Gaming and Leisure Properties' (GLPI) CEO Peter Carlino on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: Gaming and (GLPI)

Gaming and Leisure Properties Inc (NASDAQ:GLPI)

Q2 2014 Earnings Conference Call

July 29, 2014 10:00 AM ET

Executives

Kara Smith - ICR

Peter Carlino - Chairman and Chief Executive Officer

Steve Synder - Senior Vice President of Development

Analysts

Felicia Hendrix - Barclays

Cameron McKnight - Wells Fargo

Thomas Allen - Morgan Stanley

Steven Wieczynski - Stifel

Joe Greff - JP Morgan Chase & Co.

Shaun Kelley - Bank of America Merrill Lynch

Steven Katz - Goldman Sachs

Joel Simpkins - Credit Suisse

Carlo Santarelli - Deutsche Bank

Operator

Greetings and welcome to the Gaming and Leisure Properties Second Quarter 2014 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. I would now like to turn the conference over to your host Kara Smith from ICR. Thank you may begin.

Kara Smith

Good morning. We would like to thank you for joining us today for Gaming and Leisure Properties second quarter 2014 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 legation Reform Act of 1995. Forward-looking statements address matters that are subject risks and uncertainty that may cause actual results to differ from those discussed today.

Examples of forward looking statements include those related to revenue, operating income, financial guidance as well non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management’s current estimate and the Company assumes no obligation to update any forward-looking statements in future.

We encourage listeners to review the more detailed discussions related 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 all we’re joined by Peter Carlino, Chairman and Chief Executive Officer; and Bill Clifford, Chief Financial Officer of Gaming and Leisure Properties Inc.

Now I’d like to turn the call over to Peter Carlino. Peter.

Peter Carlino

Thanks Kara. Let me also add Steve Synder, Senior Vice President of Development and Desiree Burke, our Chief Accounting Officer. So that we are prepared, and Brandon Moore, Brandon I almost forgot about you out in the West Coast a nice lovely weather. So I guess you’re gone but not completely forgotten. We’re pleased to join you all this morning. I must say it’s different for us coming out of an operating environment to have such predictability quarter-to-quarter. So I guess I’m happy to report that we have achieved predictable earnings for the quarter and we do remain engaged still, when I suspect we’ll get questions about our Meadows transaction along with some other things that keep us busy here as we look to the future.

But on balance I think we feel pretty positive about what’s happening at GLP. And with that why don’t we go direct with the questions as I suspect you will hit every topic that we’ll be prepared to cover. So operator why don’t you open the floor to questions.

Question-and-Answer Session

Operator

At this time we’ll be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Felicia Hendrix from Barclays. Please proceed with your question.

Felicia Hendrix - Barclays

Questions for you on the rent escalator; since the reported results that were better than the second quarter guidance and slightly raised the full year. We’re just wondering why you’re excluding it this quarter when it was in the guidance for the first quarter?

Bill Clifford

Well, because we have reason to believe that the results through October which is when of the measurement period, is that we are going to be just slightly below the 1.8. There is a chance that we could get to a better number or that could actually beat that number. However I think in the interest of being prudent, we’re assuming that the escalator doesn’t happen through our guidance.

Peter Carlino

Yes, let me clear Bill that we have no special information about any of that. We look as you do it, watch the performances and make an objective judgment. But its close and I think that prudence suggest we should take that position. Well they’ve also in their guidance have assumed that there is no escalator. We are really taking that to you as well.

Felicia Hendrix - Barclays

So there has been a lot in the investment community a lot of banter about the potential for you guys to acquire Isle and accretion of that potential or perspective or hypothetical transaction. Just wondering about that. I know in the past you’ve talked about how you’re really not looking at portfolio transactions. But do want you to address it again just given the accretion of it. And also I know with Isle comes a lot of properties in Iowa. So just wondering if that would still be gating factor for you?

