Gaming and Leisure Properties (GLPI) Q2 2022 Earnings Call Transcript | The Motley Fool

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Gaming and Leisure Properties (GLPI -1.25%)
Q2 2022 Earnings Call
Jul 29, 2022, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Gaming and Leisure Properties second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Joe Jaffoni, You may begin.

Joe JaffoniInvestor Relations

Thanks, Kyle. And good morning, everyone, and thank you for joining Gaming and Leisure Properties second quarter 2022 earnings call and webcast. The press release distributed yesterday afternoon is available in the Investor Relations section on our website at www.glpropinc.com. On today’s call, management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income, and financial guidance, as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management’s current estimates, and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to risk factors and forward-looking statements contained in the company’s filings with the SEC, including its 10-Q and in the earnings release, as well as the definitions and reconciliation of non-GAAP financial measures contained in the company’s earnings release.

On this morning’s call, we are joined by Peter Carlino, chairman and chief executive officer at Gaming and Leisure Properties. Also joining today’s call are Desiree Burke, senior vice president, chief accounting officer, and treasurer; Brandon Moore, executive vice president, general counsel, and secretary; Steve Ladany, senior vice president, chief development officer; and Matthew Demchyk, senior vice president, chief investment officer. With that, it’s my pleasure to turn the call over to your host, Peter Carlino. Peter, please go ahead.

Peter CarlinoChairman and Chief Executive Officer

Thank you, Joe, and good morning to everyone who has been with us today. I’m happy to report another excellent and impactful quarter. And I’ll highlight, as I always do, that we have outlined all the activities this quarter pretty thoroughly in our release. And rather than have me go through or read in detail all the stuff that’s available there, I think if you look at page — the bottom of Page 1, right through Page 4, you’ll have a perfect idea of everything that we have accomplished this quarter.

Notably, we announced a significant transaction with Bally’s that is in the range of or over $1,000,000,000, which combined with the Cordish transaction in the last eight months, aggregates about $2.7 billion in new business and potentially as much as $3.1 billion, depending upon how the Bally’s transaction shakes out. So it’s been a pretty successful quarter for us, and I do want to highlight that. Again, lots and lots of detail that we provided, and then we’ll turn to your questions. I’m going to ask now Desiree Burke to highlight some financial points that I think will be of value.

Des?

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Sure. Thanks, Peter. Good morning. Our total income from real estate outperformed the second quarter of 2021 by over $52 million.

That’s as a result of the fact that we closed the Cordish Live! transactions, which increased cash rental income by approximately $31 million. We closed the Bally’s transactions in June 21 and then added the Rock Island and Black Hawk properties to that lease, effective April 22, which resulted in increased cash rental income of $10 million. We completed the sale of the operations of Baton Rouge in Perryville last year and leased the real estate, which increased our rental income by $4 million. We achieved escalators on our Pinnacle Boyd, Belterra and Penn leases, which added $3 million of rent and also had positive percentage rent resets for the Pinnacle Boyd and Belterra leases, which were effective May of 2022.

We had higher non-cash revenue gross-ups and investment and lease adjustments, partially offset by straight line rent adjustments resulting in a net $5.3 million increase. Our operating expenses decreased by about $16 million, and that was primarily due to the decline of $28 million of gaming expense and G&A expense related to the sale of the TRS operations. Offsetting this decline, we incurred non-cash charges of $2.2 million related to the provision for credit losses associated with the Cordish leases and an increase in the lease gross-ups and ground rent from the new acquisitions, as well as amortization of $3.5 million and an impairment charge on land that we intend to sell shortly for $3.3 million. We have included in our release full year 2022 guidance for AFFO per diluted share in OP units ranging from $3.50 to $3.54, which does not include the impact of pending transactions and — other than the Tropicana.

With that, I’ll turn it back to Peter.

Peter CarlinoChairman and Chief Executive Officer

Thank you, Des. One note I’d like to make, and we’ll introduce Matt Demchyk in just a second. As you look at what we’ve been able to accomplish and the cap rates that we have been paying for these assets, Matt likes to say that we, as a company, compete on capability rather than cost of capital. We’re proud of that.

I think it is one of our great strengths in tackling some very complex transactions and making them work for our shareholders. So with that, Matt, you want to go ahead?

Matthew DemchykChief Investment Officer

Yeah. Thanks for those thoughts, Peter, and thanks to everyone for tuning in. The current backdrop really serves as a reminder that volatility breeds opportunity. And those of us who have lived through a few cycles have learned that the key, if you want to take advantage of it, is to have staying power.

That means a financial position that enables you to zig while others are forced to zag. As we’ve watched funding costs for companies diverge, our thoughtfully constructed portfolio safe, durable cash flows combined with our commitments to balance sheet strength and liquidity and capital markets discipline have set that stage for opportunity. And to that end, this past quarter, we again demonstrated our team’s ability to uniquely source and structure a transaction for the benefit of our shareholders. Our team has again created a bespoke solution for a tenant partner with our recently announced Bally’s transaction.

