Greetings and welcome to the Gaming and Leisure Properties Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kara Smith from ICR. Thank you. You may begin..

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties fourth quarter 2015 earnings call and webcast. The press release distributed earlier this morning is available in the Investor Relations section on our Web site at www.glpropinc.com.

On today's call, managements' 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 from those discussed today.

Examples of forward looking statements 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 relating to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP financial measures contained in the Company's earnings release.

On this morning's conference call, we are joined by Peter Carlino, Chairman and Chief Executive Officer; and Bill Clifford, Chief Financial Officer of Gaming and Leisure Properties.

Also joining are Steve Synder, Senior Vice President of Development; Desiree Burke, Chief Accounting Officer; and Brandon Moore, Senior Vice President, General Counsel and Secretary. Now I would like to turn the call over to Peter Carlino.

Peter?.

Kara, thank you very much and good morning everyone. As always we have our senior team present and able and willing to answer what question you may have. But I’ll start with just a couple of highlights, and as you know, we’ll keep that part brief and then turn it to your questions. We had predictably good quarter and a good year at GLPI.

Our operating units at Perryville and Baton Rouge did well. Our principal tenant did quite well through 2015 which is terrific from that point of view and I’ll have Bill highlight a few items related to that.

We favorably settled our Meadows litigation and are well on the way to announcing, I hope not in the too distant future, a strong operating tenant for that property. We have several active discussions, very active discussions and strong bids that we’re working with right now and we expect to resolve that in a short while, [indiscernible] on that one.

But that’s going along very well. The regulatory process for our Pinnacle transaction proceeds well, Brandon Moore will probably have some comment about that, but as you know it's a step-by-step process state-by-state and we expect that we will favorably resolve that over the next month or so, can’t be precise but it's going along well.

With that Bill do you want to make any or highlight any of the financial issues?.

Sure. Thanks Peter. I think generally speaking what we observed in the fourth quarter as well as for the year is that all of our tenants are doing well.

What I would highlight for people’s benefit and I am sure a lot of you probably just got off the phone call with Tenet, but the rent coverage has improved from last year as we reflected in the earnings call at around 1.88, or adjusted for the one time item comes down to 1.84 and that’s just basically giving effect to the escalator.

So they’re looking very good and they have very solid results. Casino Queen also had small tenant but as an indicator had an improved results from last year. Our properties in both -- primarily in Perryville, but Baton Rouge also had a reasonably good quarter. We ended up about $1.1 million on the EBITDA line versus what we had in our guidance.

And obviously the two Ohio facilities in Columbus and Toledo also did well which was reflected in our improved rent. So, what we’re seeing generally speaking is good results.

I will say that in January Perryville had a very rough January with the winter storm that we had on the Northeast, effectively they weren’t closed, but we probably should have been for the amount of revenue we generated for the weekend that we lost with that snow storm clearly, but it’s not going to -- we’re actually quite hopeful that by the time the quarter is over that that will have normalized and we saw good strengths coming back since that period.

So, with that, I think I will hand it over to Brandon..

Okay, Brandon, do you want to take just a moment and talk about [Multiple Speakers], yes why not. And take a few seconds and talk about the regulatory process for our Pinnacle approvals..

Sure.

On the state regulatory level, Pinnacle received an approval in Iowa in January for the transaction, we both received approvals in Mississippi last year in the last quarter for the transaction and we expect to be on agendas in the coming months in Indiana, Louisiana, Missouri, and probably most importantly at this point we did undergo a voluntary investigation with the federal trade commission and that has been completed.

So, we’re optimistic that in the coming months we’ll be able to get through the rest of the regulatory process..

Good, with that we’ll open the floor to questions..

Thank you. We will now be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Joel Simkins from Credit Suisse..

Peter maybe start with you, obviously we heard Tim and Jay address the state of the consumer on their call, love to get your thoughts on how you see the landscape. And then maybe a second question perhaps for both you and Bill.

Obviously there is a lot of pain out there and REIT land, particularly as we see it within lodging currently and valuation have compressed.

Given -- obviously your stock have some pain as well, but given where lodging is at does this change your thought process at all to stepping beyond gaming?.

Well, let’s work on the first question I mean we see pretty much what you all see out in the broader gaming world, things are goods. I think that you saw a pretty strong year, I don’t think anybody is predicting anything less through 2016.