Peter Carlino

Well the latter part’s a very easy answer. I don’t think any of us here would be anxious to own a property in Iowa. Not to say we wouldn’t because one never says never, but obviously it’s not a very stable place to do business. Look Felicia I think you’ve heard this answer many, many times for a whole lot of years. We are looking everything, obviously we’ve looked Isle, we’re looking other stuff. There is nothing, nothing at the moment to announce on that belt, but it’s in play. I mean I think as I’ve said before, we get up every day, have a look at the world and say what opportunities do we have? And that certainly has been among them in the past, and who knows. But that is closing answer and this is honest answers we can give you right now. We look at a lot of stuff. In fact we look just about everything.

Operator

Thank you. Our next question today is coming from Cameron McKnight from Wells Fargo. Please proceed with your question.

Cameron McKnight - Wells Fargo

Peter, just wondering if you could give us an update on the search for operators at the Meadows? And then particular, what sort of parties are you having discussions with? Are you seeing private equity coming to the mix? And are you running a strict or formal process with a defined closing date.

Peter Carlino

Well, it is a formal process. But let me ask Steve Snyder to talk about it, because that’s his day to day focus.

Steve Snyder

The answer to your question is we are evaluating a number of alternatives as the operator for the Meadows. As we disclosed in the press release we put forth our application through our taxable REIT subsidiary to be the operator, in event that that is not successful or does get delayed beyond the closing window that we’ve got with the folks in Las Vegas. You can assume that we have touched base with a broad population of perspective operators, private equity existing operators, multi-property operators et cetera. And we do expect to wrap it up within the next couple of weeks and should have an outcome that we’re prepared to announce in that timeframe.

Cameron McKnight - Wells Fargo

And then this is follow-up Peter or Bill. Are you able to offer just some brief or general thoughts on gaming industry revenue trends across the country right now? Have we seen some stabilization or do you think things are still a little uncertain or choppy?

Peter Carlino

Cameron you see what we see and we see what you see. From our point of view I mean we are not remotely concerned about stability of our earnings, but as one looks at the broader world of gaming, regional gaming, it’s not exciting, not a lot of good news. And look I think that things have somewhat stabilized, but look it seems to be month-to-month, quarter-to-quarter. Let’s see what surprises will emerge. Speaking just for me Bill may have a different point of view. I mean I don’t wake up every day thinking the gaming business has taken off again and it’s wonderful.

It’s okay, and some markets are doing very well. But you know what’s happening in some others, it’s gotten very crowded the world of games. And I don’t think people as I think Bill could well point out. And I think as several companies including Penn has pointed out in their recent call. The lower end of play, the $100 and less theoretical player is not back, I mean they are not healthy, exactly. And we’re doing fine at the upper end but not doing well, that’s at least what we’re seeing at the lower end.

I mean who feels good about what’s going on in the United States today. These are not good times, now the world is not coming to an end, we’re not panicked and the gaming business ultimately will settle out. But I don’t think these are wonderful times. They’re not a disaster but they are not -- they are going nowhere at the moment, that would be my assessment. Bill?

Bill Clifford

No, I would agree with that. I think certainly we have much more limited visibility than when we were with Penn, because we’ve only got two properties one of which is Maryland, the other one is in Louisiana. Both properties are, well certainly Baton Rouge is higher competitive although we’re starting to anniversary and get to some kind of normalization. In Baton Rouge, relative to what’s happened with the market and having too many boats in one market for too many casinos.

Now relative to Perryville, we’ve got Baltimore that’s getting ready to open here at the end of next month. And we clearly expect that to have an impact on our property at Perryville. Keep in mind we’ve reflected that in our guidance looking forward and we don’t see any indications quite candidly that there is anything that’s going to be different than what we’ve expected is happen when the property opens.

So I mean it’s been known, we’ve known about it for years that it was coming. So it’s hardly a surprise. But it does tend to, the reason I make this point is it does tend to color a little bit our ability to analyze what’s going on even within those two markets because of the change in competitive landscape in those markets, so doesn’t give us great insight into middle America so to speak across the rest of United States in terms of what’s happen in regional gaming.

