MGM Growth Properties LLC
Q1 2020 Earnings Call Transcript

Published: 6 May 2020

[Operator:]

Good afternoon, and welcome to the MGM Growth Properties' First Quarter 2020 Earnings Conference Call. Joining us on the call today from the company are James Stewart, Chief Executive Officer and Andy Chien, Chief Financial Officer. Participants are in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Andy Chien. Please proceed, sir.

[Andy Chien:]

Thank you. Good morning, and good afternoon, and welcome to MGM Growth Properties first quarter 2020 earnings call. This call is being broadcast live on the Internet at mgmgrowthproperties.com and we have furnished our press release on Form 8-K to the SEC this morning. On this call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation to GAAP financial measures in the press release, which is also available on our website. Finally, please note, this presentation is being recorded. I will now turn it over to James.

[James Stewart:]

Thank you, Andy. I'd like to welcome everyone to MGP's first quarter 2020 conference call. I'd like to start off by saying that our hearts and thoughts go out to all of those and their families who have been affected by the virus. We send our deepest condolences to the loved ones of the 11 members of our partner and tenant, MGM Resorts, who have been lost to this terrible sickness. We at MGP would also like to extend our thanks to the many brave people who have been working tirelessly on the front lines to help all of us get through this, including the first responders, medical personnel and our own working men and women of MGP we've stepped up and made sure things continue to run at our company as smoothly as possible. Before we discuss the impact of the pandemic on our business, let me start off by welcoming Paul Salem and Corey Sanders to our board of directors, with Paul joining as the new Chairman of the Board. We look forward to working with them both. From the very formation of the company, MGP was created with an eye to the future and with a core strategy of having the ability to endure all kinds of economic environments. That foresight and planning is bearing fruit for us today. Our low leverage, strong tenant profile, beautiful well maintained properties, geographically balanced portfolio, low levels of SG&A and high levels of liquidity have put us in a strong position. Although all of our properties are currently closed to the public, I remain confident in our ability to successfully weather this situation.

[Andy Chien:]

Thank you, James. I'll start by providing some highlights for few items in our first quarter financial results. We recognized $203.5 million of rental revenues on a GAAP basis or $238.3 million on a cash basis. Consolidated net loss was $125.3 million, which includes a $193.7 million of Property transactions net relating to the MGP BREIT Venture transaction. AFFO was $182.8 million or $0.56 per diluted operating partnership unit. Adjusted EBITDA was $234.1 million. G&A expenses for the quarter were $4.9 million, which included about $1 million related to expenses incurred for transactions that did not sign a close. For the first quarter, our dividend increased to $0.475 per share, which represents $1.90 on annualized basis. As James mentioned, we completed the MGM Grand Las Vegas and Mandalay Bay joint venture transaction and finalize an attractive CMBS financing. Blackstone $800 million cash equity investment. In the JV and their direct investment to MGP to the purchase of $150 million Class A shares. At quarter end, we had cash and cash equivalents of $1.8 billion after drawing on our $13.5 billion revolving credit facility, like many of our REIT peers did. So revolver draw, together with cash on hand puts MGP in place to fully fund the $1.4 billion OP Unit redemption at any time. In the interim, we have about $2.2 billion of net debt excluding our 50.1% interest in the debt at the joint venture and including the share of the debt at the joint venture, net debt would be approximately $3.7 billion against $936 million of annualized adjusted EBITDA. Even if the redemption were to occur, we will remain within our stated pro rata net leverage of 5 times to 5.8 times. Our disciplined approach to crafting a strong balance sheet and diversifying our financing sources is not only put us in a great position to get through these challenging times, but also the position MGP to continue to execute on our business strategy.

[James Stewart:]

Thank you, Andy. I would like to thank all of our investors for their continued support. Operator, we'd like to open it up now for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question today will come from Joe Greff of JP Morgan. Please proceed with your question.

[Joe Greff:]

Good afternoon. Good morning, everyone. Hope you and yours are well and healthy. James, a question we've been getting since late last week relates to dividend, this isn't necessarily coming from a negative place. But I think your answer here will be prospective putting for us on the call today. The question is this, under what realistic scenarios could you see your current dividend not fully paid in cash over the next two years.

