MGM Growth Properties LLC
Q1 2021 Earnings Call Transcript

Published: 30 Apr 2021

[Operator:]

Good morning, and welcome to the MGM Growth Properties First Quarter 2021 Earnings Conference Call. Joining the call from the company today are James Stewart, Chief Executive Officer; and Andy Chien, Chief Financial Officer. . Now I would like to turn the call over to Mr. Andy Chien.

[Andy Chien:]

Great. Thank you, Sean. Good morning, and welcome to the MGM Growth Properties First Quarter 2021 Earnings Call. This call is being broadcast live on the Internet and mgmgrowthproperties.com, and we have furnished our press release on Form 8-K to the SEC this morning.

[James Stewart:]

Thank you, Andy. It was 5 years ago this month that MGP went public. Our IPO was a watershed event that provided investors with an opportunity to allocate their capital into integrated casino resort real estate in a meaningful way for the first time. I'm very proud of the fact that I was the company's first employee and even more proud of the team that we have built here at MGP. Our disciplined approach to capital allocation and growing the company has allowed us to increase our dividend 12x out of the 20 dividends paid, including twice over the last year, representing an increase in the dividend level of 39% since our IPO. These high-quality and growing dividends, along with value-accretive transactions, have in total generated a 132% gain for IPO investors. In the face of last year's unprecedented economic challenges, our business model demonstrated incredible resiliency and stability. The critical nature of our real estate and our industry-leading tenant shined through, and we had the best rent collection record of any real estate sector, period. MGP collected 100% of its rent in cash and on time throughout the economic shutdowns. We're very proud of our past, but we're even more excited about our future. I believe we're in the early innings of a sector-wide valuation re-rating and anticipate cap rates to compress meaningfully in the near to medium term as we build momentum and the economy returns to full capacity. We're encouraged to see multiple positive indicators at our properties in Las Vegas and in regional markets. Our drive-to properties produced very strong financial results throughout the last year as well as in this quarter, with robust margin expansion. In Las Vegas, we believe our properties will continue to ramp up to 2019 levels and beyond as travel and capacity restrictions are reduced and the midweek group business returns.

[Andy Chien:]

Thank you, James. I'll start with providing some highlights for a few items in our first quarter financial results. We recognized $188.3 million of rental revenue on a GAAP basis. Cash rental payments received by MGP and our pro rata share of joint venture cash rent was in total, $243.7 million. That consists of $206.9 million from the MGM master lease and $36.8 million from our share of the MGP BREIT joint venture master lease. Our share of distribution received from the joint venture was $15.2 million. Consolidated net income was $115.4 million. Consolidated AFFO was $166.9 million or $0.60 per diluted operating partnership unit. Consolidated adjusted EBITDA was $240.9 million. G&A expenses for the quarter were $3.7 million and our dividend was $0.495 per share, which represents $1.98 on an annualized basis. As James mentioned, the operating partnership redeemed 37.1 million OP units from MGM using cash on hand and proceeds from the public equity offering. The following equity offering was executed successfully and the $2.85 million greenshoe was exercised in full, resulting in total net proceeds of $676 million. Our public float increased by 17% as a result of the offering and we now have approximately 265 million total shares and units outstanding and MGM's ownership was reduced to 42.1%. We chose to redeem a portion of the OP units in cash because of the attractiveness of repurchasing our shares at the time and the confidence we have in our business. All the redemptions we completed over the last year were great opportunities to buy back a portion of our business at attractive valuations and in an accretive manner during a time of relative uncertainty in the broader markets. Despite the events of the last year, we were able to increase our dividend twice throughout the year and once again in the first quarter of 2021. For the current quarter, we will have a full quarter's benefit of both the JV and master lease escalators as well as a full quarter of the 265 million share and unit count. Our balance sheet is well positioned to continue to prudently allocate capital and achieve accretive growth in 2021, with a liquidity position of nearly $1.5 billion, consisting of $143 million of cash and $1.34 billion of revolver capacity. Our current pro rata net leverage of 5.76x is temporarily above our targeted range of 5 to 5.5x, which we expect to return to in the near term as we have done so in the past. The full effect of the master lease and joint venture escalators will increase EBITDA in the second quarter of 2021 and help reduce leverage immediately.