It really illustrates Peter’s point that we compete on capability, not just cost of capital. At a time when few large scale transactions have been announced, we were able to use structuring and other levers to achieve a noteworthy 7.6 cap rate. We’ve again demonstrated discipline with our funding for the transaction, locking an adequate equity, a key in conjunction with our transaction announcement to position our balance sheet well within our target leverage range of 5 to 5.5 times. Our recent bank backstop equity raise was over five times subscribed, reflecting very strong support from existing and new shareholders.

We’ve also begun the process for a delayed draw term loan to support the funding and tax structuring of our Bally’s transaction. Our actions reemphasize our commitment to balance sheet strength and our respect for the role it plays in our long-term success. Our core message to potential counterparties is that despite the macro backdrop and recent volatility, we are emphatically open for business. With our leverage at a comfortable level and benefiting from a continually demonstrated match funding discipline, our team continues in its unrelenting efforts to unearth and create opportunities with attractive, risk-adjusted returns.

Our overarching objective remains the same increasing long-term intrinsic value per share for all our shareholders. Thanks for joining today and I’ll turn the call back to Peter.

Peter CarlinoChairman and Chief Executive Officer

Thanks, Matt. I think it says it pretty well. It outlines what the ethos of this company is as we think about creating value for our shareholders. And with that, Kyle, would you open the floor to questions?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Neil Malkin with Capital One Securities. Please proceed with your question.

Neil MalkinCapital One Securities — Analyst

Everyone. Good morning. Nice quarter. I’m sure everyone appreciates you reinstating guidance, so thank you for that.

First question, Matt, you talked about being thoughtful and making sure the balance sheet was in a position to be able to perform well in uncertain times, but also be in a position to be opportunistic. And along those lines, do you feel like you have or will see more opportunities with existing or potential new tenants as they look to, grow or access the capital markets? But at a time when the high yield debt market is less attractive than a sale leaseback opportunity, that’s providing them with lower cost, long-term capital to execute any of their discretionary growth endeavors. Is that is that something that you think will start to occur and have you seen that yet?

Matthew DemchykChief Investment Officer

Yeah. Well, to the first point you made, I’ll reemphasize. Having a balance sheet and liquidity position that makes us open for business is certainly the first step in that process. And having more of a connection points with existing and potential tenants is the next key piece.

And then beyond that, I’ll comment. I mean, certainly if you look at our relative all-in cost of capital versus that same metric for the folks we talked to, it would suggest that the backdrop could be ripe for more opportunity. But there’s also more to it. I mean, we’re not trying to replicate market risk and returns when you just look at the cost of their debt or where that trades, because we could do that by just buying a portfolio of unsecured debt and our potential counterparties.

Our mandate is really to create a superstructure of lease terms and coverage and credit enhancement and all the other factors that you watch us continually put into our structures that collectively result in our shareholders getting attractive risk-adjusted returns. And if you look at the deal we just did with Bally’s, I think it’s a great illustrative example, where we were able to thread the needle to achieve something important to them that arguably the backdrop helped facilitate. I mean, they had a recently a share repurchase out there that I’m sure they got far better returns on in their eyes than we might get on a real estate, but we are looking for a different risk profile. And when you think about the relevance of that for a counterparty, it’s kind of win-win because, to your point, there’s certainly a perpetual nature to the capital that we’re using.

So big picture, watch us continue to have the relationships to understand when the stars align, to move meaningfully when they do, and to make sure that we’re always positioned to move aggressively and quickly when opportunities arise and continue to use the discipline again on the balance sheet, to your point, to support that.

Peter CarlinoChairman and Chief Executive Officer

This is Peter. I think the answer was yes. OK. Matt highlighted it very well.

I stuck my neck out earlier in this year to say for the first time that I think there is an increased likelihood and — that we’ll be able to get together a project or two with one or more of our tenants. I mean, we’re working hard at it this year. We see that window, the window is open. Matt is very attuned to that and — we could probably say more, but we won’t.

We take that opportunity very seriously.

Neil MalkinCapital One Securities — Analyst

OK. I appreciate that and I won’t push that too much. Other one is just do you have an update in terms of the Bally’s transaction with the regulators or approvals? And is that going to be something where you can actually do both Lincoln and Tiverton, or is it going to be, looking more like Biloxi, Tiverton, and then potentially Lincoln later? Any updates would be great.

Peter CarlinoChairman and Chief Executive Officer

Brandon Moore is, of course, is sitting here with us right now. I think he was hoping to stay silent on this call. But with that, Brandon, why don’t you take that, please?

Brandon MooreExecutive Vice President, General Counsel and Secretary

Well, I think as it relates to the regulatory process for this transaction as a whole, as you probably know, these are the only two assets in Rhode Island. So Rhode Island regulatory has not ventured into the REIT world yet. So we’re their first foray into that. And I think there’s some work that needs to be done to figure out how we’re going to be licenses there and how our lease structure and our governance structure and all that plays into licensure.

That being said, I don’t think that differentiates between Tiverton and Lincoln. I think the regulatory process in Rhode Island will be approving a REIT structure in Rhode Island and what we’re offering. And so I don’t I think it will be both of those likely to be approved at the same time or neither of them. And so I don’t think it’s a situation where Tiverton gets approved and Lincoln doesn’t or vice versa.

