Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties fourth quarter 2021 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 twenty-fourth, twenty twenty-two. I would now turn the conference over to Samantha Gallagher, General Counsel with VICI Properties.
Thank you, operator, and good morning. Everyone should have access to the company's fourth quarter 2021 earnings release and supplemental information. The release and supplemental information can be found in the investor 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, outlook, projects, 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 certain non-GAAP measures which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website in our fourth quarter of 2021 earnings release and our supplemental information. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties described during the call, please refer to the respective company's public filings with the SEC. 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.
Thank you, Samantha, and good morning, everyone. Before I start, let me just say on behalf of Vici that our hearts very much go out this morning to the people of Ukraine. Today, I want to begin the call by addressing two topics, Vici's growth and total return over our first four years and our closing of our Venetian acquisition and what it signifies about Vici and our asset class. I'll then turn the call over to John, who will talk about our ongoing growth initiatives, and to David, who will talk about our 2021 results and our financing activities. The year we just concluded, 2021, constituted Vici's fourth full year of operations and growth. If measured from our emergence date in October 2017, a bit more than four years ago, we've accomplished the following.
We have announced $29 billion of acquisitions, establishing VICI as one of the most dynamic growth platforms in American REIT management. We have raised more than $12 billion of common equity, more than any other REIT in America over that period. Pro forma for our announced acquisitions, we will have grown our portfolio NOI by more than 4 times. We have lowered our leverage from 8.5 times adjusted EBITDA at emergence to 3.1 times at the end of 2021, and moreover, transformed the right side of our balance sheet from entirely secured to substantially unsecured debt. By transforming the magnitude and composition of our debt, we have put ourselves, we believe, on the cusp of investment-grade ratings. We've demonstrated the resilience of our assets and of our tenants through 100% on-time cash rent collection throughout the COVID-19 pandemic to date.
Most importantly for Vici stockholders, we generated from October 18, 2017, through December 31, 2021, a total return of 100.5%. This compares to the S&P 500 total return of 100.7% over that period and a total return for the RMZ of 58.9%, meaning Vici outperformed the RMZ over that period by 41.6 percentage points. Here's a simpler way of looking at it. A $1 invested into Vici at the beginning of that period became $2. A $1 invested into the RMZ over the same period became $1.59. An integral part of Vici's superior total return has been Vici's dividend growth over the period, with aggregate dividend per share growth of 37.1% since our first full quarter dividend payment in Q2 2018.
We're proud of the value we've created over our first 4 years, but here's what we're really excited about today. We just closed yesterday on the acquisition of one of the most magnificent Class A assets in American commercial real estate, The Venetian. Let me reiterate the features we cited when we announced the Venetian transaction nearly a year ago. The Venetian is the single largest hotel complex in America with nearly 7,100 rooms. The Venetian is the largest private sector meeting, convention, trade show facility in America. At 13 million sq ft of Class A quality. Find me another building in America with more marble. We have bought The Venetian at a price per square foot of approximately $300, 82 acres of land that included an estimated 62% discount to replacement cost.
When we announced The Venetian acquisition in early March 2021, the COVID-19 pandemic was still heavily and negatively impacting Las Vegas visitation and resort performance. Apollo, our new Venetian operating partner, and VICI were both mindful of that, and in a period when most potential Venetian buyers were not willing or able to come out into the heavy weather. VICI and Apollo were able to craft a transaction that protected against continuing uncertainty, but was fundamentally based in a belief that Las Vegas and moreover, The Venetian, would eventually return to 2019 levels of performance. What VICI and Apollo did not assume when we announced this transaction in March 2021, is that in Las Vegas, and The Venetian would, over the ensuing 12 months, stage a roaring comeback, achieving run-rate profitability levels that are beyond 2019.
Over the last 12 months, Rob Goldstein and Patrick Dumont's team at Las Vegas Sands, led by George Markantonis, have done a magnificent job of managing The Venetian. As LVS reported on January twenty-sixth, The Venetian produced these eye-popping performance figures in Q4, 2021. 100% occupancy of The Venetian's nearly 7,100 rooms, and doing so without the full return of meeting convention trade show business. For the fourth quarter, The Venetian generated $154 million of adjusted property EBITDA at a margin of 34.5%. This amount of EBITDA annualized would mean over $600 million of run rate EBITDA before rent, or nearly 2.5 times coverage of our initial Venetian annual rent of $250 million.
As for value, I just want to remind everyone that we have acquired The Venetian, again, one of the most magnificent and majestic Class A assets in American commercial real estate at a cap rate of 6.25%, which we believe makes this one of the most compelling Class A single asset transactions in American REIT management in recent years. If it isn't, somebody needs to tell me what topped it. Here, as much work as I put into preparing these remarks, I actually have to quote one of you who posted last night this statement, which I think says better than anything I've said what we did in buying The Venetian. To quote, "Simply put, VICI got a pretty sweet deal.
By looking past the short-term disruption in Las Vegas created by COVID, VICI was able to get one of the most iconic real estate assets in the country for a cap rate that today couldn't even buy you a well-located Dollar General. Finally, not only did we buy The Venetian at a 6.25% cap rate, we have leased the Class A real estate of The Venetian to Apollo on a triple-net basis with the superior economic transparency and integrity that the triple-net lease model generally provides. That highlights the final point I want to make about our first four years at VICI. Over this period, one can say that we have brought gaming real estate into the triple-net lease sector.