[James Stewart:]

Thank you, Andy. Sean, we'd like to open it up for questions.

[Operator:]

. The first question today will come from Barry Jonas with Truist Securities.

[Barry Jonas:]

I'd love to start in Vegas. There was a substantial transaction for the Venetian. Wanted to get your thoughts on that deal and the resulting price. I think your name had been thrown out there by the media. So curious if you took a look.

[James Stewart:]

Thanks, Barry. I can't comment on any specific deals, but I will comment generally. We are very bullish on Las Vegas. We think that not only will the city get back to normal, as I mentioned sort of in my commentary, first half of next year, but that a combination of pent-up demand, increased desire to get out there, et cetera. I really think that much like the regional properties have done so well over the past year, the upcoming year or 2 years is going to be really Las Vegas' time to shine. So generally speaking, we're bullish on Vegas. We think Sands is a great operator. We think that's a great property. I'm sure it's going to do great under Apollo as well. And I think that the pricing which was -- when that transaction was announced, we were not nearly as far along as we are now in the -- getting out of the COVID situation, was fantastic in terms of if anything to us, it informed us as to what a great value our own shares were. That was done for a single property in a single asset lease at a multiple higher than our company was trading at the time with multiple properties across the entire country with less than 50% -- a little less than 50% in Las Vegas and a little more in the regions, all sorts of different customer segments, master lease with every property that we have, cross-collateralized, cross defaulted, we have a corporate guarantee. To that multiple that they got there said to us that there is meaningful upside in the shares of MGP and partially informed our decision to purchase some of the MGM units in cash in the last redemption.

[Barry Jonas:]

Great. And then with that as a follow-up, as MGM continues to reduce its stake, I'm curious how discussions with other parties, including potential tenants have been trending, either tone or the volumes?

[James Stewart:]

I would say I don't think it's so much related to MGM's reduction from 53% to 42%. But the discussions are robust. There has been a number -- or I would say a marked uptick in the past 1.5 months, maybe with just general dialogues, and I think it's due to lots of factors. One, the success of the lease model over the past year for many operators; two, our cost of capital is reasonably low and people can see their way to a transaction that we can buy something that's accretive and be value attractive to them; three, the -- there are a lot of factors going on in the business, which are generating increased interest in various locations, including desire to get physical properties in sports betting locations, things like that; and a lot of new jurisdictions opening up. We have Illinois talking. We have Virginia, we have Nebraska. New York talking about expansion, all those things have really caused an uptick in overall discussions in -- around deals.

[Operator:]

And the next question will come from John DeCree with Union Gaming.

[John DeCree:]

I just wanted to dive into Las Vegas a little bit and the last question from Barry was a little bit specific around Venetian. But we saw some big land sales, some big prices on the rise. The rumor mill goes off about other possible assets, the Tropicana is changing hands as well. Wanted to get your thoughts on if you think overall activity picking up, if Las Vegas -- if the activity has ever died down during COVID, and we're just seeing stuff get over the finish line now? Or if you really think there's a big pickup in interest in Las Vegas because of how quickly the recovery starts to accelerate?

[James Stewart:]

I think that as a result of being very close to out of the woods with COVID, along with very low interest rates, reasonably high equity valuations for many different entities ourselves and operators, et cetera, and Las Vegas being on the precipice of what will be a rapid and strong recovery, there are a lot of people who want to sort of -- want to get involved, one way or the other. I think the sale of 2 acres for $80 million on the CityCenter site is also very informative. If you look at the amount of acreage that we own, I'll give it to Andy here in a second to comment, even -- we own acreage in the prime locations across the Las Vegas Strip, just another indicator to me again of sort of the upside in our own shares. But I think that those factors have played into increasing discussions in Vegas, but also in the broader space. Andy, anything else?

