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Gaming and Leisure Props Q3 2026 Earnings Call Transcript
Gaming and Leisure Props (NASDAQ:GLPI) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Gaming and Leisure Properties reported strong Q3 2026 performance with AFF growth exceeding 10%, driven by stable tenant operations and transaction activity.
Significant projects include Bally’s Chicago casino funding, scheduled for a first-half 2027 opening, and the Cordish Live! Virginia project with a $467 million commitment.
The company maintains a leverage ratio of 4.8 times and expects full-year 2026 income guidance between $1.22 billion and $1.225 billion.
Management expressed confidence in the stability of their lease portfolio, despite some market volatility and discussed future growth opportunities, including potential sale-leaseback deals and collaborations like the Prologis JV.
Concerns around Bally’s financial health were addressed, with management emphasizing the strength of their lease agreements and the ongoing progress of the Bally’s Chicago project.
Full Transcript
OPERATOR
Greetings and welcome to the Gaming and Leisure Properties third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. Please note this conference is being recorded. It is now my pleasure to introduce your host, Joe Giovone, Investor Relations.
Thank you, sir. You may begin.
Joe Giovone (Investor Relations)
Thank you, Christine, and good morning, everyone, and thank you for joining Gaming and Leisure Properties’ third quarter 2026 earnings call and webcast. The press release distributed yesterday afternoon is available in the Investor Relations section on our website at www.glpropinc.com. In addition to the third quarter press release, GLPI also posted a supplemental earnings presentation which highlights the events of the quarter, recent developments, and future considerations that can also be accessed 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 reconciliations 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 Brandon Moore, President and Chief Operating Officer; Desiree Burke, Chief Financial Officer and Treasurer; Steve Ladney, Senior Vice President, Chief Development Officer; and Carlos Santarelli, Senior Vice President, Corporate Strategy and Investor Relations. With that, it’s my pleasure to turn the call over to Peter Carlino.
Peter, please go ahead.
Peter Carlino (Chairman and Chief Executive Officer)
Well, thank you, Joe, and good morning, everyone. Happy once again to report another strong quarter here at GLPI. And I would note that despite volatility in both the debt and equity capital markets, our tenant operations and our businesses remain stable, as evidenced by our AFF growth again exceeding 10% in the third quarter. Importantly, 19 of the 13 leases we report remained stable or expanded in coverage for the period ending June 30, with healthy growth exhibited across the regional gaming environment again in the third quarter.
So the gaming world is very, very strong. Our growth was again driven by a combination of transaction activity and ongoing development capital funding. Notably, our funding for Bally’s Chicago casino remains on schedule, with the casino remaining on track for first half of 2027 opening. With respect to the Cordish Live! Virginia project, we acquired the land associated with the facility in the first quarter and began funding the project in the third quarter. To date, the performance of the temporary facility bodes very well for our underwriting of this development, towards which we will fund $467 million.
I should also note that we continue to see a healthy runway of growth from our development pipeline and, despite the current capital markets and the climate that we’re facing right now, transaction activity remains healthy. As we evaluate a range of potential transactions, our balance sheet remains nicely positioned, providing us with flexibility in an environment like the present in which triple-net REIT equity valuations have been, to say the least, disappointing. Importantly, despite our leverage capacity providing flexibility, our underwriting principles remain unchanged. We continue to prioritize healthy long-term leases and an accretive spread to our cost of capital.
Nothing remarkable in that. It’s all good stuff. With that I turn it over to Desiree.
Desiree Burke (Chief Financial Officer and Treasurer)
Good morning. Just one clarification, it’s 9 of 13 of our properties have rent coverage that either exceeds the prior quarter or is equal to the prior quarter. And then I will start out and talk to you about our income results. So for 3Q26 our total income from real estate exceeded 3Q25 by almost $38 million. This growth was driven primarily by $47 million in increases in cash income resulting from acquisitions and escalations. For Bally’s, the acquisition of Bally’s linked real estate increased our cash income by $14 million, the Chicago lease increased our cash income by $12 million, the BEL development increased cash income by $1 million. For Penn, the Joliet funding, Aurora funding, and M Resort funding increased cash income by $8 million.
The Sunland Park strategic acquisition increased cash income by $3.8 million, the Dry Creek I own and course Virginia loans increased cash income by $4 million, and the recognition of escalators and percentage rent adjustments on our leases added approximately $3.8 million of cash income. A combination of non-cash income items from revenue gross-ups, investment and lease adjustments, and straight-line rent adjustments results in a collective year-over-year decrease of $9.1 million.
Our operating expenses increased by $65 million, mainly due to non-cash adjustments in the provision for credit losses. Included in our release is our full year 2026 guidance of between $1.22 billion and $1.225 billion, or $4.11 to $4.12 per diluted share and OP unit. The guidance does not include the impact of future transactions. However, it does include additional development funding of approximately $265 million, bringing our total development spend for 2026 to $800 million.
From a balance sheet perspective, our leverage ratio is at 4.8 times, slightly below our target level of five to five and a half times. And our rent coverage ratios on our master leases range from 1.61 to 2.46 as of the end of the prior quarter. With that, I’ll turn it back to Peter or open up for questions.