I think what's more important is that we have brought the superiority of the triple-net lease model to Class A real estate. Triple-net real estate is sometimes criticized for being commodity real estate in low barrier to entry locations bought at a premium to replacement cost. Here's what we've done at VICI in our first four years in real estate investment terms. We've built America's biggest and best portfolio of differentiated, non-commodity Class A experiential real estate in high barrier to entry locations bought at substantial discounts to replacement cost. Here may be the most important portfolio attribute of all. Our real estate is occupied by, we believe, the best experiential operators in the world, as evidenced by their market-leading resilience during the darkest days of the COVID-19 pandemic and their market-leading recovery to unprecedented levels of profitability.
Thanks for bearing with me while I share my excitement for what we've done at VICI. Now I'll turn the call over to John Payne, who will share our excitement over what we're doing to continue to grow VICI. John?
Thanks, Ed. Good morning, everyone. 2021 sure was another successful and transformative year for VICI, as we announced over $21 billion of transactions, solidifying our position as the number one experiential REIT in terms of acquisition volume, significantly increasing our scale and furthering our credibility as one of America's blue-chip REITs. As Ed said, we are very happy to announce that the acquisition of Venetian Las Vegas closed yesterday, and our acquisition of MGP remains on track to close in the first half of this year. Since we announced the acquisition of The Venetian, we've witnessed cap rate compression in Las Vegas, seemingly in real time, with CityCenter trading at a 5.5% cap rate and The Cosmopolitan at a 4.97% cap.
Additionally, since our announced acquisition of MGP, regional cap rates have continued to compress with Encore Boston Harbor, a large-scale, high-quality urban asset recently trading at a cap rate in the high five. We have been pounding the table about the quality of gaming real estate and its superior investment characteristics relative to many real estate asset classes since our formation. We believe that in many ways, the most recent trading cap rates are directly applicable to the value of the assets in our portfolio. It is gratifying to see our thesis come to fruition, and we believe there's much more to come as gaming real estate becomes a mainstream real estate asset class. Upon closing our MGP transaction, we believe we will have a portfolio of assets with quality unmatched by any other leisure real estate portfolio.
Our rental streams and underlying asset cash flow durability has been proven through the pandemic. We have tenant relationships with industry-leading operators who utilize extensive CRM capabilities to be engaged with the consumers. As many of you know, these capabilities, combined with our tenants' operational expertise, has led to record profitability in Las Vegas and across the regions. Now, as we think about VICI's future growth prospects, we see a long runway for growth within gaming. Many operators continue to study and understand how VICI's capital can be utilized in their capital stack, and we have regular dialogue with a number of public and private operators that continue to own their real estate. Additionally, we started allocating capital towards other leisure verticals, which we believe will round out our investments over time.
We will approach additional leisure investments in a prudent manner by studying the opportunities and market dynamics in detail and performing appropriate diligence and risk-reward analysis prior to allocating capital on behalf of our shareholders. One of our fundamental goals as a company is to grow earnings per share accretively on behalf of our shareholders. We believe this aligns our success with the interest of our shareholders, and we do not approach investments blindly in order to just satisfy investment volumes or other arbitrary measurements. To that end, I'll repeat the pillars that we believe will drive accretive growth for VICI and create value for our shareholders well into the future. We will strive to execute the compelling opportunities in our embedded growth pipeline. We will study and evaluate open-market gaming transactions in the United States and internationally.
We will partner with existing tenants under our property growth fund, through which we will seek to fund high-return growth projects at our existing properties, and we will allocate resources towards studying leisure and experiential investments as well as large-scale M&A opportunities. Now I'll turn the call over to David, who will discuss our balance sheet and our financial results. David?
Great. Thanks, John. I want to start with our balance sheet. 2021 continued the relentless focus we have maintained over our four-plus years of existence 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. This disciplined focus was rewarded during 2021 by, first, the depth of the support from the equity capital markets to de-risk the equity funding for our $21 billion of announced acquisitions, and second, from the culmination of one of our most important objectives since emergence, and that is to finally transform our balance sheet into an unsecured borrower. As Ed mentioned, we believe we are on the cusp of achieving an investment-grade rating.
To recap, as we look back at 2021, in March, we raised $2 billion of equity through a 69 million share forward sale agreement. In September, we raised $3.4 billion of equity through a 65 million share regular way offering and a 50 million share forward sale agreement. Raising $5.4 billion of equity is not something we take for granted, and we greatly appreciate the support of our equity holders to be able to de-risk the equity funding and take advantage of two unique opportunities that presented themselves during the year. The September offering, in fact, was recognized by International Financing Review, or IFR, as the North America Secondary Equity Issue of the Year.
We are thankful to our underwriters, led by Morgan Stanley, as well as a full syndicate of banks for the support to be able to execute the largest common equity follow-on ever by a REIT. In September, we fully repaid our $2.1 billion secured term loan. This was a critical step on our path towards investment grade. Also in September, we announced the successful early participation in the exchange offer and consent solicitation for the $4.2 billion of outstanding MGP notes. As a result, upon closing of the MGP transaction, the covenants under the existing MGP indentures will be aligned with the covenants, restrictions, and events of default under the existing VICI indentures. In December, we entered into a forward-starting interest rate swap agreement with a notional amount of $500 million.
