Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference is being recorded. Today, October 29th, 2020. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties.
Thank you, operator, and good morning. Everyone should have access to the company's third quarter 2020 earnings release and supplemental information. The release and supplemental information can be found in the Investors 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, intend, projects, or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. 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 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 third quarter 2020 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; Gabriel 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.
Thanks, Samantha. Good morning, everyone, and thank you for joining our third quarter earnings call. As we sit here today, VICI is a few weeks past our three birthday. We've done a lot of work in three years, and in quarter three of this year, our work over the past three years truly crystallized. In Q3 2020, we executed the following strategic growth and activities. We closed on the acquisition of three new properties, Harrah's Atlantic City, Harrah's New Orleans, Harrah's Laughlin. We accretively added incremental rent at our two Las Vegas properties, Caesars Palace and Harrah's Las Vegas. We provided a $400 million mortgage on the Caesars Forum Convention Center, and we made our first investment outside of gaming with our $80 million financing of Chelsea Piers in New York, of which I'll say more in a moment. These strategic accomplishments in Q3 led to the following financial accomplishments.
We grew adjusted EBITDA year-over-year by 41.9%. We grew AFFO year-over-year by 38.4%. We increased our dividend by 10.9%. Not to be taken for granted, since the COVID-19 crisis began, we have collected 100% of our rent through October in cash. All told, looking forward, these VICI growth activities in Q3 added annualized rent and income from loans of $288 million at a blended unlevered yield of 7.80%. Granted, all American REITs haven't reported yet, but in what we've seen so far, few other American REITs have posted these kinds of financial growth numbers in Q3 2020. This growth for VICI takes place against a COVID-19 backdrop that has significantly degraded the financial results of many American REITs.
If I could just take a moment, I would note that much of the commentary we've seen so far, we've seen VICI described as having met its expected results for Q3. On the one hand, we're glad that we were expected to grow in the way we have. We hope it is not lost on anybody that the growth we did produce is truly remarkable. This surge of growth consummated in the third quarter of 2020 comes in our third year of real estate investment management. Over this three-year period, on an annualized run rate basis, we have grown our rent since emergence by 100%, or $633 million, while significantly lowering our leverage from 8.5 x to the low end of our targeted range of between 5.0x and 5.5 x.
VICI stands here today with a substantially bigger and moreover, higher quality portfolio with much lower leverage and a better laddered debt structure. As I spoke of a moment ago, in Q3, we also made our first allocation of capital outside of gaming. Chelsea Piers is no doubt well-known to those of you who live and work in N.Y. For anyone who doesn't know Chelsea Piers well, this morning, we uploaded to our website, www.viciproperties.com, a deck that summarizes the transaction and the asset. The most valuable elements of the deck are the photos. Only photos, not words, can begin to do justice to the magnitude and experiential diversity of this asset. Here are a few words. Chelsea Piers is a 780,000 sq ft facility on the Hudson River in Manhattan's Chelsea neighborhood. It is N.Y.'s largest and best-equipped sports and recreation facility.
It offers one of New York's biggest and most dramatically situated banquet locations. Finally, and very valuably in a time of unprecedented film production activity, it offers the largest film production space in Manhattan. Roland Betts, Tom Bernstein, and David Tewksbury founded Chelsea Piers in 1995. They remain in charge today, and through their 25 years of ownership and management, they have expertly and energetically steered Chelsea Piers through such past crises as 9/11, the great financial crisis, and Hurricane Sandy. We have confidence that under their continuing leadership, Chelsea Piers will recover strongly as the COVID-19 crisis eventually subsides and as New Yorkers once again return to New York's most spacious place to play and perform.
While we're excited about our new financing partnership with Chelsea Piers, a partnership that could become longer-term in nature, we remain very glad and very proud to be principally invested in American gaming real estate, a sector that has arguably performed better than any other place-based experiential sector during this COVID-19 crisis. To tell you more about how our tenants are doing and how we remain focused on gaming growth, I'll now turn the call over to our President and Chief Operating Officer, John Payne. John?
Morning, everyone. Third quarter, we continue our work to build the best company in our sector by focusing on business from accretive transactions and expanding our portfolio of best-in-class operators. To that end, as part of the Eldorado- Caesars merger originally announced in June 2019. That said, Harrah's New Orleans and Caesars for total consideration of $3.2 billion.
Hey, John? John, my apologies. Your signal is breaking up quite badly. If you'd like, we could have David read your remarks.
Please do. I apologize. It must be I'm in New Orleans, and we had a hurricane last night. Why don't you do that, Ed?
Okay. David, do you want to take it from there?
Yeah. Sorry about that, everybody. As John was saying, and I think he broke up. To that end, as many of you know, on July 20th, we completed our transformative transaction as part of the Eldorado Caesars merger originally announced in June of 2019. We acquired Harrah's Atlantic City, Harrah's Laughlin, and Harrah's New Orleans, and modified our existing leases with Caesars for total consideration of $3.2 billion. This transaction added $253 million of incremental annual rent for VICI, strengthened the terms of our leases with Caesars and restocked our embedded growth pipeline through ROFRs on two Las Vegas Strip assets. A put-call agreement on Harrah's Hoosier Park in Indiana and Indiana Grand in Indianapolis, and a ROFR on Horseshoe Baltimore. Additionally, in July, we agreed to fund an $18 million expansion at JACK Thistledown in exchange for incremental rent at a 10% cap rate.