Peter Carlino (Chairman and Chief Executive Officer)
Yeah, I think we’re ready for questions. So, Christine, please open the floor.
OPERATOR
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Thank you. Our first question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.
Greg McGinnis (Analyst at Scotiabank)
Hey, good morning. Just want to touch on Bally Chicago, where, you know, the company talked about kind of scaling back their investment in that property, obviously still making the, you know, the vast majority of it. But how does that, you know, how does that make you guys feel about the underwriting you did there, what your expectations were going in relative to the property that you’ll end up—
Brandon Moore (President and Chief Operating Officer)
Thanks. This is Brandon. I’ll start with that. I think the underwriting hasn’t changed. So what they’re doing in Chicago to slow down the development of the hotel for political reasons or otherwise doesn’t change how we view the market or how we ultimately think that property will perform. I think it’s somewhat unfortunate that the city took the position it did and put Bally’s in the position to have competition potentially that it didn’t think it would have.
I think it’s unfortunate for us that they slowed down the construction of that. That may delay the opening of the full complement of room, but ultimately when that property fully ramps, I don’t think we have a different view here as to how it will perform. I’ll just add to that, from GLPI’s perspective, our capital funding is going out on the same schedule it was. That casino operation is still on schedule to open in the first half of 2027. The incremental amenities, obviously, are included in our original underwriting, and we believe all of those will be developed as previously expected, just over perhaps a little bit longer time than we previously contemplated.
Yeah. And lastly, I’ll just add that we did underwrite the chance of VLTs in Chicago, so we still feel good about our underwriting, the rent coverage that we expect.
Greg McGinnis (Analyst at Scotiabank)
Okay, thank you. And then just switching gears to the Prologis joint venture. Is there any way for you guys at this point—I mean, I guess it’s free cash flow funding in terms of if you were to do additional investment there—how to fund that accretively to increase your ownership?
Brandon Moore (President and Chief Operating Officer)
Well, we should point out that the Prologis deal is on the property of the former Joliet, Hollywood Joliet site. So that’s property we already had on our balance sheet. We were utilizing that in a transaction rather than selling it to potentially generate a lot of excess income out of that from what we would have achieved if we just sold it on the market in fee simple. If the question is, are there opportunities to expand on that relationship? I would say perhaps. You know, we’ve developed a good relationship with the Prologis team. I think we’re all excited about the potential project in Joliet. We obviously have excess land on several of our properties, but that’s mostly leased to our tenants. And so I won’t tell you that there’s a huge supply of potential sites on our balance sheet, but I wouldn’t say that there is none.
So we’ll continue to see how that relationship expands as we develop it. But we’re excited about the opportunity in Joliet.
Desiree Burke (Chief Financial Officer and Treasurer)
And I think your question was about our investment level. And I think our agreement allows us, as we’ve disclosed, to up to 30%. We can’t tell you exactly what that will be because it depends on the opportunity and what is developed at the site, whether it’s, you know, whether it’s just done prefab and we don’t know who the tenant is, or it’s done specifically for a specific tenant, but we would have the right to invest up to 30%.
Peter Carlino (Chairman and Chief Executive Officer)
Now, let me note that this is a terrific piece of property, and we are fortunate to align with a terrific partner—experienced partner. And this is going to unfold over a period of years, but it’s going to create a great deal of value. We have a high degree of confidence in that. So this is kind of a freebie. Just one of those lucky things we were able to do—move quickly to take advantage of the ground when we got it back. And I looked at the layout of what is anticipated, so we couldn’t be happier, and as has been said, we will look for other opportunities in our portfolio.
Only good news with this one.
OPERATOR
Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Jamie Feldman (Analyst at Wells Fargo)
Great, thank you. I guess just sticking with Prologis. I mean, first venture into industrial, just, you know, with interest rates moving, with transaction markets getting shakier and, you know, just listening to conference calls across all of REITs. You know, there are some property types more than others that maybe people need capital. Does this open you up—anything we can read into doing this deal? Sounds like it’s on a site you had, but does it, you know, are you considering doing more outside of your core wheelhouse?
Brandon Moore (President and Chief Operating Officer)
I think, simplistically, this was a unique situation where we had a very attractive land parcel. I think, you know, it was a monetizable asset that was otherwise going to likely generate very little value for us. We found a great partner to go forward and do it. As Brandon and Peter alluded to earlier, there might be some other opportunities within the portfolio for us to do similar things. But I think, from your perspective, it’s probably better to think about this as more of a one-off and taking advantage of an opportunity that presented itself for us.
Peter Carlino (Chairman and Chief Executive Officer)
We don’t see a downside here at all. It’s only good news.
Brandon Moore (President and Chief Operating Officer)
I think, generally, we’ve seen JVs employed in the net lease area. I think we’ve taken a look at that. We haven’t seen anything compelling in that for our portfolio. But look, I think it’s one of the multiple things we have at our disposal that we could potentially utilize if we have a need for capital and we don’t feel like we’re being supported by the equity market. So at the present time, I would view that as something we’ve all collectively gotten a lot smarter on in the last three or four months.