[James Stewart:]

Well, the next two years are very, very long time to look out, but I would say this, we have the liquidity, MGM has a liquidity, MGM stated on its call very clearly that it's very committed to paying the rent. So we certainly have no plans to do anything other than pay our dividend in cash as planned.

[Joe Greff:]

Okay. And then my second question is, given the change in MGP's Board composition and with Paul taking the Chairman spot from Jim, do you foresee any other board composition changes and do you think we should see an acceleration in many corporate governance enhancements coming down the pipe, given the change in Chairman and that's all from me.

[James Stewart:]

I think that the strategy as it relates to our company and how it fits into MGM is going to remain the same and with our current Board composition as it did before and I wouldn't really expect any meaningful or major changes on any of the things that we are pursuing prior to the change and under the current situation. So I think it's pretty much for us steady as she goes in terms of from the Board and at the big picture strategy for the company.

[Operator:]

Our next question will come from Nick Yulico of Scotiabank. Please proceed with your question.

[Greg McGinniss:]

Good morning. This is Greg McGinniss on with Nick. James, on the MGM call management noted 30% to 50% occupancy was needed on the strips of assets for operating as assets makes sense, any indication as to what that level for occupancy or traffic would need to be at the regional casinos to hit breakeven profitability? And then the scenarios, I'm sure you guys are running, what's the current base case for return of business by year-end compared to 2019?

[James Stewart:]

Well, it's, the questions are probably honestly best directed to MGM who is, of course, responsible for the operations inside the buildings. Each property and resort and its location is unique some have no hotel for example and some have a hotel so the occupancy stat wouldn't be applicable to all of the regional assets. I would say, it's probably, again a question best put forward to MGM and I would say, though, we are very nicely positioned as we look at our portfolio, just given the geographic distribution that we have the different natures of the type of activities that go on inside each building. So we're not highly reliant on any one narrow business line, like some of the regional properties that we look at maybe for example almost all of our buildings are very big with multiple activities going on inside, driving revenue from a series of broad sources opposed to looking really primarily a slot machine revenue or something like that. So it's difficult to tell where things will go on a region-by-region basis, it's heavily dictated by governmental regulations controls and dictates and guidance strong the gaming control board of each region. But all in, I would certainly take our hand versus I think anyone else is right now and I feel pretty good about our array of business. Andy. Anything else?

[Andy Chien:]

Yeah. The only thing I'd add there, James is the, in terms of the gaming tax rates in each jurisdiction, they're very different, right? In Nevada, it's a single-digit number. In a lot of the regional jurisdictions, it's double-digit, as high as 50%. So that mathematical answer is different depending on that as well.

[Greg McGinniss:]

And then, Andy, could you give us some insight in why you saw it was prudent to drawn down the line balance if MGM is committed to paying rents? That's just to ensure, funds are available if they ask for the OP unit redemption or there is some potential investment opportunities out there? And at what point would you consider paying back some of that balance to save on interest expense?

[Andy Chien:]

Sure. Look, it was added out of an abundance caution. We did it toward the end of Q1. So this is still March when things are extremely volatile. We still have the redemption that's still potentially outstanding. So once we get some clarity as to whether or not that's a likely event this quarter or not, we can start thinking about repaying that line to save on interest expense. If the interest expense, on a net basis is inside of 3% because we're earning interest on the income, we would pay a commit fee if it were not drawn. So I would say the interest burden is a nice insurance policy for us to ensure that the funds are available come hell or high water.

[Operator:]

Our next question will come from Barry Jonas of SunTrust.

[Barry Jonas:]

I guess to start, Blackstone recently announced an investment in an Australian operator. Just curious, what's your level of interest in that market? Hello?

[Operator:]

Ladies and gentlemen, my apologies. It appears that we have lost both of the speaker lines. Thank you for your patients. We'll put the hold music back on, and I'll join us once we get the speakers back in, I'll join them back in. Thank you for your patience. Ladies and gentlemen, thank you very much for your patience. I have reconnected the speakers lines. And we have Barry Jonas still on the question podium. Please proceed.

[Barry Jonas:]

Hey guys, you back?

[James Stewart:]

Yeah. Sorry, Barry. No, reflection on the question. It looks to be a technical problem with the phone service where all the speaker line got cut off. So apologies.