Steve LadanySenior Vice President and Chief Development Officer

And if — and this is Steve, if your question was more around the amendment with respect to the Bally’s, as you may be aware, they pulled the amendment. They were unable to reach a consensus agreement with their lender group. However, Bally’s continues to be open to discussions to try to reengage on that topic if, in fact, circumstances were to change and the parties were to decide to try to pick that back up again. So I think from our perspective, we have — the way the deal works is the pivot excuse me to Biloxi doesn’t happen until November.

And if, in fact, that happens, as you’re well aware, we would have then a two-year option on Lincoln. And that’s what Peter alluded to in his opening remarks of there’s, I guess, an outside chance that we could, in fact, end up with an even larger aggregate transaction if, in fact, we closed Tiverton and Biloxi first and then came back and closed the Lincoln.

Neil MalkinCapital One Securities — Analyst

Yeah. I guess, not to belabor, but wouldn’t that not make sense based on what you just said if you’re going to be all or nothing? If Lincoln doesn’t get approved and Tiverton also not then get approved?

Steve LadanySenior Vice President and Chief Development Officer

Yeah, we’re — I think we’re mixing concepts. The concept that Brandon discussed was a regulatory concept. And his commentary around Lincoln and Tiverton was that they both in the same state of Rhode Island and therefore an expectation that if you were able to get regulatory approval for one, you likely then can get regulatory for both. The delta that I think we’re — you’re bringing up now is there is a lender consent required, not a regulatory consent, a lender consent required for Bally’s with respect to the Lincoln asset.

And that’s why that there would be the outcome of Tiverton and Lincoln could be disconnected because you don’t need the lender consent to get the Tiverton asset. You just need the regulatory approval.

Neil MalkinCapital One Securities — Analyst

OK. Makes sense. Thank you.

Peter CarlinoChairman and Chief Executive Officer

Yeah. Look, I’m going to speculate that that’s the minimum possible outcome, Tiverton and Biloxi, irrespective of what consents they may need from their lenders. There is the question of approval in Rhode Island structure. Do they license all the management, for example, or is it, as in many states, no license are required at all.

This is — that part’s unknown? But we expect that ultimately we will get there.

Neil MalkinCapital One Securities — Analyst

Thank you, guys.

Operator

I would now like to introduce Barry Jonas with Truist Securities. Please proceed with your question.

Barry JonasBank of America Merrill Lynch — Analyst

Thank you for that introduction.

Peter CarlinoChairman and Chief Executive Officer

Where’s the drum roll?

Barry JonasBank of America Merrill Lynch — Analyst

I want to start with Tropicana. Any sense within the second half when the deal could close? What are we we waiting on? And then any update on redevelopment opportunities there? Is it kind of you guys or Bally’s really driving those discussions?

Brandon MooreExecutive Vice President, General Counsel and Secretary

I’ll tackle the first part by the easier part of your question. The regulatory process is a little bit opaque to us because we’re not licensed in Nevada as a REIT. But from what we understand, that process is coming to a conclusion. So I would think that in the next few months, we hope that that transaction will be in a position to close.

I’ll let others address the reinvestment in the property.

Peter CarlinoChairman and Chief Executive Officer

Well, ostensibly, it has nothing to do with us necessarily. It might be an opportunity under some circumstances, but there’s nothing to find today. I think you’re all generally aware of the kind of things that that Bally’s is looking at for a development at that site. But we don’t run that process.

We have, obviously, an interest — a strong interest. We understand it’s proceeding a pace, but we can’t really tell you where that stands today.

Barry JonasBank of America Merrill Lynch — Analyst

Got it. Got it. And then just as a follow up, can you give an update on the construction in Baton Rouge, whether that’s timing or budget? Any update there would be great.

Peter CarlinoChairman and Chief Executive Officer

Steve, you want to take that?

Steve LadanySenior Vice President and Chief Development Officer

Yeah, I think the timing expectation is still first quarter of ’23. I think, as everyone’s aware of, the macroeconomic and actual just labor situation nationwide, I think that you would imagine there have been some fits and we’ve been dealing with a number of different complications. But project’s moving along. Like I said, our tenants looking forward to moving landside there and we’re actively working to, to make that happen.

Barry JonasBank of America Merrill Lynch — Analyst

Great. Thank you so much.

Operator

Our next question is from Haendel St. Juste with Mizuho. Please proceed with your question.

Haendel St. JusteMizuho Securities — Analyst

Hey, guys. Good morning. So I guess the first question is the follow up on Bally’s. I guess I was hoping you could help us understand the tax structuring in the Bally’s transaction and the implications for GLPI? Thanks.

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Sure. So at a very high level, they will be buying into our operating partnership and we will be guaranteeing some of their debt to help them delay the payment of any taxation. And the tax structuring is the key to that transaction of how we’re pulling that together. But that’s at a very high level, how the tax structuring will work so that they can — again, it’s a deferral of tax by using the structure.

Haendel St. JusteMizuho Securities — Analyst

OK. That’s helpful. I guess curious how much of the debt are you guaranteeing? Just a quick follow up.