[Andy Chien:]

Yes. I would -- I think that's a great point in terms of the land sale. 2 Acres selling for $80 million, and we own 456 acres on the strip. And so I think that's very informative as to just the underlying values inherent in our portfolio that's really underappreciated. And look, Las Vegas is really on top of this -- we're in front of this resurgence, right? There's new properties opening down the street. There's new attractions being added to the market. And then the draft that's happening currently, it's going to happen next year here. So it's a very exciting time for Las Vegas. We're going to have Raiders in person at opening events. At the end of this year, 8 home games, so these are all positive factors that Las Vegas hasn't yet experienced. And I think it's really going to rebound very strongly with these added benefits added attractions, added properties, and that will benefit the entire market.

[John DeCree:]

And James, I wanted to ask a question about one of your comments in your prepared remarks about your level of confidence that the industry is going to continue to migrate to the OpCo/PropCo structure. I was wondering if stuff you've seen recently, whether it's the recovery that gives you incremental confidence that the industry is going to go -- continue to go in that direction as some operators maybe still haven't dipped their toes into working with yourselves or other REIT partners just yet?

[James Stewart:]

It's partially the recovery, but I would say more than that, it's just -- it's that we've had a long enough history now of operators successfully operating under a lease structure as opposed to needing to be owner-operator that some of the questions that were being knocked around by operators 3, 4, 5 years ago on whether or not this structure could work, would it work through a downturn, what if that miss happened, what if we -- I mean I don't remember anyone saying, what if we got shut down due to pandemic, which would have been the most extreme question. But as they look at that -- as they saw the experience through multiple types of cycles, right, going back almost 10 years ago. And the success of the operators that have had that structure, the fact that there is almost always a rather sharp multiple enhancement that comes from bifurcating the cash flows between a real estate owner and an operator, I think that is not lost on them. And I think that there's a reason why most of the deals that are getting done around either acquiring new properties or restructuring your own portfolio if you need capital to accomplish some strategic goal, are almost all being done in this structure. It just generates a higher overall value for the asset by tapping into the real estate investor who is looking for higher dividends and more stable capital-intensive returns and then looking -- and then as well as the gaming operator investor who's looking at some of the exciting things going on that side of the business.

[Operator:]

And the next question will come from Carlo Santarelli with Deutsche Bank.

[Carlo Santarelli:]

James and whoever wants to kind of take it, as you guys think about the stability in the cash flows having come through the pandemic as unscathed as all of you have, when you think about kind of the dividend and how you shape that going forward and you think about the current yield environment that we're in right now in domestic equity markets, has your thought process around perhaps the percentage that you're paying out changed at all? Or the timing of increases and the levels to which you want to take that dividend in this current environment changed much? Or is it still kind of steady as she goes and you'll continue to raise as you get your escalators and stick to that kind of similar percentage of AFFO that you have?

[James Stewart:]

Andy, why don't you take it?

[Andy Chien:]

I'll take this one, James. Yes. In terms of the dividend and AFFO payout, we remain pretty consistent in terms of the payout in the low 80s percentage rate. We're confident in the stability, strength of the rental payments and thus, the AFFO -- and thus, our payout ratio, I think, is market is right in line, and we're confident in that level. Obviously, these are discussions with our Board every quarter, and they've always agreed with our outlook in terms of payout, the pace of increases as we go. And look, this past dividend for Q1 that we paid out didn't yet fully contemplate the full rate of the 265 million shares due to the redemptions that we did in March, and also didn't have the benefit of the JV escalator for a full quarter and also the master lease escalator hadn't yet happened, and that happened on April 1. And so Q2 is going to have a higher run rate. And I think that will give us another opportunity to discuss with the Board taking the payout ratio back up into the 80s, the low 80s as we've done in the past. That's generally how we looked at it, and I believe we'll be pretty consistent going forward as well.

[Operator:]

And the next question will come from Shaun Kelley with Bank of America.

[Shaun Kelley:]

James, Andy, just wondering -- I think, Andy, in your prepared remarks, I think you mentioned a little bit about the current leverage ratio and bringing that down a little bit. Is that just normal course through the rent escalator and some of the excess cash generated at the business? Or what's the mechanism or a path to getting there?

