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 3rd, 2018. I will now turn the call over to Jacques Cornet with ICR.
Thank you, operator. Good morning. Everyone should now have access to the company's second quarter 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 financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2018 earnings release and our supplemental information. Hosting the call today, we have Ed Pitoniak, 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. Then we'll open the call to questions. With that, I turn the call over to Ed.
Thank you, Jacques Cornet, and good morning, everyone, and thank you all for joining our second quarter earnings call. Yesterday, VICI marked its 300th day since emerging on October 6th, 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 $2.4 billion of equity through our $1 billion equity private placement and our $1.4 billion IPO. We refinanced nearly $2 billion of debt from LIBOR plus 350 to LIBOR plus 200. We eliminated over $1.3 billion of debt that bore a weighted average interest of approximately 6.5%. We de-leveraged from 8.4 times debt to EBITDA at emergence to net 4.6 times debt to EBITDA at quarter end. We announced nearly $2 billion of acquisitions, yielding us $166 million of incremental rent at a net blended cap rate of 8.4%.
We grew our Las Vegas exposure by $122 million 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 in 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 third quarter of being a dividend-paying REIT. With the additions of Liz Holland and Diana Cantor, 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. 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, 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 three 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, we have managed to increase our Strip exposure, significantly adding $122 million 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, with it, our entrance into the Philadelphia market, the seventh largest gaming market in the U.S. We continue to expect that transaction to close during the fourth quarter of 2018, when it does, we will diversify our rental income geographically by adding $21 million in rent from that asset execute on the agreed-upon lease modifications associated with the Philadelphia and Octavius acquisitions, as Ed already highlighted. Upon closing these transactions, we'll collectively add $56 million of NOI to our portfolio at an attractive net cap rate of 9.5%.
Also during the quarter on June 19th, we announced our partnership with Penn National to acquire a Margaritaville Resort Casino in Bossier City, Louisiana, for an implied cap rate of 8.9%. We continue to expect that transaction to close during the second half of 2018, and when it does, VICI will lease to Penn the operations of the property for an initial annual rent of approximately $23 million. 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, 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 $2.8 billion.
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 tenant's 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 $128.8 million or $0.35 per share for the second quarter. Our earnings for the quarter reflect revenue of $221 million, which was comprised of $213.5 million from our real property business and $7.5 million from our golf business. Real property business revenue was comprised of $182.3 million of income from direct financing leases, $12.2 million of income from operating leases, and $18.9 million of property taxes paid by our tenants. Our income from direct financing leases includes a $13.2 million 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 $12.9 million. On the cost side, our general and administrative costs were $7.2 million 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 third quarter as we work towards a steady state run rate for G&A. During the second quarter, we had two non-recurring items that total approximately $1 million 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-11 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 million of cash and short-term investments, excluding $13.8 million of restricted cash. Subsequent to quarter end, we closed the acquisition of Octavius Tower for $507.5 million 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, Harrah's Philadelphia, and the $159 million reduction associated with the agreed-upon lease modifications with Caesars to be $851 million. As we have mentioned, we expect these transactions to close in the second half of 2018. During the quarter, we entered into a five-year interest rate swap with a notional amount of $1.5 billion. 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 five years.
Our outstanding debt at quarter end was $4.1 billion, with a weighted average interest rate, including the impact of our interest rate swap of 4.93% and a weighted average maturity of approximately six 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 of all of our accounting functions from Las Vegas to New York, as part of this initiative, we have added some exceptional new hires to our internal accounting and legal teams.
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 Harrah's 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 and $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 quarterly dividend rate of $0.2875. This increase is expected to be reflected on our next quarterly dividend declaration for the third quarter. Before we open up the call to Q&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&A, we'd like to address what we expect may be on the minds of some, and that's the issue of what the second half of 2018 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 the regional gaming markets posted growth in June of 5.7%, one of the highest year-over-year growth percentages in recent regional gaming history. 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.
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. With that, operator, we will open up the line to questions.
At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Jeff Donnelly with Wells Fargo. Your line is open.
Good morning, guys. 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.
Yeah. Thank you, Jeff. I will actually turn that question over to John.
Yeah. Good morning. It's been a very active time as we talked about in our results. 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. It 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. You can see we did our first deal already with Penn. 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 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. 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 the prior four years.
Beyond casinos, or maybe you're not at that point yet, but are you seeing other opportunities maybe 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. 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. We're certainly investigating those areas, but for the time being, we are very excited about the growth opportunities within gaming.
Just one last one for me. They say always 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 maybe 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, John can add some more color around what we believe will be the benefit to brick and mortar.
Yeah, 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 implementing a different way of bringing sports betting to life. 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.
Yep. 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, he broke up a little bit, was regarding New Orleans and the operating contract extension?
Yep.
Yeah. 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 2017. We roughly have about 4 more years while that option. As you saw, Caesars worked 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. Can you give some details on the acquisition process for the Margaritaville Resort Casino and how competitive that process was?
Sure. It was a competitive process. We obviously studied that asset. We know the market well as a team, having personally operated in that market for over a decade, aware of the asset, and being the newest asset and the success of that team in Bossier. 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 Wilmott and Jay Snowden for decades as we worked together back in the day of Harrah's, 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 were 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.
Hi, 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&A outside of Caesars, how would you say that dynamic has changed since, call it, three to six months ago?
