Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, 28th October 20 21. 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 2021 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, guidance, intends, outlook, projects, or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for more detailed discussion of the risks that could impact future operating results and financial conditions.
During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website in our third quarter of 2021 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.
Thank you, Samantha, and good morning, everyone. The third quarter of 2021 was the most active and transformational quarter in our four year history at VICI. The highlight of our quarter, of our year to date, of our history to date was our announcement on 4th August of our acquisition of MGP market leading assets and our new long-term partnership with MGM Resorts, one of the foremost leisure hospitality entertainment companies in the world. Together with our 3rd March announcement of our Venetian acquisition, 2021 has been a step change year for VICI. So far in 2021, we've signed over $21 billion of transaction activity, giving us nearly $30 billion of acquisition activity in our first four years. To fund that growth, we have, over the last four years, raised more primary common equity proceeds than any other REIT in America.
We have a strong conviction that our energetic and execution-driven strategy over our first four years will, over the long term, create significant value for our equity and credit owners. We believe that there are three key factors that drive and validate our strategy. Factor one. Invest before others do. As an asset class institutionalizes, investing earlier rather than later generally will yield opportunities to buy institutional quality assets at pre-institutional pricing. While other investors have begun initiating their mapping of the gaming real estate investment landscape, VICI, and I should note, Blackstone, have been busy buying great assets at unlevered going-in cash flow yields that are superior in both absolute and risk-adjusted terms than can be found in already institutionalized asset classes. This isn't to say that there aren't compelling investment opportunities still to be had in American gaming real estate.
There definitely are, as the sector's real estate is still not yet even 40% owned by REITs. While others are getting started on their homework, VICI has built market-leading proprietary ownership positions along one of the most economically productive streets in America, the Las Vegas Strip. VICI will also have built the largest and by far the highest quality regional portfolio in American gaming real estate once we close our MGP acquisition. Factor two: Invest when others are fearful or uncertain. We began our 2021 acquisition work in late 2020 when most real estate investors were still understandably unsure about leaving the harbor and going out onto the blue water to fish because of the COVID-19 pandemic, it was stormy in late 2020 and stayed stormy well into 2021.
At VICI, we were willing to venture out onto the blue water because of our conviction that COVID had proven the durability of our asset class and the market-leading resilience of our operating partners. We've announced over $21 billion of acquisition activity in 2021 because of that conviction, and in doing so, preempted any risk of the incomparable Venetian and the best-in-class MGP portfolio being bid to the skies when everybody was finally ready to come out onto the blue water with us. Factor three. Invest alongside great partners when given the chance. Many investors understandably questioned VICI's strategy when in late 2019, we announced our intention to support Eldorado's acquisition of Caesars with what ultimately became $3.6 billion of VICI capital.
We were constantly asked throughout 2019 and well into 2020, “Can the Eldorado guys really achieve that $500 million of synergies? Can they manage so much bigger an organization? Can they produce sufficient free cash flow and rent coverage? Will they have access to capital?” Well, when we put our money behind Tom Reeg, Bret Yunker, Anthony Carano, and the rest of the Caesars team, we are very confident that they would deliver. You all know by now, without question, that they appear to have delivered far beyond everyone's expectations. Similarly, when earlier this year we began competing for the MGP portfolio, our determination to win was greatly energized by our conviction that Bill Hornbuckle, Jonathan Halkyard, Corey Sanders, and the MGM team are growing MGM into one of the most dynamic and innovative brand and operating platforms in the global consumer discretionary sector.
Our $30 billion of announced investments over our first four years have enabled us to partner with great operators across the U.S., not only MGM and Caesars, but also with Apollo under Venetian, with Hard Rock, Penn, Jack, Century, the Eastern Band of Cherokee Indians, Chelsea Piers, Great Wolf, and Club Corp. All our current operators, every one of them, is delivering top-line performance in global leisure and hospitality right now. The secular outlooks for our gaming partners appear brighter than one can find in almost any other category because of the audience expansion tailwind that sports betting represents. To repeat these three key factors that have driven our strategy and our actions. Factor one, grow fast in the early stages of institutionalization. Factor two, grow when others are uncertain, underwilling, or underfunded. Factor three, grow with great partners.
VICI's activity in our first four years, driven by these three key growth factors, distills down to this. Before other institutional real estate investors are ready to do so, we've built a portfolio of class A real estate of incomparable scale and quality at significant discounts to replacement costs and significant discounts to other institutional real estate categories of similar asset and income quality. In doing so, we've created a network of partner relationships that will be a key source of growth for us for many years to come. Now to talk about our growth outlook, I'll turn the call over to John Payne. John?
Thanks, Ed, and good morning to everyone. During the third quarter of 2021, we continued to execute the market-leading growth many of you have come to expect from VICI. The announcement of our $17.2 billion acquisition of MGM Growth Properties brings our total investment, as Ed said, to nearly $30 billion in 48 months. As I'm sure many of you can appreciate, this degree of activity does not come without hard work, dedication, and a relentless desire to succeed. As a management team, we are incredibly thankful for the hard work of our exceptional colleagues at what we call Team Vici, without whom many of our accomplishments to date would not be possible. As I said before, VICI does not go on vacation or wait for the phone to ring after announcing or closing a transaction.