So what we do is we have do the same as you guys do which is to take a look at the big picture revenue trends across the country in Canada they’re not great. We’re hopeful that as you look out each month-to-month that there is anomalies, I mean obviously we had the bad first quarter with weather especially across the Midwest and into the Northeast. All that bad weather probably translated into a little bit of improvement coming out of the bad weather and then we ran into the problem or I think everybody ran into the problem that schools and stuff were extended in terms of -- but certainly a big problem was in the Northeast where although snow days caused schools to extend their graduation dates. So what was always a bad first couple weeks of June turned into probably my guess bad three or four weeks in June.

We’ll see where July goes; we’re going to be as anxious as anybody else to look at the results. We certainly look at some of the stuff that’s public, and obviously the period right around July the first week of July for those states that were reporting on a weekly basis pretty encouraging. So we’ll see going forward, I think we take a measured approach going forward and we certainly don’t expect any robust numbers coming out of gaming in the second half of the year with our expectations pretty much continuation to what we’ve seen over the last several years.

Peter Carlino

Let I might add to, we are looking forward to Penn’s two race tracks opening in Ohio. I sense looking at reaction to Penn’s statements about those two tracks that there seem to be some skepticism because I gather or it is the case that some properties are not performing as well as had been expected. I think we share a great deal of enthusiasm for those two properties because Steve you were very much involved at the time and securing those properties. Locations are outstanding, some of the best in state, in distinct markets which I don’t think people quite recognize.

So we’re pretty optimistic about those proprieties from our point of view, anything you want to add?

Steve Snyder

No, absolutely we looked in Ohio, we agreed at Penn to pay some pretty substantial relocation fees around those two assets, because we felt strongly that the locations that we’re moving into do provide an opportunity to expand the market and will not have the same kind of impact with some of the recent openings that we’ve seen.

Peter Carlino

So we view that as a plus and not too far away, so hopefully that covers.

Operator

Thank you. Our next question today is coming from Thomas Allen from Morgan Stanley. Please proceed with your question.

Thomas Allen - Morgan Stanley

We and others maybe reading too much into this, but in the prepared remarks you wrote that you’re actively in discussions with several parties interested and exploring transactions which is more than what you have last quarter. Is it fair to say that volumes of discussions have picked up over the last three months or so? And has there been any change in who the interested parties are?

Peter Carlino

Look I think that we are engaged enough in a couple of situations that we’re satisfied that if we had nothing else on our place at the moment that would be just fine. There is certain things you know how it goes, there is no certainty to any transaction, but we’re not asleep here day to day. So none of these things get done until they get done. And as I have been fond of saying, look any fool can make a bad deal, and making the right deal is what focuses us. And I think it is safe to say, and I hope better or worse from your point of view, we’d rather make no deal to make a bad deal. So we stay focused on the goal, that’s growing accretive earnings and building our dividend base, it’s as simple as that.

So we’re very focused, got some things we’re looking at and until we have something to say we really have nothing to say.

Thomas Allen - Morgan Stanley

And then earlier you gave some helpful color on Iowa. But just thinking on Illinois, there have been a number of proposals tabled there for expansion of gaming sites in that state. What do you think the chances are that something passes there, finally would you still be interested in more properties in Illinois?

Peter Carlino

Look as a landlord we’ll be interested in properties almost anywhere, as long as the credit is good, maybe even Iowa. And that’s not a smart answer, I think that was essentially -- our risk is so different than that of an operator. So yes we would certainly look forward to that, should that occur.

Listen, doing business I can tell you and I used to say doing business in Illinois is like doing business in Zimbabwe. It’s a very unstable place over the years, been a very difficult operating environment for operators. Largely because of the caprice with which they operate, I mean they just don’t know where they are going.

