Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Please note that this conference call is being recorded today, August 3, 2018. I will now turn the call over to Jacques Corneille with ICR.
Thank you, operator, and good morning. Everyone should now have access to the company's Q2 2018 earnings release and the supplemental information. The release and the supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of management's 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, expect, should, guidance, intends, 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 condition. During the call, management will discuss non GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our Q2 2018 earnings release and our supplemental information. Hosting the call today, Yvette Petoniak, Chief Executive Officer John Payne, President and Chief Operating Officer David Kieske, Chief Financial Officer and Gabe Wasserman, Chief Accounting Officer of the company.
Management will provide some opening remarks and then we'll open the call to questions. With that, I turn the call over to Ed.
Thank you, Jacques, and good morning, everyone, and thank you all for joining our Q2 earnings call. Yesterday, VICI marked its 300th day since emerging on October 6, 2017. These have been 300 days in which we've worked very hard to live up to our mission to be America's most dynamic experiential REIT. In these first 300 days, we raised $2,400,000,000 of equity through our $1,000,000,000 equity private placement and our $1,400,000,000 IPO. We've refinanced nearly $2,000,000,000 of debt from LIBOR plus 3.50 to LIBOR plus 200.
We eliminated over $1,300,000,000 of debt that bore a weighted average interest of approximately 6.5%. We deleveraged from 8.4x debt to EBITDA at emergence to net 4.6x debt to EBITDA at quarter end. We announced nearly $2,000,000,000 of acquisitions yielding us $166,000,000 of incremental rent at a net blended cap rate of 8.4%. We grew our Las Vegas exposure by $122,000,000 of annual rent. We announced our agreement to significantly improve our foundational leases to the benefit of both our tenant and ourselves, which will yield us among other things a 100 basis point improvement in our same store AFFO annual growth rate.
We achieved tenant diversity and record time for a gaming REIT with our recent announcement of partnering with Penn Gaming on the Margaritaville acquisition. We announced our first intended dividend increase of 9.5% in just our Q3 of being a dividend paying REIT. And with the additions of Liz Holland and Diana Canter, we built an independent board which we believe to be one of the strongest and most diversified in the sector. Lastly, as you know, we're always striving to improve upon and increase our level of disclosures to match those expected of a best in class REIT. Towards that goal, this quarter, we have introduced our quarterly supplemental.
We hope you will find it useful as we continue to update it and improve it in the quarters to come. This is looked at as a body of work after 300 days, the dynamism our mission calls for. And this dynamism ultimately is about relentlessly creating shareholder value. All our growth these first 300 days is the result of the best in class transaction practice that John Payne, our President and COO is building. I'll now turn things over to John so that you can hear from him about the great work he and his team are doing.
John?
Thanks, Ed, and good morning to everyone. As you can tell by the number of transactions announced by us and the gaming REIT sector more broadly over the past few months, the market environment for gaming transactions continues to be quite active. We view these transactions and the accretive value they've created for shareholders as a testament to the growing confidence in the Gaming REIT model. As Ed touched on, we announced 3 asset acquisitions this quarter. We reconsolidated all of Caesars Palace Real Estate by acquiring the 668 Room Octavius Tower, which had been carved out from the rest of the property many years back in a financing related transaction.
This acquisition represented a logical step for us, not only in that it consolidates our ownership of Caesars Palace, but it also increased our exposure on the center of the Las Vegas Strip. Las Vegas Strip holds some of the most valuable sought after real estate in the world and we have managed to increase our strip exposure significantly adding $122,000,000 in rent since formation with the acquisition of Harrah's Las Vegas and the Octavius Tower. We also announced the acquisition of Harrah's Philadelphia and with it our entrance into the Philadelphia market, the 7th largest gaming market in the U. S. We continue to expect that transaction to close during the Q4 of 2018 and when it does, we will diversify our rental income modifications associated with the Philadelphia and Octavius acquisitions as Ed already highlighted.
Upon closing these transactions, we'll collectively add $56,000,000 of NOI to our portfolio at an attractive net cap rate of 9.5%. Also during the quarter on June 19, we announced our partnership with Penn National to acquire Margaritaville Resort Casino in Bossier City, Louisiana for implied cap rate of 8.9%. We continue to expect that transaction to close during the second half of twenty eighteen and when it does VICI will lease to pen the operations of the property for an initial annual rent of approximately $23,000,000 As the newest gaming property to open in the Bossier Shreveport market in over a decade, Margaritaville complements VICI's existing footprint in the region. In addition and as importantly, with this transaction, we've added Penn National to our tenant roster. Penn is a very high quality tenant that is set to become the largest regional gaming operator in the U.