[James Stewart:]

No worries. So yeah, I just wanted to get your thoughts on the Australian market in -- I think we've talked about international opportunities in the past, just interesting how your partner, another arm of your partner made an investment in Australia?

[James Stewart:]

Yeah. It's -- I think where we sit right now, I feel like we have more than enough activity opportunity in the United States and its jurisdictions here that we obviously know the best, that we understand all of the angles around the legal system, the governmental overlay tax regimes and so on. It's not to say that we wouldn't look at other potential opportunities in countries where we also feel like those elements of the environment are stable and predictable. But for now, we got more than enough in terms of opportunity on our plate domestically versus feeling the need to go and look internationally.

[Barry Jonas:]

Great. And then just a follow-up to that. I think, MGM was pretty clear in terms of their view on a recovery in the strip versus the regional market. So, like how does this all shape your view on future M&A in terms of geography within the U.S.?

[James Stewart:]

Yeah. It's a good question. We have never had an absolute specific geographical mix that we target. It's more of an analysis where we look at the specific opportunity, meaning the property or properties in any one deal. And then you have to make a judgment call as to is that property or building going to be able to generate the capital such that it's going to pay the rent every year for the next 30 years. If you feel like that component is there, and then on the next factors would be the lease is strong and protects our shareholders and we have trust and faith in the operator that they're going to do a good job and pay their rent on time and so on for the next 30 years, that's the deal that we should do if it's accretive on a non-leveraging basis, whether that is in Las Vegas or in Ohio or in New York State or wherever. So it's not so much that we're looking to target a regional Vegas balance, although I'd very much like the balance we have right now, so much as if you have faith in the building, the lease and the operator and it's attractive to our shareholders, then that's the deal you should do.

[Operator:]

Our next question will come from Carlo Santarelli of Deutsche Bank. Please proceed with your question.

[Carlo Santarelli:]

Hi guys, good afternoon. Good morning. Andy or James, this one might be a little bit tricky to answer because obviously some of it's out of your control. But when you look at the cash on the balance sheet today, and clearly, the $1.4 billion that sits within that cash earmarked for the OP unit redemption. And do you think about even that level is considerably higher than where the stock is today, the net effect of that transaction being double-digit accretive to AFFO. How much does your value, obviously, which I believe would rise on that redemption impact kind of the discussions and/or the timing around MGM's thinking of when to go about making that decision?

[James Stewart:]

Yeah. It's an interesting question. There is a series of different countervailing sort of forces that come into play when one thinks about that. First thing I would say is that MGM Resorts option exclusively. So it's really up to them. But when one looks at it, it's as you pointed out, very nicely accretive to us because at these levels, because we're funding with debt that's three or sub-three on a net cost and we're buying equity with the cash cost of somewhere around 8%. So that's a very nice arbitrage for us. And you, and that is one benefit for us anyway and probably does make the stock go up, but I would concur with you. The other side is just the absolute raw value that MGM gets for its shares, which I don't think anyone's particularly excited about the shares as to where they sit now versus I think where they could be once things get back up and we start reestablishing the business in a more normal course. The other angle to think through for them is just the value of putting the cash on to their balance sheet as opposed to the dividend and the relative value between the two share. So there's all sorts of different things that come into it. It's exclusively at their option. So I would say at any one point in time those are all the components that one would have to think through as to whether or not to execute on that or hold off. Andy, anything else?

[Andy Chien:]

No, I think you covered the game.

[Carlo Santarelli:]

And then, if I could just one quick follow-up. Maybe Andy, the best position to handle this. In terms of the reporting going forward, obviously, what we saw in the first quarter as it pertains to how you guys are reporting for the joint venture. With Blackstone that's the, that is the chosen methodology you guys will keep with the current consolidation approach that you're taking, that you took with first quarter earnings?

[Andy Chien:]

That's right. So we will continue to account it, account for the joint venture as an unconsolidated affiliate. And we'll, going forward probably starting next quarter provide more detail on how that breaks out so that we have a full quarter's worth of those results.

[Carlo Santarelli:]

And it looked like in this period obviously, you used to stub math for your adjusted EBITDA in the percentage of that the back half of that 14 to March 31st, is my understanding of the results what it looks like?

[Andy Chien:]

That's correct. We took our pro rata share of the AFFO from the joint venture as well as for EBITDA.