But more and more states it seems have sort of adopted that kind of model. So look they have that for a very, very long time whether they are going to -- Steve do you have a point of view, because we are not focused on that anymore.

Steve Snyder

We just don’t have Thomas the same insights that we had at Penn, because we don’t have the lobbying teams around the country that Penn has. I will tell you just from the things that we hear from operators in Illinois including Penn. This has been almost the length of collective careers. This discussion has always been out there whether or not this is the year, this is the session that something happens or doesn’t happen; we just don’t have a crystal ball into that.

Bill Clifford

I will tell you that we don’t believe that if Illinois passes with what they are doing that the state of Illinois is going to see very much accretion to their gaming revenues. And in fact given their progressive tax structure, I’d expect that the State would actually see fewer tax dollars than they have today. But that doesn’t mean the politicians will do the rationale thing. Lot of times these laws get passed on special interest efforts and clearly there is a number of people in Illinois who think that there is a wonderful opportunity if they were simply allowed to have gaming. But I think in the larger interest of the whole state of Illinois, I can’t imagine that to be a positive development especially from a taxable revenue perspective.

Peter Carlino

No, that’s exactly right. I mean I think there is more than sufficient gaming in Illinois. And a lot of states I think are weakening to that. I know Pennsylvania has looked at that, that’s an ongoing discussion here in this State. But a general recognition in the legislature that maybe enough is enough. So that’s today, we’ll see what tomorrow brings. But those are right because of the margin, that’s a very good point though I haven’t thought about that but you are right, because of the progressive tax rate that they have there. Cutting it off of the top from a lot of these operators only means it goes away. So that’s a very good point. Anyway, there is thoughts about that.

Operator

Thank you. Our next question today is coming from Steven Wieczynski from Stifel. Please proceed with your question.

Steven Wieczynski - Stifel

So Peter if you go back to your release and the commentary you did make about having active discussions. Maybe if you can elaborate a little bit more. Are those discussions that you are having, are those being initiated more by you guys or is it more to be initiated by other operators or is it kind of a combination of both sides?

Peter Carlino

I think it’s anything and everything. People calling us, pursuing at certain people that’s a more limited and targeted effort. But no I think Steve it’s pretty active.

Steve Snyder

We view ourselves as a resource for this industry and those conversations are both inbound as well as outbound. And I wouldn’t say that there has been any noticeable change in directional flow of information over the course of last 90 days by any stretch of imagination.

Peter Carlino

What is interesting to me is how often we have been contacted. I think I can generally say that in some of the new markets, for new properties, development properties where we’re looked out as a source of funding, which we would approach with some enthusiasm and have.

Steven Wieczynski - Stifel

And then Peter this is kind of a higher level question, but if you were back as an operator. I mean do you still think in this environment, does it still make sense to be investing in properties in some of these markets where we’ve seen returns go lower and lower. How would you think about that today versus five years ago, seven years ago?

Peter Carlino

It’s market-to-market, just tell me the market, tell me what the competitor said, what are the threats in the future and I will tell you whether we put money there. You see Penn putting money into playing the racetrack. Look that’s going to be a very, very, very nice transaction for that company. And there are numbers of places where I think this could be very, very good. It really is market-to-market; I mean people haven’t stopped gambling. The world hasn’t come to an end and I really think I need to emphasize that enough it really is just some markets are getting crowded.

Look we had a monopoly at Penn at Charlestown for many, many years. And when all the smoke settles and all these places open and a whole lot of that revenue rolls into that wonderful facility It’s still going to be a great facility, and it’s still going to do big time numbers. But nothing is forever. And again can’t underscore this enough, its market-to-market. I think any combination of us on this phone call would gladly pull up own cash to put a property in certain places in New York, I can get out a long list of places, might not be New Jersey but there are places and lot’s of them where you can still generate a very good return. The other parts of that fantasy is capital spend, I mean you can’t lose sight of the fact that there seems to be still a lot of people floating around in this industry who just are willing to spend almost anything without at any regard to returns. And our goal always was at Penn to generate the greatest amount of revenue with providing of course a quality property but for the least amount of investment. I don’t think there were a lot of people better than we at that.