Subsequent to year-end, we entered into three additional agreements with a notional amount of $1.5 billion. The interest rate swap transactions, so far totaling $2 billion, are intended to reduce the variability in the interest expense related to the debt we expect to incur with the closing of the MGP acquisition. In addition, subsequent to year-end, we closed on a new $2.5 billion unsecured revolving credit facility and a $1 billion delayed draw term loan, increasing our overall liquidity with highly efficient bank capital. The revolver maturity runs to March 2026 before extension options with grid-based pricing.
Based on the company's current credit ratings, the revolving credit facility bears interest at SOFR plus 132.5 basis points, an improvement in pricing from 200 basis points over LIBOR under our prior secured revolving credit facility. Just to recap the Venetian funding, which we closed yesterday, we settled the March and September outstanding forward sale agreements, bringing 119 million shares onto our balance sheet for total proceeds of approximately $3.2 billion. We drew $600 million on our revolver, with the remaining proceeds coming from cash to close the $4 billion Venetian acquisition. I also want to highlight that the settlement of the two forward sale agreements will all but eliminate the outsized short interest that VICI has been subject to.
As of January 31, we had approximately 85 million shares of short interest, which the majority was from the mechanics of the forward sale agreements. To summarize, 2021 and the events at the start of 2022 highlighted our guiding principles on how we approach our balance sheet, which are to maintain a long-term target leverage goal of 5-5.5 on a net debt-to-EBITDA basis, maintain an unsecured capital structure and an unencumbered asset pool, pursue a disciplined composition and laddering of fixed rate debt, safeguarding the company's balance sheet against future market volatility, opportunistically accessing the capital markets to lock in funding certainty for all transactions, and ultimately achieving an investment-grade rating.
We have been relentless in our drive towards an investment-grade rating, and we believe the actions we took during 2021 and at the start of 2022 should position VICI to be able to access the investment-grade market when we seek to raise the $4.4 billion of permanent debt required to redeem the MGM OP units at the time of closing the MGP transactions, all while continuing to maintain ample liquidity, flexibility, and optionality to grow creatively. Turning to the income statement, AFFO for the fourth quarter was $278.9 million, or $0.44 per share, bringing full year 2021 AFFO to $1,047.4 million, or $0.82 per share. Total AFFO in 2021 increased 25.3% year over year, while AFFO per share increased approximately 11% over the prior year.
The disparity between overall AFFO growth and AFFO per share growth is due to an increase in our share count and resulting temporary dilution from the March and September forward equity offerings. Our fully diluted share count increased approximately 12.9% primarily as the result of the settlement of the June 2020 forward sale agreement in September 2021, which added 26.9 million shares to our balance sheet in the regular way portion of the September offering, which added 65 million shares to our balance sheet. The proceeds from both of these offerings were used to repay the $2.1 billion secured term loan in September.
We refer you to our press release where we've added two tables detailing our outstanding common shares and a reconciliation of the weighted average shares of common stock used in the calculation of earnings per share. These tables are on page 5 of our release that was posted to our website last night. Our results once again highlight our highly efficient triple net model, given the significant increase in adjusted EBITDA as a proportion of the corresponding increase in revenue and our margins continue to run strong in the high 90% range when eliminating non-cash items. Our G&A was $9 million for the quarter, and as a percentage of total revenue was only 2.4%, in line with our full year expectations and one of the lowest ratios in the triple net sector. Finally, I want to touch on our leverage.
We ended 2021 with net debt-to-EBITDA 3.1 times, and pro forma for the Venetian closing, our net debt-to-EBITDA is 3 times. This highlights the fact that we have significantly over-equitized the balance sheet ahead of the closing of the MGP acquisition, positioning our balance sheet to raise the incremental debt required to complete the funding and bringing on the associated income with that transaction. As I touch on guidance, this will be important. We are initiating AFFO guidance for 2022 in both absolute dollars as well as on a per share basis. As a reminder, our guidance does not include the impact on operating results from any pending or possible future acquisitions, specifically the pending acquisition of MGP or dispositions, capital markets activity, or other non-recurring transactions.
As we have discussed, we record a non-cash CECL charge on a quarterly basis, which, due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused, 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. Our guidance incorporates the recently closed Venetian acquisition and the settlement of the 119 million shares that were subject to the March and September forward sale agreements. We expect AFFO for the year ending December 31, 2022 will be between $1.317 billion and $1.347 billion, or between $1.80 and $1.84 per diluted share.
The midpoint of our total AFFO guidance on an absolute dollars represents an increase of 27.2% versus our 2021 actual AFFO. On our per share basis, guidance reflects all of the equity raised to close the transactions we announced in 2021, and thus, the corresponding increase in VICI share count without the benefit of the corresponding income from the pending MGP transaction. Accordingly, we expect to update guidance in the future to reflect the impact of the MGP transaction when we are in a position to do so. With that, operator, please open the line for questions.
Of course. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Our first question comes from R.J. Milligan with Raymond James. R.J., your line is now open.
Good morning, guys. I wanted to maybe ask a bigger picture question. Ed, what do you think of Realty Income's entry in the gaming asset class? What does that mean for VICI? Obviously, adds more competition, but you have a new operator embracing the sale-leaseback model. Pricing sort of implies that your stock is undervalued, but maybe lower cap rates hurt spread in the future. How do you think about those different puts and takes?