So we don’t have a crystal ball but my visceral feel is that 2016 should be much like 2015, and reasonably strong.

Bill, do you have any thoughts to the contrary?.

We really see the same numbers you guys see, we don’t have any -- we have two properties which gives us maybe a unique view into those two of markets. But I don’t know that I would, again as I’ve said before I don’t think Perryville and Baton Rouge are necessarily bellwethers for the regional gaming markets across the United States.

Having said that looking into numbers, looking at the operating results, looking at the operating profit, it certainly looks to me like the regional gaming industry is in good shape..

Yes, I like many of you listen to Benton's [ph] call and I think that’s a pretty good indicator of what’s out there. And I have a pretty good sense that things are fine..

And then just as a follow up on stepping beyond gaming and looking at some other asset classes, given some of the distress out there?.

I give the same answer that I’ve given in the past. When we run out of stuff in the gaming business -- now look something gets dumped in our lap, it looks appealing, it's related to the kind of things that we do or at least in the entertainment venue. Sure, we might look at that and we have occasionally.

But we don’t see anything and I see no reason to go elsewhere. Frankly, we’ve got a book of things that we’re looking at, some of which are pretty exciting. First, second, third order of business is to complete our Pinnacle transaction. We keep our eye on that ball, that’s our responsibility to you all through this next year.

There are other things out there on the horizon that we’re working very hard with and when we run out of opportunity we’ll let you know, but for the moment we see no reason to go elsewhere. I can’t say that strong enough..

That’s helpful.

And I guess just to following up on the Meadows, what’s your anticipation at this point that upon closing that you will have an operator in conjunction? Is there anything that gives you a sense that that could split just given short timing approvals with the state, I assume you’re looking to partners that are fairly well licensed and can get something done pretty quickly?.

We are. But let me ask Steve Synder who works with this every day..

Joel to your point, we’ve got an outside closing date on the Meadows transaction that is November. We are negotiating as Peter said with several parties. All of whom are licensed in some jurisdictions, obviously because the statute in Pennsylvania it's unlikely that anybody in Pennsylvania in a third limitation would be involved.

But there is no reason to think that we won’t be at a closing table with our OpCo partner at the same time we’re buying the asset..

And I get the sense Brandon that the state of -- the commonwealth of Pennsylvania is generally well disposed towards resolving whatever is going to happen with the Meadows and work with us and an operator to work through an approval from an appropriate operator in a relatively quick period of time..

I think that’s right. The folks we’re looking at are at least that are licensed in -- some in multiple jurisdictions, others in at least a couple of important jurisdictions and I think that will help the licensing process here in the commonwealth..

So summary we feel good about that..

Our next question comes from the line of Steven Kent from Goldman Sachs. Please go ahead..

Just a couple of questions.

Can you talk about your goal of reaching sub-6x leverage by the end of 2016, how do you expect to achieve that, is that still your long-term goal? And then can you explain the property tax settlement relating to the property leased to Penn which lowered revenues but had no impact on earnings to the offsetting operating expenses, I just didn’t understand the math on that one..

Yes, that’s simple. Bill, go ahead..

If we started 6x pro forma in the second quarter we’re only just obviously distributing 20% of our AFFO, our free cash flow and it would be our intention to take that free cash flow and pay down debt with that, which would get us down below the 6 if we started 6 in the second quarter.

The other element that’s in place is that there are legacy options from the Penn-GLPI spend held by executives in both Penn and GLPI. Those options as they get exercised the Company as the beneficiary of the strike price on the option. Obviously the offset is that the actual share count goes up and diluted shares also go up.

But obviously it's a cash proceed source of funding that we’ll also accelerate certainly in this year our expectation is paying down debt.

Relative to the property tax, one of the requirements in the accounting rules is that the landlord has to recognize property taxes paid by the tenant and then also recognize the expense for the property taxes paid by the tenant.

So, when Penn received a credit or a rebate or settlement or however they want to characterize it, we ended up having to recognize that as reduced revenue because it was expensive it was reduced expenses at the tenant but we also got an offset because our property tax expense was down by the same amount as our property tax revenue went down.

So the net effect was nothing, it was zero..

It's been an interesting year for us with accounting rules, so many archaic stupid frankly requirements particularly in GAAP makes it -- they’re not customer friendly, they’re certainly not user friendly and they don’t help our shareholders understand what’s going on with our balance sheet. But we don’t make the rules, we just play by themselves.