And I think we understand it well, and if it’s something that we can utilize to our advantage in the future, you may see us do that. But I wouldn’t read through the JV approach to be the same. I think that that JV was a situation where it was the best structure. It’s what Prologis preferred to get into—that structure. And I think the read-through you should have there is, if we’re going to step outside of gaming, we’re going to seek to do it with folks that know what they’re doing.
And clearly, Prologis is at the tip of the spear when it comes to developing these industrial sites.
OPERATOR
Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.
Smedes Rose (Analyst at Citi)
Hi, thank you. I wanted to ask just a little bit about, I guess, your kind of cost of capital, which, like a lot of names in the space, are a little more challenged now. And, you know, with the shares trading at a high dividend yield and a 20% discount to at least consensus NAV, any thoughts on putting in a share repurchase program? Do you think you—I mean, I think one of the overhangs is probably concerns around Bally’s and the going concern language.
Any kind of comments you can provide around your confidence in Bally’s at this juncture, and maybe just other ways that you might be able to, you know, attack the steep discount that your shares are trading at.
Brandon Moore (President and Chief Operating Officer)
There’s a lot there. Those are two different questions. Very different.
Smedes Rose (Analyst at Citi)
Go ahead. That’s my question and my follow-up in one.
Brandon Moore (President and Chief Operating Officer)
I think we’ll talk about maybe the Bally’s stuff first. I think the way that we think about the relationship with Bally’s is in parts. There are two leases that are each nine figures of annual rental stream. Those leases, as you can see, are covered at 1.98 and 2.13 times. We feel very good about that. Chicago, as we discussed earlier on this call, is progressing nicely towards the first, first-half opening. We feel good about that. Obviously, there’s some other smaller pieces of business that we have with them, but all of which we feel relatively good about.
As it relates to the buyback—and obviously acknowledging why you’re asking, and it’s clearly topical right now—you’re right. Our cost of both equity and debt capital have deteriorated over the last several months. I think it’s something that we think about, we talk about internally, we measure it against other opportunities with the pipeline that we have in place today that’s already been established. I don’t necessarily think it’s something we’re running to do, but I think it’s something we do discuss routinely and we’ll continue to do so.
Peter Carlino (Chairman and Chief Executive Officer)
My quick reaction is that a buyback is always the last resort. It’s when you run out of all other hope and you decide to fold your tent. So we’ve got a nice pipeline that the team—Steve and Brandon—are working on and feel pretty confident that there’s opportunity out there. The current pricing won’t last forever. There’s some debate around the table about how long it might last, but so long as we can do accretive transactions and put them on the books, we’re going to do that.
Brad Heffern (Analyst at RBC Capital Markets)
All right, thank you.
OPERATOR
Our next question comes from the line of Brad Heffern with RBC. Please proceed with your question.
Brad Heffern (Analyst at RBC Capital Markets)
Yeah, thanks. Good morning, everyone. Peter, just following on your comment there, you know, are there accretive transactions that you’re looking at now that would work on, you know, this current cost of equity?
Peter Carlino (Chairman and Chief Executive Officer)
I think we’re saying yes. I mean, or we don’t do them. It’s that simple. Steve, why don’t you go ahead?
Steve
Or we just use equity. Right. As we’ve said, and looking at our development pipeline, you know, we’re funding it with free cash flow and with debt, for the most part, because we don’t like the price of our equity, to be honest, and it is way too low. So, you know, accretive to our cost of equity is one question. Accretive in general, that we could put up a good deal for our shareholders, is another one, which I definitely think we can do by using the strength of our balance sheet.
Brandon Moore (President and Chief Operating Officer)
Yeah, I’d agree. I mean, I think it’s pretty apparent that our cost of capital has increased at an unproportional rate to the cap rate you could probably push through on a transaction with a counterparty. The reality is, as Desiree said, there are a number of ways that we can structure a deal to still make sure we’re achieving accretion on an economic basis. I would say, I think the benefit we have right now in the marketplace is this opportunity allows us to focus in a little more on qualitative features of transactions and be a little more discerning on that side.
So I think whether that’s looking at new tenant relationships which bring about additional value to us, demographics or location, geographic diversification that maybe we don’t have today, or that would benefit us, and even property attributes—the opportunity to target a category killer or a property that doesn’t have competitive set nearby—things like that that are credit-enhancing are now effectively at a discount because the market is—the price of everything has backed up, cap rates are higher.
And the question is, can you get now a better asset for a price you would have paid for a lesser asset previously? And I think the answer is possibly.
Peter Carlino (Chairman and Chief Executive Officer)
The moral of the story is, Brad, we’re still open for business.
Brad Heffern (Analyst at RBC Capital Markets)
Okay, great. I appreciate the clarification there. And then on Bally’s—you’ve talked a decent amount about it already—but just I’m wondering, they had the going concern language added to the 10-Q, but then they’ve also recently gotten additional capital or have an agreement in place for that. Can you talk about how those events have changed your view of the credit risk level there, if it has at all?
Brandon Moore (President and Chief Operating Officer)
Yeah. Brad, this is Brandon. I don’t think our overall view of their credit risk has changed. In other words, we weren’t totally surprised to see that in the 10-Q because we understand where Bally’s sits. We remain optimistic with Bally’s as a tenant in the going concern aspect because they have a lot of assets on the balance sheet that we feel will likely be monetized if they need to in order to proceed with their projects across the country. Those are very good projects.