Our primary day-to-day operations consist of sourcing, underwriting, and funding accretive acquisitions. To that end, we are as busy as we've ever been building our pipeline and meeting with talented business owners and management teams to discuss how VICI can be an efficient source of capital and play a role in funding their growth plan. As we look forward, we will strive to execute across the many growth pillars we believe will make VICI a stronger company while driving accretive AFFO per share growth for shareholders. Those growth pillars include executing transactions within our embedded growth pipeline, open market gaming transactions in the United States and internationally, our property growth fund, through which we will fund high return growth projects at our properties for existing tenant partners, and leisure and experiential investments, as well as continued large-scale M&A.
There's never been a more exciting time to be investing across the gaming universe and Las Vegas in particular. Operationally, fundamentals are strong and the casino operators continue to have a robust outlook for their properties. Margin expansion remains sticky and the industry continues to post very impressive financial results. For example, some of you on this call may have noticed that just last week, Las Vegas Sands reported a record third quarter at the Venetian Resort in Las Vegas with adjusted property EBITDA of $132 million, 97% hotel occupancy in the quarter, and robust forward group bookings from 2022 through 2027. All of these results occurred in a third quarter that had very limited convention and meeting business and almost no international travel.
Since we've announced the acquisition of Venetian Real Estate for 6.25% cap rate, we have witnessed cap rate compression firsthand on the Las Vegas Strip. First, with the real estate of Aria and Vdara at CityCenter trading for a 5.5% cap rate, and most recently, just about a month ago, with the Cosmopolitan's real estate trading just under a 5% cap rate or a 20.1x rent multiple. We have been among the biggest and the most vocal believers in Las Vegas since we started VICI, and it's very gratifying to witness institutional capital enter the sector. VICI will continue to be at the forefront of gaming real estate, investing in assets in the markets where we believe institutionalization is poised to occur.
In closing, we believe the outlook for growth is very promising and the transformation of our balance sheet, which David will touch on, positions us for continued success as we approach an investment-grade credit rating and upon closing of our pending acquisition transactions. We'll emerge with a pro forma enterprise value that is approximately $45 billion, which is significantly larger than most of our direct REIT competitors. Now I'll turn the call over to David, who will discuss our balance sheet and additional investments outside of gaming. David?
Thanks, John. I want to start with our balance sheet and highlight what was our most significant quarter in terms of advancing our long-term strategic financial goals. As you've heard me say, since emergence, we have maintained a relentless focus on ensuring that we have a capital structure designed to weather all cycles and provide the safety and protection our equity and credit partners deserve. The initiatives we undertook in connection with the MGP acquisition further strengthen our capital structure and position VICI for continued year-in, year-out growth. In connection with the announcement of the MGP transaction on August 4th, we received extremely positive feedback from the rating agencies.
Just to read a snippet from the report that S&P released, I quote, the acquisition will improve VICI's scale and tenant diversity such that it could support a greater level of leverage at a higher rating if the company finances the acquisition with a mix of equity and debt that leads to pro forma leverage of about six times or below, and we could raise our rating to BBB-. That's great news, and I will touch on leverage in a moment. On 14th September , we completed the largest REIT common-only equity offering ever, issuing 115 million shares of common stock at an offering price of $29.50 for aggregate proceeds of $3.4 billion. 65 million shares were sold via a regular way offering, raising $1.9 billion, and 50 million shares are subject to forward sale agreements.
This offering de-risked the equity funding for the MGP transaction and positions the balance sheet to be below the leverage ratios dictated by the rating agencies to migrate the balance sheet to an investment-grade issuer. On 15th September , we were thrilled to eliminate all outstanding secured debt in our current capital stack with a repayment of the secured $2.1 billion term loan. We used $526.9 million of proceeds from the settlement of the June 2020 forward sale agreement on September 9th, as well as a portion of the proceeds from the September equity offering to repay the term loan. In connection with this payoff, we also settled the outstanding interest rate swaps, incurring breakage costs of $64.2 million. This one-time amount is reflected in interest expense for the quarter, reducing net income and FFO, but is added back to arrive at AFFO.
On 27th September , we announced the successful early participation in the exchange offer and consent solicitation for the $4.2 billion of outstanding MGP notes. As a result, upon closing of the MGP transaction, the covenants under the existing MGP indentures will be aligned with the covenants, restrictions, and events of default under the VICI indentures. Our outstanding total debt at quarter end was $4.8 billion with a weighted average interest rate of 4.1%. The weighted average maturity of our debt is approximately 6.3 years, and we have no debt maturing until 2024. As of 30th September , our net debt to LTM adjusted EBITDA was 3.1x . We currently have approximately $4.9 billion in liquidity, comprised of $669.5 million in cash on hand and $1 billion of availability under our revolving credit facility, which is undrawn.
In addition, we have approximately $1.9 billion in net proceeds available from the March 2021 forward sale agreements and approximately $1.4 billion in net proceeds from the September 2021 forward sale agreements, which we intend to use to fund a portion of the Venetian acquisition. Since our formation just a little over four years ago, we have been relentless in our drive towards an investment grade rating, and we believe the actions we took during the quarter should position VICI to be able to access the investment grade market when we seek to raise the $4.4 billion of permanent debt required to redeem the MGM OP units at the time of closing of the MGP transaction. Now turning to the quarter, we once again continue to expand our partnerships outside of gaming by announcing a strategic arrangement with ClubCorp, an Apollo portfolio company related to BigShots Golf.