We also quickly and efficiently partnered with JACK Entertainment by providing them access to incremental liquidity. This demonstrates some of the benefits of having VICI as a capital partner, as we support our tenants in ways that preserve and create long-term value for all parties. As Ed highlighted during the quarter, we executed on an $80 million loan transaction with Chelsea Piers in New York City. We are very excited to announce this transaction involving an incomparable experiential asset in an incomparable city. We believe this investment represents a meaningful partnership and potentially provides VICI a path to a longer-term relationship with Chelsea Piers, potentially adding sector and geographic diversification to our real estate portfolio over time. As we've said before, we believe the transaction market within gaming is robust and will likely dwarf transactions that we may pursue outside of gaming.
Just given the sheer magnitude and financial productivity of gaming assets. Despite over $8.2 billion of transaction activity since we started VICI three years ago, our growth story remains in the very early innings, and we're excited about what is to come. You have seen us shift from defense to offense by announcing multiple transactions over the past two quarters. We always strive to do fair deals, and we believe this is part of what has driven our success. We are often asked if we're going to slow down for a while or take a break as others do, given all the transactions we have done in a short period of time. The answer is a resounding no. You should expect us to consider participating in any fair process for an asset sale within gaming.
Given our broad investment spectrum, we continue to believe the bid that includes refinancing is likely to yield the greatest amount of proceeds for the seller of an asset and their stakeholders, giving our business the greatest prospects for growth. With respect to the operating environment, we are very proud of the way our tenants have reopened and managed their properties in the current operating environment. Despite many of the restrictions and challenges imposed on properties across the nation, our assets continue to showcase superiority relative to many other real estate sectors as the brick-and-mortar casino experience continues to prove its durability. John has personally visited numerous assets across regional markets and was in Las Vegas earlier this week and has been quite impressed with many of the unique operational changes that the operators have done to improve and protect the guest experience, many of which have enhanced profitability.
We are extremely proud to be invested primarily in gaming, and we stand ready to support the growth initiatives of our tenants and other operators through fair lease terms, integrity, and flexible long-term capital. I'll now touch on the balance sheet and run through our financial results. Just turning to the income statement, total GAAP revenues in Q3 2020 increased 52.6% over Q3 2019 to $339.7 million. GAAP revenues included $26.2 million of non-cash items, accordingly, total cash revenues in Q3 2020 were $313.5 million, an increase of 39.3% over Q3 2019.
These year-over-year increases were the result of adding $88 million of rent and income from the loans during the quarter, primarily as a result of closing the Eldorado transaction, the Caesars Forum mortgage, the Hard Rock Cincinnati and Century acquisitions, which closed in late 2019, and the JACK Cleveland Thistledown acquisition and related loan, which closed in January of 2020. AFFO was $227.9 million, or $0.43 per diluted share for the quarter. Total AFFO increased 38.4% over Q3 2019, and AFFO per share increased 22.9% over Q3 2019. Our fully diluted share count increased approximately 15%, primarily as a result of the settlement of our June 2019 forward sale agreements in June 2020, which added 65 million shares to our balance sheet in advance of closing on our portion of the Eldorado Caesars transaction.
Our results once again highlight our highly efficient triple net model, as flow-through was 100.3% for the quarter and margins expanded further into the high 90% range. Our G&A was $8 million for the quarter, as a percentage of total revenues was just 2.4%, which is in line with our full-year projections and represents one of the lowest ratios in the triple net sector. I'd like to just highlight two items on the income statement. The first is our ongoing CECL allowance. In the third quarter, the non-cash CECL allowance was $177.1 million, which is primarily related to the new investments we made during the quarter. As a reminder, when new investments close, we record an initial CECL allowance through the P&L. Second is a $333.4 million gain upon lease modification.
When we modified our leases as part of the Eldorado transaction, we were required to reassess our lease classification and accordingly, we reclassified all of our Caesars leases to sales type leases under ASC 842 and marked them to market, resulting in a one-time gain. These items are both non-cash. There is no impact to AFFO or AFFO per share. We continue to point investors to AFFO and AFFO per share, as we believe that should be the primary metric used to evaluate our financial performance and our ability to pay dividends. Just touching on the balance sheet and our capital markets activity. On September 28th, we settled 3 million shares from the June 2020 forward sale agreement, realizing net proceeds of $63 million of cash onto our balance sheet.