[Operator:]

Our next question will come from Daniel Adam of Nomura.

[Daniel Adam:]

Just one housekeeping item, actually. So I think James, you mentioned in the prepared remarks that the base rent component did meet the revenue to rent ratio requirement for the 2% escalator in April. Is that correct?

[Andy Chien:]

It's Andy. As far as the revenues to rent that doesn't come into effect until, doesn't come into play until April of 2022. So the escalator this past April as well as next April, it's 2%. There is no hurdle to meet.

[Daniel Adam:]

And then just with respect to the percentage rent component, which, that's the five-year reset which is April next year, right? What, I guess at this point, it's pretty difficult, but what are you guys modeling for that.

[Andy Chien:]

So as far as the percentage rent that first reset is actually April of 2022. So it's another two years out. You're correct. As far as what, how it's calculated, it's a five-year average trailing revenue from that April 22 to-date and that would include the years of 2017, '18, '19 this year and next year in that average. So three out of the five years, we have the results for those, but obviously just still this year, next year that are still unknown in that equation. So for now, it's not a number that we're spending too much time, modeling or worrying about it. We still got plenty of time to look through that. And as far as the impact, it's going to be applied to the $78 million out of our total $974 million pro rata rent. And so it's not going to be very impactful, whether it's up flat or up significantly or even slightly down into the total number.

[Daniel Adam:]

Got it. And then just I guess more at a high level. How, at this point, are you guys thinking about M&A either opportunistically in terms of horizontal M&A or going out and being more strategic and finding opportunities, individual properties or just in general give your thoughts right now in terms of being opportunistic?

[James Stewart:]

I'll start and then Andy please come in after. I would say, we are -- as we usually are very much in dialog with a number of different property owners and operators. And I think that the attractiveness of taking financial debt and replacing it with the very predictable, very long-term leases that we offer is going to become increasingly attractive to them and it's environment like this it demonstrates the safety that comes in from that model. As it relates to the chance of an M&A transaction happening during this period. It's always possible and we're always on the lookout for such things, but with stock prices, particularly the operator stocks gyrating very, very significantly and having a very great deal of volatility, as well as the cost of debt for a number of the operators having much more volatility than normal. It makes it very hard for a seller of an asset or a buyer of an asset to make a determination as to what value the public market is putting on any one specific asset and you need to have that number. So you can compare it to what the private market would put on it or what we would put on it. So volatile particularly stock prices but also interest rates make transactions more difficult to execute on, and I think until we have a degree of stability and people are really able to make that business management decision around what value they currently are getting versus what they could get from another source that the real likelihood of any kind of meaningful transaction is reasonably low. That said, there is a lot of dialog going on and I -- we are always in the market to do something that's going to enhance our share price and create value. Andy?

[Andy Chien:]

Yeah. And I'd add to that in terms of cost of capital from the debt and equity side to the extent it's a transaction that would require us to deleverage and or raise newer debt. Those are things that would come into play from our perspective. And then lastly, I'd add that as we work toward recovery of this industry of our own, then the economy, all of the companies that have properties that are shut every day is a leveraging day, where they're going to have more debt at the end of this when they started. And I think a sale leaseback is a quick way to get them back where they want to be at financial perspective. So I think on the other side of this, as James talked about I think there's going to be a hard look at potential sale leasebacks to give balance sheets back into a place where companies are more comfortable given that they've worked really hard over the last eight or 10 years to deleverage since the financial crisis to the point that they were at the early part -- outside of this year and to really have a brighter future go forward. So I think the opportunities will come.

[Daniel Adam:]

Okay. Great. That's half of it. Thanks so much guys.

[Operator:]

Our next question will come from Rich Hightower of Evercore ISI. Please proceed with your question.

[Rich Hightower:]

Hey. Good morning out there, guys.

[James Stewart:]

Hi, Rich.

[Rich Hightower:]

Hi. Just -- Andy, just to clarify one of your earlier comments that the $1 million for forgone transaction costs or maybe forgone not the right term there, but is that a deal that is still in negotiation or some other phase. Just to clarify one point there?

[Andy Chien:]

So we did not assign or close it in the quarter, but I can't comment on that where we are in terms of the process.

