Good day. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to the VICI Properties Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.
Jacques Corneet with ICR, you may begin your conference.
Thanks, operator, and good morning. Everyone should have access to the company's press release and investor presentation related to the announcement earlier today. Both can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of management's comments today will contain forward looking statements within the meaning of the federal securities laws. Forward looking statements, including those with respect to the anticipated timeframe for the execution of definitive agreements for and the closing of the transactions to be discussed as part of management's comments today are subject to numerous risks and uncertainties that could cause outcomes and actual results to differ materially from what we expect.
In particular, there can be no assurances that the transactions to be discussed by management today will close on the time frames contemplated or at all. Therefore, you should exercise caution in interpreting and relying on them. Please refer to the company's SEC filings for a more detailed discussion of the risks that could impact future outcomes and operating results and financial condition. Hosting the call today, we have Ed Petoniak, Chief Executive Officer Officer John Payne, President and Chief Operating Officer and David Kieske, Chief Financial Officer of the company. Management will provide opening remarks and then we'll open the call to questions.
And with that, I'll turn the call over to Ed.
Thanks very much, Jacques. Good morning, everybody, and thanks for joining us on this call. Today is day 2:15 for VICI. And following our transformative portfolio and balance sheet initiatives of the last 2 14 days, we're very excited to announce our latest initiatives. As was the case with our Harrah's Las Vegas transaction, our President and Chief Operating Officer, John Payne, has provided the catalytic leadership for what we believe is yet another really great catalytic event for our company.
I'm now going to turn the call over to John so that you can hear directly from him about this great work. So John, over to you.
Thanks, Ed. Good morning to everyone and thanks for joining us. Today, we announced that we entered into a letter of intent for an exciting multifaceted deal with Caesars that helps both companies advance their respective strategic priorities. As part of the deal, we intend to acquire 2 assets, modify our foundational lease agreements to better suit the strategic priorities of both the tenant and the landlord and craft an approach that creates a clearer path to the development of our Las Vegas land holdings. Here is the immediate net economics of what we've announced.
We are acquiring $56,000,000 of NOI for a net purchase price of $590,000,000 which works out to a 9.5 percent cap rate. As laid out in the release, the gross purchase price of $749,000,000 will be reduced in aggregate by $159,000,000 reflecting the value due to VICI related to the modifications to our CPLV and non CPV leases. We plan to use cash on our balance sheet to fund these transactions and we expect these transactions will be accretive to AFFO per share by double digits. Let me briefly touch upon each part of the deal and I'll refer you to a slide presentation we posted this morning. Let me begin with the Octavius Tower at Caesars Palace, Las Vegas.
The 23 storey, 668 Room Octavius Tower is the newest of the 6 hotel towers at Caesars Palace. For those of you familiar with the recent history of Caesars Palace, you'll recall that several years back, the Octavius Tower was carved out from the rest of the property and financing relating transaction. Today, we're announcing the next logical step, which is a reconsolidating all of the Caesars Palace real estate by acquiring the real property improvements associated with the tower. The gross purchase price for Octavius Tower is $507,500,000 Caesars annual rent payment associated with the Octavius Tower will be 30 $5,000,000 in the 1st year after close, though we are working through the rest of the lease structure as I speak. Substantially, all of the lease payment is expected to contribute to company's annual NOI from the property and we are targeting to close this part of the transaction during the summer of 2018.
The other asset we're acquiring is the land and real property improvements associated with Harrah's Philadelphia Casino and Racetrack located in Chester, Pennsylvania. This property was built in 2006 and had significant property enhancements completed in 2017. This acquisition will bolster our East Coast presence and represents our entry into the Philadelphia market, which is a top seven market. Harris Philadelphia has over 2,000,000 square feet of space and includes almost 2,500 slot machines, has live table games, silver bars and restaurants. The gross purchase price for Harris Philadelphia will be $241,500,000 Caesars initial annual lease payment related to Harris Philadelphia will be $21,000,000 in the 1st year after close.
Beyond the rent level and the guarantee, we are working through finalizing the lease structure agreement. Substantially, all of the lease payment is expected to represent the company's annual NOI from the property and we are targeting to close this part of the transaction in the second half of the year following regulatory approvals. I will now turn the call over to David to discuss the CPLV and non CPLV lease modifications associated with this deal. David?