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Yeah. We haven’t determined that just yet. We have to wait and look at their tax basis and their assets and some other diligence items that we have to do in order to be able to complete that.

Haendel St. JusteMizuho Securities — Analyst

OK. Fair enough. Matt, maybe one for you. I guess.

Thoughts on equity, use of the ATM and leverage in this environment. And if you feel you’re in position today to execute on more transactions, given I guess with a slightly higher cost of capital and your balance sheet objectives.

Peter CarlinoChairman and Chief Executive Officer

Matt, you want to take that?

Matthew DemchykChief Investment Officer

Sure. Yeah. So as I stated in the intro, we’re happy with our leverage level now. I mean, really staying within our 5 to 5.5 range is the key for us.

And to the extent we had an opportunity set that made us feel somewhat confident, you certainly could see us use, in conjunction with that mentality, the ATM as a tool in our tool chest. We don’t have a goal of de-levering for the sake of de-levering beyond being within that range. There’s a certain efficient frontier of our leverage that we want our shareholders to benefit from. But that said, yes, it’s certainly a tool that we have and we’ll be thoughtful about its use within the context of those other comments.

Haendel St. JusteMizuho Securities — Analyst

Wonderful. Thank you, guys.

Operator

Our next question is from Jay Kornreich with SMBC. Please proceed with your question.

Jay KornreichSMBC Nikko Securities — Analyst

Hey. Thanks. Good morning. Some new cities have recently legalized or are in the process of legalizing full scale casinos such as New York City, Chicago, which led likely to the recent Bally’s transaction with their development there.

Can you maybe give us an update on any other cities of states that you expect to approve full scale casinos or add licenses in the near future, which could provide additional external growth opportunities for you?

Steve LadanySenior Vice President and Chief Development Officer

Oh, sure, sure. This is Steve. Look, I think expansion of the gaming TAM is something we’re always focused on. And so we are closely watching and eager to try to be helpful and participate.

We agree that Chicago and New York seemed the most near-term. We continue to monitor what’s going on in Georgia and some other states such as Alabama. I think as far as near-term goes, I probably would not put Texas in that in that bucket but I think we constantly look around the country and realize the opportunity not only for the gaming operators and the gaming REITs, but more importantly, the states and the taxpaying public and the benefits that that can prove. So we’re actively looking I think you’ve named the two that are most near term, but I don’t I would never suggest that there’s no others that could pop up in the medium term.

Jay KornreichSMBC Nikko Securities — Analyst

OK. Thank you. And then to the follow up within your current portfolio, are there any expansion opportunities that your tenants are looking into at this time, which could be a development opportunity for you to finance?

Peter CarlinoChairman and Chief Executive Officer

Yeah. Let me let me take that. As I suggested before, we are in active discussion with a number of our tenants today about some interesting possibilities. I mean, they’re just that.

It’s the tenant who decides when and if they want to pull the trigger. But we’ve talked about that without naming locations, hotel opportunities this year. And I think the stars may be aligning better than they have been almost from the beginning. So we’re feeling optimistic.

That’s the best word, I think, I can use that. You’ll see some significant investment with one or more of our tenants in the next 12 months. I’ll just pull that out of the air, but we’re hopeful that that will be the case.

Jay KornreichSMBC Nikko Securities — Analyst

OK. Thanks very much for the time.

Operator

Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Ronald KamdemMorgan Stanley — Analyst

Just a really quick one on — obviously, a lot of talk of a recession and the sort of the gaming having very recession-resistant consumer spending. Question is really when you look at sort of the facilities today, is there something different, whether it’s a diversification of revenues, whether it’s marketing, whatever it could be? What are some of that sort of intangible factors that gives you guys confidence in sort of that those facilities producing and — as we go to a downturn? Thanks.

Steve LadanySenior Vice President and Chief Development Officer

Yeah. It’s like, look, Ronald, this is Steve. Appreciate the question. I think if you look back at the last recession, and we had a slide, Matt, be able to comment if it’s still in the deck.

It’s been in the deck for years now. And it showed what happened from a rent coverage perspective for the regional properties versus the strip. And this is not me saying that the strip is going to act the same way as it did historically. Obviously, we’ve seen a nice run up post-COVID on the strip, but if you look back at the slide in history, I guess, it would suggest that the regional assets held up better in the recession.

And I think we attribute that to the fact that there is not the same level of diversification of revenues. The revenues are majorly focused on the gaming business, and therefore, our belief that people do focus on the gaming and enjoy that activity remains true. Their focus on paying $200 for a steak might wane. And so I think that that slide, if it’s not out there anymore, we’ll make sure we will get it out there again.

Matt, do you know if that’s in the deck?

Matthew DemchykChief Investment Officer

I’m sure it’s part of the deck. And to just flesh out the answer, simply drive two is better than fly two, if you have a recession. Lower fixed operating costs are better than high fixed operating costs and higher state tax rates are better than lower tax rates when you think about how it impacts the bottom line. And to Steve’s point, the regional assets check all those right boxes.