On 15th September , we agreed to provide up to $80 million of mortgage financing to fund the development of five BigShots Golf facilities across the U.S. As part of the arrangement, VICI will have a call right to acquire the real estate assets associated with any BigShots Golf facility financed by VICI in a sale leaseback. In addition, we have a ROFO on future debt financing BigShots Golf seeks for any multi-state development of their extensive pipeline of facilities. Over the past two quarters, we have announced strategic arrangements with leading leisure and hospitality operators, and we believe our relationships with Apollo and Blackstone demonstrate our ability to forge mutually beneficial partnerships that enhance our diversification and growth prospects.
We're thrilled to partner with BigShots and expand our relationship with Apollo and continue to look forward to a great partnership with Blackstone and the team at Great Wolf Resorts. In terms of financial results, net income and FFO was $161.9 million for the quarter, or $0.28 per share, compared to $398.3 million, or $0.74 per share for the quarter ended 30th September 2020. The year-over-year decline was primarily related to a $333.4 million one-time non-cash gain upon lease modification that occurred in the third quarter of 2020, a $79.9 million loss on extinguishment of debt and interest rate swap terminations in the current quarter, and the $168 million non-cash decrease in the Q320 versus the Q321 change in the CECL allowance. AFFO was $257.4 million or $0.45 per diluted share for the quarter.
Total AFFO increased 12.9% over Q3 of 2020. Just as a reminder, our diluted share count includes the impact of treasury accounting during the period of time the forward sale agreements are in place. During the third quarter, the impact of treasury accounting on our diluted share count was approximately 15.7 million shares. We refer you to our press release, where we have added two tables detailing our outstanding common shares and a reconciliation of the weighted average shares of common stock using the calculation of earnings per share. These tables are on page six of our release that was posted to our website last night. In terms of our dividend, on 4th August , we declared a regular quarterly cash dividend of $0.36 per share, which is a 9.1% increase compared to the Q2 dividend.
The Q3 dividend was paid on 7th October to stockholders of record as of 24th September . Finally, we are updating our AFFO guidance for the full year 2021 in both absolute dollars as well as on a per share basis. As we have discussed, beginning in January 2020, we are required to implement the CECL accounting standard, which, due to its inherent unpredictability, leaves us unable to forecast net income and FFO with accuracy. Accordingly, our guidance is AFFO focused, as we believe AFFO represents the best way of measuring the productivity of our equity investments and evaluating our financial performance and ability to pay dividends. We expect AFFO for the year ending 31st December 2021 to be between $1.04 billion and $1.045 billion, representing an increase of $20 million in total AFFO from the prior guidance midpoint.
Our revised 2021 full year AFFO per share guidance is $1.79-$1.80 per diluted share, which is approximately $0.05 below the midpoint of prior guidance on a per share basis and is below the current consensus of $1.83 per share, which reflects certain analyst assumptions around the timing and closing and funding of The Venetian transaction, which are not included in our guidance estimates.
The reduction in guidance reflects the dilutive effect of the addition of 26.9 million shares from the settlement of the June 2020 forward sale agreement and the 65 million shares issued in the September 2021 equity offering and the dilutive impact as calculated under the treasury stock method of the pending 69 million shares related to the March 2021 forward sale agreements and the pending 50 million shares related to the September 2021 forward sale agreements. Just as a reminder, our guidance does not include the impact on operating results from any pending or possible future acquisitions or dispositions, capital markets activity, or other non-recurring transactions. With that, operator, please open the line for questions.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Again, that is star one to ask a question. To withdraw the question, just press the pound key. Your first question comes to the line of Wes Golladay from Baird. The line's now open.
Hey, good morning, guys. Can you talk about what caused the pushout of The Venetian from, I guess, closing later this year until 1Q 2022?
Samantha, you wanna take that?
Sure. Yeah. Hi. As you know, there's regulatory approvals that are required for the operator in connection with that transaction. The operator, Apollo here, is just going through the regulatory process.
Okay. I guess, is there any read-through to timing of the MGP transaction?
I'm sorry. Did you ask if there's any update to the timing? We can-
No. Well, I guess, is there any read-through? Would there be any issues that are causing the Venetian to be pushed out? Would those things apply to MGP as well?
Oh, no. They are unrelated, and we do not expect that to impact our previously disclosed timing for the MGP transaction.
Okay. One last one. I guess, can you update us on the Las Vegas master lease? I think it's gonna be set in a few days.
David or Danny?
Danny, go ahead.
Yeah. Wes, in terms of escalation, you know, we expect that to escalate with CPI, which was about 5%, so, you know, above the 2% floor, that's embedded in that lease. Starting November first for the next lease year, the Las Vegas Master Lease will escalate about 5%.
Got it. Thanks a lot, guys.
Your next question comes to the line of R.J. Milligan from Raymond James. Your line's now open.
Hey. Good morning, guys. Can you talk about the JACK lease amendment that was just announced? Do you see any other opportunities for additional amendments dropping the variable rent component for some of the other leases?
David or Samantha, you wanna take that?
Yeah. RJ, I can start, and Samantha chime in on anything. I mean, what we're experiencing and witnessing is this continued, you know, somewhat of a confirmation or conforming aspect of the leases, right? This sector is only eight years old with the formation of GLPI in 2013. As each deal, we and the operators continue to get smarter and understand the best way to document and structure a lease. When some of these opportunities arise to remove some of the legacy components, so to speak, of leases that really don't make sense for either the operator or us as landlord, we work collaboratively together to streamline the leases and continue to move forward to somewhat about, you know, quote-unquote, industry standards.