[Rich Hightower:]

Okay. Fair enough. And then, just to broaden the M&A discussion topic in a different way, but I don't know yet what lessons we all sort of take from this COVID episode in terms of diversifying outside of gaming given that pretty much everything is shut down at this moment, but as you guys get questions from investors and as you guys think about what you want the portfolio to look like over the next three, five, 10 years and beyond. Have you, what lessons or takeaways in terms of diversifying outside of gaming, do you think you can come away with this point that you'd be comfortable discussing?

[James Stewart:]

Yes. I'll start and then again turn to Andy. It is, it gets back a little bit Rich to a comment that I made before, which is to the extent that we have an opportunity with a property across any sector where we can do a transaction that's accretive without the use of high leverage and attractive to our shareholders AFFO line and dividend that's a deal that we should do. Assuming that you're very, very confident that, that operator is going to pay the rent for the entire lease term, right? That's like the fundamental that we look at, I would say, I still think the opportunities on the other side of this crisis, are going to be more attractive in the gaming business and in other sectors due to all of the same factors that have come into play as to why I always felt it was more attractive over the past four years, which is a very limited number compared to most assets that are non-gaming, very limited number of buyers and a lot of regulatory overlay in terms of licensing and very unique tax structures and so on. So once you develop an expertise and knowledge in that area, it acts itself as a barrier to entry to others who may want to come in and that result in transactions that I think are more attractive in the gaming space than they are in other spaces. That said, to the extent that there is a deal that is accretive on a non-leveraging basis that we think drives up AFFO, drives up the dividend, it's attractive to shareholders and we're confident that the rent is sustainable and stable, that's a deal we want to do. Andy?

[Andy Chien:]

Yes. I think what's become very clear in this environment is that a lot of the things that people focused on whether it's a regional property or Las Vegas or focusing only on one metric, for example, only rent coverage or this or that. What's come out shining brightly is that the tenants' credit quality is paramount. And that's the most, one of the most important things as you look at who your tenant is. Do they have liquidity valves in an environment like this, right? Do they have access to capital? Do they have a large revolver debt, cash balance to have contingency plans for things like this? And you look at other asset classes that are net lease. You look at retail net lease and the rent collections are below 100%, right? In some cases as low as 50%, 60%, 70% of rent collections were received in April and May. So we're looking at our industry and our company and we've collected 100% of our rents, because we have a tenant on the other side that has financial wherewithal, has safe balance sheet, fortress balance sheet, as they say, and we agree. And so we have great rent coverage, but we had a strong creditworthy tenant. And I think on the other side of this, that's going to be one thing that is going to be a lot more important for all companies that are looking to buy net lease is can these tenants pay the rent.

[Operator:]

Our next question will come from Jay Kornreich of SMBC.

[Jay Kornreich:]

I'm wondering how you view the MGM Grand acquisition today as it's an iconic assets that closed before the pandemic at a likely lower cap rate than it would go for today?

[James Stewart:]

Well, we are very happy that we have done the transaction. 100% of the rent is coming in. We view this, this situation will be temporary. And it was immediately accretive with a fantastic partner, fantastic methodology around capital raise resulted in I think a great deal overall. I don't think anyone could have foreseen that every gaming property in United States is going to be shut a few months later. But from my perspective, we couldn't be happier we did the deal. Andy?

[Andy Chien:]

And Jay, we've, as we talked about, we locked in the financing rate of 10 years fixed. And so the cash income, the cash flow that comes from the entity is extremely predictable. We have escalators that don't have hurdles in that lease. We have a very robust CapEx requirements on those properties. And the returns on that asset are going to be very predictable for us and our joint venture partner for the foreseeable future, and we're very happy with it.

[Jay Kornreich:]

And then just one follow-up. Do you have a sense that MGM is going to raise capital through you that if you would first look to sell this type of asset or GP, OP unit?

[James Stewart:]

Again, it's, for the redemption, it's at their option. Springfield would be a transaction on which we have a right of first offer on the real property there that would have to have a meeting of the minds in terms of cap rate and terms and so on. So given the size of the redemption and the ease of executing it, my guess would be that that will come first. But predicting the future is always risky. So you can't be certain.