On September 18th, we closed on the $400 million Caesars Forum Convention Center mortgage with Caesars, utilizing cash on our balance sheet. As has been mentioned, on October 31st, we closed on the $80 million mortgage with Chelsea Piers, of which we funded an initial $65 million term loan with cash on our balance sheet, and the remaining $15 million remains undrawn. This loan came about through a combination of a refinancing process Chelsea Piers undertook this summer, as well as a long-term relationship with the principals. The loan has an interest rate of 7%, a term of seven years, and is the only loan in the cap stack of what is truly an amazing and irreplaceable asset in New York.
As we've spoken about, on July 20th, we closed on our portion of the Eldorado Caesars transaction, adding $253 million of annual rent to our portfolio through the acquisition of three Harrah's assets and the acquisition of incremental rent from our Caesars Palace and Harrah's Las Vegas asset for total consideration of approximately $3.2 billion in cash. We utilized the proceeds from the settlement of the June 2019 forward sale agreements, as well as the $2 billion of proceeds from the February bond offering that were previously held in escrow to fund the transaction. Our total outstanding debt at quarter end was $6.9 billion, with a weighted average interest rate of 4.18%. Weighted average maturity of our debt is approximately 6.4 years. We have no debt maturing until 2024. As of September 30th, our net debt to actual LTM adjusted EBITDA was approximately 6.5 x.
This ratio is not reflective of our true leverage, as it does not include a full 12 months of income from the Eldorado transaction, and therefore, does not represent our true run rate leverage levels, which is well within our stated range of maintaining net leverage between 5x and 5.5 x. We currently have approximately $1.7 billion in available liquidity, comprised of approximately $144.1 million in cash on hand, $20 million in short-term investments, $1 billion of availability under our revolving credit facility, which is undrawn. In addition, the company has access to approximately $557 million in proceeds from the future settlement of the 26.9 million shares that are subject to the June 2020 forward sale agreement. During the third quarter, we paid a dividend of $0.33, based on the annualized dividend of $1.32 per share.
This represented an increase in the dividend of 10.9%, one of the highest increases from any REIT during 2020. Our AFFO payout ratio for the third quarter was 76.7%, in line with our long-range target of 75%. With that, operator, please open the line for questions.
Certainly. At this time, we'd like to take any questions you may have. To ask a question, please press star followed by the number one on your telephone keypad. Your first question is from Rich Hightower with Evercore. Your line is open.
John, if you're listening, all the best with storm cleanup down there.
I'm on. I don't know if you can hear me now. I've moved locations. We'll try it again.
No, the cell towers sound like they're working. I know what that's like, so as I said, all the best. I appreciate, guys, the bit of background on the Chelsea Piers loan, but maybe just to talk about credit underwriting for a second here. Help us understand the security behind VICI's loan. Does the owner own the land beneath the facility, or is it just the improvements? I know you said that VICI's loan is the only one in the cap stack, but help us understand maybe the implied equity that sits beneath VICI and then where the loan sits, maybe as an expression of terms of EBITDA or something along those lines. Just help us understand some of the details there, if you don't mind.
David?
Thanks, Rich. There's a ground lease, even though it's in the river. Some of the piers are in the river with the Hudson River Park Trust. They own the piers and all the improvements. As Ed read, 28 acres, 780,000 sq ft. Financial metrics aren't public. It is a very low LTV when you think about the location and the size of the asset and the magnitude of EBITDA. This asset has a 25-year operating history. As Ed said, it weathered 9/11, Hurricane Sandy, the great financial crisis. The revenue generators, the complexity of this asset, and their ability to generate consistently high EBITDA throughout the past 25 years has been a reason that we're highly excited about this asset and excited to support Chelsea Piers.
Obviously, New York was struck with COVID, and some of the businesses did shut during the past few months. The majority of the businesses are reopening. The asset is generating productive EBITDA, the film studio business is blowing and going with this global need for content. We're excited about this and what this may lead to in the future.
Okay. That's helpful, David. Just as far as that sort of longer-term potential there, should we infer that a sale leaseback transaction is at least somewhat plausible in the near to medium term, or is it too early to make that assumption?
Rich, it's Ed. I think it'd be too early to make that assumption with any kind of utter certainty. It's a relationship we've worked very hard to develop. It is a company that is expanding its footprint throughout at least the New York region. We're very eager, as we are with all of our partners, to focus on growing our relationships over the longer term.
Okay. Got it. Then maybe just a quick one in a bit of a different direction, there's been a lot of investment on the part of the operators around online sports betting. That's been obviously a pretty high-profile phenomenon lately. Would you see a chance for deal flow to VICI to increase specifically based on that? In other words, where VICI would be a capital provider in the form of a sale leaseback on a land-based facility, but where the proceeds would specifically be put towards sort of a non-land-based growth opportunity for the operator, and how do you sort of feel about trends in that area right now?
Yeah. I'll start and then turn it over to John. I think this is one of the most exciting things going on in our industry right now, Rich. I know there's a lot of focus on the total addressable market, a lot of focus on what kind of revenue and profit the gaming companies will yield directly from iGaming and sports betting. Those obviously could be very important new revenue and profit providers to our tenants, making our tenants an even better credit for us in the future. I think, though, that certainly for me, one of the most powerful things going on is that technology is proving to be a tailwind right now for gaming and thus for gaming real estate.