S. Following the completion of the announced acquisition of Pinnacle Entertainment for $2,800,000,000 We look forward to working with Penn and expanding our relationship in the quarters and years ahead. As you have heard, this has been a very active quarter for us in putting your capital to work. What has been and continues to be a principal key to our success is our understanding of the tenants' underlying business and our focus on executing what we consider fair deals, meaning deals that are mutually beneficial to both the OpCo and VICI. We continue to be active in dialogues and scouting for opportunities and we look forward to providing more updates in the future.
With that, I will turn the call over to David, who will discuss our financial results.
Thanks, John. Yesterday, we reported total AFFO of 128 $800,000 or $0.35 per share for the Q2. Our earnings for the quarter reflect revenue of $221,000,000 which was comprised of $213,500,000 from our Real Property business and $7,500,000 from our Golf business. Real property business revenue was comprised of $182,300,000 of income from direct financing leases, dollars 12,200,000 of income from operating leases and $18,900,000 of property taxes paid by our tenants. Our income from direct financing leases includes a $13,200,000 net change to our investments in direct financing leases, which is a non cash item.
After adjusting for the non controlling interest attributable to Joliet, our portion of the DFL that is deducted from net income to calculate AFFO is 12,900,000 dollars On the cost side, our general and administrative costs were $7,200,000 for the quarter. As we mentioned on our last earnings call, we continue to incur startup and transition related costs, which we expect to continue into the Q3 as we work towards a steady state run rate for G and A. During the Q2, we had 2 non recurring items that total approximately $1,000,000 related to recruiting and relocation costs associated with the transition from Las Vegas to New York as well as legal and advisory costs associated with the S-eleven we filed in May in connection with the December private placement. Our AFFO does include these one time items for the quarter. Turning to our balance sheet, we ended the quarter with just over $980,000,000 of cash and short term investments excluding $13,800,000 of restricted cash.
Subsequent to quarter end, we closed the acquisition of Octavius Tower for $507,500,000 using cash on the balance sheet. In addition, we expect to use cash on the balance sheet to fund the remaining transactions in our pipeline. We expect the total net cash outflow for Margaritaville, Harris Philadelphia and the $159,000,000 reduction associated with the agreed upon lease modifications with Caesars to be 851,000,000 dollars And as we have mentioned, we expect these transactions to close in the second half of twenty eighteen. During the quarter, we entered into a 5 year interest rate swap with a notional amount of $1,500,000,000 This serves to effectively fix the LIBOR component on a portion of our Term Loan B facility at approximately 2.8% and brings our total fixed rate debt to 86%, providing certainty to our interest expense over the next 5 years. Our outstanding debt at quarter end was 4,100,000,000 dollars with a weighted average interest rate including the impact of our interest rate swap of 4.93% and a weighted average maturity of approximately 6 years.
We have no debt maturing until 2022. Based on annualized second quarter adjusted EBITDA, our net leverage is 4.6 times. As we look to fund any potential future growth opportunities, we will continue to remain disciplined and opportunistic in how we use our capital using a balanced approach to capital allocation in order to maintain our low leverage profile. This quarter we have overseen the smooth transition all of our accounting functions from Las Vegas to New York and as part of this initiative we have added some exceptional new hires to our internal accounting and legal teams. And as Ed mentioned, we have enhanced our disclosures and added a supplemental to our IR site as we feel transparency is an attribute of best in class REITs.
We welcome your feedback on the information as we are always looking to improve and help you understand the durability and consistency of our business. Turning to guidance. We are raising our 2018 guidance expectations to reflect the close of Octavius Tower and the current interest rate environment. Note, our revised guidance does not account for the Harris Philadelphia or Margaritaville transactions, which we have announced but not yet closed. For 2018, we now expect AFFO per diluted share on a same store basis to be between $1.43 $1.44 per share.
Finally, regarding the company's dividend policy, with the closing of Octavius Tower, we expect to increase our annual dividend to $1.15 per share from the current annual amount of $1.05 This represents a 9.5% increase in an implied annual implied quarterly dividend rate of $0.2875 This increase is expected to be reflected on our next quarterly dividend declaration for the 3rd quarter. Before we open up the call to Q and A, I'd like to turn the call back to Ed for some final remarks.