So it's been interesting, that’s just one small example..

Thank you. Our next question comes from the line of Joseph Greff with JP Morgan. Please go ahead..

I am not going to ask an accounting question.

Bill, Peter with regard to pro forma leverages of 6x and the expected equity raise to 500 million, are you incorporating into that the net of issuing a mandatory preferred convert or something like that?.

Relative to the mandatory convert, Peter and I had discussions and met with several of our largest existing shareholders who’ve been with us for a very long time as well as I met with a number of REIT investors, or potential REIT investors I should say.

And I would say it was a unanimous recommendation from those -- all of those investors that the mandatorily convertible preferred equity instrument was not something that they were in favor of.

So given that’s an instrument that is obviously good for the buyer of the mandatory convertible preferred equity and does help the equity, the advice we got and it's our intention to follow that advice, is that it wasn’t worth the effort to be able to reduce the amount of pure equity that we had and the people preferred a straight up balance sheet without the complications.

What would have added up being actually a pretty small piece of our total capital structure and therefore their recommendation was to just plough ahead and get the equity done as best we can and which we intend to do. So, I think the mandatory convertible preferred equity is as we sit here today, off the table..

And then with respect to Meadows and you may have said this so I apologize if I missed it, but in terms of your evaluating and negotiating with third party operators.

Is the gaming issue more economic mean valuation multiple or is that more lease termed?.

I think for us it's more lease termed because obviously the recurring nature of it, we’re not going to give the asset away -- give the operating asset away at a below market multiple. But there is the dynamic between the two.

If you’re asking which way does it tilt? It probably tilts a little bit more towards the lease terms, from an economic perspective. Definitely [multiple speakers]. We like where this is right now, but let’s see if we can deliver..

Our next question comes from the line of Steven Wieczynski from Stifel. Please go ahead..

So want to get back to the leverage and Bill I know -- I think you said in the past you feel comfortable with leverage, I think it was around 4.5x and if I am wrong I apologize. But when the Pinnacle deal gets done you said you’ll be little bit sub-6x at the end of ’16.

The question is, is that range where you’d feel comfortable still in play? And then does the higher leverage restrict you guys or potentially restrict you guys from doing any further M&A transactions?.

Just for the record we never indicated that our goal of 4.5x, we indicated it was 5.5x. We come down about 2/10 of a turn normally. It’s still our goal to get to 5.5x.

And I think one of the things we’ve learned from this experience with Pinnacle is that we really need to get ourselves into a position where we’re not quite so subject to the whims of the equity raising market. Therefore, we would continue to pursue opportunity to get our leverage down below the 5.5x to get to our target level.

That could be in the form of just simply recognizing the amount of time it takes from the time you announce the transaction and if you can get to 5.5x, it could be opportunistically raising equity in the future to bring our leverage down.

I think we are, as we sit here today, very committed to making sure we don’t go above 6x and things can change, but that’s where we’re at today.

And bringing it down to the 5.5x range and if we had to in the future, we might take it back to 6x and then try to bring it back to 5.5x, but we’re not opposed to bringing it down below 5.5x either, so 5.5x is our target..

We always if you look back even to our Penn days we are if nothing else cautious, careful, deliberative in everything we do, always being careful not to make any fatal mistakes, less leverage is better than more, it's not hard to understand. On the other hand, we feel comfortable in this range that we’re going head where we want to head.

The cash flows are very secure, I mean we do know this business, most of you do and we don’t have any fears at all with the broad based cash flow that we get from these properties. Despite the unknowing criticism we have a single tenant, actually we had multiple tenants and the cash flow is solid as a rock.

So with that in mind, there is certainly nothing that we’re nervous about but it's always about prudence, being prepared for the next transaction as well. So sort of a philosophical answer to your question..

One of the other elements, I think somebody asked earlier about how we might bring the debt down, and the reality is we’re expecting we’ll have a green shoe [ph], obviously when the -- if green shoe is exercised we would expect to take those proceeds as well to accelerate the debt pay down..

And then one quick question on the TRS, I can see looking at your guidance for ’16, is essentially flat year-over-year. I was guessing listing to Penn and some other guys that that might have been up a little bit.