This comes during a period where you can pretty much separate real estate asset classes into those that are benefiting from technology, obviously data centers and cell towers as two key examples, or they're suffering from technology, malls obviously being an extreme example on that side. I think this is a case where technology is creating a tailwind for gaming and thus for the gaming REITs. One of the most powerful elements of this tailwind is that it is helping gaming companies potentially develop their next generation of customers. Every consumer discretionary sector has to ask the question, where does our next generation of customers come from?
Because being a discretionary sector, it's inherently up to the discretion of any given generation as to whether or not they're going to become customers. If you want to put it in the simplest terms, this is a powerful way to engage the Barstool generation and turn them into that next generation, which we think is enormously positive for the long-term productivity and security of our assets. I'll turn it over to John in terms of how else we're looking at it and our willingness to get behind our tenants with incremental capital. John?
Yeah. I don't have much to add other than to say, Rich, I think over our three years, you'll see we've been quite creative in working on deals and wanting to help our tenants grow. I do want to reiterate one thing. David did a great job with my opening remarks, and I apologize for being cut off, but I did want to reiterate how proud our company is of our tenants' performance. I think sometimes it gets glossed over when many hospitality industries are talking about cash burn still, and we have operators in this space talking about record EBITDA and margins up 1,000 points. I just want to stress that that really is incredible in the environment that we are in right now, and it's a compliment to the operators and how creative they've been. Rich, that's our comments on that question.
That's great. Thank you, guys.
Your next question is from Smedes Rose from Citi. Your line is open.
Hi, thanks. I wanted just to ask you, there's a number of regulatory issues on the ballot this year, either putting in casinos in cities like Virginia or some betting limits in Colorado. Are there anything that stands out to you as making regions more or less interesting, depending on the outcome of those votes?
John?
I'll jump in here. I think it's always interesting to watch what is on the ballots. I think Virginia is one that is going to have some opportunity. We'll see what happens in a few days, but I do think that's going to allow commercial gaming in that state and some new developments, and that could provide some opportunity for us, or it could provide some opportunity for a tenant and make them continue to be stronger. We'll have to watch Nebraska. I don't know how that is moving forward. To the answer to the question we just answered about sports betting, there are a number of states that are looking to move that forward, and we'll see how that plays out. Obviously in Colorado, they're just kind of normalizing the casino environment by increasing bet limits, which will be good for the operators there.
All should be pretty positive. I'm watching Virginia closely, though.
Okay. I just wanted to switch back. You made your first investment in a non-gaming entity. John obviously has very deep relationships in the gaming side. Going forward, how will you continue to look for non-gaming opportunities? Could you just talk about, you mentioned the long-term relationship with Chelsea Piers, but could you talk a little bit about more who the relationship is with and kind of what brought VICI to the table as they considered or as they went through recapitalization?
Yeah. Smedes, this is Ed. I personally have had a long-term relationship with the Chelsea Piers founders. As a more general principle and practice, what we very much intend to take advantage of at VICI is through both our management team and our board. We have lifetimes worth of engagement with other experiential real estate asset classes, and we will use those relationships much in the way we've been able to enormously capitalize on John's unrivaled relationships in American gaming. From the beginning, we set VICI up as an experiential Real Estate Investment Trust, and we have always used as our absolute guiding premise that superior long-term returns in real estate investment management are generated through the ownership of superior real estate.
That is our greatest focus of all, is a given piece of real estate truly superior in its marketplace, and do its investment and operating characteristics promise superior longer-term returns? Chelsea Piers ticked all those boxes, and we're very confident that over time, we'll continue to find opportunities like this in various experiential sectors.
Okay. Thank you.
Your next question is from Greg McGinniss with Scotiabank. Your line is open.
Hey, everyone.
Hey, Greg.
On the transaction front, Caesars still needs to sell those two Indiana assets that you guys own together, that you own, they operate. Can you just remind us what the process may look like for when they try to sell those operations, how that's going to impact the master lease?
John?
Yeah. We have a put call on the two Indianapolis assets. David will have to remind me of the exact dates when they are active. It's not a ROFR. It's very clear we do have a put call on that, and we love those assets. I actually was in Indianapolis about six weeks ago at those facilities. Great business. Great performance. We'll be excited. They will be added into what we're now calling our regional master lease. David, I don't know if you want to add a little bit of the details on the put call and the timing on that.
Greg, I think you're asking about Southern Indiana and Hammond, just the put-call starts in 2022 and runs to the end of 2024. Going back to Southern Indiana and Hammond, you're right. Eldorado Caesars was required as part of the merger to sell three OpCos, Evansville, Southern Indiana, and Hammond. We own the real estate on Southern Indiana and Hammond. Those are processes that Caesars is running. We're not involved in those processes. If there is a sale of the OpCo, I think your question was around how does the rent change into the master lease. Our total rent would not change, but what it would create the opportunity for is tenant diversification for us. We'll see how those ultimately play out and how the bid processes work with what Caesars is required to do from Indiana.