[Andy Chien:]

Yes. I think just through normal course, we have the existing setup to get back into that range. You're right, the escalator hasn't hit yet -- hadn't hit yet by the Q1 numbers that we've just posted. In addition, the retained cash, the undistributed cash from the dividend be a portion of the payout that's retained by the company will also help deleverage the balance sheet over time. But we also have the other balance sheet tools to the extent we'd like to utilize the ATM. We still have a little over $100 million in terms of authorization. It's easy to refresh that as well as we get through that. And to the extent we're doing an equity offering with a transaction, we can certainly use any kind of upside or otherwise to bring leverage back into that range opportunistically as well.

[Shaun Kelley:]

Great. And then the second question is, obviously, the big event in the quarter was the OP unit sale and this brings MGM's ownership down to 42%. I know this is always difficult for you to comment on, but I'm just going to try and ask anyway. What's sort of the thought process or pattern from here in terms of movement forward and possible opportunities around deconsolidation, what that could mean for MGP?

[James Stewart:]

Yes. It is -- it's not really in our control since the shares are obviously owned by MGM and they can choose to do with them as they will. I know Jonathan Halkyard commented on the MGM call that it's a balance between getting value for those shares and progressing down the asset-light structure that they have discussed as a longer-term goal and also then balancing off the high dividend that they received back from us. So as they look at their own capital needs, capital allocation plans, desire to be asset-light, et cetera, those are the things that they have to balance off as well, but it really is completely in the sphere of their control.

[Operator:]

The next question will come from John Massocca with Ladenburg Thalmann.

[John Massocca:]

At the risk of maybe going down another line of kind of questions that are really maybe more in MGM's control, I mean what is the outlook at this point for MGM Springfield? And then maybe kind of broadly speaking, you talk a lot about the Las Vegas market and the potential kind of acceleration of the recovery there. But given where the regional assets are today, I mean how do you think about pricing and cap rate for potential regional transactions, maybe both MGM Springfield and third-party deals?

[James Stewart:]

I'll start, and then Andy, please feel free to jump in. So MGM Springfield, absolutely beautiful brand-new property, built greenfield, opened up August -- late, late August 2018. And operated for that period of time and then obviously, COVID hit. They were still experimenting and figuring out the best way to operate that property in terms of maximizing the revenues and cash flows that come out of the box when COVID hit. And COVID, although I would certainly never wish this on the world again, and let's hope it never happens again, did provide an opportunity to really start from ground zero, fresh, very fresh to figure out what types of staffing, marketing programs, et cetera, really work, not just for Springfield but for all of the regional properties, which stayed open, many of them stayed open through this as well as for Las Vegas. And I think that, that property has really hit its stride. It appears to be doing great. The margin expansion is great, and it's benefiting immensely from much of the learning since opening. So for us, I think given we have the ROFO, it's really a question of, again, it takes two to get a deal done, of MGM wanting to have the liquidity and wanting to execute on such a transaction and us, likewise, on the other side wanting to do it. But I think given MGM's stated asset-light goal, it will be natural to see that one coming around. I'm not going to predict a time, but I think it's a clear one given the ROFO and give an asset light that we'd like to get done. As it comes to underwriting regional properties, we approach underwriting on a very, very property-specific basis. For Springfield, if you think it's brand new, it's in a greenfield market, fit and finish is extremely high and so on, so we would evaluate that one way. If you looked at a 30-year-old property that is -- has a little place in front of a riverboat in a very, very small city, or very small town like some of the regional properties are, we'd evaluate that a very different way. So although I think margin expansion and increased profitability has been the hallmark of almost every regional property, at least every drive to property, it really is very, very specific. As you get into more competitive markets, I think the pressures to have the margins come back down to a more normalized level are going to be higher. However, I think some of the margin improvement will stick as the experiences of running from a complete closure and then reopening up slowly have allowed the operators to really figure out what exactly works and what doesn't in terms of enhancing cash flow. And we treat each one separately. Andy, anything else?