Thanks, David. Before we open up the lines to Q and A, we'd like to address what we expect maybe on the minds of some and that's the issue of what the second half of twenty eighteen may look like for Las Vegas Strip Properties. As a starting point and at the risk of stating the baldly obvious, we are a triple net REIT with rent streams that are fixed for now and grow in the years to come, thanks to preordained escalators. We will collect the same amount of rent from our strip properties in Q3 and Q4 2018 whether our tenant is up, down or sideways over this short term period. Over the long term, we believe very strongly in the health of the Las Vegas Strip given economic health, cultural trends, the outlook for low supply growth and continuing innovations in destination marketing and destination experiences from a great operator like Caesars.
We would note that regional gaming markets posted growth in June of 5.7%, one of the highest year over year growth percentages in recent regional gaming history and we see a growing regional propensity to game as a longer term positive for Las Vegas. At the same time, because of the relative current outperformance of regional gaming versus Las Vegas, it's a good time to be geographically diversified and that's true of both VICI and our tenant Caesars. Finally, we would also point by comparison to the reaction of the debt markets to this recent gaming sector news flow and it's pretty safe to say that gaming debt investors have shrugged this off as a short term issue in a gaming sector that otherwise has very strong balance sheets and operating prospects. To sum up, as a triple net REIT with irreplaceable beachfront properties and a market leading tenant, we are very excited about being invested in a sector that for a long time to come will produce strong free cash flows for both the tenant and the landlord. And with that operator, we will open up the line to questions.
Your first question comes from the line of Jeff Donnelly with Wells Fargo. Your line is open.
Good morning, guys, and thanks for taking the question. Ed, can you just talk about your pipeline for acquisitions away from Caesars? I'm curious about the depth and maybe pricing of the opportunities you're seeing out there.
Yes. Thank you, Jeff. And I will actually turn that question over to John.
Yes. Good morning. It's been a very active time as we talked about in our results and it continues to be an active time looking into the rest of 2018 studying opportunities all throughout the market, whether that's regional, whether that's in the national phase as well. So it's been continues to be good. We're out there obviously, as Ed mentioned, we're 300 days old.
So we've been spending a lot of our time introducing ourselves to other OpCos and you can see we did our first deal already with Penn and we hope to continue to diversify our tenant as we look at other opportunities to acquire assets. Sorry?
Jeff, I was just going to add to that, that as with any transaction marketplace, the more active a marketplace becomes and the more data points get established, the greater the confidence that the market participants tend to have in transacting. And we would just point to the fact that the last 6 months have obviously involved more transaction activity than the sector had seen in the pretty much prior 4 years.
And beyond casinos or maybe you're not at that point yet, but are you seeing other opportunities outside of the gaming space such as place based entertainment or have you not really looked closely at that yet?
To be honest with you, Jeff, we haven't looked closely at it yet, but we have positioned ourselves from the beginning as an experiential leisure and hospitality REIT. We're obviously paying attention to where the culture is going and how people are spending leisure time and leisure spending. And we're looking certainly at all of those areas that have the attributes that we like most about gaming, which probably starts with experiential complexity, giving the operator more levers to pull to create incremental guest experiences, delight and contribution. So we're certainly investigating those areas, but for the time being, we are very, very excited about the growth opportunities within gaming.
And just one last
one for me. They say obviously in the hotel sector that more supply is ultimately a negative for all price points in a given hotel market. How do you think about the deregulation of sports gambling? How does that change your perception of the value of the existing regional gaming facilities? Do you think it ultimately has an impact or do you think it's kind of a non event?
We actually think it has a positive impact and John can add some more color around what we believe will be the benefit to brick and mortar.
Yes, we really like it. We think it's going to be a great attractor of new guests to the facility that we have depending on how each state passes the laws. As you can see, as states come online, each state is kind of implementing or is implementing a different way of bringing sports betting to life. But we're big positive on this that it's going to be good for the bricks and mortar casinos that we have in the regional markets.
Great. Thanks guys.
Yes. Thank you.
Thanks Jeff.
Your next question comes from the line of Smedes Rose with Citi. Your line is open.
Hi, thanks. This is Abhishek on for Smedes. Can you guys comment on the progress Caesars is making with its license for New Orleans?
I can take that, Ed. The question you broke up a little bit was regarding New Orleans and the operating contract extension?