Okay, thanks for that. We're not going to see a similar kind of transaction deal that GLPI employed with Tropicana until then. It's just going to be a transfer of the operator, most likely.
That's a safe assumption, Greg. Just to be clear, the rent within the master lease might change with a new operator in either one of those two assets, but our total rent would not change. We're very confident Caesars is running the process in such a way that we're going to be very happy with whoever ends up being our new tenants in those assets.
Okay, thanks. Just a final question from me. Just curious what changed regarding the undeveloped land parcel acquisition nearby the Forums, and why you're no longer pursuing that one.
In the period of due diligence, Greg, what we discovered is that there are various, if you will, entitlement and permitting issues surrounding that land, that especially relate to Caesars parking obligations. It was not going to be easy to unwind those quickly, and given the magnitude of activity that Caesars is currently engaged in terms of integrating after the merger and undertaking the various activities it is, we agreed that it was best for both of us if for the meantime, we put that initiative aside and then perhaps return to it at a time when the dust has settled a bit post-merger.
Okay, thanks. Appreciate the color .
Your next question is from Jared Shojaian with Wolfe Research. Your line is open.
Thanks for taking my question. Can you just talk about your appetite for underwriting additional real estate on the Strip right now? How do you think about how terms would compare today in this depressed environment versus pre-COVID?
John?
Do you want me to touch on that? Sure. Well, I was just out in Las Vegas, as David said, this week. I had an opportunity to be on the Strip and meet with operators throughout the whole city. We continue to be excited about this market long term. Clearly, Las Vegas has to get over not having meeting business right now and some international business. We believe that that will come back. It really is amazing to think about the U.S. right now. Las Vegas is down from its 2019 numbers, obviously. There's still a lot of visitation going to Las Vegas. When you compare that to other U.S. cities like New York, Chicago, Miami, San Francisco, there's no comparison that the consumer has not found a substitute for their travel patterns to a place like Las Vegas.
That's a long way of saying we believe in this market. We're long-term investors. Would we do a transaction here in the short term? I think the operators are more likely to get some more of the operations under their belt after COVID, and better understand what the true run rate of EBITDA is going to be. If you're asking, do we still believe in Las Vegas, right, I think the answer is a resounding yes.
Right. Okay. I think the genesis of my question is really more about just media reports out from last week and your ability to participate and how you would think about underwriting Las Vegas right now. Do you think a significant discount from what you maybe would've paid back in January is probably more relevant, if you were to pursue something? I guess that's really more of the genesis of the question.
And-
Yeah
media report, are you? Go ahead, Ed.
Well, I was going to say, Jared, that this is a situation in which you kind of have to triangulate off of what is, by I think everyone's agreement, a temporary crisis that will have an end and true long-term value. Somebody that wants to sell or needs to sell during a crisis like this has to also be mindful of long-term value in the same way that the buyer does. It's really hard to come up with a general answer as to what kind of discount should be applied, given that we're talking about real estate that in our case, we would intend to hold for decades. Right? To what degree should a temporary crisis change the enduring value of an asset?
I wish I could give you a really crisp, cogent answer. It's going to end up being so highly particular in terms of any trading that would take place amidst this temporary, emphasis on temporary, uncertainty.
Okay. Thank you, guys.
John, I don't know if you want to add.
No. I also think it's important, if we were to ever transact, the operating partner is critical, and of course, most importantly, the going-in cap rate needs to be accretive. I assume you're asking about a large asset on the Las Vegas Strip, and like I said, we're always interested in hearing about great gaming assets in strong markets like Las Vegas.
Got it. Thank you. Maybe just one more for me. How do you guys think about a possible investment-grade credit rating and how that potentially could be helpful to your cost of capital in any way? I think just given your leverage and liquidity and the resiliency of your rental stream throughout this pandemic, what do you think the rating agencies would want to see to make that move? Would that be helpful?
David?
Jared, it's David. Thanks for the question. A resounding yes, it would be helpful, right? The cost of capital would be reduced. The access to capital would be significantly increased. I think the investment-grade bond volume this year is 4x of the high yield volume, which is having a record year. For us, it's really just getting rid of the term loan. The term loan is secured by all but one of our assets, and that's prohibiting us from having a traditional REIT unencumbered asset pool, and that's the catalyst, so to speak, that the agencies are looking for, which would allow for the flip into investment grade. We give GLPI a lot of credit for getting there and highlighting that tenant concentration in of itself is not a gating item. We have similar rent from Caesars that they have from Penn.
There is a path, and again, it's just the repayment of that term loan, which we'll work to do over the coming months and years here.
Okay. Thank you very much.
Your next question is from Barry Jonas with Truist Securities. Your line is open.
Hi, Barry.
Pre-COVID, we had Blackstone enter the space. We had another triple net about to enter the gaming REIT space. Given the operating results operators are seeing now, I'm curious if you expect more activity from some of those newer REITs to reemerge anytime soon.