Yeah. Very good question. 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 were formed that we see it as a kind of back-of-the-pocket growth opportunities that we'll 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 two in the space. That takes up some time.
There are active deals going on, and we want to be involved, particularly as we look to diversify where our properties are, and it's quite active. Now, as compared to the last six months, I think it's been pretty consistent, which we've been pretty vocal that it's been active. It hasn't decreased one bit, or it hasn't decelerated, I guess, the way I would say. 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 four and a half 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 perhaps a direct approach to us. 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 Stephen Grambling with Goldman Sachs. Your line is open.
Hey, it's Stephen. You called out the very strong regional trends at 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? Asked more directly, are regionals gaining share at the expense of Las Vegas?
Great question, Stephen. John is best equipped with his 22 years in the business to answer that one.
Yeah. A 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 regionals started growing, there was the thought that these regional gaming would take away from Las Vegas, which has been the exact opposite. As the regionals were growing, it was creating more customers that could take destination trips to Las Vegas. Las Vegas did an awesome job of creating reasons for those regional customers. Operators like MGM and Caesars obviously have perfected a hub and spoke system where they tie in their loyalty programs, and it's worked well. As it pertains to the regional business, it's exciting.
I spent the majority of my career running the regional businesses. I can't think of a time where halfway through the year, the business, I think the last stat I saw, Stephen, was that the regional businesses across all of it was up almost 5%, which is really exciting to see. 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 is taking away from Las Vegas one bit. I think that as you continue to grow the regionals, Las Vegas will be a place that these customers will want to visit.
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. We obviously have two properties in Las Vegas. We have properties in Lake Tahoe, which also get helped by the growth of the regional business. 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.
John, maybe you could just add that the way in which a Total Rewards customer's increased activity at a regional casino obviously improves their status in ways that may lead to Vegas trips, correct?
Yeah, absolutely. 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 when you walk in the doors of Caesars Palace. That's a big deal and it continues to flow back and forth. 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. 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?
Yeah, it's something that they continue to have to study. I think as gambling in general becomes more, I say, normalized, 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. 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 the 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, I think you raised it, if I caught it correctly in the prepared remarks, by 9.5%. Obviously, a lot of that's for the acquisition activity, does that include any change for or slight tweak to your targeted payout ratio?
Shaun, no, you're spot on. We increased our rent by $35 million on an annual basis. We are buying Octavius Tower with all cash. That cash was obviously raised in the IPO, we're essentially giving that full increase back to our shareholders by increasing the 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 how we've modeled out the company going forward.
Great. That's all I have. Thank you very much.
Thanks, Shaun.
As a reminder, to ask a question, please press star, followed by the number 1 on your telephone keypad. Your next question comes from the line of Michael Pace with JP Morgan. 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 a leverage number of, I thought you said 4.6 times. I just want to understand, is that a net number? Is that fully pro forma for the cash that's leaving the system in the second half and the EBITDA that's coming in? 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. Correct me if I got that wrong. Would that imply for future acquisitions, they would be more debt financed than 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 11th, cash left the system and obviously cash will leave the system, the net $851 million in total for the three assets that we acquired, offset by the lease modification payment. The pro forma for that, where we remain in the low to mid 5s after utilizing that cash. Our leverage profile and our leverage target does not change going forward. We still intend to run the balance sheet in mid to low 5s. As we assess future acquisitions, it'll have to be based on market conditions, and a 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, question/observation that I want to get your thoughts on, Ed or maybe John. We've talked quite a bit about elevated M&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 becoming less fragmented in the industry?
Sorry, just so we make sure we understand your question correctly, John. Are you asking if we're concerned that operator count will decline, and 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 there becomes 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, we certainly believe we've got a strategy to develop more relationships, certainly we've got, with John, an ability to develop the relationships that we believe will yield to deal flow and ultimately to tenant diversity. I'll turn it over to John to add more color on that.
John, great observation, it's exactly what 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. Should they look to be doing transactions, to make sure VICI's top of mind and we get in the door and talking to them. 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.'s largest regional gaming company. We're out there not only meeting with them, obviously, when we did the Margaritaville deal, but everyone else that's out there to understand us and over time diversify our tenant mix.
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. I get really excited about doing more and more business with more and more gaming operators because I firmly believe, as some of you heard me talk about, that 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. Nobody, but nobody on Earth, I believe, is more innovative and rigorous and expert at managing the guest experience time and space than gaming operators are.
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. 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 get the best valuation? Do they want to get out completely, or are you seeing that some may want to stay, even though they're smaller, as OpCos and stay behind?
Yeah, John, we're seeing both actually in this space right now, and I think we've communicated to most OpCos we're quite flexible in the type of deals that we can do, assuring that they're fair, that they work for that OpCo, and they work for us. 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. Appreciate it.
Absolutely.
Your next question comes from the line of James Kayler with Bank of America Merrill Lynch. Your line is open.
Hey, guys. How you doing?
Hey, James.
Hey.
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? Just how are you thinking about that potential?
Yeah, James, it's a fair question and something that we look at regularly. You probably got a screen in front of you that they're trading at 110, 111, 112, somewhere in that area. 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 Komal 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 deals 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. Just any updated conversations reflecting your recent actions?
Hey, Komal. 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, 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.
Thank you.
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 second quarter as we continue to execute on our strategy. We have no plans of slowing down and believe we will 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 third quarter results. Thank you, operator.
This concludes today's conference call. You may now disconnect.