It's a net-net win for both sides here between VICI and JACK.
Okay. Looking into 2022, can you give us an update on your thoughts on executing some of the ROFRs or the put call options that you guys have?
John?
Good morning, RJ. How are you? We continue to monitor. I think you're referring to first we have some ROFRs in Las Vegas. Tom Reeg, the CEO of Caesars, has indicated that they would be looking to potentially sell one of the assets, and we'll be involved in that process and we'll follow his lead on what they're deciding to do. The second one I think you're referring to is our put call that we have that becomes live in January of 2022 with the two large assets in Indianapolis, and we'll continue to monitor those as well. Those assets continue to grow, RJ, since we did this, created this put call.
Table games have been legalized at the racinos in the state of Indiana, and Caesars has been working on expanding those facilities. Those facilities are continuing to add amenities, add some space, add table games. We'll watch how they continue to grow, and we know that put/call is good for three years starting in January.
Okay. Then my last question is a bigger picture question. Ed, it seems like there's still a disconnect for regional gaming assets in terms of pricing, and we're starting to see the cap rate compression in Las Vegas for sure. When do you expect or what do you think needs to happen to start seeing cap rate compression with regional markets?
Yeah, RJ, it is I believe or I think it will prove to be a dynamic that we've seen in other asset classes that have gone through institutionalization. As an example, a category that I spent time in, final mile logistics. When there began to be an institutionalization of that industrial sub-asset class, the greatest amount of investment focus initially was in markets like the Inland Empire outside of L.A. and Northern New Jersey. As the category really began to prove itself, then as the secular trends behind the category continued to, you know, grow, what you began to see was a radiating out of investment activity from those epicenters.
As an example, across the street from our JACK Thistledown asset outside of Cleveland on a site that once housed a, I guess a Class B mall, is now an Amazon distribution center of amazing scale. Again, that's Cleveland. You can see that kind of radiating taking place in other asset classes. I believe you're going to see it as well in regional gaming. There are, of course, certain friction points. In some jurisdictions, the gaming real estate owner does require licensing. We think that at the end of the day that'll be a friction point that becomes less of a factor in how people make their decisions when they realize that some of these regional assets are so strong and of such incomparable scale and quality.
Just to belabor the point a moment, RJ, it was on this very call, the Q3 earnings call, I believe it was two years ago in 2019, that I made at the time the rather outlandish claim. This was right after the Bellagio announcement. I made the rather outlandish claim that I would argue that National Harbor, which MGM obviously occupies and MGP owned at that point, deserved to trade at a cap rate at least as tight as Bellagio, given its utter scarcity as an asset of that magnitude and quality in a 24-hour city like Washington, D.C. I do think it'll come, RJ. It will. As is required in every other asset class, it will take time, but it will happen.
Excellent, guys. Thank you.
Your next question comes from the line of Barry Jonas from Truist Securities. Your line is now open.
Hey, good morning, guys. You know, look, you've had a lot of success diversifying the company over the years, but I'm wondering if there's any longer term optimal mix you would target, whether that's tenant geography or maybe gaming versus non-gaming?
John, you wanna start?
Good morning, Barry. You know, as we've been talking the past four years, the key to it all is continuing to diversify our tenant base. Like you said, we've gone from one tenant to eight tenants in gaming. As David mentioned in his remarks, we obviously have started diversifying into non-gaming. I don't think we have an exact percentage of how much we're gonna own in gaming and how much we're gonna own in non-gaming, how many tenants we're ultimately gonna have. I think you've seen us continue to add high quality, as Ed said in his remarks, tenants to our portfolio, as well in gaming, as well as in non-gaming. Don't have a percentage today.
I think we've clearly said 45% of our rent after the MGP deal will come from Las Vegas, and 55% of our rent will come from regional assets. We still have a wide opportunity to diversify over the years, and we'll continue to look for unique opportunities with, most importantly, high quality tenants, with great real estate. No specific numbers today, Barry.
Got it. Just as a follow-up, I think there's a lot of debate out there longer term how iGaming will, you know, if it will cannibalize land-based gaming to any degree. I'm curious how you think about this and if it influences your longer term strategy at all.
Yeah, I'll start, Barry. Obviously, you know, we need to take care to distinguish, as I know you are, between iGaming and sports betting. I think, you know, it remains to be seen the degree to which iGaming becomes its own ecosystem that does not create a new customer who also then acquires through iGaming a desire to visit the brick-and-mortar casino. You've heard us talk before about how bullish we are about sports betting as being a very powerful secular audience expansion tailwind for gaming. iGaming remains more of a question, though I do think, you know, there's some very interesting points to be made as to the implications of iGaming in a number of different perspectives. I believe you wrote about it.
The panel you wrote about, Barry, yesterday, I think some people like David Cordish were making some very interesting points about the jurisdictions taking care that iGaming not end up sacrificing the jobs and the economic vitality that go with brick-and-mortar gaming. Again, we'll see over time. I would say, though, that I am much less worried about iGaming than I am excited about sports betting and the way sports betting is changing the marketing paradigm of American gaming in such a way that American gaming can participate in the great American sports conversation.