Well, if they're paying attention, you would sure think so, Barry. If you look across so many real estate asset classes right now, and you ask the fundamental question, how are the tenants in a variety of asset classes doing, it's very hard to identify, other than maybe, again, data centers and cell towers, examples where the tenants are doing better than ours are in terms of profitability. That is obviously very much true in the regional markets. I do think you're going to see, as you did last week, you're going to see pleasant surprises, I think, even from the big strip operators in terms of how well they've done on a relative basis. Yeah, there should be greatly increased interest in gaming real estate, given the way that gaming real estate has been validated through this crisis.
When John and David and I and the VICI team started telling our story three years ago, we were often asked the question, "Well, are you guys going to need a crisis in order for people to get comfortable with the durability of this real estate and its income streams?" We said, "Well, we don't think we need a crisis," but well, what the hell, we got one. Again, I think, we really cannot be more pleased with the way our tenants have performed. I think what this crisis has demonstrated, Barry, is that gaming real estate is not, emphasis on not, commodity real estate. In real estate categories, they're relatively commoditized.
In other words, one box is like another, if I own a coffee shop or a gym or something else, and I can threaten my landlord with moving to another commodity box a block away, I have a lot of leverage as a tenant. These are not commodity boxes. These are one-of-a-kind boxes. Pretty much the definition of irreplaceable, or certainly the definition of very difficult to substitute. That tends to be a key characteristic of non-commodity, high-value, institutional-quality real estate is that it is not easily substituted, and that the tenants occupying that real estate operate fundamentally good businesses. Our tenants operate fundamentally great businesses.
Great. Then just, I'm curious if you looked at Tropicana Evansville or if your exposure in that state just made it less appealing from the start.
Yeah. Well it's an odd situation. It was owned by a gaming REIT, and it's now still owned by a gaming REIT. I believe there was even an agreement that it could not be sold to another REIT. It's a really good piece of real estate. I think GLPI has to be very glad they're going to continue to own it. They're going to own it with a good tenant, and we wish them the very best. To your point, Barry, we do obviously have very nice exposure already in Indiana with Southern Indiana and Hammond. Hopefully, we'll be able to increase our exposure with what we think are two of the best assets in the state with the so-called Centaur assets.
Great. Thanks so much, guys.
Our next question is from Carlo Santarelli with Deutsche Bank. Your line is open.
Hey, guys. How are you? Thanks for taking my question. I just wanted to ask, following up on a question earlier as it pertains to the large-scale asset in Las Vegas. The way, I guess, just big picture thinking about it, I would love to get your opinion and your expertise on it. In a situation as we are today, it would seem as though a traditional sale leaseback type of structure for a large asset like that in that market would be difficult, just given the cost of carry on kind of the rental obligations over the near term while the asset ramps up to obviously, the capitalized multiple that would build into the valuation. Said differently, the EBITDA it would be expected to get to over time.
In that type of situation where maybe the OpCo buyer has to look out a little bit further, are there any types of structures that you guys could think of to potentially try and support the transaction while not necessarily putting all of the onus on the operator to carry such a large rental stream in the near term that's not overly kind of dilutive to yourselves as you make a financial contribution on the asset?
Yeah. I'll take a first crack and then turn it over to John and David Carlo. Would it be possible to come up with structures that would address that challenge that you've rightly identified? Yes, it would be possible to come up with structures that would do that. They would be complex by nature. Complex structures have a way of sometimes collapsing under the weight of their own complexity. It definitely could be done by willing parties. There are creative ways to bridge these kinds of temporary value or revenue productivity issues. We would certainly be, as John has already talked about, we are certainly able and willing to be creative in financing structures when the opportunity is right. John, David, I don't know if you want to add to that.
No, other than you did a very good job, Ed. I'll just add that we have the advantages of looking at real estate for the long term, that hopefully over the next 30 years, we look back at 2020 and it's just a blip. I had answered your specific questions. Again, I think one of the advantage we have is we're not going to be measured on what's going to happen in the business in the next month or quarter.
That's great, guys. Thank you very much.
Your next question is from David Katz with Jefferies. Your line is open.
Hi. Thanks for taking my question. I think that this actually fits in some regard with the question you just answered. You have engaged more and more with traditional loans. They've been seemingly done as a purpose built. In looking through the accounting last night, it appears that they actually bear less risk than some of the core lease revenue streams that you have. I'm interested to hear you talk about how you think about those streams in terms of value and how you would have us think about them in terms of value, particularly given the prior question is that they could be used as part of a structure with a purpose.
Yeah. I'll turn it over to David in a moment, David Katz. The loan business can be a very effective tool for REITs at giving itself exposure to sectors it may be new to and gives them an opportunity to acquire learning, and if you will, a less risky way for the absolute long term. I would say we're generally going to be biased toward using loans to put ourselves in a position to eventually, we would hope, acquire either the underlying real estate tied to that loan or otherwise acquire real estate within that sector. We are a REIT that's being engineered to last for decades and decades and decades. Loans obviously come due, they get repaid, and then if the capital gets returned to you've got to go find another thing to do with it.