Thanks, John. Concurrent with the 2 acquisitions, we along with the cooperation of Caesars intend to modify the terms of both our foundational leases, which we refer to as CPLV and non CPLV leases. We expect the new lease structures will, among other things, incentivize Caesars to make capital improvements and generate future revenue growth in our portfolio that we believe will result in enhanced stability and durability of income for VICI's real estate portfolio. Among other changes, we intend to modify the annual escalators in the non CPLV lease for years 2 through 5. Currently, the non CPLV lease does not have an escalator until year 6.
The contemplated modifications will provide near term same store rent escalators equal to the greater of 1.5% per annum or CPI beginning in year 2. Additionally, the lease modification contemplates revising the variable rent reset percentage as determined in years 8 and 11 in each of the CPLV lease and non CPLV lease. For both CPLV and non CPLV, the rent resets on the variable component would be modified to be 4% of the aggregate underlying change in property revenue, a level which is in line with our HLB lease as well as other leases in the gaming REIT sector. Additionally, with respect to our Eastside land development rights, the modifications to the leases are expected to result in improved alignment for new development projects. Caesars would acquire the necessary land to be used in a development project at a price that is predetermined by an appraisal process.
VICI would also have the option but not the obligation to provide financing for construction of new buildings on the 27 acres. Net net, what it means for VICI is that we will enhance stability to our same store rent growth profile and achieve better protection against future market volatility. Or to put it another way, we will trade uncertainty for much greater certainty. The changes also give Caesars greater incentive to invest capital into our real estate, both enhancing the tenant's income and its credit profile, which in turn improves the income quality of VICI's real estate portfolio. I will now turn the call back to John for some closing comments.
Thanks, David. In aggregate, the execution of this deal will 1, expand our portfolio with 2 high quality properties, increasing our exposure on the center of the Las Vegas Strip and marking our entrance into the attractive Philadelphia market. This deal will also increase our rent by $56,000,000 at an attractive effective net cap rate of 9.5%. And finally, the deal will improve our leases by trading certainty for uncertainty, decreasing our volatility, adding near term rent escalation for the non CPLV lease, incentivizes Caesars to invest in their properties by lowering the resets in years 8 11 and retaining resets of 4% at market terms and levels. We look forward to continue to execute on our growth strategy over the coming months and I look forward to updating you again soon.
With that, operator, please open the line for questions.
Thank you. Your first question comes from the line of Stephen Grambling with Goldman Sachs. Your line is open.
Hi, this is Bill filling in for Stephen. Just kind of broadly thinking about the transaction, I believe you have plenty of balance sheet to do the deal in cash. How do you think about the lease modifications versus just doing it in straight cash?
The lease modification, Caesars is paying us that capital, just to be clear. So we will fund Octavius in Philly with the cash on our balance sheet, and then it's a net deduct to the overall purchase price of what Caesars will pay VG.
Understood. But I guess to ask a little differently, how do you think about in negotiations broadly just paying things in cash versus adjusting your existing leases?
Well, maybe on that phone, Bill, I apologize. But we're fortunate to be sitting on close to $900,000,000 of cash today. And so we think the real estate that we're acquiring here is highly attractive and then with the resets we're able to achieve the net head of this deal is a great win for both sides.
Yes, Bill, maybe I'll address it. I think we've been working on this for many months and it's a multifaceted deal that we went into that it's made up of multiple pieces. As you've heard, it's made up of lease modifications, it's made up of the acquisition of 2 assets that were not in our portfolio and not were not call options. And so we went at this with Caesars with this idea that it is one deal, but it's made up of multiple things and that's how we presented it today. Great.
Thank you. And Bill, I was just going to add that to echo John's point or build on John's point, from the very beginning in these discussions with Caesars, both sides, rightly so, took a very holistic view, understanding that there would be puts and takes in all elements of this deal for both parties. And as long as both parties ended up with a whole deal that made strategic and economic sense to each of us, we thought in the end that was how to understand the deal and all of its elements.
Great. Thanks. And just one more quick follow-up, if I may. Are there any major regulatory hurdles in entering the new jurisdiction in Philadelphia?
Well, we're going to need to get license in the state of Pennsylvania. I wouldn't describe that as that should be overly concerning, but it is a process. We're obviously licensed in many other states and we'll begin that process relatively soon.
The other thing to add, Bill, is obviously the gaming REIT structure is, thanks to our friends at GLPI and Penn, well established in Pennsylvania.
Great. Thank
There are no further questions at this time.
John, you want to close it out for us?
Yes. Thank you. I appreciate you all being on this morning. David, Ed and myself were around for any other questions that you may have in the future. And we appreciate you getting on so early on Eastern Time.
This concludes the VICI Properties conference call. We thank you for your participation. You may now disconnect.