And it’s also very important for us to be thoughtful about coverage in this environment. And you’ll see in the last few transactions we’ve done, whether it’s this last deal with a blended coverage at two times, the deal before that with Cordish, Pennsylvania too, and then Maryland as a single asset, 2.7 times. We certainly look to build in a margin of safety in our underwriting to ensure that we can sleep at night knowing that our rent will be collected now and well into the future.

Peter CarlinoChairman and Chief Executive Officer

Yeah, that Slide, which I think many have seen, Matt, you’ll recall, indicated that at the low point ’08 in that whole collapse, coverage in Vegas dropped to one — one to one or even slightly below at the nadir. The coverage in the regional market, never below 1.4 to 1 — about one and a half. So it never got to disaster range, even in the worst of times, which is something that I think we’ve been pretty firm and I’ve been clear about in many, many presentations, that the regional revenues are essentially bullet proof.

Ronald KamdemMorgan Stanley — Analyst

Helpful. And my quick follow up is the Bally’s. Is that still expected to close at the end of this year or could that slip into next year?

Peter CarlinoChairman and Chief Executive Officer

Yeah. Is it the Tropicana you’re interested in or is this the Tropicana, Las Vegas or the Rhode Island, Mississippi —

Ronald KamdemMorgan Stanley — Analyst

The Rhode Island, the Rhode Island.

Brandon MooreExecutive Vice President, General Counsel and Secretary

I don’t think we have enough visibility to know. We’re still targeting year end. I think in the coming weeks and months we’re going to have a much better idea. As you probably can imagine, the regulatory process is usually the long pole in the tent for our transactions.

This one is no different. So as we continue to work with Rhode Island, I think we’ll have better visibility into whether or not year end is possible but we’re certainly targeting it from the business side.

Peter CarlinoChairman and Chief Executive Officer

Well, it may be a little bit slower or unpredictable simply because they don’t have any REIT experience. I think they get it and I’ll understand it, But it does add a layer of complexity that they’ve got to get their arms around.

Brandon MooreExecutive Vice President, General Counsel and Secretary

Yeah, certainly a layer of uncertainty in the timing. States that already have REITs, we usually have better visibility into how long that process might take, and I think this one, we expect to work cooperatively and together with the regulators. And in fact, we have already started that, but we just don’t have enough visibility at the moment to really accurately, prudently predict whether that will happen by the end of the year, but that’s the goal.

Ronald KamdemMorgan Stanley — Analyst

Thank you.

Operator

Our next question is from John Massocca with Ladenburg Thalmann. Please proceed with your question.

John MassoccaLadenburg Thalmann and Company — Analyst

Good morning.

Peter CarlinoChairman and Chief Executive Officer

Good morning.

John MassoccaLadenburg Thalmann and Company — Analyst

Maybe just turning to the new guidance, I’m just kind of wondering, Des, I understand there’s some seasonality to the higher rent and you can have dilutive impact from the share issuance in July that’s not going to be deployed till later this year or even potentially next year. But what are kind of the pushes and pulls that got you to the guidance range on a per share basis just given, obviously, the annualized Q2 would be way above it. I understand you can’t do that, but just — maybe any other kind of factors that are going into that guidance that kind of created the 3.50 to 3.54 range for AFFO per share?

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Sure. So what’s driving the range or different assumptions on so far the interest rate on our variable rate debt, the assumptions that you make on percentage rent and how the Ohio properties for Penn perform as well as we have a reset coming later this year for the Meadows property, assumptions on the timing of the Tropicana transaction, when that occurs, assumptions on escalators and there’s a few left remaining to happen this year, so those are the key assumptions and drivers and I agree, you can’t just take the quarter, but you can take year to date numbers and almost double them and get close to within the range. But it’s really hard to do that because of, as you said, there is some seasonality on the — in the Ohio properties as well as the fact the timing of when like Black Hawk and Rock Island closed. And that wasn’t until April and when the Cordish transactions closed in January and March.

So those are the big drivers. Really, four things. What’s happening with our interest rate? What’s happening? What are your assumptions on the percentage rent? What’s the timing of the closing of the Tropicana, and what are your assumptions on escalators?

John MassoccaLadenburg Thalmann and Company — Analyst

And I guess maybe just because there’s no other capital markets assumptions besides the July closing of the equity offering, correct?

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

That’s correct.

John MassoccaLadenburg Thalmann and Company — Analyst

OK. And then maybe, as you kind of look out at future deal volume, assuming you still are in a rising interest rate environment, how do you think about timing of deals? It seems like kind of net lease, broadly speaking, there’s been this idea that, cap rates are going to kind of expand in the back half of the year and maybe kind of prudence on deploying capital will make sense because of that. Is that something you’re seeing? Is that something that makes sense strategically or just because of the bespoke nature and the kind of limited nature of kind of assets you can buy that you kind of take what you can get when you can get it?

Peter CarlinoChairman and Chief Executive Officer

Yeah. Let me take my no. I’m going to have Matt answer that question, but essentially you use the right word, the bespoke nature of the transaction that we’ve done. Many have been driven by some other things that one of our tenants or a new prospect might want to achieve, and that’s been the driver.