Yes.
Yes. As you know, just to level set, we've got an option on that property that will last 5 years from our date of formation, which is October of 2017. So we roughly have about 4 more years while that option. As you saw, Caesars work to have a deal with the State of Louisiana to extend their operating contract and work with the state and city and just couldn't come to a conclusion this first time. I believe over the time that our option is good that there will be an opportunity for us to acquire that asset as an extension of the operating contract happens.
There's still work to be done. I know it's important to the tenant, important to Caesars to work on this. And as we get more information, we'll share that with you.
Okay, thanks. And can you give some details on the acquisition process for Margaritaville Bossier and how competitive that process was?
Sure. It was a competitive process. We were obviously studied that asset. We know the market well as a team having personally operated in that market for over a decade, where of the asset and being the newest asset and the success of that team in Bossier. So and we really like the real estate where it's at with the ability to expand.
We also have been clear since the beginning of formation of our company that we were going to work to diversify our tenant. This was an opportunity to diversify and do a deal with Penn. We've known Penn and Tim Wilmot and Jay Snowden for decades as we work together back in the day of Harrah's. And we think they're great operators and this was an opportunity to acquire the real estate of Margaritaville and do a partnership with Penn with them being the tenant. It was quite competitive.
We had a competitive bid. I think the sellers thought we put together a great team and we're able to transact on that.
Great. Thank you.
Your next question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is open.
Hey, everyone. Good morning. John, this one's probably best for you. If you think about where you are today as you debate the call option properties relative to the environment that you're seeing out there for M and A outside of Caesars? How would you say that that dynamic has changed since call it 3 to 6 months ago?
Yes, very good question. And I'll touch on it and then if David and Ed want to jump in, they can. I think we've been clear with our call options since the day we are formed that we see it as a kind of back of the pocket growth opportunities that will execute if there's a time where there aren't a lot of other opportunities to acquire assets in the market. I would tell you I'm busier than I've ever been, and out on the road and again a little bit as the new team in town, I'm out on the road making sure everyone knows who we are and how we think about deals differently than the other 2 in the space. And so that takes up some time, but there are active deals going on and we want to be involved in particularly as we look to diversify where our properties are and it's quite active.
Now as compared to the last 6 months, I think it's been pretty consistent, which we've been pretty vocal that it's been active. So it hasn't decreased one bit or it hasn't decelerated, I guess, the way I would say. And it's been consistently good and we'll see if their transactions can be concluded. Ed, David, anything that I've missed that you want to touch on?
John, I would just add and good morning, Carlo. I would just add that obviously when it comes to the call properties, Carlo, we've got another 4.5 years. We can control the timing of when we execute on those very accretive opportunities at the preordained 10 caps at which we can call them. On the other hand, obviously, we cannot control the timing of assets that come to market in whether an auction format or in a perhaps a direct reproach to us. So we will prioritize acting on those that are right in front of us and leave the call properties uncalled if there are those compelling opportunities right in front of us.
That's super helpful guys. Thank you very much.
Thank you.
Your next question comes from the line of Stefan Gamblink with Goldman Sachs. Your line is open.
Hey, it's Steven. You called out the very strong regional trends a moment when Vegas commentary has been a bit lighter. How do you generally think about the crossover and customer bases across the regional and Las Vegas properties or ask more directly are regionals gaining share at the expense of Las Vegas?
Great question, Stephen. John, it's best equipped. We're just 23 years in the business to answer that.
Very good question, probably a better question for the operators, but I'll put back on my operating hat and give you my thoughts on this. I think you'll go all the way back, Stephen, when Vegas started booming or the regional started growing, there was the thought that these regional gaming would take away from Las Vegas, which has been the exact opposite, because as the regionals were growing, it was creating more customers that could take destination trips to Las Vegas. And Las Vegas did an awesome job of creating reasons for those regional customers. Operators like MGM and Caesars obviously have perfected hub and spoke system where they tie in their loyalty programs and it's worked well. As it pertains to the regional business, I mean, it's exciting.
I spent the majority of my career running the regional businesses and I can't think of a time where halfway through the year, the business, I think the last that I saw, Stephen, was that the regional businesses across all of it was up almost 5%, which is really exciting to see. And as we talked earlier on this call, I think that adding sports betting to many of these markets will just continue to attract newer customers and more customers to the facilities. I do not think and this is one man's opinion, in my opinion, that the growth of the regional has taken away from Las Vegas OneDebt. I think that as you continue to grow the regionals, Las Vegas will be a place that these customers will want to visit. And if you're a company like our main tenant Caesars, which has a strong hub and spoke system, You'll see customers continue to flow into their destination markets.