If you had told me when I first started getting involved with Vici four years ago, which was my introduction to American gaming, that Kenny Mayne and Trey Wingo of ESPN would join folks like John Payne and David and Samantha and me in business American gaming, I would not have foreseen that.
Perfect. Thanks so much, guys.
Your next question comes from the line of Neil Malkin from Capital One. Your line is now open.
Hey, everyone. Good morning. Happy to be on the call with you all. Ed, first off, I'm not sure what you meant by that comment about the logistics facility in Cleveland. Cleveland's probably the best city in the United States, so,
It is.
First one from me, you know, you talked about 45% of your rent comes from Vegas and, you know, obviously it's going gangbusters. It's fantastic. Given the Venetian and your, you know, pending merger of MGP, alongside the two ROFRs you have there and your land parcels, are you comfortable with your exposure there? Might we see a move, a potential property sale, you know, just to kind of mitigate the exposure going a lot higher? Thanks.
I'll start, Neil, then I'll turn it over to John. I think as a starting point, Neil, what certainly I've come to learn, I think along with David and Samantha, those of us at Vici who are new to gaming, is that Las Vegas is almost unlike any other place on Earth. The nearest place I can think of that is like Las Vegas is Orlando, right? You know, as Vici thinks about, geez, how much exposure is the right exposure in Las Vegas, it's like Disney thinking about what's the right exposure in Orlando.
Well, you know, Orlando is an ecosystem unto itself, and it has an infrastructure that has taken decades to build and is unrivaled in the world in the way Las Vegas' infrastructure, tourism infrastructure is unrivaled. It's tourism, it's convention, it's conference, it's trade show infrastructure. When you have an ecosystem as utterly distinct and one-of-a-kind as Las Vegas, I do think you have to think about asset concentration or portfolio concentration in a very different way than you would in so many other asset classes in which, not to be, you know, flip about it, but one 24-hour city is sort of like another 24-hour city. John, unless you wanted to add to that.
No, Ed, I think you touched on it. Neil, I mean, if you've been following us since we started the company, you know there are other REITs that weren't as bullish as we are on Las Vegas. We were very excited from the day we started the company. We're even more excited today about what's taking place in Las Vegas. The operators who are here in Las Vegas are the most dynamic, creative operators there are. They'll continue to reinvent the business when something doesn't work. What's also been made perfectly clear after the closing of the facilities due to the pandemic, as they reopen, you know, the consumer clearly has not found a substitute for Las Vegas.
They are returning in record numbers, and that's without the amount of airlift, that's without international travel, and that's without the necessary MICE business that's gonna come back as well. We're excited today about it, and we're gonna be even more excited in the coming years as those segments of their customers return to Las Vegas to our tenants.
We love Cleveland too, Neil.
Yeah, appreciate that. The other one from me, maybe bigger picture. You know, obviously, the move to iGaming or digitization, whatever you wanna call that, you know, is going to be a fulsome and wholesome endeavor by a lot of the big gaming guys, operators. I'm just wondering if you can comment on how you think about how the investments and dollars needed to make those moves and to add that to part of their,
You know, ecosystem or platform, how will that have an impact on potential assets coming to market, as they look to raise money, either, you know, on the strip or, you know, regionally and, you know, potential impact for you guys or, you know, new operators coming in? Thanks.
John?
Yeah, it's a good question, Neil. Exciting time in the space. I mean, I'll just talk about what's taking place today with our top tenant, Caesars. I don't think it's either/or. If you look at their investment in the bricks and mortar facilities right now, and there's more than I know about the $300 million going into New Orleans, the $400 million that's going into Atlantic City, the numerous Nobu hotels that are being built around their facilities, the reformation of the entrance to Caesars Palace. I could go on and on about the massive investments that our top tenant is putting in their bricks and mortar. At the same time, you can obviously just turn on your TV or your radio and see the large investments that they're making into Caesars Sportsbook.
The beauty of this is their strategy as well as our other tenants' strategy of connecting the dots or building a world-class omni-channel marketing capabilities where they can talk to consumers, not only digitally, but they can talk to consumers at their bricks-and-mortar facilities and continue to attract people across their platform. That's what's so exciting about the gaming space. Again, as someone who's old these days and has been around for over 25 years, there has not been a more dynamic and exciting time in the casino gambling space.
Thank you. Next question comes to the line of Stephen Grambling from Goldman Sachs. Your line is now open. Hi. Thanks. You all mentioned. Stephen, you cut out. I did. Stephen, your line is still open. Operator, why don't you try to come back to Stephen? Thank you, Stephen. Please press star one again. Your next question comes from the line of Greg McGinniss from Scotiabank. Your line is now open.
Hey, good morning. John, I appreciate you highlighting VICI's pillars of growth in your opening comments, but I think one of the key questions from investors is how to think about how deep those pools are, given the diminishing benefit to earnings growth from each, you know, sizable deal that you guys are doing. Would you be able to provide some context on the potential size of each of those buckets?
I can do some of it, and Danny can do some of it as well. Greg, we've laid this out a couple different ways, but the short answer is there are a lot of opportunities still out there. When you just think of, I'll take gaming and Danny or David can jump in on non-gaming. I'll take one of the six pillars because I don't want to take up the rest of the call going through all six pillars, but I'll take one of them, which is the expansion of gaming. Just domestically, I wanted to touch on the international opportunities that we see in Canada and Australia, potentially in Singapore, potentially in Japan. Just domestic gaming.