So, Matt, what are you why don’t you take that?

Matthew DemchykChief Investment Officer

I mean, broadly, John, there’s clearly a bid-ask gaps in a lot of the real estate world and the structuring and all the things we talked about. Throughout this call, Bally’s enabled us effectively to get to our economic ask, which was the 7.6 cap rate that you saw. So few fees beyond that too. If you include those, it’s even slightly a better return, all in.

So we wouldn’t have done that if we didn’t get over our return threshold and we calculate that based on our cost of capital. At the time we plugged the actual numbers in and the key next piece, which we’ve now delivered on multiple times, is to lock that in. I’ve watched a lot of folks get offsides by getting a longer transaction and not locking in their cost of capital and the world’s changing. As long as we follow that discipline, again, we’re open for business.

There’s absolutely no reason for us to say we’re just not going to do deals. As long as we get a spread and lock it in, we can do that deal and a better one later in the year if they come up, to your point, as long as we’re in the position to keep doing it and that’s what we position ourselves to do. Remember, we did — Peter’s comments at the beginning of the call, close to $2 billion toward the end of last year and then another billion dollars in the last few weeks. If you asked us 12 months ago, I think the quantum of transaction volume we might expect could have been much lower.

I mean, the visibility is not there. But you also I mean, there’s errors of omission, too. You can’t pass on an opportunity just because of the macro. If you can make the math work and you can lock in the return, it’s our job to do that.

We’re — when things — when the stars align, we know what it looks like and we’re happy to push the button at the right time for our shareholder’s benefit.

John MassoccaLadenburg Thalmann and Company — Analyst

That makes sense. And then one last quick detail one. If — I guess the timing for the close of the Bally’s transaction, how can that roughly be impacted by a switch to the Hard Rock Biloxi deal versus having, if you do somehow get linked into Tiverton together? I mean, what’s kind of the timing differential if you switch to the smaller transactions?

Steve LadanySenior Vice President and Chief Development Officer

I don’t think the timing is materially different from a regulatory perspective. As you know, we have several facilities in Mississippi. We’re fairly confident that a sale leaseback in Mississippi will be a fairly streamlined process. I think the issue is if Rhode Island approves our entering into a lease for properties in their state in a sale leaseback, the only question will be whether or not the Lincoln Lender consent has been obtained.

And so it won’t be a regulatory issue. So I think I think that will be the real dictator is when Rhode Island approves our entering into a lease for properties there, we’ll either be buying Tiverton and Lincoln or we’ll be buying Tiverton and Biloxi because Lincoln isn’t possible because of the lender consent. I think that’s the real decision tree.

John MassoccaLadenburg Thalmann and Company — Analyst

OK. Thank you very much. That’s it for me.

Peter CarlinoChairman and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question is from Smedes Rose with Citi. Please proceed with your question.

Smedes RoseCiti — Analyst

Hi. Thanks. I just wanted to understand a little more about how you might be thinking about financing the balance of the Bally’s transaction. I mean, you generate a lot of cash through year end, but I mean, are you sort of leaning more toward debt issuance to OP issuance to Bally’s? And is the timing really just related to the regulatory process you mentioned going through? Or is it more sort of opportunistic around where your cost of capital is? Just trying to sort of think about how about — how those things might kind of match up as we move toward that closure.

Steve LadanySenior Vice President and Chief Development Officer

It’s Steve. It’s Steve. I’ll give that one a shot. I think the timing, as you’re hearing from us, is related to regulatory.

I think with respect to the funding of the transaction, we obviously issued the equity. We issued equity already. We do have the proceeds coming from the Tropicana sale. We expect to have those.

Then that sales $150 million to the remind you and then the remaining portion of the, of the financing need will come from debt. And we expect the form of the debt to be predominantly in the form of bank debt. So we are, as Matt mentioned, we’re in market with that now and should have, obviously, an update for everyone by next quarter for certain.

Smedes RoseCiti — Analyst

It’s like a billion here. It’s Smedes. Just a quick question. Just going back to the guidance and appreciate you putting out both the gross AFFO as well as the per share numbers, given the equity raise in those proceeds are, obviously, dilutive until they can be put to work.

And maybe just focusing on the gross AFFO guidance, because I think that may help sort of bridge some of the gap between street expectations and you had about 453 million of AFFO in the first half. And based on that 900 to 920 sort of implies about 460 in the second half of the year. And you called out interest expense, percentage rents, the Tropicana sale, and the escalators. Can you sort of goalpost each of those items and effectively what you’ve embedded into that second half midpoint range of 460 SKUs? So that we really understand the puts and takes of those items that are already known.

So can you break that out a little bit more for us, please?

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Yeah. We don’t have any other detail that we put into the release, so I can’t break that out for you. But again, it’s just assumptions on those four items, how to get to the guidance.

Smedes RoseCiti — Analyst

Yeah, but are those positives? Are they negative drags? I recognize those are the items. We knew those items last night, but we actually need the numbers, right. So are they percentage rents? Are you assuming it’s — how much within there? When are you assuming the Tropicana sale? What are you assuming for so far? Right. I mean, that’s the detail that we really need to really understand how the numbers are going to shake out.