Is there -- are you guys factoring anything in there, I mean I can’t imagine to have anything for Maryland asset relative to national harbor given the distances between the two.

But is there anything baked in there for Baton Rouge in terms of potential oil impact or anything along those lines?.

In fairness we started the budget process before we got through the fourth quarter. We could have updated a little bit, but given the fact that we had such a rough start in January at Perryville, we elected to keep the guidance the same.

So we started off with projections earlier on before we had the final results for the fourth quarter and ended with some numbers, fourth quarter ended up a little better given that January started up with a rough start, we’re leaving with that.

Honestly I don’t think that the variances that would happened to either Perryville or Baton Rouge will be meaningful enough given the transactions happening this year to worry about it.

As I’ve said before, the variances at Perryville and Baton Rouge are almost insignificant relative to what we might be spending in corporate relative to diligence, some attorney fees and what not, pursuing other opportunities.

So, simple answer is, we left it where it was, figuring we had some mitigating circumstances, strong fourth quarter, we had good weather in the fourth quarter, we had great weather in the fourth quarter, at least in December and the Northeast anyway and therefore mitigating all that together we felt it was appropriate to leave it flat.

I wouldn’t read a lot of into that in terms of our interpretation of regional gaming trends or anything else..

Thank you. Our next question comes from the line of Shaun Kelly from Bank of America. Please go ahead..

Bill in some of your comments, to a question or two ago, you mentioned a little bit about, is the overhang that the equity offering for this deal has created and the impact and uncertainty that it subjects you to for the capital markets.

So I am curious, as you move forward and look at additional opportunities down the road, is there any different structure or different financing time line that you guys can look at that might change the overall capital markets risk or how would you think about some of the other options you could look to do in the future to reduce the overhang?.

There is couple of things, one is that, if we were to do another large transaction anything even resembling something close to the size of Pinnacle, there would have to be a fixed equity contribution relative to the stock. Sitting ourselves out there and exposing ourselves to enormous equity overhang has been painful.

We’re going to work through it, that transaction is still going to be accretive. And we’re very thankful that we put in a fixed ratio relative to what the Pinnacle shareholders get because without any collars, because that would have been enormous painful had we had that. So I think that’s the way we do that.

And then the other way we filter smaller transactions the equity raises will be much smaller, we’ll be a much larger company, at some levels we should be able to, assuming we can bring our leverage down in the time it will take to announce the transaction, we should have enough cash flow where our exposure will be significantly smaller and quite candidly insignificant to the bigger company.

The small transactions will get there with normal de-leveraging. We will do equity raises but they’ll be so small that even if things go poorly, it's not going to have a meaningful impact. And for larger transactions our expectations would be that there would be a fixed ratio of us issuing shares to the seller..

Thank you. Our next question comes from the line of David Katz from Telsey Advisory Group. Please go ahead..

Lots of information covered so far, but I just wanted to get your perspective Bill on the debt market and how you think that could play out for you? As we thought about our model we were assuming one set of circumstance around the $2 billion of debt they're not going away now, fair amount of time has passed.

What are you seeing out there in the debt market now and as you look at this I guess you will have about $1.5 or so of debt from Pinnacle in terms of refinancing opportunities and how that might work and how we can think about that file?.

We’re looking at about $1.6 in bonds. Obviously, the debt market has been less than friendly for the last several months.

I think we are without a doubt a very high quality issuer and I think the general advice I am getting is that high quality issues are not having nearly the struggle that the people who have less quality you’re having in terms of raising debt.

We do think -- our bond last time I looked we’re trading longer dated ones which are the ones that we’re trading, the large discount were around 95, that’s an up from probably as low as 92. And I think that as time progresses I would expect to get a little bit better.

Certainly, looking recently treasury rates have come down, so the spreads have effectively gone up. We are certainly hopeful that the market will be there.

I would remind people that if for some reason the market closes or in serious distress that we do have committed financing as a backup from our banks, so that we will not be -- by chance we end up with a very unfortunate, where the market collapses and in the weeks that we need to raise the capital that we have a ripcord safety valve so to speak.

So that we don’t end up necessarily having to get completely suggested to the whims of the market. Our banks and our advisors are very optimistic that we’re going to be able to raise the bonds that we need without any really undue pain, so we’ll see how that goes..

Thank you [Operator Instructions]. Our next question comes from the line of Cameron McKnight from Wells Fargo. Please go ahead..