[Andy Chien:]

And again, to add to that Jay, in terms of MGM themselves they have $4.6 billion cash as they talked about in their call there. Operating expense load is about $270 million per month, which includes rent. And that would last them in a full shutdown scenario year and a half, maybe longer. And we're not talking about full shutdown scenario for the coming months here, right, because states, the companies are talking about reopening timelines and things like that. So I think the calculus will no longer be help what is the cash burn rate, but what does the ramp look like and how much cash you need for ramp versus what was more important few weeks ago, what was the cash burn rate in a full shutdown scenario, which is the longer the case.

[Operator:]

Our next question will come from Jordan Bender of Macquarie. Please proceed with your question.

[Jordan Bender:]

Good morning, guys. Thanks for taking my question. So operators, they've spoke about selling parcels of land in and around the strip and as well as Nevada even prior to the pandemic. So with operators looking to free up liquidity, is buying parcels of land for future development something you guys -- that you guys would look at it at this point?

[James Stewart:]

No. I would say that we would not, Jordan. One of the reasons is for us our cost to debt is obviously a cash cost, you have to pay your interest. Our cost of equity is also very much a cash cost because we -- investors rely so much in our company on the dividend. Land in and of itself does not generate enough income off, any income off to cover our cost of capital and actually frequently cost you money due to property tax and safety requirements and so on. And we are more in the mode of having someone else take the opportunity to develop an asset and gain the potential returns from that. And then we would come in, post-development once things are stabilized and buy the property from them. The concept of buying land for us just given our cost of debt, our cost of equity and the need for immediate cash returns from the assets that we look to acquire doesn't make a ton of sense.

[Jordan Bender:]

Okay. And then for my follow-up here. I kind of got the sense that you're pretty comfortable with your dividend at this point, but how do you think about it with all the choppiness maybe in the next couple of months in terms of your payout ratio versus your historical payout ratio?

[James Stewart:]

Andy?

[Andy Chien:]

I'll take that, Jim. Yeah. In terms of where we sit in terms of the dividend, we're very comfortable where we are. Our rental income is very predictable. We got our escalator April 1, as James talked about, so rental income has actually gone up from the start of shutdowns till now. In terms of the payout ratio, obviously we'll have some uncertainty around the timing of the redemption, but we are comfortable where we sit today in terms of the dividend level. The payout ratio will have a little bit of variability over the next quarter or quarters depending on the timing of the redemption, as I talked about. But we don't foresee any changes from that perspective.

[Jordan Bender:]

Okay. Thanks guys.

[James Stewart:]

Thanks, Jordan.

[Operator:]

Our next question comes from Smedes Rose of Citi. Please proceed with your question.

[Smedes Rose:]

Hi, thanks. I wanted to ask you a follow-up question on the redemption. And I know it's a two year window now, but how hard is that number? Is there any flexibility if MGM came back to you had said we'd like to make this window a little bit longer?

[James Stewart:]

Where it sits right now it's two years from the close of the transaction, which is around Feb 14. So like any transaction to the extent that there was a meeting of the minds and we want to cut a deal with them for such a change, it's a possibility, although I would just say, there has been absolutely no discussions around that concept at all, zero. Andy, anything else?

[Andy Chien:]

No, nothing to add.

[Smedes Rose:]

I just wanted to ask, so you mentioned how your model maybe more attractive than other regional operators. But from your perspective, in kind of a post-COVID world, does the pool of potential assets, has it gotten bigger or smaller for you and are there any, would you change the way that you would be underwriting owning those properties going forward?

[James Stewart:]

Yeah. The very interesting question actually, Smedes because I think that at least in the near term that you, meaning the next kind of year or so you would probably would change the way that you would look at something. You'd have to make sure that the property was one that you were confident was going to continue to making up EBITDA in order to easily cover the rents and leave you operator successful. And that is going to be a little bit different now than what it would have been say, a year ago, where historical metrics and looking at results through other potential crises such as great financial crisis were indicative of what one could use as a tool to make the call as to what the future is going to be. Now I think there'll be another layer added in of just operator liquidity, operator commitment to paying the rent is showing that the lease has protections against things like this recurring a gain and what the ultimate cash flow generating power of these assets or any one of the assets in our target list is coming out the other side of this. For a company with rough number $12 billion to $15 billion enterprise value. We need to do transactions it actually move the needle, which dictates a reasonably large asset, we sort of set the threshold that wanting to be not smaller than $40 million of EBITDAR, and so that limits us in terms of we're not going to want to go out and do a deal for an asset that's doing them less than that, just because it doesn't move the needle and is still take some time and resources. So making that call will also probably be a little different because there may be a different profile of what assets are making enough capital, enough EBITDA, pardon me, to make it worth our while to put the capital to work versus where we would have been a year ago. Andy, any thoughts from you on that one.

