And that’s what we like about it. But [technical difficulty] to your question, David, is they take a box that’s very solid and make it even better and make it essentially brand new. And that’s what we love about the business model. And then the cash flows that come out of that business, as John said, have very high margins and very sticky recreation aspect to the cash flows.
Edward Pitoniak: David, I’ll just add to this. You and I talk a lot about my old days, way back in ski resort operations. And what I learned back in ski resort is to fall in love with businesses that respond that respond intensively and quickly to capital investment and management focus and intensity. And the difference between this and the ski business is you can make a great capital investment and operate the heck out of the business. I mean it doesn’t snow you or. And what I love about this business is that it’s very responsive to the investment of capital. You invest capital and you get pretty much an immediate consumer response it’s also a business that responds really well to management intensity. And again, Tom Shannon and the Bowlero team are very, very trued at investing capital and know how to manage the P&L every single line, top, middle and bottom lines to drive — to use that management intensity to really transform results through the transformation of the experience.
John Payne: David, the only other thing I would mention is just the detail of our underwriting. We went to all 38 assets in the 17 states. We got to meet not only the senior management team, as I talked about, but our team got to meet the people on the ground that makes these assets so productive. And it helped us in continuing to understand the durability of the business and the asset. So that just gives you a flavor of how we went about this investment.
David Katz: Thank you.
Operator: We now turn to Todd Thomas with KeyBanc Capital Markets. Your line is open.
Todd Thomas: Hi, good morning. So first question, Ed, maybe, John, it sounds like the company may slow down on investments in the near term until visibility improves, which would make sense. But the ongoing conversations that you are having as you look to keep the lines open, with new and existing relationships on potential opportunities. Do you expect to see investment yields increase sort of commensurate with the increases in capital costs across industries?
Edward Pitoniak: Todd, I believe they will, but it always takes time. Sellers always tend to take more time to come to grips with reality than buyers would be sellers, would be buyers. And obviously, we’ve seen some cap rate expansion over the last year. And I’m very confident in telling you that a year ago, we would not have been able to buy 38 Bowlero assets at a 7.3% cap rate. Very confident that we could not have done that. These assets would have traded tighter a year ago as they traded considerably tighter a couple of years ago when Carlyle bought a large portfolio of Bowlero assets. So as we look over the year to come and maybe years to come, I think you can expect markets eventually to accept realities, but markets tend to take time to accept those realities, and we’ll be patient for that acceptance to take place and enjoy the benefits of same-store growth that we, as a net lease REIT enjoy to a very rare degree thanks to our lease escalation and especially the CPI component of that escalation.
Same-store growth is going to mean something in the net lease space over the next year if things slowdown in the way they might. And we’ll cite a report from our friends at Green Street that showed that both VICI and GLPI enjoy same-store NOI growth that is about 4x the standard net lease REIT.
Todd Thomas: Okay. That’s helpful. And then I guess within that context of sort of looking at potential investments, can you provide an update on the call right agreements and sort of current thinking on Hoosier Park and Horseshoe, Indianapolis, the potential timing there and how you’re thinking about potential capital raising that might be required to the extent something were to happen there?
Edward Pitoniak: David take that first. The last half of that first and then John can take the first half.
David Kieske: Yes, Todd. And those who have been with us since the beginning, in the early days, we had call rights at a 10 cap. And as we talked about then, we said we’d use those to layer into our growth when the pipeline may be slower or there may be less opportunities in the marketplace. And we take the same approach with the call rights in Indiana. That runs till the end of next year, end of 2024, and we just have to call it by the end of 2024. So as we look into the future, we’ll be very disciplined with where our cost of capital is, but also very kind of methodical about how we layer in into our future AFFO growth.
John Payne: And then on the operating side, we just — like we do with our current assets that we own. We’re continuing to monitor how the business is performing in Indianapolis. As I’ve mentioned on other calls, Caesars has put in significant capital to both the assets and those businesses continue to be rewarded based on those capital improvements. So we’ll continue to monitor that.
Todd Thomas: All right. Thank you.
Operator: Our next question comes from Greg McGinniss with Scotiabank. Your line is open.
Greg McGinniss: Hi, good morning. Looking at the future opportunities with Canyon Ranch or Bowlero, is finding the incremental investment contingent upon the operator? Or is your team working with them to help find some opportunities. And then also for any potential ROFOs or investments, those cap rates will be negotiated in real time. So can we assume maybe those would be 50, 100 basis points higher than where you’ve invested previously?
Edward Pitoniak: Yes, Greg, it’s a good question. And to take the first part of your question, we very much partner with our partners like Canyon Ranch at developing investment criteria applying those criteria to marketplace to figure out where the best opportunities may be. And I think I mentioned back when we announced our — the expansion of our Canyon Ranch partnership back in late July, that John Goff and I share a conviction that the coming years, ’24, ’25, ’26 and onward, could represent the kind of opportunity that John Goff and Richard Rainwater saw in the Resolution Trust days in the early 90s. There could be some very compelling acquisition opportunities that are born out of not necessarily operating distress, but what could be a certain element of financing stress.
So we’re excited about that. We’re patient. We’re willing to wait for the right opportunities to come along in that vein. And when it comes to figuring out pricing and ROFOs and call rights, I think what we’re increasingly focused on is the degree to which we may need a certain amount of flexibility between us as buyer and any would-be seller account for the unpredictability of capital cost and resulting values. So we’re going to be careful that we don’t lock in to a cap rate for a future acquisition that may turn out at that time to be dilutive.
Greg McGinniss: And I guess in looking at those potential Canyon Ranch opportunities, is there a around the balance size on a per asset basis that they’re looking at in terms of making investments? Obviously, that will change based on cost of capital and expect — but just trying to understand the size of the assets they’re looking at.
David Kieske: Greg, it’s David, good to talk again. Thanks for joining the call. For our canning range, it’s somewhere 120 to maybe 150 rooms, but kind of 30, sweet spot. One of the things is they want to insure asset utilization. So if you look at Lenox and Tucson in the room counts right around there, what they’re working on and developing in Austin will be right around that size. And so as we think about potential other dots on the map, whether it be ski or beach or potentially even international one day, it’s how do you find — how do you focus on assets of that size? And given the economic magnitude or vitality that comes out of that business, you can take a conventional hotel that has similar room sizes and make the economics so much greater and so much better than what was out of a traditional hotel.