So part of it is spending discipline, and I’m not going to criticize a few properties being built right now. But I could probably write along five or six right now where people are about to spend foolish amounts of money unnecessarily, but god bless them, I mean this is America they can do what they want.

So that is a long answer to my view that there is still plenty of opportunity out there, one has to just be smart and selective.

Operator

Thank you. Our next question today is coming from Joe Greff from JP Morgan Chase & Co. Please proceed with your question.

Joe Greff - JP Morgan Chase & Co.

I have two questions, one relates to your earlier comments about the Meadows transaction and one of the alternative is putting it in the taxable REIT subsidiary. Would that be something that you would only do on a temporary basis or is that something that you would look to do on a permanent basis, some of the other alternatives pan out.

And then related to that my second question and based on your interactions and discussions to date with partners across the spectrum. Is it more difficult or more complicated to sell an operating asset or is it more difficult or complicated to buy a real-estate or real-estate asset with operations?

Peter Carlino

I will let Bill answer, I think I’ve talked enough for while so give me rest Bill.

Bill Clifford

I mean relative to the Meadows and the TRS strategically we have no interest in being a long-term operator of the Meadows, if in fact we were somehow -- and there are some items that will come out as you will see when we file the Q relative to the purchase agreement relative to Meadows. There is some deadlines that we have, that we have to comply with. Should we fail to get, and I don’t think we will let me be really, really clear. I do not think we’ll fail at finding the tenant for the Meadows. But if we did as a backup plan, yes we would take over the property for period of time and then yes we would find, we would seek out another operator.

And the reason, well two reasons. One is we don’t want to become an operating company, let me focus on being a REIT. But the other item is that, when that asset fits in the TRS it severely reduces our flexibility relative to doing another transaction or with the portfolio of transaction, or should we somehow meet to bring in operation into TRS we have limitations relative to how much we can have there. And so permanently putting the Meadows there would cramp our flexibility going forward.

And I apologize I forgot your second question.

Joe Greff - JP Morgan Chase & Co.

The relative difficulties of selling an operating asset versus buying an asset.

Bill Clifford

There is a decent amount of complexity involved in all these transactions from a tax perspective in terms of how we acquire an asset without incurring substantial tax liabilities associated with that in terms of owing Federal Government lot money on the difference between tax basis of their land and building and what we’re paying for it.

So acquiring assets is complex. Finding operators or tenants in terms that we’re looking to sell assets, what we’re looking FF&E and the gaming license that can also be complex and there is generally a tax liability created there, but the flip side to that which is positive is that there is a step up in basis relative to those FF&E and the gaming license. So they can amortize that over a reasonable length of period. So it’s really a timing difference versus the permanent loss associated with the land and building purchase.

Generally speaking they’re both hard, I mean I think the concept of buying assets and selling assets in this the world we live in today is more difficult than it was when we were Penn simply buying stock for an agreed on price, taking all the assets and liabilities that was clearly a simpler transaction to execute. That answers your question.

Operator

Thank you. Our next today is coming from Shaun Kelley from Bank of America Merrill Lynch. Please proceed with your question.

Shaun Kelley - Bank of America Merrill Lynch

Bill or Peter I was just wondering if you could maybe start by giving us a little bit more color on the OPCO transaction itself for Meadows? What kind of buyer interest or potential buyer interest are you seeing? Is it strategic, is it financial, is it kind of mix across the board and have you been surprised by I guess any set of people that are interested and possibly looking to acquire that?

Bill Clifford

I think I am going to let Steve handle that, he has been one quarter back in Meadows.