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Obviously, for the Tropicana, it could either be closed this year. And we always say — we said the second half. So there’s six months of range where it could be closed this year or it could not close at all, right. If it closes on December 31st, there would be no impact to that one.

So that’s how that swings, the percentage run. It’s pretty much an all or nothing when you’re looking at the one — whether or not they hit their adjusted revenue to rent ratios. And as you can see in the tables on Page 14 and 15, you can see that most of the leases look like they’re going to hit their percentage rent. Well, they’re going to use their escalation provisions.

[Inaudible] You pull off our yield curve and it’s changed significantly. The sofr rate has changed significantly over the last month. Even so, it’s anybody’s guess as to what that will look like when we get to the end of the year.

Smedes RoseCiti — Analyst

I know but you provided guidance, so I’m just trying to get — you provided the 900 to 920 for the full year, 460 midpoint. I’m just trying to understand what assumptions you have used. I know it’s a lot of volatility, uncertainty, but I’m just trying to better understand what you’ve actually put into those numbers so we can make sense of the guidance. I don’t know why you — I mean the Tropicana, but what’s at the low end of the range and what’s at the high end? It’s not like — this shouldn’t be rocket science.

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Obviously it’s nothing or it’s all of the rent. Like it’s all or nothing. And you’re right, it’s not rocket science.

Smedes RoseCiti — Analyst

Right. I’m just trying to understand what’s embedded in the numbers you put out. So if you can put the goalpost for each of those line items that impact the 900, because you really have a simple — most of your rent should be earned, right? That’s what makes this company is very easy to understand. But when there’s when there’s variables that can swing, understanding the impacts to your numbers is obviously important, especially if you are going to provide the bottom line guidance.

Actually understanding the assumptions that drive it is more important than the bottom line number.

Peter CarlinoChairman and Chief Executive Officer

Matt, I’m not sure if you have anything you want to add to this. Frankly, we’re have not prepared to go any further with that question now.

Smedes RoseCiti — Analyst

All right. So it sounds like —

Peter CarlinoChairman and Chief Executive Officer

We didn’t want to deal with guidance in the first place because —

Smedes RoseCiti — Analyst

Well, don’t give guidance. I mean, like you can’t — I know you didn’t want to do it, but you’ve done it. And we’re just trying to understand the impacts to these variables that’s embedded in those numbers. And so that’s it.

Like the fact that you said, OK, Tropicana, zero, probably at the low end. And at the high end, it’s the full rent, assuming close. I don’t know. I don’t know if that’s closing and that’s — understanding what’s embedded is much more important than the bottom line number.

So that’s, it is what it is.

Peter CarlinoChairman and Chief Executive Officer

OK. I get that. We have that [Inaudible]

Smedes RoseCiti — Analyst

OK. OK. Thank you.

Operator

Our next question is from David Balaguer with Green Street. Please proceed with your question.

David BalaguerGreen Street Advisors — Analyst

Good morning. Sorry if this has been clarified, but I just want to ask the clarifying question on this Bally’s deal. So if those two Rhode Island properties are closed, is there anything that would preclude you from still being able to pursue the Biloxi property later?

Brandon MooreExecutive Vice President, General Counsel and Secretary

The Biloxi will not be part of the transaction if those too close. It doesn’t preclude us from participating in a sale leaseback on the Biloxi property down the road should Bally’s elect to do that.

Peter CarlinoChairman and Chief Executive Officer

Yeah, I think the real question is do they feel they have a need or a desire to do that at that time? But clearly, Brandon answered it. Precisely right, that it’s not part of the transaction if we get the other two properties, which really were our first goal.

David BalaguerGreen Street Advisors — Analyst

Got it. So we can take that as a signal that this is the property that you would be potentially interested in if Bally’s decided later on that, hey, another sale leaseback makes sense.

Absolutely. We’re in the business of leasing property, so you bet. Got it and just wanted to touch on the Meadows, please. Just looking at coverage levels.

I know with the escalator coming this October and these coverage levels, I recognize that those are trailing. And the casino business has been pretty strong this year. We don’t know where that could go. But can you remind us that and when that reset would occur, that sort of last day, were you looking at coverage to decide if it qualifies for that reset everything?

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Yep. And it’s noted for you on Page 14 of the lease, but it is lease commencement date is that’s the date in which you look at them each year. So depending on which one you’re looking at, it’s out there on Page 4. I think Meadows is September, if I recall correctly.

Peter CarlinoChairman and Chief Executive Officer

We’re looking at it. Thank you.

Operator

Our next question is from John DeCree with CBRE. Please proceed with your question.

John DeCreeCBRE Group — Analyst

Hey, everyone. Thank you for taking my questions. I think we covered a lot of ground. So just two.

One is just a kind of forward-looking, clarifying question. But in the event the alternative transaction is the one that works with Bally’s this time and Biloxi is included between now and when the option expires, is there a mechanism that would require Bally’s to get lender consent ahead of time, or would that just be addressed at the time that you prefer to exercise that option? Just curious if Bally’s has to kind of actively work toward that amendment.