RJ, always good to chat with you. Net-net, it is unalloyed positive to have an institution of the quality and stature of Realty Income come in and validate our category. You know, Realty Income, you know, goes back to 1969. They've built an amazing company. Sumit has obviously continued to drive excellence at that company and drive very judicious allocation of capital, both categorically and geographically. We've been saying, as John spoke of in his remarks, RJ, we've been saying since the beginning that this is an asset class that we believe is the next great institutionalization story in American commercial real estate. Well, institutionalization does not happen if institutions don't come into the category, and the more institutions that come into the category, the further institutionalized it is.
There are puts and takes, you're absolutely right. When there's more competition, we have to work hard every single day to make sure that our cost of capital over the longer term, leaving aside, you know, the volatility we face in this current situation like this, that over time, excuse me, we're improving the cost of capital on both an absolute and/or a relative basis, at a velocity equal to the rate of cap rate compression. Again, net-net, we see it as very positive, and I think in this case, especially validating of regional assets. You know, with the MGP transaction, we will become the owners, the very proud owners of assets like National Harbor right on the Potomac River in D.C. We will become owners of the Borgata, of MGM Grand Detroit, of Beau Rivage.
These are assets that are absolutely in the same class as Encore Boston. As John also alluded to in his remarks, if you look through the cap rate of Wynn Boston to what we are acquiring in MGP in terms of preeminent regional assets, we're obviously very happy for the revaluation that we believe our shareholders deserve.
Thanks for those comments, Ed. My second question is just, can you be a little bit more specific on the expected timing of the closing of the MGP transaction, and then maybe David, what you're seeing out there in the debt markets and expected pricing for the debt that's going to be issued?
Samantha, you wanna take timing, and then David can talk financing?
Sure. Just on timing, I'll just mention that we do continue to work through the process with all the applicable jurisdictions and remain on pace for a closing in the first half of 2022.
Thanks, Samantha.
RJ, as it relates to the debt markets, as I mentioned in my remarks, we've built a $2 billion hedge portfolio to start to minimize the volatility that we're witnessing obviously real time today. One of the aspects, a couple of the aspects, that we have going for us is when we underwrote The Venetian as well as MGP, we underwrote that in the high yield markets. With the work that our team has done with the agencies, and as we mentioned in our remarks, we feel very confident that we'll be issuing debt into the investment grade market when we can do so and once we're at a position through regulatory approval, which Samantha just alluded to.
Our underwriting remains in line with what we underwrote originally, even with the uptick in rates, and obviously today is a unique day with the volatility going on in the markets. For ten-year pricing, we're getting quotes in the you know, high 100, low 200 over Treasury for ten-year paper. On a blended basis, we still feel good about our overall accretion and everything that we laid out for you back in August of last year.
Thanks a lot.
Thank you, RJ.
Thank you, RJ. Our next question comes from Wes Golladay with Baird. Wes, your line is open.
Good morning, everyone. Can you talk about your appetite to buy more assets while MGP is still pending and you currently have a little bit higher cost of capital? I believe Caesars mentioned on their call they were gonna be looking to sell an asset over the near term.
Yeah. I'll take the last part of that, and then I'll turn it over to John in terms of our ongoing energy around growth activities. Yeah, you did see Tom Reeg announce last week his intentions to bring an asset to market. Obviously, you know, we will take full advantage of the opportunity we have to get that very full first look, and to see what possible advantages the addition of another asset could have and the addition of other relationships. I just wanna emphasize the fact that given obviously not only the volatility in the market, but what are the hallmark practices of great capital allocators.
As a good real estate capital allocator, you never want the answer to the question of why did you buy that to be, well, it was for sale, right? I once worked for somebody who had a great adage, which is, "Spend every dollar of capital like it's the last one you have." Whatever the opportunities may be, we will only allocate capital if we feel, versus our other alternatives, it is the best use of capital at a given time. In terms of our ongoing growth activities, I'll turn it over to John.
Yeah, good morning, Wes. As you know, these deals don't happen over the first lunch, so we're very active continuing to talk to the operators on the gaming side as we have since we started the company. We're spending, as I said in my remarks, quite a bit of time in what we call the hospitality or experiential space, sitting down with C-suite executives of certain companies and certain industries, explaining how our capital could help them grow, and we could be partners over time. So we're very active. As Ed said, though, we'll be very prudent in the way that we put out our capital.
Okay. There is a strong bid for the regional assets. Would you entertain recycling assets, selling some assets if there's a Caesars opportunity was something you like, or would you look to lean in a little bit of leverage? Maybe go over your leverage. You mentioned, David, 5.5 on the high end is where you'd want leverage. Would you be willing to take leverage a little higher than that? I guess how would you fund it if you were to find something?
David?
Yeah. Wes, I mean, we're gonna look at, you know, all alternatives that are in front of us as it relates to recycling assets. I mean, that's not. You know, we have recycled, you know, an asset in Atlantic City, an asset in Reno. We just did in our release, we sold it, you know, Louisiana Downs. Potentially there could be that opportunity. There could be potential JV opportunities. You've obviously seen MGP joint venture some assets in the past. You know, the attractiveness of a REIT and the ability to issue OP units that, you know, we are doing directly to MGM. You know, GLPI is doing that to Cordish, so there's other avenues of equity.
As it relates to taking leverage up, we're pretty disciplined with our dialogue with the agencies of our goal to, you know, we've got a path to take leverage up to 6x. When you take leverage up often that's just, you know, financial engineering to drive accretion, and that's something that we strive to do. We'll stay within our guideposts, but I think there's other tools in the toolbox that a REIT can bring to the table to, you know, as John said, pursue opportunities that we're in dialogue with.