Bill just returning to the leverage question, I think you will agree that equity markets year-to-date have been extremely volatile and it's been a tough market to new issuance as well.

If the equity market doesn’t remain cooperative, where would you be comfortable pushing leverage in the short term?.

I think our plan is to tough it out, short of some kind of a massive step down from where we’re at today, that’s the plan as we sit here today. If our stock -- I can’t imagine it will go there, but I can imagine quite candidly a few months ago I couldn’t imagine it being where it is at today.

I think I am pretty optimistic that we’ll get the execution done in these ranges.

It's an amazing story to me that a stock with a yield of mid-8% range and pro forma for Pinnacle is going to be even higher that it's going to take with the safety of the cash flow stream that we’ve got that we would end up having to issue stock at a significantly lower price in here.

It's really hard to say where I would take it, but I’m going to tell you we are -- the advice we got is that the market will take advantage of us, and that we’re just going to have to get over it and move on and get the deal behind us.

So, I think at the end of the day, it's -- we’re about as I would say we’re in the very high certainty that we are not going to take leverage over 6 and if we do we might -- it would be for circumstances that we don’t understand today. So I will always leave it open that we might pick leverage up, but not based on anything that I know here today..

And could you update us on recent operating results at the Meadows and have you updated guidance for trailing 12 months EBITDA to property?.

Yeah Cameron, other than the revenues we really can’t update you in terms of the operating performance, but I will note that Pennsylvania reported January revenues yesterday or earlier this week and at least the slots revenues and that property continues to perform well in advance of its competitors in that marketplace..

And then one last question for Bill.

Can you just walk us through the 16 million of EBITDA growth that you’re guiding in 2016, over and above the 4 million that you’re getting from the escalating with Penn?.

I suppose I can, big chunk of that is, there is obviously the escalator which you referenced. We’ve got corporate overhead which is coming down for a variety of reasons, not at least of which is the dividend.

That gets paid to the GLPI executives that will end in the third quarter, so the third quarter will be the last payment of the dividend, so we’ll have a full quarter. Not only do we have options that were exercised, that reached their maturity in ’15 and a slug more that happened in the first week of January.

There was another slug of two options, period that expire in ’17 combined with the fact that the dividend doesn’t get paid down, or it doesn’t get payment for the quarter. I think it's probably about $4 million to $5 million. The remainder of it is -- I’m going to have to come back to you on that one for what’s the remainder.

Bonuses down as well, because the guidance that we’re giving here does not reflect pro forma effect with Pinnacle, once we close the Pinnacle transaction obviously our guidance will reflect not only the result of the transaction but as well as any bonuses that might be incurred as a result of the successful completion of the transaction.

Last year’s bonus had the sign up of the transaction which is worth about $2 million..

I got it..

Probably something else I am missing, but doesn’t come to mind doesn’t come to me right now..

Okay, got it. Thanks very much..

Thank you. Our next question comes from the line of Chris Jones from Union Gaming. Please go ahead..

This is probably putting the cart before the horse a little, but -- and I’ll post a Pinnacle transaction closure and as well as the Meadows; one, obviously it would be a much larger entity and it will be challenging to see how some single asset sales would ultimately move the needle and certainly far less portfolio transactions available that ultimately could already fit in.

How do you think about growth longer term post those, if you’re sticking to your guns and about just focusing on the gaming sector alone. And it sounds like you have to do a lot more single asset transactions in order to move the needle? Thank you..

That’s a fair question. There are some large single asset transactions out there with which we are engaged. There are some multiple asset transactions out there with which we are also engaged. And there are some potential corporate things that we would look at as well. I obviously can’t point to anything more clearly than that for obvious reasons.

But as I said, I’ll re-emphasize that, over the next couple of years we don’t think we’re going to run out of prospects. So two-three years from now maybe we’ll be singing a different song, but Bill, Steve? So we’ll stand by that. There is more out there actually when we start looking around than you might quickly think..

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments..

Okay. Well, let me thank everyone for joining us today and know that we are looking for a really positively eventful year for this Company through 2016. So lots of good stuff for us to work on, to complete, if we can accomplish our goals this year, I think we’re all going to be quite happy at year-end next. So, thanks again. See you next quarter..

Thank you, Ladies and gentlemen. This does conclude our teleconference for today, you may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..