If you think of our opportunities, Greg, you know, we still do not own real estate in any downtown facility in Las Vegas. We still don't own real estate in Las Vegas in the regional markets, which are both very healthy and growing markets. We don't have Reno, Colorado, Rhode Island, Pittsburgh, Lake Charles, parts of Massachusetts. So we have an analysis that shows the depth and the amount of rent and the amount of EBITDA that is still available with assets that are not necessarily in the REIT pool right now. So that's one of six pillars. We see tremendous opportunity to grow in gaming domestically as well as the other five pillars that I don't know if David or Danny wanna touch on quickly, as well.
Yeah. I'll just add, this is Danny. You know, on the gaming side, Greg, we still continue to work on transactions, you know, in any given week or month where the total value, you know, exceeds well over $50 billion. So that's not necessarily a TAM, but, you know, hopefully, that just gives you some insight into the number and different sides of opportunities that we continue to work on, you know, discuss, evaluate, and target. You know, another piece going forward is gonna be the VICI Partner Property Growth Fund. You think about the size of our assets, a little over 2 million sq ft on average at each property. You know, there are high ROI projects, where we're partnering with our existing tenants and funding those pretty efficiently in exchange for incremental rent.
Hard to quantify that because it ultimately depends on the individual operators' strategies, but that's, you know, something that could reach into the hundreds of millions of total investments. You know, international is really hard to size or quantify. It's dependent on the jurisdiction, the individual assets within those jurisdictions. As we talked about, we've spent a lot of time understanding the tax implications, currency risk, regulatory hurdles. That is an area where you'll see us expand over time.
I would just add, Greg, this is Ed.
That, you know, we have a certain amount of confidence that we can figure out how to do what others have successfully done before us. You know, when you crystallize the issue as you just did very well, which is, you know, once you get to a certain size, the math obviously does become more challenging. At the same time, strategic resources can become more ample. We look at what companies like Realty Income and Prologis have done in facing the mathematical challenge of growing when you get really big. We give full marks to Suneet and the Realty Income team for what they have done as an example in the U.K. and now in Spain when it comes to increasing their exposure to European grocery.
European grocery is not a category that we'd be interested in, but there is European experiential we'd be very interested in. In fact, categories in Europe they don't even really exist in the U.S., experiences like Center Parcs, as an example. You know, we would look at what Realty Income has done. We would look at what Prologis has done internationally and domestically, and especially through their strategic capital activities. We're confident that if we learn from the best, we stand a good chance of achieving at least some of what they have done, and we're very excited about that opportunity in the years to come.
All right. Thanks for the context there. Shifting gears slightly here. Just regarding the call right on the BigShots facilities. Can you work out how you'll be valuing the real estate in the event that you're able to turn that financing arrangement into permanent property ownership? Also if you could provide any context on what you view as the opportunity or growth potential within this kind of entertainment-based driving range space and maybe BigShots specifically, that'd be appreciated.
David?
Yeah, Greg, it's David. Good to talk to you. The financing will be done at a 10% interest rate, and then the call rate will be at an 8% cap if we elect to enter into a sale leaseback on any of those facilities. You know, we're excited to partner with the ClubCorp team, the BigShots team. They've got a very exciting, you know, good development pipeline. They're gonna, you know, mimic, go into secondary markets, some markets where we don't currently or can't own gaming real estate just because it's not legal in those jurisdictions. They're invigorated to grow that pipeline, to grow that platform. We're thrilled to partner with them. We'll see what the future holds with that opportunity between VICI and BigShots.
All right. Thank you very much.
Your next-
Operator, do we have Stephen available again?
Yes, we have Stephen Grambling from Goldman Sachs.
Great, thanks. Can you hear me?
Yes.
Thank you. You mentioned the opportunity to fund high return growth projects for existing tenant partners. How might the economics of these types of investments compare and contrast versus the traditional sale leasebacks?
They should mirror them very closely, Stephen. Obviously, they need to be of sufficient return such that you could take the incremental return on the incremental capital and divide it in half, at least, and each party is getting what they need and deserve. In other words, we would get a sufficient return through incremental rent on our investment, and the operator would get a sufficient return on the brand and intellectual capital and operating investment that they have made. It should very much mirror our conventional economics. Again, you know, if we can get capital growth capital out the door in whatever form we get it out the door, as long as it's in the proper risk framework, we're gonna be very happy to do so.
You know, I will just reiterate what Danny said. You know, our assets are of a scale and of a quality fit and finish level that you really only find in A office and A mall. As an example of that, our average asset is over 2 million sq ft. It sits on dozens of acres. That's in contrast to your conventional triple net commodity box, which is 17,000 sq ft and sits on one acre or two, right? Our assets present incremental investment opportunities that really are hard to find in almost any other asset class.
That makes sense. Maybe one more for you. Just on reconsolidation, obviously with MGP, you made a first mover advantage there as well. How do you think about scale and index inclusion might influence the potential for future reconsolidation, perhaps beyond just gaming?
Yeah, I think obviously, you know, one key determinant would be the degree to which we would not only be getting access to property, but getting access to talent, to a management platform that could be of great value to us in helping us grow, not only beyond the acquisition of the portfolio properties that might come with the M&A, but with the talent and the operating experience and reach that would come with it. We don't see that as an immediate priority. We think we have enough in front of us, in terms of our existing categories that frankly represent triple net white space that we believe we're uniquely qualified to pioneer in. But we are certainly mindful of the way in which, you know, adjacent M&A can be an effective way to continue to grow value.