Chicago, New York will be very lucrative for them. Las Vegas is sort of a wait-and-see for them, I believe. But we believe that they have tools at their discretion to get to cash flow in Chicago, which I think is their first priority. It’s not something that we’re excited about. It wasn’t a disclosure that we were excited to see, but I don’t think it’s changed our view of them on the whole at the present time. Yeah, on balance,
Peter Carlino (Chairman and Chief Executive Officer)
We have other Bally’s properties, as you well know, and they’re all doing fine. So the underlying credit, I guess from our point of view—push comes to shove—is positive. From our point of view, we hope it doesn’t get there, but that value is there.
Brandon Moore (President and Chief Operating Officer)
Yeah, I think, you know, if we look at the downside scenario—if we had to reposition these properties—based on the coverages that Carlo has outlined earlier on the call, we feel very confident that we would be able to reposition those assets. And, quite frankly, Chicago is so far along there would be several—or there, I should say, are several—parties that would be interested in Chicago if Bally’s decided that it could not, would not, or cannot proceed with that project.
So we feel good about the Bally’s assets we have regardless of the fact that they filed this going concern 10-Q.
Brad Heffern (Analyst at RBC Capital Markets)
Okay, thank you.
OPERATOR
Our next question comes from the line of Handel St. Juste with Mizuho. Please proceed with your question.
Ravi Vedi (Analyst at Mizuho)
Hi, good morning. This is Ravi Vedi on the line for Handel. I had another follow-up on Bally’s. There’s a lot of articles that came out talking about the fines imposed on Star Entertainment Group in Australia. It’s about a $260 million fine. Given Bally’s relationship with Star, is Bally’s responsible for paying this and, in your view, how does this impact liquidity, credit, and maybe their funding sources for a few of their projects that are ongoing right now?
Brandon Moore (President and Chief Operating Officer)
Yeah. So, Ravi, thanks for the question. Just to back up here, when, obviously, the Bally’s team made the investment in The Star, it was eyes wide open that there was a significant overhang of a fine. I actually think that the end result is more than fine. Bally’s Corp. is completely unrelated to this investment. So I think what you’re looking at is a situation at Star that is isolated to Star, and for the most part that business has started to certainly improve since new management has taken over.
There is cash there on the balance sheet to go towards this fine. I believe they have up to 19 months to pay the fine, and I believe the business has started to produce some elements of cash flow to handle it. So, as far as we are concerned, the Star investment has no bearing on anything that necessarily relates to us in terms of Bally’s Corp. funding and Bally’s Corp. U.S. operations.
Ravi Vedi (Analyst at Mizuho)
Got it. Appreciate the clarification there. And you mentioned earlier about cap rates moving up and that there seems to be a greater appetite for acquisitions and more deals. How much would you say cap rates have moved up, say, versus a year ago in the regional markets that you’re targeting?
Brandon Moore (President and Chief Operating Officer)
Honestly, if you look at the last large-scale transaction that was announced—it was not a year ago—and it was the Golden transaction at a 7.5 cap rate, I think if you brought that transaction or a similar transaction to market today, there’s no way it’s sub-8%. I don’t think there’s any way possible it is, and I’d be hard-pressed to kind of guess what it would be. But based on that, I’d say you’re probably in the neighborhood of 75 basis points wider.
That’s not a year.
Ravi Vedi (Analyst at Mizuho)
Got it. Appreciate the color.
OPERATOR
Our next question comes from the line of Barry Jonas with Truist. Please proceed with your question.
Barry Jonas (Analyst at Truist Securities)
Hey, guys, good morning. Appreciate the color on the pipeline. But as you think about it, I wonder if you see opportunities to acquire maybe already leased gaming real estate from other property owners looking to recycle capital, rather than just originating new sale-leasebacks with operators. Thank you.
Steve
Yeah, Barry, it’s Steve. We, by all means, would definitely have an interest in acquiring real estate. At the same time, I would say our underwriting might not be aligned with prior underwriting. So I think that’s to say, yes, by all means, I’d love to buy some other real estate. I might decide, when the team looks at it, we might decide that an asset that currently pays, and I’m making something up, 25 million of rent really should only be paying 15 million of rent because circumstances may have changed.
Maybe there are competitive threats that have come in and impacted it. Maybe escalation has been too high. We’re not really sure. But by all means, we would definitely take a look at this. I just don’t think it’s as easy as plug and play because our underwriting standards are not necessarily aligned with some of our competitors.
Barry Jonas (Analyst at Truist Securities)
Great. And then just a follow-up: any updates on tribal discussions? And I know you guys have built out relationships over the past few years, so wondering if discussions would extend to maybe outside of just tribal lands onto looking at commercial deals. Thank you.
Steve
I apologize, Barry, I missed the first part. Could you say it again?
Barry Jonas (Analyst at Truist Securities)
Just looking for an update on your tribal discussions and wondering if those relationships could extend beyond for deals outside of tribal lands.