And we obviously have 2 properties in Las Vegas. We have properties in Lake Tahoe, which also get helped by the growth of the regional business. So I think it's great to see the top line growth in the regions and really you're seeing some top line growth in Las Vegas as well.
And John, maybe you could just add that the way in which a total rewards customers increased activity at a regional casino obviously improves their status in ways that may lead to Vegas trips, correct?
Yes, absolutely. I mean, being and Stephen is probably aware of the connectivity of the loyalty programs that when you're a top customer in these regional markets, you're a top customer and you walk in the doors of Caesars Palace. And that's a big deal and it continues to flow back and forth. And again, I think it's a big part of why we're so confident in our tenant continuing to grow in both the regions and also long term in Las Vegas.
Thanks. And maybe as a follow-up, how do you generally think about the impact of digital or online gaming if that follows sports betting in a bigger way as the next leg of regulation?
Yes, it's something that they continue to have to study. But I think as gambling in general becomes more, I say normalized, I mean, when a deal with the NBA is done with a gaming company, boy, 10 years ago, I'm not sure anyone would ever thought that. So I think the normalization of gaming and the acceptance of gaming in all forms is going to continue to be good, not only for, as you're talking about eventually in Internet business and those type of things, but really for the bricks and mortars and we've seen that through history. It's also a different customer. We don't need to go into extensive detail on that, but I think that it all complements itself and we'll see how it ultimately plays out in these states.
Awesome. Thanks so much.
You're welcome.
Your next question comes from the line of Shaun Kelley with Bank of America. Your line is open.
Hi, everyone. Good morning. Just wanted to ask quickly about the dividend bump, just to make sure. So I think you raised it, if I caught it correctly in the prepared remarks, by 9.5%. Does that include I mean, obviously, a lot of that's for the acquisition activity, but does that include any change for or slight tweak to your kind of targeted payout ratio?
Sean, no, you're spot on. We increased our rent by $35,000,000 on an annual basis. We are buying our TAVRIS tower with all cash. That cash is obviously raised in the IPO. So we're essentially giving that full increase back to our shareholders by increasing the annual targeted annual dividend.
It does not change any of our payout. Our payout still is in line with where we were before and in line with kind of how we've modeled out the company going forward.
Great. That's all I have. Thank you very much.
Thanks, John.
Your next question comes from the line of Michael Pace with JPMorgan. Your line is open.
Hi, guys. Good morning. Most of my questions have been asked and answered, but one for David. David, you talked earlier, I think you mentioned the leverage number of, I thought you said 4.6 times. So I just want to understand is that a net number, is that fully pro form a for the cash that's leaving the system in the second half and the EBITDA that's coming in?
And then bigger picture, I believe you wanted to run balance sheet leverage a little bit higher in the 5 to 5.5 times range longer term. So correct me if I got that wrong and would that imply for future acquisitions they would be more debt financed and equity financed? Thank you.
Hey, Mike. Good to hear from you. The 4.6% net number is as of 6.30%. That includes obviously the cash on the balance sheet at that time. We did close Octavius on July 11.
So cash left the system and I think cash will leave the system, the net 851,000,000 dollars in total for the 3 assets that we acquired offset by the lease modification payment. So the pro form a for that where we remain in the low to mid fives after utilizing that cash. So our leverage profile and our leverage target does not change going forward. We still intend to run the balance sheet in kind of mid to low-5s. As we assess future acquisitions, it has to be based on market conditions and can balance between equity and debt financed and market dependent to some extent.
Great. Thank you.
Thanks, Mike.
Your next question comes from the line of John DeCree with Union Gaming. Your line is open.
Good morning, everyone. Thanks for taking my question. Just a high level, I guess, questionobservation that I want to get your thoughts on, Ed or maybe John. As we see the we've talked quite a bit about elevated M and A activity in the sector and coming from both sides, both the REITs like yourself and the operators looking to get bigger. As we think about consolidation and there becomes potentially fewer operators in the sector, how do you think about needing to find similar to what you did with Penn, more operators as they're presumably is becoming less fragmented in the industry?