[Andy Chien:]

Yes. The only thing I'd add, and just to address your question, John, in terms of pricing, I would say the recovery in the regions and the recovery and margin expansion and thus higher EBITDA levels that a lot of the regional properties are experiencing, I don't think that's really affected pricing so much as people look at or have more confidence in rent coverage levels. But people aren't pushing the envelope. It's a two way -- it's a contract that has two parties, and the tenant has to be willing to pay a certain level of rent, and we have to be willing to accept a certain level of rent based on either forward-looking results or past results. And so I think it gets back to a more or less normalized level that people settle on at the end of the day, whether it's regional or Las Vegas. And Las Vegas is still on the way back, but people still look at normalized levels to instruct rent levels. And then pricing, look, there's only so many parties out there that look at these transactions. And so it's not that you can look at a screen and get a fine point on the pricing every day. But really, it's driven by the buyer's willingness and ability to pay, and to make that transaction work.

[John Massocca:]

Okay. And then I mean it seems like there's maybe somewhat of a pricing gap or a cap rate gap, if you will, between strip assets and regional assets. But with the potential maybe to put something like MGM Springfield in the master lease, does that change maybe the calculus at all in terms of cap rate? Maybe just broadly speaking, I know you don't want to kind of negotiate against yourself on the call here, but just how should we think about that as a stand-alone asset versus kind of being in the master lease?

[Andy Chien:]

Yes. Generally speaking, I would say, master lease provides you additional credit strengths, right? Having multiple properties cross-collateralized versus a single-asset property and tenant ability, tenant history, tenant balance sheets, those all factor into the strength of a lease. And so to us, those are important factors in underwriting any transaction. And having that strength, the stability of tenants, that great balance sheet, added protections of master lease versus single asset leases, those things are important to us. And over the past year, I think that's demonstrated in spades that, that created that safety that allowed us to sleep at night, that allowed our investors to sleep at night. And you look through to MGM Resorts as a tenant, great cash position, even greater cash position today, great balance sheet, certainly a willingness and ability to pay, desire to pay given the importance of the properties. And the cross-collateralization across the master lease of the properties, that provides the baseline for the strength of our company and our leases.

[Operator:]

And the next question will come from Jay Kornreich with SMBC.

[Jay Kornreich:]

Just going back to a previous comment. So beyond the MGM's own discretion on redeeming more OP units, just with the level of ownership and voting rights at a mismatch, has there been any recent dialogue between you guys and them about potential structural changes such as ribbing the B share early or changing MGP from an LLC structure?

[James Stewart:]

All I will say on that is anything that we think enhances the value of MGP shares, which is Andy and mine and the whole management team's here, very strong focus and what we are all doing here on a day-to-day basis will be discussed -- would be discussed with them. So anything at all that we think enhances our value, which will then in turn enhance their value since they own 42% of the shares, we discuss in the dialogue is robust, open, friendly and very positive.

[Jay Kornreich:]

Okay. Fair enough. And then as a follow-up, as New York approved a referendum for downstate full-scale casinos, do you have any thoughts you can give in terms of timing and potential size of the onsite development MGM could do at Empire City, which you have a ROFO for?

[James Stewart:]

I think that the bringing of a full casino to Empire City as opposed to strictly slots at a track, which it is right now, has immense upside for that location and property. At a conference once, I was sitting in a room inside the Midtown Hilton, and I would -- in between, I would look at the distance on -- the time on Google Maps at various points in the day to go from that location to Empire. And many times a day, it was 30 minutes. So the fact that we have over 100 acres, less -- 30 minutes, say, north of Manhattan and the ability to put a full-scale casino there is immensely positive. I think it's very dependent on what you think the overall market is, what the tax rate is, what the competition environment looks like, et cetera. But I think it would be a significant increase over the historical EBITDA production out of that space and could be real upside for us.

[Operator:]

And the next question will come from Rich Hightower with Evercore.