Okay. Thanks, everyone, for the time.
Thanks, Wes.
Thanks, Wes.
Thank you, Wes. Our next question comes from Greg McGinniss with Scotiabank. Greg, your line is now open.
Hey, good morning. Just curious, it sounds like Realty Income was able to get kind of Encore Boston Harbor deal without any competing offers. Did you previously try to acquire this asset? Any thoughts as to why Wynn did not run a bid process on that location? I guess, do you think you would have been competitive at the 5.9 cap with no CapEx minimums?
I'll turn it over to John in a moment, Greg, but you absolutely would have to ask Wynn why they did not run a process. Sumit Roy in Realty Income's earnings call yesterday, as you are implicitly referring to, clearly stated there was no process. You know, again, you'd have to ask Wynn why they did not run a process. Above and beyond that, you know, I don't know how much more we can or should say about the asset, given that we were not part of a process. John, I'll hand it over to you to see what you might wanna say.
I think we've already said it. Look at the great validation of the value of our real estate, right? I mean, if you take National Harbor, you know, there's an asset of as good a quality. I'd even say it's a better quality, right? The cap rate that's put on that asset really just is a validation of what we've been talking about for four years when we started this company.
Okay. I guess just two follow-ups on kind of potential investments. Thinking about the Partner Property Growth Fund, how are you guys viewing the likelihood of those transactions occurring or maybe the potential to reach the $1 billion and separately $1.5 billion max amounts?
John?
Well, we're having active conversations with all our tenants about opportunities where they can use our capital to grow. We can gain incremental rent over time. I'm not a big guy who tells you, predicts what exactly we're going to do, but what I can tell you is this fund has been well-received by our tenants. I think there are some large project growth projects in the future that I believe we'll be a part of with our tenants. It'll be exciting. It'll be exciting to help them grow, and it'll be exciting to help us grow.
You know, Greg-
Okay.
I would just add, Greg, the thing I would just add in regard to our Partner Property Growth Fund is that when the projects achieve the needed return hurdle, and of course, our investments would be contingent upon them, you know, clearly demonstrating that they can achieve that hurdle, we are an extremely attractive source of capital for our partners. Based on the cost of our capital, because when the given investments can achieve the necessary hurdles, the cost of our capital should not be compared only to the cost of the debt capital of our partners.
It really, given that we can, in many cases, alleviate them, the need for them to put in any incremental equity, the cost of our capital should be compared not again to the cost of their debt capital, but to their weighted average cost of capital inclusive of both equity and debt. On that basis, we become, again, a very compelling source of low-cost capital.
Okay. I guess just the final piece of the pipeline. You got this potential ROFR, which you guys said you'll be, you know, evaluating as to whether or not it fits within the portfolio. But also the Centaur call, the Indiana Caesars assets that's you can potentially call this year. Can you just remind us, you know, how the pricing is determined there, and whether the Caesars investment is your part to impact your desire to get something done in the near term?
John?
I'll let David talk a little bit about the structure. I'll talk about the assets. First of all, they're just great assets. They're big, they're growing. As you touched on, Caesars just rebranded the asset, one of the assets in Indianapolis to Horseshoe. They're investing large chunks of capital into both of the businesses there as table games was legalized at these racinos. These assets have not only grown under the Caesars leadership, they will continue to grow as these assets get their capital and they stabilize. We're continuing to watch it. We think these are gonna be great additions to our portfolio. Then David can tell you a little bit how the deal was structured and how it would enter into our master lease. David?
Sure. Thanks, John. As you referenced, that put call started January 1 of this year. It runs to December 31, 2024. We can call those two assets at a 7.7 cap, or Tom and team can put them to us at an 8 cap. It's an LTM coverage ratio that was set at 1.3 times. Part of the reason we agreed to that was in the broader funding of Eldorado's acquisition of Caesars, is that those assets will go into the regional master lease. Those are, you know, two very attractive assets, as John alluded to, and something that we'll assess is how we sequence that into our growth and the cadence that we have, you know, internally with everything else going on over the period of time.
You know, just given where cap rates have gone, we're very excited to potentially own those assets at some point here.
Let me just add,
Okay. Sure
In regard to the 1.3 coverage. As David spoke of, these will go into the regional master lease, but we got comfortable when Tom Reeg proposed that coverage level to us a few years ago based upon our confidence that the new Caesars under Tom's leadership would achieve corporate profitability levels that would give us very strong corporate rent coverage, making us comfortable with the 1.3. Well, needless to say, Tom's team have greatly exceeded our expectations in terms of the corporate profitability they're seeking and will achieve at Caesars. Thus, again, just to re-stress the point why in this case, at the asset level, we were willing to take on that asset level coverage given what is proving to be rather magnificent corporate level rent coverage, which is part of a corporate rent guarantee.
I just wanna add one more thing David said that I wanna make sure it's not lost. We have the right to call this at a 7.7 cap, and there was a transaction that just happened in the regional markets for a 5.9 cap.
Mm-hmm. Yep. Well, great. Thank you.
Thank you, Greg. Our next question comes from Barry Jonas with Truist. Barry, your line is now open.
Great. Thank you for taking my questions. You guys obviously have, and will have the largest portfolio in gaming right now. I'm curious if there are any geographies or segments of the market you're less inclined to expand on at this point.