Steve
Yeah, by all means. The relationships we’re building with the tribes have definitely been progressing. It’s just not a rapid transaction. There’s just not a lot of velocity. There’s a lot of educational aspects and teaching aspects that go into it and building the relationship to get someone comfortable. I think, though, that the dialogue is definitely expanding. I think we’ve tried to spend time explaining that there’s a way to monetize the asset, possibly on tribal land, and utilize the proceeds to expand beyond that. And I think that has resonated with some tribes, especially the ones that are more well capitalized and some of which have maybe already made investments off of the tribal location to start with. So I think there’s a continued opportunity.
I think we just need to kind of get some momentum and build it as we go.
Barry Jonas (Analyst at Truist Securities)
Appreciate all the color. Thank you.
OPERATOR
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Robin Farley (Analyst at UBS)
Great, thanks. I know you’ve covered a lot of this already, but just going back to Bally Chicago for a moment, and I think you’ve been very involved in directly overseeing the construction there. If there were delays in the opening, can you remind us, in that scenario where there’s a delay, what the impact would be to Gaming and Leisure Props and how that would play out? Thanks.
Brandon Moore (President and Chief Operating Officer)
Robin, this is Brandon. I think from a high level, virtually no impact to Gaming and Leisure Props in the sense that when our dollars are funded, we’re getting paid for those dollars real time. So what it will do, if it’s delayed further, will delay the point in time where Bally starts to realize some cash flow from the asset. And that ultimately plays into this going concern and liquidity concern. So I think directly to Gaming and Leisure Props, it won’t change our income off the project.
It will potentially change the time in which Bally starts to receive income of its own. And that will put further pressure on their financial situation. So I think that is more of an indirect impact, but certainly one that we’re focused on.
OPERATOR
Okay, great. Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
David Katz (Analyst at Jefferies)
Morning. Thanks for taking my question. Listening to all of the gaming conversations with management teams and just looking at where the industry is, it feels as though we could be on the front end of a pretty meaningful period of regional asset trading. We may be in the midst of it now, but in the early stages of it. Do you feel that that’s the case? Are you seeing more deal flow in its very earliest stages? And is that a fair assessment on your part? And obviously, how are you positioning yourself to participate?
Steve
Well, David, you know, obviously Churchill is out publicly with their process, so that’s obviously one that you’re aware of. I think separate from that, there are some private processes that are currently brewing that we’re aware of. And I think there’s been a logical transition. If you go back a number of years, a lot of the large-scale regional gaming operators were going down a path of divestiture programs. Then I think the world changed and the focus became online, iGaming, sports betting and the like.
And I think this is just kind of a natural progression back to where we were. So I do think you’re right that we will see some regional properties changing hands. I think from our perspective it’s twofold. One, we’re trying to make sure we maintain all of our relationships with the folks who might be the divesting parties. At the same time, we’re trying to build and cultivate relationships with some new, smaller, private-type gaming operators who are interested in expanding and growing. And so I think it’s just a life cycle that we’re continuing to work through. And I think you have to have relationships on both sides to get as many looks as possible.
David Katz (Analyst at Jefferies)
Agreed. Okay, thank you.
OPERATOR
Our next question comes from the line of Todd Thomas with KeyBank. Please proceed with your question.
Todd Thomas (Analyst at KeyBanc Capital Markets)
Yeah, hi. Thanks. Good morning, Peter. Or maybe Desiree, if equity is off the table at the current valuation here, when you work through remaining fundings and commitments through ’27 primarily, how much incremental investment capacity do you have using free cash flow and the balance sheet? And should we still assume that five to five and a half times is the right leverage target, or has anything changed around your tolerance for leverage?
Desiree Burke (Chief Financial Officer and Treasurer)
No, nothing’s changed. When we fund all of the transactions that we have out there through ’27 and ’28, we’ll still be at the low end of our five to five and a half times leverage. So no change there.
Peter Carlino (Chairman and Chief Executive Officer)
Well, in the second part of it, I think there is. Because of that and where we fall into that historical range, there is some dry powder in there for us to do deals using leverage above and beyond the current pipeline we have. So I don’t think we have any intention at all of even considering going above five and a half times. But we have quite a bit of dry powder in there to get there. So, as Steve said earlier, if we find good accretive transactions that are assets that we believe long term are assets that we’ll benefit from in our portfolio, we do have some dry powder there with which to work.
Brandon Moore (President and Chief Operating Officer)
Yeah, Todd, you could run the math, as Desiree said, low end of that range. So even if you wanted to take some fraction of a half a turn and look at the capacity that that creates at some fictitious cap-rate type of transaction, you’ll recognize there’s considerable dry powder for incremental—
Todd Thomas (Analyst at KeyBanc Capital Markets)
Okay, sounds good. And then I wanted to just go back to the Prologis joint venture. Can you help us sort of frame up or think about the value creation on that opportunity? Gaming and Leisure Props is receiving a $61 million capital account credit for the land, 20%. What could that 20% interest ultimately represent once the project’s fully developed or stabilized?