Makes sense. Thanks so much.
Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is now open.
Hi. Thanks. Good morning. Just first question, in terms of expanding on the nongaming side, you know, you completed loan programs or established loan programs with Great Wolf, Chelsea Piers, ClubCorp now. Is that the path toward ownership that we should continue to expect as you look toward adding exposure to nongaming, or could we see you move into nongaming in a more meaningful way, you know, without, you know, sort of establishing an initial loan program? Then, how important is it to have an investment-grade rating to invest more meaningfully in nongaming, you know, and expand the portfolio towards some of those other types of assets?
David?
Hey, Todd. Good to talk to you. Hope you're well. Look, I wouldn't say that's the path that you should expect. You know, the situations with Chelsea Piers, Great Wolf, and Big Shots called for financing. Each of them were somewhat unique and specific in why they called for financing. As you saw with Big Shots, we do have a call right to enter into a sale-leaseback, so we do have a path to ownership. You hit the nail on the head. You know, these all ideally lead to a path to ownership. You know, there may or may not be a sale of Chelsea Piers. There may or may not be a sale of Great Wolf, where we have the opportunity to buy the real estate.
If there is a transaction, you know, we'll have a seat at the table and be able to compete for that opportunity. Ideally, if we could dial it up on a whiteboard, we would have entered into a sale-leaseback day one. Just again, the uniqueness of these circumstances is why there are mortgages today. Then in terms of the path to investment grade, you know, ultimately at the end of the day, our cost of capital is what matters and allows us to compete. As our cost of capital goes lower, we feel that, you know, the funnel widens, and we will be able to compete for more things, both within gaming and outside of gaming.
We're thrilled to be on the doorstep of achieving an investment-grade rating here in the near term.
Okay. Just circling back to the discussion around asset pricing, and one of the pillars you discussed was the importance of being early, you know, investing at pre-institutional pricing. We've seen pricing improve on recent deals and cap rates have come in quite a bit. You know, John, you touched on CityCenter and the Cosmopolitan pricing. You know, is there still room for cap rate compression in gaming and in, you know, Las Vegas on the Strip in particular and, you know, which might have implications on sort of regional asset pricing as well? Do you think that, you know, assets are more fairly valued on a risk-adjusted basis today?
You know, how do you just think about valuation in the current environment, I guess, more broadly?
Yeah. Todd, so, I think the quick answer is yes. I think there's more room to run. I think one of the key things to keep in mind, and this came up in a conversation I was having with our partner at Blackstone, Tyler Henritze, a few weeks ago, which he said, "You know what? I think we should stop talking about cap rate when it comes to gaming real estate. We should just talk about unlevered cash flow going in, unlevered cash flow yield," because that's what we're getting, right? When we, VICI, buy at a 6.25 cap rate on the Venetian, we're getting 6.25 unlevered free cash flow yield out of the gate, right?
You know, a number of you have written about the transparency and the predictability, the integrity of triple net cash flows versus so many other REIT categories, where the supposed cap rate really is only a notional number that hardly ever resembles actual reality once you account for all CapEx and other forms of leakage from net free cash flow. I think as investors look at gaming, they will look at the fact that you're getting true free cash flow in what you buy, and I think that could have a compressive effect. When you look at what other Class A categories like office, like every other category that's so big that the sky's the limit right now, industrial and others, you're often looking at cap rates that don't actually reflect true free cash flow.
In gaming, that's what you get, and I think it will have a continuing effect on the on the compressing of our cap rates. As long as our cost of capital continues to improve at a velocity equal to the velocity of cap rate compression, we can very much stay in the game. David and his team and what they're doing with their balance sheet are making sure we do keep pace.
Okay, great. All right. Thank you.
Your next question comes from the line of Jay Kornreich from SMBC. Your line is now open.
Hey, good morning. As two of your nongaming investments have been with portfolio companies of PE funds that you also have relationships with on the casino side upon pending those closings, I'm just curious how important you feel those PE relationships are for nongaming investments and the opportunities that they provide.
David?
Yeah. Jay, good to talk to you. I mean, part of it just stems from the magnitude of capital these institutions have, right? The amount of companies that private equity is investing in. If we can play a role alongside some of the best real estate leisure hospitality investors in the world, we are thrilled to do that. We look at a lot of opportunities. We have a lot of opportunities, and we continue to work with and understand other sectors out there. These just happen to be with two folks that are also invested in real estate because they have institutions that are invested across all asset classes.
Again, if we can find ways to partner with our existing partners and future partners in private equity, we will absolutely do so.
Sure. You know, there's a lot of. There's several credit and liquidity enhancing opportunities in front of you, like we've discussed. I mean, just if you can provide any sort of timeline of when you expect them to occur, such as, you know, the credit rating improvement, potentially getting listed on S&P 500, refinancing debt such as your current from MGP. Just any sort of timeline when all those things gonna fall?
Well, it all stems around the timing of the MGP closing, as Samantha alluded to. That's, you know, still on track for the first half of next year. We would expect to issue the $4.4 billion of debt that we need to fund, again, the MGM OP unit redemption into the investment grade market. We've worked very closely, led by Erin Ferreri on our team, with the rating agencies to highlight the timing, highlight the transactions, highlight our funding, and make sure that they are locked up with us. As you know, as S&P alluded to, if we keep leverage below 6x, we'll get a BBB- rating.