Sorry, just so we make sure we understand your question correctly, John. Are you asking for concern that operator count will decline, it will make it harder to achieve tenant diversity or?
That's part of the question as well as just partnering with the OpCos as they become less of them. Is it important to get a foot in the door with more and more opcos as you go forward?
Yes, absolutely. That is our aim and we certainly believe we've got a strategy to develop more relationships and certainly we've got with John an ability to develop the relationships that we believe will yield a deal flow and ultimately to tenant diversity. But I'll turn it over to John to add more color on that.
Yes, John, great observation and it's exactly what has been we've been executing our game plan since we started 300 days ago is getting out to make sure all the Opcos in the space, no matter the size, location, where their assets are, understand who we are and should they look to be doing transactions to make sure VICI is top of mind and we get in the door and talking to them. So obviously, you know this well, the Penn and Pinnacle transaction is most likely going to close by the end of the year to create the U. S. Largest regional gaming company. And we're out there not only meeting with them obviously when we did the Maritaville deal, but everyone else that's out there to understand us and over time diversify our tenant mix.
And John, if I could just add John, as you know, I have worked across multiple leisure and hospitality sectors. I've worked in ski resorts, beach resorts, desert resorts. I've worked in urban hotels, suburban airport, every category you can imagine with all kinds of different operators and management companies. And I get really excited about doing more and more business with more and more gaming operators because I firmly believe that some of you heard me talk about the gaming operators are the best leisure and hospitality operators on earth. When it comes to managing ultimately what the guest experiences, which is the guest experience of time and space and nobody, but nobody on earth I believe is more innovative and rigorous and expert at managing the guest experience, time and space and gaming operators are.
And the more business we can do with more operators, the more excited we get.
Thanks, guys. That's helpful. Just a quick follow-up to get your thoughts on the notion that are you seeing in the environment from sellers that the smaller or single asset sellers are preferring to look for an entire exit and essentially divest get the best valuation. But do they want to get out completely? Or are you seeing that some may want to stay as even though they're smaller as opcos and stay behind?
Yes, John, we're seeing both actually in this space right now. And I think we're we've communicated to most OpCos, we're quite flexible in the type of deals that we can do, assuring that they are fair, that they work for that Opco and they work for us. But we are seeing both. We're seeing operators that want to exit and have discussions about that and operators that are looking to monetize their real estate to use for future growth and remain as the operator.
Great. Thanks for the extra color guys. I appreciate it.
Absolutely.
Your next Kaylor with Bank of America Merrill Lynch. Your line is open.
Hey, guys. How are you doing?
Hey, James. Good to hear from
you. Good. Just one quick follow-up on the balance sheet. Obviously, you don't have any near term maturities from a credit perspective and the 8% bonds don't become callable until 2020. Is there any thinking or any analysis around whether it would make sense to refinance those earlier just to take advantage of lower potential rates?
And I guess just sort of how are you thinking about that potential?
Yes. James, it's a fair question and something that we look at regularly. They're trading you probably got a screen in front of you that they're trading 110, 111, 112, somewhere in that area. So right now, the NPV analysis just doesn't make sense for us to take those out earlier, but it is something we monitor because we know that's a lever that we can pull to reduce our cost of capital here and something that we're highly focused on.
Excellent. Very good. Thank you.
Your next question comes from the line of Kumar Patel with Goldman Sachs. Your line is open.
Hi, thanks for the question. Just really quickly, have you had any conversations recently with the rating agencies? You've certainly shown growth and an ability to get some deal done since the initial ratings came out, especially with the start of diversifying your operators with the Penn deal, which I think is kind of an important part to the ratings as well. So just any updated conversations reflecting your recent actions?
Hey, Kumar. That's a good question. We spoke to the agencies in the spring. We will update them here in the fall on kind of our latest events and transactions once we get closer to closing the Margaritaville and diversifying our tenant base with Penn.
Okay. So no update at the moment?
No, nothing at the moment.
Okay. Fair enough. Thanks so much.
There are no further questions in queue at this time. I would like to
turn the
conference back over to our presenters.
Thank you. Thank you, operator. In closing, we at VICI have made tremendous progress during the Q2 as we continue to execute on our strategy. We have no plans of slowing down and believe we remain well positioned to grow our portfolio and drive superior shareholder value. Thanks again for your time today.
We look forward to providing an update on our continued progress when we report our Q3 results. Thank you, operator.
This concludes today's conference call. You may now disconnect.