Desiree Burke (Chief Financial Officer and Treasurer)
We can’t disclose that information yet. We don’t even know who our ultimate tenant will be of the JV. But what I will tell you is the way to look at it is we took a non-earning asset that was sitting on our balance sheet, which was land in Joliet, and we now put it into a structure that will ultimately earn a very healthy return. So I would just look at it as a net positive. There is no negative to this. This was a non-earning asset.
Brandon Moore (President and Chief Operating Officer)
Yeah, Todd. And for modeling purposes, as Desiree said, Prologis is in the early stages of this. They are going to run this process, the development, the agreements and partnerships and whatnot. We will learn more along the way. And presumably at some point in the future, as their negotiations and their tenanting and stuff gets further along the line, we’ll presumably be in a place to be able to help you a little bit more from a modeling perspective.
Peter Carlino (Chairman and Chief Executive Officer)
Yeah, we could have sold the ground outright for—I could tell you, but I won’t—but for a generous price. Obviously, we made the conclusion that over time this is going to be a whole lot more valuable, particularly tied to a partner who is as strong as they are. So this is something I just kind of mentally put aside, cultivate it, and let it grow over the next five years.
Todd Thomas (Analyst at KeyBanc Capital Markets)
Okay. All right, thank you.
OPERATOR
Our next question comes from the line of Caitlin Burroughs with Goldman Sachs. Please proceed with your question.
Caitlin Burroughs (Analyst at Goldman Sachs)
Hi, good morning. A couple questions ago, you guys were talking about that you do have some dry powder capacity for incremental deals. So I guess, just as you think of that forward pipeline, wondering if you could give any comment on whether you would put those discussions into the category of sale-leaseback, development, redevelopment. Just trying to think of what could be next.
Steve
This is Steve. I’d put the majority of that discussion in the sale-leaseback bucket. We do have some conversations with folks about whether it be greenfield or redevelopment. I would not say that’s the lion’s share of the discussions that are ongoing at this time. The majority of people have—the projects that were floating around out in the universe have been funded, many of which have been open. So states like Louisiana, Illinois, I think a lot of those projects are well on their way.
So those opportunities are fewer and far between. But we are having some conversation on that front. But the lion’s share of conversations have been straight traditional sale-leasebacks.
Caitlin Burroughs (Analyst at Goldman Sachs)
Got it. Okay. And then on the lease coverage side of things, I know you guys talked about it early in the call, and I’m sure higher makes you feel better and you talked about some incremental moves higher recently. But I guess if you look year over year—Bally’s, but also Caesars and Cordish—those came down. So wondering if you could give any commentary on whether, at what point, lower coverage concerns you, or even just the direction of them and how you consider that, whether it’s over a quarter or year basis.
Brandon Moore (President and Chief Operating Officer)
Yeah. So, I mean, look, I think the direction of travel—and the easier way to look at this, since it’s all LTM EBITDA and LTM rent—is sequentially because, for example, you’ll have some leases that maybe had a tough fourth quarter, and we’re kind of cycling through that right now. I do think if you look across the entirety of the coverage portfolio, Caesars was one that clearly got a lot of attention. We did see a nice bump as of the end of 2Q in coverage there as that continues to stabilize.
I think we talked about it earlier this year that that portfolio specifically had a tough fourth quarter at one specific asset. On a whole, I think the coverage story is strong and it’s kind of been improving of late. What I would also note is you look across the earnings of those who’ve reported—Caesars being one, Churchill Downs being another, Boyd being another—not all tenants, but all showing a low- to mid-single-digit regional EBITDAR growth cadence in the third quarter, which generally bodes well since we’re reporting to you on a one-quarter lag.
Peter Carlino (Chairman and Chief Executive Officer)
Furthermore, I would add our rent coverages are really strong. They’re not what you see in other areas. Like, you know, we’re sitting here talking about a low coverage of 1.61, you know, that is still a strong coverage where a tenant would be happy with the return that they’re getting. And on the high end, we have, you know, threes out there. So I am not at all concerned with that rent coverage. And I will tell you, if you look back a year or even pre-COVID, we’re not far off of where we were at that point in time.
So, you know, I feel very confident in our rent coverage right now. Our demise has been much over-exaggerated here. I think our leases are in very good shape.
OPERATOR
Our next question comes from the line of Ronald Camden with Morgan Stanley. Please repeat with your question.
Ronald Camden (Analyst at Morgan Stanley)
Great. I just—sorry to go back to Bally’s—just a two-parter. One is, with the going-concern language, is there sort of any ripple effects on the leases? Right. You know, whether it’s minimums or anything like that, like does that, does that change anything on the lease front? And then two, just on Bally Chicago. You know, obviously there’s been a lot of headlines and so forth, but what do you got? Like what are the data points we should be looking at about the reception of the project and how it’s going to ramp?
Desiree Burke (Chief Financial Officer and Treasurer)
So from a lease perspective, obviously we have rent coverage ratios that they can’t go below that are all disclosed in our release, right. As far as a default goes, and as we just said, at a 1.98 and a 2.13, they’re nowhere near anything that would default their leases. Because our investments in Bally’s—we’re not really investing in the corporate entity, we’re investing in specific assets that are performing very well. That’s the first half of your question.