Well, with the equity raise that we did in September and where our pro forma balance sheets, you know, being projected to target, we're below that number. We feel very confident that we'll achieve that investment grade rating sometime in the first half of 2022. Again, in connection with the MGP transaction. Then the other part of your question was refinancing of the MGP debt. That will occur, you know, at or near the time of those maturities. The MGP bonds are all bullet bonds. We will, you know, feel very good about the incremental accretion that we'll pick up from the interest expense savings, as we start to refinance that debt, you know, which I think the first one comes due in 2024, if I'm not mistaken, 2025.
Over the years, we'll have incremental AFFO pickup from those refinancing opportunities of the MGP bonds as well as the VICI bonds that are in place today.
All right. Thank you. If I could just sneak one more in. Just when we think about potential external growth internationally, do you see an opportunity to partner with your new MGM relationship to consider opportunities in Macau or the potential MGM Japan casino development?
Yeah. Jay, I would say that Macau, not likely, but Japan would be very intriguing.
Okay. Thanks very much.
Your next question comes from the line of Thomas Allen from Morgan Stanley. Your line is now open.
Thanks. Question for John. Putting your operator hat on, John, you mentioned earlier how well The Venetian did in the third quarter, $132 million of EBITDA. Any update thinking about long-term performance of that tenant? Thanks.
Yeah. Thomas, I apologize. John had to race to the airport to get to Cincinnati for the grand opening of our Hard Rock Casino Cincinnati asset and partnership with Hard Rock. Between me and Danny, we'll do our best. We're obviously very excited to see those quarter three results without international travel, without the convention conference ratio having fully come back. I'll now turn it over to Danny, who I think can give you a quick summary of our confidence that this is the kind of performance that Apollo can inherit and continue to grow upon. Danny.
Yeah. Thomas, you know, as we've talked about, there's a lot of opportunity there in the existing asset. One of the things we found interesting was just the margin differential between The Venetian and then other assets on the Las Vegas Strip. You know, we can't speak for Apollo and their strategy, but we would expect the existing team to run forward and execute on a lot of the projects and initiatives that, you know, they've created and have been evaluating for a long period of time. Look, I still think it's really early in. The Venetian's, you know, in their trajectory. I think there's a lot of opportunity there. Some of it's low-hanging fruit, some will take a little bit longer to execute on. You know, we're really excited and we look forward to closing on that asset.
Perfect. Just on, well, first of all, respecting that you've done a ton of deals, I'm still gonna ask a question about future deals, even though it's a little unfair given how much you've done. You know, most of your more experiential focused deals have been on the smaller side. You know, are you prepared to do, like a much larger deal or, you know, is the interest to kind of continue to ease into that subspace?
Yeah. I would say, Thomas, there's nothing that would prevent us strategically or financially from doing bigger deals outside of gaming. You are right. So far what we've done has been on a generally smaller scale. Although I will say that assets like Chelsea Piers do qualify as, you know, as we like to say, as casinos without gaming. The P&L at Chelsea Piers is actually very significant. That's not entirely borne out obviously when we only do a mortgage loan. These assets do have some heft to them. Great Wolf Resorts also have heft to them.
While our participation so far is only on the financing side, when the day comes when we're successful, as we believe we will be, in becoming real estate owners of assets like this, we will be buying assets that have a lot of economic throw weight.
All right. Thank you.
Your last question comes from the line of Daniel Adam from Loop Capital Markets. Your line is now open.
Hello, Daniel.
Good morning.
Good morning, everyone. Thanks for squeezing me in. Just one for me on the anticipated funding requirements for the $4.4 billion cash consideration to MGM. In the 10-Q that was filed last night, I noticed that you expect to fund that portion of the deal with long-term debt, not equity. Am I correct in thinking that you initially intended to use a combination of debt and equity when the transaction was first announced? If so, does that change your accretion expectations at all for MGP? Thanks.
Hey, Dan, it's David. Good to talk to you. Our intention and our requirement, frankly, was to fund that $4.4 billion in debt. There's tax reasons why that has to be funded in debt and why that has to be funded really at the time of all conditions to the merger being satisfied. So the punchline is no, the accretion doesn't change. We'd always anticipated issuing equity, paying down the term loan, and then essentially relevering at a point in the future once we go to the market to raise that $4.4 billion of debt.
Okay, great. The timing around the funding of that, I imagine that will be close to when you expect the deal to close.
Yeah. We're often asked if we would put that into escrow. We'd take advantage of the markets ahead of closing. Again, the way that the agreements are laid out, the way that the tax requirements, what we need to satisfy for tax reasons, we will not issue that debt until all conditions to the merger are satisfied, and we have a 30-day window under the agreements to issue that debt. Sometime in the first half of next year, we'd expect.
Okay, great. Thanks, guys.
Thanks, Dan.
Thank you, Daniel.
There are no further questions at this time. I'll now turn the conference back to Ed Pitoniak.
Yeah. Thank you, operator. Let me reiterate our thanks to all of you being on today's call. We believe our shareholders are gonna be very well served by VICI growing quickly and energetically in a newly institutionalizing asset class with great partners during what has been an uncertain period. We believe as well that we are well positioned to continue growing our portfolio creatively while driving superior shareholder value. Again, thank you, and good health to all.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.