Steve Snyder

Yes, Shaun we talked about it a little bit earlier in the call. I mean the interest was pretty expensive and it wasn’t in need to any specific type of buyer. The question came up about private equity as a candidate, yes. Multi-property operators as candidates, yes. So investor types as potential operators I mean it’s across the spectrum. And as we disclosed in the press release we are working to bring that announcement that decision to a closing relatively quickly.

So I would say at this point stay tuned.

Bill Clifford

Adding to elaborate, I think at point we had almost 18 parties interested, we moved it down significantly down to a very a select group right now that we’re working through negotiations with. But we were very pleasantly almost surprised that the number of people that were interested. And the number of people who were asking, obviously not everybody who expressed interest or signed an NDA turned out to do a lot of work, but a number of them certainly did do a substantial amount of work in the processes.

Shaun Kelley - Bank of America Merrill Lynch

And I guess then following up as we think about the prospects and not specifically for IL but just how the mechanics maybe a portfolio transaction will work. Do you guys have any thought or a bit more developed kind of idea as to how you might handle the sale of multiple OPCOs? If that were required, would you try and do you think it would be beneficial to run and again this isn’t referring specifically to IL, but just more your methodology as you approach a portfolio. Would you be most interested in trying to sell all of the operations to one party? Do you think that would be simpler or do you think that selling individual OPCOs would be the transaction that would maybe maximize the most value.

Bill Clifford

Well I think there is a combination, I mean if you look at a portfolio, if it’s a large portfolio or a small portfolio, it could make difference. Obviously with the small portfolio say two or three assets you probably look for a single operator to take over. If it’s a larger portfolio we would look at obviously many cases there would be reasons why certain people couldn’t take the entire portfolio and obviously you might need to break that up. I think from our perspective, the one thing we would look at is it’s obviously getting these transactions is somewhat complex. And there is a certain amount of uncertainty that’s associated with not knowing who the tenants are when you make the acquisition.

In a perfect world we’d much prefer to have the tenants identify at the point in time that we enter into the contract. And I think that would be our goal going forward to the extent we can do that. There may be circumstances similar to what happened to Meadows or really weren’t able to do that. But I think going forward we try push a little harder to have that resolved at the time of the purchase agreements.

Shaun Kelley - Bank of America Merrill Lynch

And I guess follow up on that Bill. I mean how exactly would that work? Does that mean you would kind of partner like I guess during the process to have to kind of have somebody in mind or would you bring them in as you’re negotiating? How exactly would you kind of think about trying to have that done I guess at the time of announcement if that were the way of work?

Bill Clifford

The way we think about doing it is bringing somebody in while we are in negotiations for the acquisition and understanding. Because the duties on a tax efficient basis, there is a number of steps in reorganizations you are required to get done. A lot of those have to get done prior to making the acquisition, because you can’t do those after the acquisition without adverse tax consequences. So given that you are going to have to ask a company to reorganize itself prior to the acquisition, we probably would like to indentify who’s going to take those pieces and then there is a number of different ways you can do this, and it gets rather complex. However some of that might involve another party first that internal reorganization and then almost simultaneous purchases of the different components of the Company.

Shaun Kelley - Bank of America Merrill Lynch

And then I guess my final question would just be that is kind of current or expected timeline for closure of the Meadows. Do you still think, I think you’ve said before that sometime in either first quarter or first half of ‘15 but just what exact window are you guys are kind of shooting for right now?

Bill Clifford

Yes, we have not modified that window at all. So at this time it’s difficult to come out with a definitive answer because we are not a 100% sure who the tenant is going to be, we don’t know what their familiarity might be with State of Pennsylvania where in terms of how much work might be involved for the regulators to get comfortable with the tenant. So sort of us knowing who the tenant is going to be it’s almost impossible for us to accurately predict when the transaction will close.