[Andy Chien:]

I'd add one thing, just in terms of the pool of assets, that pool of assets that we target I think remains unchanged. But I think the number of willing parties may grow as James comments, my comments earlier talked about in terms of where balance sheets will be for some of these operators and where they were kind of want to take leverage and try to do so quickly with the sale leaseback, and so I think that may open some new avenues.

[Operator:]

Our next question will come from John DeCree of Union Gaming. Please proceed with your question.

[John DeCree:]

Hi, James, Andy. Thanks you answered my questions already.

[James Stewart:]

Thanks, John.

[Andy Chien:]

Thanks, John.

[Operator:]

Our next question will come from John Massocca of Ladenburg Thalmann. Please proceed with your question.

[John Massocca:]

Good morning.

[James Stewart:]

Hey. Good morning.

[John Massocca:]

Yes. So just as we kind of think about the kind of $1.4 billion option that MGM has. I mean, and I know it's little bit tough because they're going to have that option for a long period of time, but what happen essentially, if they don't exercise? I mean, how do you guys think about then using that capital, if they don't exercise?

[James Stewart:]

Well, I feel pretty good about having it either way, I think that, I think over a two-year period the likelihood of not exercising is reasonably low. That said I'm very pleased that we set up the company where we meaningfully expanded the size of the revolver and made sure that we had alternative types of capital available to us, because that planning has really borne out very well for us right now. So I am not uncomfortable with having the excess this high level of capital available. To the extent that the redemption just disappeared, which again, it's, talking now two years out. We would devote it I think to the normal course of business, where we, which we always are on the lookout for, which is accretive deals on a non-leveraging basis that are going to pay the rent for 30 years, increase our AFFO, thus increase our dividend and enhance shareholder value. So that would be where we would look to deploy the capital otherwise.

[John Massocca:]

And then as we are going to come out of the current economic situation and potentially maybe have a slower ramp in Vegas, although, we'll see how that happens. How do you guys view kind of long-term leverage. I mean, are you happy the kind of pro forma leverage, you're going to come out of kind of assuming the redemption or would you like to kind of have that trend lower, as you maybe think long-term?

[James Stewart:]

Andy, you want to take it.

[Andy Chien:]

Yes. In terms of our leverage targets, as I mentioned in the prepared remarks, we're still comfortable in that 5 times to 5.5 times. And now we're including in this 5 times to 5.5 times, our pro rata contribution from the joint venture. So that leaves our non-joint venture traditional balance sheet even lower than where we started. So I think we're very comfortable continuing on that stance given that we'll have this blended capital structures on one side very safe and on the other side very secure and safe with the relatively conservative loan to value, but high on a debt to EBITDA. And so 5 times to 5.5 times we're comfortable at.

[Operator:]

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

[Shaun Kelley:]

So just really one quick question on, I think we've talked a lot about some of the scenarios around the OP Unit redemption. But as we think about it that was sort of part of a possible process to potentially lead to either deconsolidation of MGP from MGM or at least less control, as we kind of reach back to it wasn't that long ago, but feels like a very long time ago and kind of the pre-COVID period, has anything really changed, I mean other than perhaps that the timeline in terms of the ability to, I guess get MGM's ownership and MGP down below 50%? Are those levers different, has anything really changed on that or is this, is that still very much on the table as it relates to you and I appreciate a lot of it's really their decision pattern, but how do you think about that?

[James Stewart:]

Yeah. Well, first thing I'd say, Shaun is it, really is up to the owner of the equity, right. I mean it's their equity and they can determine when they want to monetize it. I would say that the commentary that they have made on their earnings call and other sessions with some investors has been very much on track with where they were before with pursuing an asset-light strategy, which in and of itself would entail lightening up on its MGP stake. So although, I would say, it's a question best directed to MGM everything that I've heard from MGM Resorts, is that same strategy of asset light is very much intact.