Brandon Moore (President and Chief Operating Officer)
Yeah, I’ll just add we do have in our leases defaults related to their material indebtedness. So should they default on their debt at Gaming and Leisure Props, we would have some legal rights under the leases to take action. I’m not saying we would or would not, depending on the circumstances. But just to be clear, we do have that right built into many of our leases. Sorry, Desiree.
Desiree Burke (Chief Financial Officer and Treasurer)
Ronald, what was the second part of your question?
Ronald Camden (Analyst at Morgan Stanley)
Just trying to get some tea leaves on the Chicago opening. What are the data points saying about the reception of the assets? What are you guys tracking? What are you looking at? Thanks.
Joe Giovone (Investor Relations)
Yeah, so I mean, I think, Ronald, there’s a lot of obviously media articles written about this project. I saw one the other day that talked about the site being slow. You know, we know there to be close to a thousand workers and everything’s moving at full speed on that project. I think that, you know, as it continues to kind of progress, we’ve gotten more and more comfortable with that first-half ’27 opening. I don’t think a lot has changed in terms of how we think about the underwriting Desiree mentioned earlier on this call.
You know, VLTs were always part of our underwriting case. I don’t know that there’s been anything necessarily incremental that would change the way we think about the ultimate returns, barring the delay on the full completion of the amenities associated with the project and maybe that pushing back that full ROI that we originally contemplated, which, again, as Brandon mentioned earlier, has no impact on when rent revenue, rent income is coming to Gaming and Leisure Props.
Steve
This is Steve, just to give you a little context on the construction progress, because that could be helpful maybe as well. The overall project’s roughly two-thirds complete. That’s the overall project. That’s inclusive of everything, even the parts you’ve heard that are delayed. So two-thirds of the project’s complete and there are over 1,000 daily workers on site. Importantly, the hotel structure—that’s the part that everyone knows was delayed—but that entire structure as well as the casino are expected to be weather-tight by December.
So there is still work going on on the hotel to make sure it’s weather-tight, and so that’s all expected to happen by December. And if that does happen according to plan, as we’re expecting, that will make all of the progress throughout the winter months in Chicago that much easier for everyone working indoors. So those are kind of some of the things we’re looking at on the construction side and we’re eager to be able to report to you that weather-tightening has occurred.
Ronald Camden (Analyst at Morgan Stanley)
Great, that’s helpful, I guess. My last one, and maybe it’s a quick one. Just can you remind us the variable rate reset for what they ended up being for this year and what we should look for for next year? Thanks.
Desiree Burke (Chief Financial Officer and Treasurer)
Yep. So we do not have any rent resets in 2026, so you don’t need to look at anything for next year. And the percentage rent decline for 2027 is $3.3 million, of which $2.2 will happen in ’26, but a full year will be the $3.3 in ’27.
Ronald Camden (Analyst at Morgan Stanley)
That’s perfect. Thanks so much.
OPERATOR
Our next question comes from the line of Chad Banon with Macquarie. Please proceed with your question.
Chad Banon (Analyst at Macquarie)
Morning. Thanks for taking my question. Wanted to get your take on your appetite on the Strip, given some of the results we’ve seen this summer, which may just be a return to seasonality. I think we’ve all been spoiled the past couple of years. Some of the seasonal patterns have changed, but it certainly highlights the negative operating leverage that we see in Vegas and destination markets versus the regional markets. We’d just love to hear your thoughts.
Peter Carlino (Chairman and Chief Executive Officer)
Let me share just my general philosophy about Las Vegas. It’s great when it’s great and it’s really crummy when it’s crummy. None of that rubs off on the regional markets. You know, I’ve been saying for many, many years, as you all know, that the revenues coming out of regional markets are essentially bulletproof. There’s only one thing in my many years of experience looking at these markets that affects performance and that is employment. If there’s a significant run of unemployment, that will impact a local property.
But by and large, revenues are bulletproof, and I stand by that. I think time and the decades have proven me right. So we’re not worried about the regional market. As I say, Vegas, you know, it’s great when it’s great—I’ll say that again—and not so cool when it goes the other way. But it’s a different world from what we mostly deal with and we don’t compare ourselves with what goes on there. It’s a shame that impacts in Vegas affect people’s perceptions about what goes on in the regional market, but they aren’t the same.
Chad Banon (Analyst at Macquarie)
Thanks, Peter. And then with the midterms next week, it doesn’t look like there’s a lot of potential bills that would impact you guys directly. A number of sports betting bills and some small things around the edges that would obviously change to blue or red and that could have derivative impact. But anything else that you guys are keeping an eye on for next week that would, you know, kind of cycle into your business?
Brandon Moore (President and Chief Operating Officer)
Yeah, Chad, I mean, I think there’s a couple things that, you know, we’ll pay attention to. I think your overall synopsis is broadly accurate. Some governor’s races that might change the tone of how, you know, certain states are viewing certain things. You have the pari-mutuel stuff in Virginia. Obviously the Cordish Live project that we have would be something to pay attention to. Both of those counties are, you know, two-plus-hour drives away, so we don’t really think that has any impact on what we have going there.