Brandon MooreExecutive Vice President, General Counsel and Secretary

Yes. So the  — we’re in the process of negotiating the definitive documents. The standard by which Bally’s has to act hasn’t been fully fleshed out. I think you’re going to assume that we will expect them to pursue that consent.

Whether or not they should be actively doing that at all times, I think it’s a business judgment on their part as to how to work with their banks and how best to get it. The option doesn’t necessarily require them to be actively pursuing that consent at all times, and I think that’s why it has the length that you see. Stretching out two years, gives them quite a bit of runway to deal with their banks on whatever fashion they believe is best for their business and their relationships.

John DeCreeCBRE Group — Analyst

Yep. That’s good. That’s kind of what I figured. Appreciate that clarity.

And then just maybe one one big picture on kind of perspective deal volume. I think a little bit earlier in the call we’ve touched on it, but given where interest rates have gone and the market’s starting to adjust to the new normal perhaps at higher cost of capital than what we’ve been used to have. Has the phone started to ring more than it has? I imagine it’s always a pretty steady flow of conversations. But curious if you’ve seen maybe some of your partners, start to think a little bit more about doing something or maybe folks that you haven’t heard from in a long time that are now kind of reassessing their kind of cost of capital relative to what you can offer.

So just just curious if you’ve seen any change yet in kind of inbound flow.

Peter CarlinoChairman and Chief Executive Officer

Steve? Go ahead, Steve.

Steve LadanySenior Vice President and Chief Development Officer

Yeah, go ahead, Steve. Yeah, sure. So I think deal flow has been consistent for a few years now to be totally honest. I think the conversations have changed.

So what you’re alluding to is two years ago, if I called someone out of the blue and said, hey, you have a bond maturing and why don’t we consider a sale leaseback? Chances are my sale leaseback rate was higher than whatever their borrowing rate was. That dynamic has shifted. So it’s still the same conversation. It’s still the same phone calls that we’re having.

The discussions changing slightly because now my cost of capital may be advantageous for them. And — or even just the fact that I’m open to to transact might be better than where they find themselves in the current high yield market environment. So the dialogs changed. I don’t know that the volume of calls has as necessarily changed, but the discussions have taken a different angle.

And the second point I would make is I do think, though, with current tenants and with properties they own in particular already leased, the discussions around reinvestment in those properties had picked up. So that I know was part of your question and I know Peter’s made some commentary earlier today suggesting in the next 12 months you would expect to see us doing an investment with a tenant. I think that dialog will continue to trend and be more active going forward.

John DeCreeCBRE Group — Analyst

Thanks. I appreciate the additional color. Thanks, everyone.

Peter CarlinoChairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Robin Farley with UBS. Please proceed with your question.

Robin FarleyUBS — Analyst

Hi. Great. Actually, that last question was what I was going to ask as well. So maybe just the other thing I’d ask about is I don’t know if you can kind of give us any color how you think about the upside for GLPI from ultimately get developed at the Trop.

Peter CarlinoChairman and Chief Executive Officer

Oh, do you mean in participating, Robin, in something that — yeah, I mean, I think the value of the land improves depending about what they actually do with it. We’re still in early stages. Again, we get paid. We get our lease payments, but what actually is going to happen at the site is still an unknown.

I mean, you can bet we’ve looked at some of the concepts that they’re dealing with right now, but until they actually nail it down, we can’t quite answer it. You could ask this question and — are we about to do something crazy with our company’s capital? The answer is no, we’re not so. Well, we, ourselves, will wait and see what’s proposed. Maybe there’s an opportunity for us.

Maybe there’s not. Look, we’re in — we want to do as much business with values as we responsibly can.

Robin FarleyUBS — Analyst

OK. All right. Thank you.

Peter CarlinoChairman and Chief Executive Officer

Thank you.

Operator

We have reached the end of the question-and-answer session and I will now turn the call over to Peter Carlino for closing remarks.

Peter CarlinoChairman and Chief Executive Officer

Thank you, Kyle. Thank you, all, who have dialed in today. We feel we’ve had a great and as I said at the outset, impactful quarter. We’re excited about it.

Balance of the year is looking good as well, so we’re pleased to share this information. We’re always available to your calls, if you like. So thanks again. Have a great day, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Joe JaffoniInvestor Relations

Peter CarlinoChairman and Chief Executive Officer

Desiree BurkeSenior Vice President and Chief Accounting Officer and Treasurer

Matthew DemchykChief Investment Officer

Neil MalkinCapital One Securities — Analyst

Brandon MooreExecutive Vice President, General Counsel and Secretary

Steve LadanySenior Vice President and Chief Development Officer

Barry JonasBank of America Merrill Lynch — Analyst

Haendel St. JusteMizuho Securities — Analyst

Jay KornreichSMBC Nikko Securities — Analyst

Ronald KamdemMorgan Stanley — Analyst

John MassoccaLadenburg Thalmann and Company — Analyst

Smedes RoseCiti — Analyst

David BalaguerGreen Street Advisors — Analyst

John DeCreeCBRE Group — Analyst

Robin FarleyUBS — Analyst

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