We still feel comfortable with that timeframe, that’s why we’ve left it where it is. But once we get this defined, once we know who the tenant is, once we’ve done the gaming applications in. I think at that point in time we’ll have a better read. Even though, but to be fair there is still going to be a pretty wide window because a lot of times the approval process by the state regulators is contingent on what’s in front of you, relative to getting approved. They have staff, obviously they have a number of a lot of staff but typically the expertise required to do the transaction is going to be fairly limited inside an agency. And therefore the workload may not allow for a speedy approval as you might otherwise hope for.

Operator

Thank you. Our next question today is coming from Steven Katz from Goldman Sachs. Please proceed with your question.

Steven Katz - Goldman Sachs

Maybe you could just talk about where the push back is on the deal volume and interest and what I mean by that is it the sellers concern that the multiple you are offering is too low? Or is it that they feel they need to get back to peak EBITDA as the economy improves. I just want to understand that dynamic there?

And then secondarily, Bill you mentioned the extended school calendar impacting operating results and I didn’t understand that given your customer base?

Peter Carlino

Let me take first half of that. Did anyone say that we’re getting pushed back? I don’t think that is the fair assumption. So don’t assume it. I’ll let Bill.

Steven Katz - Goldman Sachs

The amount of activity is probably lower than I think most of us thought.

Peter Carlino

Yes, this is one at a time or two at a time kind of situation that’s all we kind of want to handle. If we come forward with something and its large enough believe me it is precisely what weren’t. But this is a M&A kind of a business, I mean that’s what we’re doing. And I don’t think for the foreseeable future we’re going to see a whole pile of transactions moving through the month, I mean this not going to happen. These are very complex transactions.

Bill Clifford

I mean my comments Steve relative to the June, June as a month itself. We saw that in Perryville. Perryville had some bad weather this winter, some of the schools were closed, they opened later. And we clearly saw that internally that where June typically when we compared year-over-year the first two weeks were kind of okay. And then third week we clearly saw drop-off. And always we believe that was caused by the normal pattern of what you’ll see when there is high school graduations in schools flooding out and all the rest of it, is that the first few weeks of June are always tough and the first couple of weeks of June.

So that’s all I was talking about, that's what I’m saying school year is extended. Maybe I didn’t articulate it that well enough I just assumed everybody understood that many of the schools in the Northeast the last day of school is extended by anywhere from seven to 10 days in lot of the jurisdictions across that were hit by all the bad this winter.

Operator

Thank you. Our next question today is coming from Joel Simpkins from Credit Suisse. Please proceed with your question.

Joel Simpkins - Credit Suisse

A couple of quick questions here. I guess what are your assumptions still on when or if we’ll ever see another gaming REIT come to fruition? I know there has been a lot of speculation from some activist trying to push some of the existing C Corp. So that’s question number one.

And question number two, I know Peter, Bill you guys have honestly been calling for the death of Atlantic City for a long time. We’re finally seeing some capacity come out of the market as some of these properties are at fire sale prices admittedly with some real questions about future profitability. Is there any remote interest in that market at these levels?

Bill Clifford

Well I mean relative to Atlantic City our model requires them to be able to pay rents. So properties that can’t generate EBITDA aren’t going to have anything left to pay rent with. So I think the most obvious answer from our perspective is that I can imagine we’d be interested in many properties in Atlantic City, there are few that we think will be healthy for the long-term that we might be interested in, no discussions on those properties. But for the bulk of the properties in Atlantic City I think we’d stay very far, far away.

Joel Simpkins - Credit Suisse

And that backs to the other question on sort of when and if there could be another REIT or is that just.

Bill Clifford

I have 100% confidence that the other companies that are out there are looking at it. And I think I don’t know what conclusions are coming to I just know from our experience it’s an incredibly complex process and it’s incredibly time consuming and it requires a tremendous amount of focus. And Penn National when we did the transaction was really ideally positioned to go do the transaction. We were at the right leverage primarily as the starting point. We had some large investors but they weren’t massively large investors in terms of being able to solve for some of the related party tenant roles.

Peter Carlino

So those who have large internal interest, since they have to sell out of their own company, god bless him but some will not.