[Shaun Kelley:]

Great. I appreciate it. Thanks, James.

[James Stewart:]

Thanks, Shaun.

[Operator:]

Our final question will come from Robin Farley with UBS. Please proceed with your question.

[Robin Farley:]

Great. Thank you. I have two questions then I -- I'm sorry, my line was also out for some of the call, so I apologize, if this was asked already, but I heard some of your comments about potentially future transactions and how the current environment may impact out? And I think that questions that people are asking with sort of getting around the idea of the concern that it could be tough in the near term given that rents would be so low that you may not want to commit to getting new rents that are at such low levels right that you wouldn't want that even if the regional operators might need balance sheet help. So I guess my question is, there have been some shareholder activists that has sort of made comments about consolidation among gaming REITs. Not necessarily, you guys, but I'm just curious what your thoughts are with that make more sense because you could potentially be acquiring rents that were set pre-pandemic because I wouldn't think that there is too many attractive rents out there to you in the near term -- in terms of any other transaction. So I just want to get your thoughts on that.

[James Stewart:]

Where we -- although we would net always want to look at any transaction that we think makes sense for our stakeholders and shareholders. If I look at our positioning right now and I would say the entire industry of gaming REITs will likely emerge out of this situation in a much stronger position vis-a-vis the traditional triple-net universe of retail-oriented REITs. Amongst any of that universe of all triple-net REITs, I would really take to hand we've been dealt before. I would take anyone else's just in terms of the strength of our tenant, their own levels of liquidity, their staying power, their expertise and management, the nature of our buildings, beautiful well maintained, many activities going on inside them, places where people want to be and want to go, buildings that are critical to their jurisdiction in every single jurisdiction in which they operate so that you get governors and mayors and district leaders very much wanting them to be successful. I look at our own position in terms of our lease, the strength of it, our escalator position and so on. And I think that our relative position is very strong. And I would be hesitant toward taking on -- I would rather keep ours as it is right now than necessarily have someone else's hand thrown into the mix. That said, we're always open to something that is going to enhance shareholder value and enhance the company. But I just think our position is so strong right now that we're going to come out of this very, very successfully. And that the market ultimately will reward MGP shareholders for the value inherent in the company.

[Robin Farley:]

Okay. No, that's helpful. Thanks. And then the other question is, I guess, there were some reports about kind of potentially MGM maybe looking for other users for selling its properties since they won't all reopen at the same time. And there was some talk about potentially offering them as like a quarantine campus for maybe a pro sports league, that I'm sure you've seen. Is there anything in your lease agreements with them that prevents them from leasing a property to others? I'm just curious if there's any limitations on that?

[James Stewart:]

Andy, do you want to take it?

[Andy Chien:]

Sure. There are broad use guidelines within the master lease, all of which are pretty markets for when we struck the leases. For some of the uses that have been talked about in the press, obviously, we'll evaluate those to the extent we need to evaluate them when those things come to fruition. But for now, nothing is concrete from a lot of those stories and there is nothing that we're discussing with MGM on that front. But they're obviously probably having their own discussions that we don't need to be or not involved in at this point. That is a lot of uses that are permitted within the leases. And certainly, some of those things that are broadly speaking entertainment, I would think without looking at the language would broadly fit.

[Robin Farley:]

But it sounds like there is some sort of broad language in the lease and also you can just agree it sounds like as well, right, that you guys can just agree it wouldn't, there's nothing prohibiting it's, correct?

[Andy Chien:]

Yes. As long as lease permits it, then it's fine.

[Robin Farley:]

Okay.

[James Stewart:]

And you know what, if the, in almost any scenario I can think of, if MGM Resorts wants to do something that means it's going to be economically attractive. And if it's economically attractive to them then we would, then it's going to be economically attractive to us. So we'd be very supportive.

[Robin Farley:]

Absolutely. And then that makes sense. I just wondered if there was something they prohibited in the lease, but it sounds like not. So that all makes a lot of sense. So thank you very much. Thanks.

[James Stewart:]

Thanks, Robin.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. James Stewart for any closing remarks.

[James Stewart:]

I'd just like to say thank you very much to all of our investors for joining us on this call and for being part of our company. I think there'll be many greater things to come. Thank you all.

[Operator:]

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.