David, I don't know if you want to add to that, David Kieske.
Yeah, no, Ed, I think you covered it well. David Katz, I like the purpose built, right, and hopefully a path to long-term ownership. There will likely be some small percentage of our total investment base that we can utilize in the REIT structure to deploy capital in very safe low LTV scenarios that may lead to a path of real estate ownership over the long term. That's something we're excited about and excited about continuing to use our capital creatively.
Got it. Thank you.
Your next question is from Jordan Bender with Macquarie. Your line is open.
Morning, guys. Thanks for taking my question. With regional revenues maybe structurally lower given some of the turn-offs in the non-gaming, but EBITDA might be higher going forward. I was wondering how you think about structuring some of your future escalators and your resets that might be tied to revenue versus tied to EBITDA.
John, you want to take a first crack at that?
No, it's a great question. We actually have not been asked that question, but it's something that we will consider moving forward. I thought the question was going to be leading, are those revenues necessarily going to be coming back? I think what the operators have learned through their abilities in their analytics is that some of that revenue just simply had no margin to it. I was going to answer to say it's not coming back, but your question about will we think about leases and the way we do escalators differently, I'd say we're always flexible as we create new leases, if there's a way that's fair for both sides. If there's a way that our escalators should be different and based on some numbers, we could think about that differently. Good question.
Thanks. With some of that non-gaming that might not be coming back and then excess land at some of the properties, I was wondering your thoughts on possibly repurposing some of the land, maybe something that's not in the gaming sector.
Yeah. It's an interesting question, Jordan. I think we're talking obviously mainly about interior space, so we'd be talking about repurposing interior space. In that respect, I think, especially as sports betting evolves, it'll be very interesting to see the way in which the sportsbook experience evolves and changes to meet what could be increased demand. John was in Las Vegas this week for the opening of the D. John, maybe for the benefit of everyone who wasn't there for that, maybe you can talk about the centrality of the sportsbook, sports bar experience in that brand-new asset.
Yeah. The Circa asset opened on Tuesday.
Circa, right.
Yeah. Very focused on the gambler and the sports betting, just a wonderful new facility in downtown Las Vegas. Centered, as I said, around the gambler. Now, back to your first question about operators and extra space. Hypothetically, if they're not going to reopen their buffet, how will they reposition that and add other amenities? That's the beauty about our tenants. They see opportunities to improve revenues or drive a different consumer to the building. They'll change what that space is used for. I think you're going to see that happen over the coming years as they realize they were operating restaurants or other outlets that drove revenue, but weren't driving trips and weren't driving profitability, and how do they fill that space with new amenities that do that? One could be larger sportsbooks, as Ed mentioned. A very good question.
Awesome. Thanks, guys.
Your next question comes from Shaun Kelley with Bank of America. Your line is open.
Hi. Good morning, everybody. I just wanted to ask briefly about I think you've approached this from a few different ways as it relates to some of the margins and changes that are occurring at the regional properties. I'm just wondering, just high level, at the end of the day, does this change cap rates at all in your view? Are these like, for instance, with some of the fundamentals that we're starting to see here, is there a way to possibly underwrite the growth or the normalization a little faster than maybe we would've done in the past? Just how do you think about how some of these changes in fundamentals could ultimately impact what you're willing to pay?
Shaun, just so we're clear, when you speak of the growth that we would be underwriting, do you mean the growth in tenant EBITDA?
Correct. Exactly, Ed. In fact, we're seeing 1,000 basis point type higher margins today. Is there a portion of this that you can underwrite, or do you need to see a lot more stability before you do?
Obviously, more time adds to more confidence and more certainty. Again, I think it just blows me away what Boyd has reported, what Red Rock's reported, what Penn reported today. These are amazing numbers. To produce them amidst this crisis the way they have, gives us a tremendous amount of confidence in how good our tenants are, right? As I think I talked about on our Q2 call, Shaun, at the end of the day, so much of the value of real estate ends up residing in the quality of the tenant business, right? Our tenant businesses are getting validated. Like almost nobody else is out there outside, again, of like data centers and cell towers. Try buying a data center for anything more than a, I don't know, three and three-quarter cap.
Obviously, we have to underwrite in relation to our cost of capital. There's no way around that. There shouldn't be any way around that. What we would hope to see, and what we believe we will see, is that as the market recognizes the quality and security of our real estate and its cash flow, our cost of capital will improve commensurately, and we will be potentially in a position to pay more for these assets and happily pay more because they are of such high quality. Again, we can't get ahead of our cost of capital.
Thank you very much.
Shaun, I'll just add to that real quick. Ed explained it well, but part of the reason why I'm out and about and meeting not only with our tenants, but every operator, is to continue to study the magnificent performance that these operators are delivering, so that as we do underwrite, we have an understanding as what is going to remain and what part of that margin may be getting back. Just add that little tidbit.