John?
I'll take that, Barry. I'll answer it more on those areas of opportunity where we'd like to own real estate. You know, if you think of the Las Vegas market, which I know, Barry, you follow closely, you look at the regional performers there, how well they've performed during, before the pandemic and after the pandemic, or as we were coming out of the pandemic. We don't own any real estate in downtown Las Vegas. If you see how Circa has changed that market and the way people think about that market, Tilman and his team have done a great job there for years. There's an opportunity to own real estate in the downtown Las Vegas market, which is a big market. We don't own assets in Reno, Colorado, Rhode Island. We don't have Pittsburgh, like Lake Charles, others.
There's still quite a few gaming markets that we don't own assets. As we talked earlier, you know, we've got a ROFR here on another Las Vegas asset. Many opportunities for us. We haven't had opportunities where I'm saying I wouldn't go into, but I'm sure there's a few. We feel like we've got enough real estate, but I really wanna answer that of where we see that there's continued opportunity.
That's really helpful. Then just as a follow-up, you know, given the current macro environment we're seeing, I'm curious if that's impacted the timing or pace of any M&A discussions you may be having.
You know, Barry, it's been a pretty wild four years, right? You know, I won't even bother naming them all. You know, we had the interest rate kind of crack up of spring of 2018. We had December 2018, which none of us hope we have to live through again anytime soon. We've obviously had March 2020. We have obviously learned to live and deal with volatility at VICI, and I think if we've taken one key lesson, it's that don't stop developing relationships in times of volatility because times of volatility will eventually come to an end. To be honest with you, we just shut out the noise, and we keep doing what we're doing.
We obviously can't be heedless by any means of our cost of capital at any given time and have to take care to make sure we know where the money's gonna come from and what the money's gonna cost us. Again, I just wanna reemphasize the point that periods of volatility cannot be periods of dormancy in terms of our fundamental activity every single day, which is working to develop relationships that will ultimately turn into deal flow.
That, that's great. Thanks, Ed. Thanks, guys.
Thank you, Barry.
Thank you, Barry. Our next question comes from Daniel Adam with Loop Capital Markets. Daniel, your line is now open.
Hi. Thank you, and good morning, everyone. Just to follow up on Realty Income's deal for Encore Boston, I'm curious whether you guys think the sub 6% cap rate marks a turning point or new normal, if you will, for regional asset valuations in general, or whether you see that as more of a one-off just given the quality and location of Encore.
Yeah, Daniel, always good to hear from you. I may have mentioned this in prior earnings calls, but one of the things I am struck by within gaming generally and gaming real estate specifically is we have not yet come up with a widely accepted hierarchy of quality classification, right? As many of you know, I used to work in the hotel sector where there's a few clearly accepted hierarchies of quality, whether it's based on stars, 5, 4, 3, 2, so on and so forth, or whether it's luxury, upper upscale, and so on and so forth. Well, that categorization does not yet exist in gaming. It really doesn't exist so much on the Strip, and it definitely doesn't exist in regional.
If you were to try to impose a hierarchy of quality on regional gaming, there is a highest level of regional gaming asset quality that would include assets like Encore Boston Harbor, MGM National Harbor, MGM Grand Detroit, Borgata, Beau Rivage, Caesars New Orleans, especially after the Caesars team puts in the capital that they're about to spend, Harrah's Atlantic City. There is this higher tier of assets, and Encore Boston Harbor has set a new benchmark cap rate for the highest tier regional assets. Usually when the top category in an asset class establishes a new benchmark in terms of lower cap rates, there can and usually is a slipstream effect on the lower quality, lower categories of quality.
I guess maybe your implicit question, does Encore Boston create a slipstream not only for the highest end regional properties, which we will be the market leader in owning, but will it also create a slipstream for other regional assets? We believe it would because again, you look at the resiliency through COVID, you look at the indispensability of the asset to the operator, you look at the barriers to entry. If you look at all of the classic real estate valuation metrics and frameworks, you have to concede these are really good assets, and they are woefully underpriced.
That makes a ton of sense. I appreciate that. Then just as a follow-up, I think in the prepared remarks, you'd mentioned evaluating deals outside of the U.S. Are there any markets in particular that you're focused on internationally?
David, do you wanna take that?
Sure, happy to. Dan, always good to talk to you. I mean, as we look outside the U.S., you know, we look most simplistically at what's readable and where's good rule of law, good, you know, obviously good real estate, but good tax jurisdictions and things, you know, jurisdictions like Canada, Australia, Singapore, Japan, you know, Europe, U.K. Maybe less so gaming in the Europe, U.K., just given the nature of the, quote-unquote, boxes. But, you know, we talked about Realty Income here a lot, you know, going into gaming. They've obviously gone into Spain and Europe and other jurisdictions. You've seen other REITs, you know, like Simon go abroad. There are opportunities that we're looking at and assessing, you know, across the globe.
As we continue to grow, we've got the infrastructure and the expertise to do so, and we look to continue to develop those opportunities and ultimately bring those sorts of opportunities into our portfolio over time.
Okay, great. Thanks so much, guys.
Thank you, Daniel.
Thank you, Daniel. Our next question comes from Smedes Rose with Citi. Smedes, your line is now open.