[Richard Hightower:]

We've covered a lot of ground today. I've just got one for Andy on the balance sheet. But if I think about the context of low interest rates and specifically LIBOR over the past number of years, you guys have some rather uneconomic swaps still sitting out there, the vintage of which, in some cases, goes back to, I think 2017. So with the passage of time and lower interest rates, just maybe walk us through the economics of thinking about breaking some of those swap agreements and the impact to AFFO.

[Andy Chien:]

Sure. Thanks, Rich. Yes, in terms of the swaps, we do have a good portion of those swaps rolling off inside of about 6 months, just naturally. And so those -- isn't much that we need to do there, but those would have a potential upside effect on AFFO as a result of just rolling off naturally. We do have some additional forward starters that would come back online right after it, but not to the same level that we have currently. And so I think there's definitely some potential upside just from savings on paying those interest rate swaps. They are an older vintage and LIBOR is much higher. And then we've since repaid all of our term loans and so there's less utility for them. So we will evaluate that from time to time to see if there is an opportune time and cost to break those. And then all of that savings would flow through straight to FFO as we find our time and stock to do so.

[Richard Hightower:]

Okay. So is it safe to say you would call it an uneconomic thing to do where we sit today then?

[Andy Chien:]

We look at it on a pretty regular basis. And when we find the right time, I think we'll execute on that, if that kind of makes sense. There is a somewhat higher cost today. It has improved since last quarter. And to the extent we see a different looking curve go forward, there could be some additional savings of weighting, right? Some of those haven't started yet, so there isn't a cost -- current cost to them. So we have some time to work through those.

[Operator:]

The next question will come from Daniel Adam with Loop Capital Markets.

[Daniel Adam:]

You kind of touched on this already, but I'm going to try to ask it another way. So on MGM's earnings call, it was really the first time in a long time that management didn't explicitly commit to continuing to reduce its stake in MGP beyond what they've done already. I guess is that also the sense that you guys are getting based on your conversations with them? And to the extent that is the case, do you still see a path to diluting MGM's ownership to below 30% from 42% today?

[James Stewart:]

Well, as I mentioned, it's really exclusively in their bailiwick of decision-making. They can obviously, decide the best path for their company and what they want to do with their investment into MGP, which has been a very attractive one and pays a high yield. Everything that I have heard from them, their desire to be asset light, that is sell off their high-value, capital-intensive real estate that they own, including the stake in us or get to the point where they can deconsolidate into a nimble, higher growth, less capital-intensive business, still is on track. I've never heard anyone step back from those comments in terms of desire to be asset-light. Timing-wise, I think -- I mean, it remains a corporate goal, and I think that there's lots of benefits that come to both companies from that happening. But it's exclusively up to MGM, their senior management and their board.

[Daniel Adam:]

Okay. Got it. That makes sense. And then just as a follow-up, it's hard to believe that it's only been three years since you guys made an offer to acquire VICI. I'm just wondering if given other triple-net deals that we've seen recently, whether you guys have regained an appetite for horizontal M&A?

[James Stewart:]

Again, I can't comment on any specifics around any type of transaction. I would say anything that enhances our share price over the sustainable medium and long term is something that we want to execute on. One of the characteristics of REIT mergers, and I think this industry would be -- the gaming-oriented REITs would maybe even have this in sharper size is the SG&A compared to the overall revenue line or market cap line is usually very low. And so you don't get the synergies that result from other transactions in other industries. So as we look -- like anything that will enhance our stock price over the long haul, we think is a good idea. But some of the juice that you find in other industries like gaming operator side or whatever, just isn't there. So it is typically a little less clear as to the benefits of getting significantly larger. makes it a little harder to grow. On the other hand, you're a much larger, more liquid company.

[Operator:]

And the next question will come from Smedes Rose with Citi.

[Smedes Rose:]

I just wanted to revert back a little bit to your comments around potentially changing the corporate structure. And in the past, you've said that prevents you from being included in some indexes, but that it was a matter of time for the Board to get comfortable with the potential change there. Can you just sort of maybe provide any sort of updated sense of timing on that? And then speaking of the Board, is there a point where you would also maybe being included on the board as CEO of MGP?