Bill Clifford

So there are those issues, there is a number of what I’ll call very detailed kind of accounting tax basis analysis that’s required to even start the process. I think we touched on this earlier that we were little bit fortuitous and that we’ve done Argosy transaction and we got ready to divest the Argosy property in Baton Rouge that we ran into some significant difficulties in calculating what our true tax basis was. And it caused us back then to recognize that as we’re going to continue to grow and expand this tenant, if we’re going continue to do acquisitions we recognized we’ll be divesting assets. Might not always be the asset that we’re acquiring it could well be one of our existing assets. And so we went up and endeavoured to do almost what took us almost two years to basically go back through all of the transactions, some of these were multiple transactions of acquired companies, who’d acquired other companies who acquired somebody else.

So by the time you unravel through or got through that whole process understanding where you sit with tax basis on your assets was a monumental task and we started that and had it completed before we ever started the REIT transaction. So guys that are looking to go do that are going to find out that they’re going to have to understand the tax basis otherwise all of their analysis in terms of what their E&P closures are going to be required et cetera, they’re not going to have a clue. And so they’ve got to do all of that work before they’re even ready to figure whether they can do a transaction.

So I’m not surprised that quite candidly that nobody else has come out and done it. I admire the fact that unlike some of the other guys in different industries who come out and announce that were going to do a reconversion before they knew whether they could get it done or not. And who were suitably punished for having gone down that path and failed, that nobody in the gaming industry has made premature announcement that they are going to pursue that.

Certainly the agitators are looking for it, but reality is that it’s years before they are going to get the transactions done in my opinion. And maybe started a year and half ago which is when we made our announcement. I would expect quite candidly before they are ready to make their own announcement is probably another year. Assuming they can get there and I don’t know -- I had no clue, absolutely no idea where any company status is and where they are relative to looking and trying to make this work. But I wouldn’t expect to hear from anybody for at least another six months to a year assuming they started the day we made our announcements.

Peter Carlino

It’s not a cakewalk, it would be very, very difficult to describe outside of this room because Desiree who was at the heart of all of this, how incredibly difficult, painful, miserable, expensive, time consuming, maddening, I mean just because of conflicts in IRS requirements and GAAP requirements. It is monumentally difficult. So we sit here kind of smugly but smiling, look if they can do it god bless them. But I think Bill adequately said this is a very, very difficult process that most will not be able or willing to accomplish. So we will just have to wait and see.

Operator

Thank you. Our next question today is coming from Carlo Santarelli from Deutsche Bank. Please proceed with your question.

Carlo Santarelli - Deutsche Bank

Just a quick one procedurally. In the event that you aren’t able identify an operator and this is likely to be a moot point in the coming weeks. But in the event you are not, I presume then you would just traditionally raise, obviously raise the capital through the equity markets using 5.5 times leverage on the Meadow’s EBITDA?

Bill Clifford

That’s right, that’s correct.

Carlo Santarelli - Deutsche Bank

And then if you wouldn’t mind, could you possibly maybe opine a little bit on geographically where you guys are seeing the most at least in bound interest in terms of potential deals?

Peter Carlino

It’s right across the country.

Bill Clifford

It doesn’t to seem be any concentration, I think it’s safe to say as Peter mentioned it earlier, those markets where people are taking capacity out whether it’s Tunica or Atlantic City or Biloxi markets like that, it is sufficing to say there is not a lot of volume of either inbound or outbound phone calls into those markets.

Carlo Santarelli - Deutsche Bank

Would it be then safe to assume that the markets that are most distressed are quite possibly you are most active right now?

Bill Clifford

No, it could be opportunistic.

Operator

Thank you. There are not further questions at this time. I’d like to turn the floor back over to management for any further or closing comments.

Peter Carlino

Well, thank you all for tuning in this morning. We are working hard at this end and hopefully we will have more to report over the next quarter. And we look forward to seeing you then. Thanks very much.

Operator

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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