Hey, it's Michael Bilerman here with Smedes. Ed, I wanted to come back to your opening comments and, you know, you spent some time talking about the last four years since emerging as a new public entity and the successes that you've had, and the total return and the dividend growth, which has all been pretty strong. I wanted to get your sense of how you think about issuing equity in the future, just in the sense that, you know, if you were to break down the different periods of time in your total return, you know, there clearly has been a little bit more of a lackluster performance since last summer.
I think it's driven in part by the overhangs that you've created with the equity issuances, but also the commitments that you have going forward and the fact that leverage levels are, you know, towards the higher end of where you want it to be. Then you look at the valuation of the company today relative to right before the pandemic, and that's actually widened relative to REITs. As REITs have done a little bit better from that timeframe point to point, even though you've talked about all the positives that have occurred since pre-pandemic, including the fact that all your tenants paid rent, which no one thought going into any type of recession would have happened.
I want you to sort of step back and think about it more so of the recent timeframe in terms of the performance and how you believe you're gonna be able to drive outperformance from this point forward and how the sort of equity issuance ties into that.
Yeah, Michael, it is a profound and extremely important question, and it's one David and I especially have been wrestling with, really going back to last fall, you know, soon after we raised the equity for MGP, which we did use yesterday for The Venetian, but that's all because of the fungibility of cash. Yeah, it's a profound question, and I would say that our strategy going forward, having done the transformative deals we've done, Venetian to a degree, but especially MGP, is that having achieved the scale we've achieved, having in place some of the built-in growth elements that we do have, we really want to begin to develop more of a flow model. We want gaming and non-gaming to achieve a cadence of deal flow that is both more sustained and predictable.
Accordingly, we want our fundraising activities to be, frankly, less gargantuan. You are absolutely right. It's been a slog since, well, especially since late summer. Actually, it wouldn't be late summer. It was pretty much the week of Labor Day. Things returned, and that happened to be the week we raised the equity for MGP. We're glad we did it when we did it, Michael, and we do thank the Citi team for their help in doing so. We realized that that sheer amount of equity, $5.5 billion in 2021, did have a weighty effect on the performance of our stock. We really appreciate the patience of our shareholders. We were very pleased to see the 12/31 13F and seeing how steady our core shareholders remained through the turbulence of Q4.
We're hopeful that is still proved to be the case here in Q1. Going forward, we do wanna create a business model that is sustained and sustainable and lessens our reliance on these kinds of gargantuan equity raises. I hope that gets to the core of the question you were asking.
Yeah. I think taking it a step further, you know, it still feels as though there's some level of overhang on the shares. You know, given all the positives and the accretive nature of the transactions that you've done, right, estimates have been moving up, yet, the multiple's been contracting. I think that there's certainly amount of nervousness about a next gargantuan raise to, you know, finally deal with the funding of closing MGP, but also these other types of transactions, whether they be the ROFR. I think that there's just this tension in the marketplace. That's where I was trying to get at is where your head's at now in terms of eliminating this overhang that appears to be on your shares.
Maybe you need another gargantuan raise before you get into this more normal pace. That's where I'm just trying to, I don't know where your head's at in terms of financing this level of growth, given this, you know, or commitment to wanting to get to investment grade as well.
Yeah. Just to be clear, we do not need to raise any further equity for MGP. We have raised all the equity we need. We will be raising only debt. We will obviously have a share exchange on a fixed exchange ratio with the MGP shareholders, including MGM. There's no equity further needed for MGP. When it comes to a ROFR or any other opportunity, again, just to reemphasize the point, we're very mindful of the fact that we need to consider every possible way of funding such opportunities if and only if they're compellingly accretive for our shareholders.
It will be our bias to not have to raise or gargantuan amount of equity because we're very conscious of the fact that we need to give our shareholders, understood broadly, a chance to realize that revaluation that they deserve, and it will be easier to achieve if we do not go out into the market and raise a whole ton of equity, to use the technical term.
Are you having those discussions today in terms of joint ventures or selling incremental land parcels or assets outright to put yourself in a funding position so that when a pitch comes down, you're already been funded, you know, getting to this point where you almost go below your target leverage levels and sort of eliminate that as an overhang?
Yeah, we are looking at all those things. Maybe I'll just turn it over to David quickly, and he can talk about the way in which we are going to very strategically use the amount of retained cash that we will be building up given our payout ratio. David?
Yeah. Thanks, Ed. Michael, always good to talk to you. I mean, even just taking a step back when we went into the MGP transaction in June, July, August, we assessed all options around how do we navigate what is ultimately a, you know, a significant, you know, capital raise. I mean, $3.4 billion of equity, not something we took lightly and something that we had a lot of other levers that we could have potentially pulled, and we were able to obviously execute that with everybody's help. As we close MGP here, and as Samantha said, the first half of the year, and it's moving along very well, you know, you get to kind of a run rate of roughly $2 billion of AFFO. Sorry, I get a little feedback.
Take 75% of that out for dividends, you know, you've got roughly $500 million of free cash flow. That is true free cash flow. As you know, we have no CapEx. We have, you know, our G&A is our G&A. There's not a lot of other items that need to come out of that free cash flow. If you lever that 2-to-1, that's $1 billion of buying power that we have internally to continue to deliver the growth that we've delivered since day one.
Great. Just second topic, just in terms of Encore and the Wynn. You know, it obviously was a negotiated transaction between Wynn and Realty Income. I think when you listen to Wynn speak, you obviously hear the desire of them to have negotiated items that were very important to their enterprise, and obviously, Realty Income had to get what they want to get out of it. As you think about these leases, you know, obviously, the Encore didn't have a CapEx requirement. It had, you know, bumps that were, you know, below 2% for the first 10 years. How do you think about the structure of that transaction?