[James Stewart:]

Regarding the LLC, it's -- it does prohibit us from our taking into a number of indices. I think it's -- the eventual inclusion to those indices will be a very nice catalyst for MGP shareholders. We -- there hasn't been any status changes I can really talk about specifically on this call other than to say we understand the benefits and we highlight both the benefits and negatives, and ultimately, it's up to the Board to decide. As it relates to the other question, that is dependent on the existing Board. And I will -- I'm more than happy to take any role that where I can add value and help MGP expand, grow and increase our share price.

[Operator:]

And the next question will come from Robin Farley with UBS.

[Robin Farley:]

Great. Just wanted to circle back to the topic of Vegas. One is you mentioned that the transaction for those two acres at CityCenter for $80 million kind of suggests the value of a lot of real estate that you have. Are you -- are there conversations to kind of monetize some of that given the values that you're seeing?

[James Stewart:]

Andy, you want to take it since I've talked here for the last few?

[Andy Chien:]

Sure. No, no. No problem. Look, the values that we saw for the recent trade, obviously, if you translate it to our entire portfolio would be just the land itself in Vegas would be worth more than the company. But the land that we do have throughout the portfolio, to the extent there isn't a strategic use, we, in conjunction with MGM, would certainly evaluate that. And because of the triple net lease, they do have a strategic use to the extent they do, then it wouldn't be considered excess land. But to the extent there is, and that land has a value to somebody else is worth more to them than to both MGM and MGP. I think that could -- those are certainly ideas, constructs that we're more than happy to discuss with people.

[Robin Farley:]

So actually, MGM has the ability to not allow you to sell acres off -- pieces off of some of the sites that you own? Just to make sure I understand.

[Andy Chien:]

Well, in a sense, it's a joint decision, right, to the extent they are the tenant on the land and if we wanted to sell the land underneath, we could create in a sense, a separate lease as an example. But they're utilizing the land and they have a long-term lease for it. So it is a transaction, we'll both evaluate in doing it.

[James Stewart:]

And they have a majority of our Board. So we would have to jointly work on -- that would be decided jointly.

[Robin Farley:]

Okay. No, that's helpful. And I don't think that you talked about this, and I apologize if you did and I missed it, but just the potential in general for CityCenter to be -- for the co-owners there to turn that into a sale and leaseback? Is there kind of any new thinking on the potential timing for that?

[James Stewart:]

Well, there are three parties that would be involved there, presumably. It would be MGM, Dubai World and us. We think, just generally speaking, that asset is fantastic. It's a very new asset on the Las Vegas Strip, beautiful inside, excellent fit and finish, really found its stride in terms of successful operations and attracting a very strong customer and in the right customer niche. So it's a deal that we would obviously love to do. And as the parties come together, we'll see if something eventually happens, but timing is up to all 3 parties figuring it out and working it out.

[Robin Farley:]

So nothing there to update. Okay. And then just the last question. With the Venetian sale, I guess it seems like it could have been worth more to a buyer to a sort of a joint REIT and tenant manager. But it could have been worth more to somebody that has existing Vegas properties where there would be really obvious synergies to be had that a buyer like that would have been able to offer a higher price than kind of a single asset. And same thing that then in a master lease would be better as well for the REIT buying the underlying value. Is there some -- why do you think that -- I guess, I don't know if you have a thought on the valuation of it or why, why was it not worth more to maybe you and your existing tenants?

[James Stewart:]

Well, I can't really comment on any specific deal other than to say we focus on the real estate side of the business. So synergies or value that comes from other properties, cross-marketing, whatever, that's really the bailiwick of the operator. And I think it probably would be best directed individually to them to try to figure it out. Again, we focus really, just on the real estate side of the business and is it a good solid lease with a good tenant and accretive without needing to leverage our balance sheet beyond our targets.

[Robin Farley:]

Because the master lease though agreement, right, at least that part would have, in theory, made it more attractive to you, if it was included in a master lease versus from the real estate owners perspective?