And then you have the ballot initiatives in northeast Indiana. Again, if you look at the map, there’s not a lot of competition within an 80-, 90-mile radius of where those three counties are located. So I think overall pretty quiet and, like you said, you know, a little bit more relevance for some of the OSB stuff and things along those lines.
Chad Banon (Analyst at Macquarie)
Thanks, Carla. Appreciate it.
OPERATOR
Our next question comes from the line of Jason Wayne with Barclays. Please proceed with your question.
Jason Wayne (Analyst at Barclays)
Hi, good morning. Thank you. Just a quick one. Is there any update on the A Stadium project? So how far along are those discussions and do you have any better picture of what Gaming and Leisure Props’ role could look like there?
Brandon Moore (President and Chief Operating Officer)
Yeah, this is Brandon. The A Stadium itself, I think, is progressing nicely. I think they’re on track to open that stadium with—assuming there’s a first pitch in baseball in 2028—I think they’re on track to do that. We’re getting to the point in that project where certain infrastructure improvements for the integrated resort are being permitted. Gaming and Leisure Props has not been asked at the present time—or I should say, we haven’t committed to anything in addition to the $125 million we have remaining.
And so we’re really waiting to see how that best can be deployed on the site. We haven’t ruled out some additional funding, but I think there’s a lot that we need to see and answers we need to have in order to understand the overall project before we’re willing to commit more capital to it. So I think we continue to be in a position where we’re ready to fund when that’s needed, and we’re just waiting to understand how that integrated resort is going to unfold.
Jason Wayne (Analyst at Barclays)
All right, thank you.
OPERATOR
Our next question comes from the line of David Hargreaves with Barclays. Please proceed with your question.
David Hargreaves (Analyst at Barclays)
Hi. I’m wondering if you have any position on historical racing machines at Raynham Park in Massachusetts, whether those are permissible or not.
Brandon Moore (President and Chief Operating Officer)
Well, I don’t think we have an opinion on it at this point in time. We’re aware of the efforts to try to get the legislation done. We know that there would be some ancillary impact to Plainridge that would be positive, but that’s the extent of our involvement.
David Hargreaves (Analyst at Barclays)
Got it. And then we’ve been beating this Bally Chicago thing to death. But I’m just wondering if there’s any room count that—do you know how many rooms they’ll have when they open up?
Brandon Moore (President and Chief Operating Officer)
We don’t at the present time. I mean, we just look to their HCA. I mean, we’ve heard that Bally’s commented publicly that they intend to comply with the HCA. The HCA has a minimum number of rooms in it, so we would expect it to open with those, but we haven’t gotten into the details on opening day.
David Hargreaves (Analyst at Barclays)
Got it. Thank you very much.
OPERATOR
Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Please proceed with your question.
Daniel Guglielmo (Analyst at Capital One Securities)
Hi, everyone. Thank you for taking my question. Just one from me. I think heading into the back half of this year, there was nervousness around discretionary spending with gas prices high, but it doesn’t feel like it has fully materialized. So can you just talk a little bit more about what you’re hearing from the regional operators on the ground and what gives you all and them the confidence to continue deploying capital for growth? Great, thank you.
OPERATOR
Our next question comes from the line of Colin Mansfield with CBRE. Please receive with your question.
Colin Mansfield (Analyst at CBRE)
Hey everybody, just one question for me. Maybe a pivot to outside gaming. We’d love to get your updated thoughts on how you’re thinking about potential opportunities, let’s say in the leisure space. If you look in that environment right now, there’s I think several operators where your cost of capital is much more attractive than what their cost of debt or equity might be. There might be some that are facing some idiosyncratic issues or hiring restructuring advisors.
So I’m just kind of curious the attractiveness of anything outside of gaming right now. Has anything in your view changed or are you seeing more opportunities where you might be opportunistically able to provide your cost of capital to some of these real estate-heavy names that might be facing a little stress right now. Thanks.
Brandon Moore (President and Chief Operating Officer)
I’ll jump in. Colin, appreciate the question. I think nothing has changed in our approach to non-gaming. Venturing into non-gaming, it’s going to have to be something that we find both accretive and we have, or are able to acquire, the expertise to grow it. And so I do think there are some opportunities out there. We continue to look at those. But if you see us venture outside of gaming, as we’ve done with Prologis, we’ll seek to do it with folks that know what they’re doing and can help us grow in that, whatever business we enter into.
So I think you’re right. There are probably some more opportunities out there. But our philosophy and approach hasn’t changed.
Peter Carlino (Chairman and Chief Executive Officer)
Yeah, let me add too, we haven’t run out of gaming opportunities yet. I think Brandon said earlier thoughts about our demise have been greatly exaggerated. And so as long as we can stick to our knitting, we’re going to do that. We never give up looking at other things. That’s part of what we’re challenged to do. But we’re blessed to be able to continue with what we know best.
Colin Mansfield (Analyst at CBRE)
I appreciate it. Thanks, guys.
OPERATOR
We have no further questions at this time. Mr. Carlino, I’d like to turn the floor back over to you for closing comments.
Peter Carlino (Chairman and Chief Executive Officer)
Thank you very much, Christine, and thank you all for dialing in and we will look forward to seeing you next quarter. Bye. Bye.
OPERATOR
Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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