Put aside the pricing because you've made your comments of that you thought it validated and was rich from that perspective, setting a new mark for you know these regional assets. But how do you think about the individual key terms, and what are the critical factors for you as you continue to grow in gaming real estate?
Yeah. You know, Michael, I think Realty Income and VICI are fairly different companies, running different kinds of rent rolls, running different kinds of risks. I think I saw in Sumit's remarks that their weighted average lease term at this point is 14 years. Ours is 43.5 years. Given that delta in just, for example, weighted average lease terms, things that are really important to us, like the magnitude of rent escalation, like the magnitude of CapEx, may be more important to us than to Sumit, where Wynn will represent, I think, Encore will represent 3% of his rent roll.
That's right.
You know, I think we both have different levers. We both run different risk profiles. What may be really important to us isn't as important to him.
Yeah. That's where I was just trying to get about what are your sort of non-negotiables, in terms of when you go into these, you know, what you're willing to accept and what you're not. It sounds like the CapEx side and a certain sort of growth rate, given the longer lease duration, are important variables for you. Is there anything else? Obviously corporate coverage here was noted 2x, and that should grow given the performance of the asset. Just what are the other variables that are critical for you as you continue to embark down this road?
Well, obviously one right now that's very, very critical is some measure of CPI protection. Correct me if I'm wrong, but once we achieve CPI protection in our MGM lease, and Danny, step in here if I'm getting this wrong, 90% of our rents will have CPI protection built into it. Needless to say, we've always thought that to be important, Michael, but it feels really much more important right now than it did a year or two ago.
Right. You don't have any cap on that, don't you?
I'm sorry, Michael, that broke up.
You said you had a cap on that, though, don't you? There's a limit to that inflation protection.
We do in some leases. We don't in others. The Caesars leases are uncapped, which is why we posted a 5.0% rent increase on November 1 out of the Caesars Las Vegas lease.
Okay. All right. Thanks, guys. See you in a week and a half.
Yes, indeed. Looking forward to it.
Operator, we'll take one more question.
Our next question comes from Todd Thomas with KeyBanc.
Hi. Thanks.
Todd, your line is now open.
Yeah, hi, good morning. Appreciate the comments around the timing of the closing being on track for the first half of the year with regards to MGP. But what are the primary hurdles to closing that remain? David, your understanding of the timing to achieve an investment grade rating. What's the timeline look there?
David, why don't you start with the timeline and maybe Samantha step in with further process on MGP. David?
Yeah, happy to. Good to talk to you, Todd. Look, we're in regular dialogue with the agencies. We started talking to them end of June, July of last year, and if it's not every other day, it's, you know, weekly or bi-weekly that we connect with the agencies to give them updates along the way. We updated them on the revolving credit facility. We updated them on the, you know, closing of the consent solicitation, the shareholder vote. We've updated them on the closing of The Venetian yesterday.
They are waiting on final approvals, which Samantha can talk about, but, you know, they want a little bit of certainty that it's going to close, and we have no concerns that it will close, but the agencies just wanna kind of have a little bit more clarity around that. It's a little bit of a chicken and the egg, but the body language, the signals and everything that we've gotten is that it's all moving towards that date. The issue is none of us really know what that date is, and so with that, Samantha, I'll turn it over to you.
Yep. Thanks, David. I think just as we get into hurdles, not surprisingly, we won't speak about individual processes with the applicable jurisdictions, but we do continue to work through all applicable jurisdictions. Again, just wanna reiterate that we remain confident in the first half closing.
Okay. David-
Todd, sorry, just to make it a little bit more clear, I mean, we do believe that once we get the approvals finalized, the agencies will be in a position to act quickly. Then once we go to the debt markets after that approval, we will be launching with the upgraded rating.
Okay. Got it. Regarding the future capital raising initiatives, you know, the $4.4 billion of permanent debt that you expect to raise, can you just remind us where you expect to be on leverage, on a net debt to EBITDA basis, pro forma the closing?
Yeah.
Also to the extent that a Caesars asset or something else does present itself in the near term, do you have capacity to execute on something ahead of obtaining an investment grade rating and closing MGP? You know, or should we assume that until that transaction closes there will not be any potential investment activity?
Let's start with the pro forma leverage for The Venetian and for the MGP transaction. That will be on a net debt-to-EBITDA basis, our run rate's 5.8 times net debt to EBITDA, and that's inside of the 6 times that specifically S&P has targeted, that would give them confidence in upgrading us. As it relates to the funding or timing around a potential role for other opportunities, I mean, that's goes back to the dialogue that we've been having around we will assess every option if the opportunity transaction that we are underwriting makes sense and is accretive for our shareholders. It's not a, it's not an either/or, and we've got the team and the capability to do potentially both.
Okay. All right. Thank you.
At this time, I will now pass the conference back over to Ed Pitoniak of VICI. Ed?
Thank you, Amber. In closing, we wanna thank all of you for your engagement with us this morning. As you can tell, we're very excited about our present situation, our near-term opportunities and long-term prospects, and we look forward to chatting with you again when we report our first quarter results. To everyone, bye for now.
That concludes the VICI Properties Quarter One 2021 conference call. Thank you for your participation. You may now disconnect your line.