to be thrilled down those that have a great cap rate which should be highly accretive. But there's a myriad of factors that go into it. And we're excited to have that embedded growth.
I mean, is there any question about an individual asset level whether rents are maybe sustainable for the property. Or is there even, hey, Caesars and the tenant we trust. Obviously, we have a lot of other exposure to Caesars. I don't believe these are kind of corporate guaranteed, but at the end of the day that?
Yes. No, John, it's a good question. And one of the things we did get with the Eldorado transaction is that those would fold into the master lease. If you recall, we had a ROFR on those originally, and we converted that to a foot call. And those will fold into the master lease. So they will benefit from the corporate guarantee. And the asset level coverage is something that we will take into consideration, but knowing that they fold into the benefit of the master leases gives VICI embedded enhanced protection.
And ultimately, part of the reason, Tom and team were willing to do the set up the put call is Tom's vision of bringing back and goal of achieving an investment grade rating on their side, right? This provides significant liquidity to pay down debt or continue their growth profile and improve the credit of our tenant, which will accrue through to VICI enhanced rent protections.
Okay. Thanks a lot. Understood. That's it for me.
Thank you, John.
Your next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi, everyone. Thanks for working me in. I'll keep it short. I know there's an awful lot of focus on Las Vegas. And I'd love your perspective on how you're just generally speaking, underwriting Las Vegas? Meaning, operators are obviously projecting optimism. But from the investment perspective, are you anticipating revenues getting back to '19 levels in the next couple of years? Are you underwriting something less than that? Just how are you qualitatively thinking about that?
John can answer that in a moment, David, but I will just start by pointing out that this week we all learned of course, coke industries which has a rather strong record of capital allocation, it seems that they put capital in the Las Vegas, which I took as a net positive. But anyway, John, you want to answer David's question?
David, look, I touched on it earlier on the call that and I probably sound like a broken record in my three years in this job. I mean, we're big believers in Las Vegas, pre-pandemic and post-pandemic. This is city that has multiple layers, levers of revenue. We think that the FIT customer is going to recover. We think the Vice business, they're going to be way ahead of many other U.S. destination cities. We think that plane supply will be added back to this market quicker than most destination markets, maybe faster than any market.
And so, we're believers in this market, Dave, and the performance in Las Vegas has been people like to compare first 2019 and 2020. I think that's a little unfair. I like to compare the performance of Las Vegas versus other U.S. destination cities. And when you look at the performance of Las Vegas, in 2020, which is probably going to be one of their worst year ever. We'll compare it to New York, Chicago, Miami, San Francisco, Orlando, I mean, this is the city that's very resilient, and the teams there are working very hard.
The other thing, David, I'll say is that we've seen this margin expansion in the regional markets, because revenues have come back close to '19 levels. When Las Vegas fees revenues come back to that type of level, I think you're going to see similar margin expansion at many of these operators, because they've worked very hard to change the operating model. And so we'll have to see that because revenues are going to come back.
So anyway, that's just a long way of saying we're believers in the market, the strip and we talked about circa in downtown and how downtown's changing. And then the results out of the local market of, what I've seen from Red Rock results and Voyage [ph] results that you have those business seem strong. So anyway, we like the market and we'll continue to see if there's opportunities for us.
Agreed. Thanks very much.
Thank you, David.
Your next question comes from the line of Peter Hermann with Baird. Please proceed with your question.
Hey, guys. Thanks for taking the question. Can you walk us through the base case scenario for the upcoming Greektown variable rent adjustment? And as well get some color and a Margaritaville rent adjustment too? Thanks.
David or Danny?
Yes, I can take that. Hey, it’s David. So Margaritaville, and just put the 10 leases in perspective, right, there's a variable rent component, which is a small percentage of the overall rent that we get on an annual basis. From Margaritaville, it's $3 million as a $23.5 million of annual rent. And for Margaritaville, that we did not earn the escalator at that property, since the rent did not exceed the prior revenue metrics, or did not exceed the prior revenue metrics.
And so, that was a variable rent decrease, and that was less than $100,000 decrease. So very, very de minimis on our total base rent.
And then the Greektown that's coming up in June. And again, the variable component is $6.4 million out of the $55.5 million, $$55.6 million of total rent we collect, that $6.4 million of variable rent is only 50 basis points of our total revenue. So a small component of our total rent base again. And we'll have to see how that plays out given that's coming up in June.
Got it. Thank you.
Your next question comes from the line of Jay Kornreich. Please proceed with your question.
Hey. Thanks, guys. One of your peers this morning said they are recently seeing increased non-gaming opportunities come up. And I'm wondering if this is true for you as well. And if so, what's the reason for the recent pickup?
Yes, it's an interesting way to phrase it. I mean, what we've been doing is going and looking or as I described earlier Jay, off market categories where we should typically not gone. So we are much more oriented to going and finding what we most want to invest in as opposed to waiting the market to present opportunities to us, because the market tends to present opportunities to it would be better that are by definition more mainstream and commoditized.
Okay. Just wanted to throw on the neck. So thanks for that.
Thank you.
[Operator Instructions] Your next question comes from the line of Spenser Allaway with Green Street. Please proceed with your question.
Thank you. Could you guys just share your thoughts on the potential upside from New York expanding legislation around online sports betting? And then are there any other states that should be top of mind in terms of evolving regulation or legislation currently?
Yes. Well, Spenser, good to hear from you. We actually don't have any assets within New York State right now. But I wouldn't say about New York State is what I would say generally, in terms of how we're viewing sports betting, which is really as a key means of market or audience expansion. There will be a lot -- once New York figures out what it wants to do in sports betting, sports betting and the culture around it will enable it to truly widen its audience in a way so many other states and operators are doing.
So again, we don't have any highly informed thoughts around New York, but very excited about what this means for gaming nationwide.
Okay. And just one more, I believe we discussed this sometime last year, but any more thought given to structuring variable events based more on EBITDA, or income versus revenue currently?
Well, by REIT law or legislation, Spenser, rent variation has to be based on revenue. REITs are not allowed profit participation. So for that reason, we would expect to see all kinds of variable rent mechanisms continue to be revenue based. I think that's the right way to put it, David.
Yes, that’s right. Exactly.
Okay. Thank you, guys.
Thanks.
Thanks, Spenser.
And there are no further questions in queue at this time. I turn the call back to the presenters for closing remarks.
Thank you, Amy. In closing, we thank you for your engaging with us this morning. As you can tell, we are very excited about our present situation, our near-term opportunities and our long-term prospects.
We've been saying since we started in 2017, the gaming real estate represents the next great institutionalization story in American commercial real estate. Our conviction behind that thesis has only grown stronger, and we believe can be fully realized as we collectively witness the roaring back of the American consumer. Thanks again, everyone. Bye for now.
And this concludes today's conference call. Thank you for your participation. You may now disconnect. Presenters please remain on the line.