[James Stewart:]

All of our properties are master leases. And generally speaking, we think that it's an advantage to have it. Yes, again, that's all I'll say there.

[Operator:]

And the next question will come from Nick Yulico with Scotiabank.

[Greg McGinniss:]

This is Greg McGinniss on with Nick. Just one question from us. So based on the commentary from MGM management regarding the earnings recovery of the regional and Las Vegas casinos, does that appear optimistic enough that the rent escalator might be triggered next year? Or do we still need to see kind of recovery above and beyond that or faster in order to trigger that?

[Andy Chien:]

Look, we're still sitting here. We're not quite in May yet, but we've still got the majority of the year to go. And certainly, the uptick in business both in Las Vegas as well as the regionals, I think, are very encouraging. And so we can't predict the future, but it does seem like the recovery is ahead of what people had expected. And so we're not -- we haven't made a call, and obviously, we cannot make it go until we have the actual results. But I think things are looking good from here on out, and we're hopeful that we can achieve that escalator.

[Operator:]

And the next question will come from David Ballager with Green Street.

[Unidentified Analyst:]

With the Realty Income acquisition yesterday, a very -- it's obviously going to be a very large triple-net company moving forward. Just given the chunkiness of transactions in the gaming space and how much growth is rewarded by the public market for the traditional net lease companies. As they turn their attention possibly to gaming, what would be some of the obstacles for a new entrant here, maybe speaking to the importance of operator relationships and industry know-how?

[James Stewart:]

For a new entrant to come in, it's -- it takes a lot of learning you find as the properties are spread through the country. Obviously, Las Vegas being the city of entertainment, right, the home of the industry, but there are many other properties spread through various states. And each state has its own regulatory framework, tax framework, outlook towards the business and all sorts of requirements, which you have to thoroughly understand before, I think, putting down a big bet in terms of dollars. Understand the Las Vegas market is given -- is very unique, given the size of property, size of hotels, size of gaming floors, which they have in none of their other properties, et cetera. And I think a deep understanding of the industry is very, very critical. The other thing is any gaming acquisition for any of the REITs that focus on retail triple-net would be -- I would guess their biggest, other than a vertical acquisition like buying a VEREIT, would be the biggest property deal they've done by, I don't know what a factor of 1,000 and would immediately, I suspect, become their largest tenant in 1 deal with 1 property. It really is a counter to the way that all of the retail-oriented triple-nets have marketed themselves to investors, which is highly diverse set of very tiny tenants spread through the country. So it would just be completely different. Licensing being the last one you -- in every state of the Nevada that we operate, you have to undergo a licensing process, which is very significant in terms of the information that one has to provide and so on. All of those things play into the analysis of whether or not you want to get into the business. And I think that the buildings that we own and our other brethren, who are in the gaming-oriented resort business own, and the transactions that we're doing and the relative valuation of the company and so on are very, very attractive, and I wouldn't be surprised if other people want to -- if they want to look at it, but actually writing a check for $1 billion for a single asset with a single operator. I mean, for example, the smallest deal we've ever done is $640 million for 1 asset is very counter to the general thinking of sort of a retail-oriented triple-net lease company.

[Unidentified Analyst:]

Right. That makes sense. And it seems like some of those gating issues you just mentioned might be a reason why cap rates have seemed higher in this sector than what we would assume on a risk-adjusted basis versus other sectors. So maybe a participation by say, a more traditional net lease vehicle were to occur, would you view that as something that, a, validates cap rates and, b, might get multiples in the gaming sector to be more at least closer to the traditional triple-net lease space?

[James Stewart:]

I do. I think that -- I think there's a lot of things that will cause that to happen. But I think the -- just the validation of the space from a group again, which has market itself to investors very differently than the type of things that we're doing here, switching would be -- I mean, should accelerate the re-rate that I think ultimately is coming anyway.

[Operator:]

Thank you. This will conclude today's question-and-answer session as well as the conference. Thank you for attending today's presentation, and you may now disconnect.