Well, hey, John, to maybe push you a little further. Since you have been in that business for 20 or 30, 20, 25 years, can you just tell us or give us your sense of some of the findings, right? I think we're all trying to do the exact same thing, and even some of the companies are, but just kind of what's maybe your gut instinct or your initial view on how sustainable some of these changes may be?
First, Shaun, I'm a recovering operator, right? Take what I say with a grain of seriousness. We could take hours talking about this. Here's one example, just as an example of what is going on and the improvements that they're seeing and why it's good for the operator, it's good for the customer. I'll take what's happening in Las Vegas with room service at large operations. Room service at these big businesses all lost money. A standalone operation and its own kitchen, its own staff. With COVID, what they've been able to do is not have room service, but allow the consumer to order from the great restaurants that are at many of these resorts. A place like Caesars Palace has Nobu and Rao's and a variety of other restaurants that now the consumer in their room can order from those restaurants.
It's turning a negative business into more profitable business for the operator, and it's a better experience for the consumer. Would you rather get a meal from Nobu at your room or some pancakes and bacon from room service? There's 15, 20 other ideas that are improving the margin, and they'll keep that forever. It's also making the experience better for the consumer.
Great color, John. I hope you're hanging in down there okay.
All good. Thanks.
Your next question is from Thomas Allen with Morgan Stanley. Your line is open.
Thank you. Earlier this year, I think the commentary was that the transaction market for gaming assets was stalled because of operators focused on kind of resuming their businesses. Now that operators have resumed their businesses and trends are going well, has there been a pickup in the kind of transaction pipeline? Thank you.
Yeah, I'll answer this. I'll start and then turn it over to John. Thomas, I think that what we're seeing is, well, there's two key factors in play. How well gaming has performed in recovering from the COVID crisis and the excitement around iGaming and sports betting. Because of those two key factors, you've got incumbent players who want to grow their store counts, simply to grow their businesses and do so creatively, but also because I think, Thomas, and you've covered this very well, there's a bit of a land rush mentality in American gaming with the proliferation of sports betting, such that people want to put more pins in the map and expose themselves to more jurisdictions for sports betting.
You've got the incumbent players who want to grow, and you've got new capital that wants to come in and start to establish footprints and grow as well. That is going to create a sense among owners of existing assets that, hey, my assets are pretty liquid, and they might be quite valuable right now. I don't think it's going to be so much a case of existing operators saying, "Hey, I'm going to do a sale-leaseback in order to just financially engineer my own business." It's going to be potentially existing owners who go, "I sweated it through COVID.
I'm really glad to still be alive and doing well, maybe I actually ought to take an offer from these guys who would so love to own my casino, an operator in a gaming area like VICI. I think you're going to see increased liquidity based upon the excitement around the sector. John, you can talk about what you're seeing and hearing in your travel.
No, I think you described it well, and I think there's this excitement around this sector that we've not seen in years for all the reasons you talked about. Again, don't underestimate the operating businesses. They're putting up record numbers and margins, and a lot of the other hospitality industries continue to talk about how much cash they're burning or hoping to get places open. It's really been amazing what the operators have done.
Thank you both.
Thanks, Thomas.
We have time for one final question. Our final question will be from John DeCree with Union Gaming. Your line is open.
Good morning, everyone, and thank you for taking my question. Just one. We've spent some time kind of talking about how your underwriting criteria for assets post-pandemic may change, but curious, and it's only been a few months since reopened and not a ton of deal activity, but how are you seeing the OpCo or your partners change or starting to think about adapting their kind of criteria for doing a transaction with you in kind of the face of a full shutdown? Are you seeing anything that they're maybe willing to be more flexible on or things they're looking to safeguard on their end? Kind of curious on anything that you've seen so far from would-be tenants and how they kind of look at the lease and entering into a transaction that may have changed.
John?
Good to talk to you. I'm not seeing a significant difference. We've been pretty vocal about just our underwriting and adding another lens to the way we look at deals based on what we saw during COVID. As I think I've said for the past couple of quarters, the operators have a better understanding how a REIT like VICI can help them and help them grow, which I think is important, and we've spent our first three years trying to make sure they understood that and how we're a partner. As you said, there haven't been a ton of deals. GLPI did a deal yesterday, as we talked about, and we'll continue.
If there are items in the lease that make the OpCo uncomfortable and we can work with it, as I think you've seen, we want both sides to walk away from the table feeling good and that they're fair deals. We'll adjust accordingly, but we haven't gotten there yet.
Thanks, John. Thanks, everybody.
Thank you, John.
We have no further questions. I'll turn the call back to Ed Pitoniak, CEO, for closing remarks.
Yeah. Thank you, operator. Please let me reiterate our thanks to all of you for being on today's call. The number one takeaway from this call should be that the growth we produced this quarter in our revenue, in our AFFO, and in our dividend has been fueled by the economic power and resilience of our tenants' businesses. We are grateful, very grateful to our tenants and our tenants' customers for this resilience. We believe we're well-positioned to continue growing our portfolio and driving superior shareholder value into the future. Again, thank you, and good health to all. That will do it, operator. Thank you.
This concludes today's conference call. You may now disconnect.