Gaming & Leisure Properties, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. GLPI is a gaming-property REIT whose primary business is owning and leasing real estate to casino operators under triple-net leases. Its portfolio included interests in 48 facilities across 16 states and was 100% occupied at quarter-end.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $301.5 million | $283.5 million | +6.4% |
| Income from operations | $200.1 million | $186.4 million | +7.4% |
| Net income | $127.2 million | $96.9 million | +$30.3 million |
| Diluted EPS | $0.54 | $0.45 | +$0.09 |
| Operating cash flow | $205.2 million | $198.8 million | +$6.4 million |
| Adjusted EBITDA (non-GAAP) | $266.6 million | $258.8 million | +3.0% |
| AFFO (non-GAAP) | $195.7 million | $188.8 million | +3.7% |
Rental income was $263.8 million, up 5.8%; TRS gaming, food, beverage and other revenue was $37.7 million, up 40.9%. The reported operating margin was approximately 66.4%, versus 65.7%; net margin was approximately 42.2%, versus 34.2%. These comparisons reflect casino closures in March 2020 and the prior-year $17.3 million debt-extinguishment loss.
Operating cash flow exceeded net income. Investing activities used $1.0 million, mainly for capital expenditures; financing activities used $161.4 million, primarily for $151.5 million of dividends and $9.8 million of taxes on withheld shares. Cash and cash equivalents were $520.7 million at March 31, 2021, excluding $30.6 million classified within assets held for sale. The quarterly dividend was $0.65 per share, compared with $0.70 a year earlier.
Debt and liquidity
Gross long-term debt was approximately $5.80 billion, including $5.375 billion of fixed-rate senior notes and $424.0 million of term loans; debt net of issuance costs and discounts was $5.76 billion. No revolver borrowings were outstanding, and approximately $1.175 billion of revolving capacity was available. GLPI reported compliance with its debt covenants. Senior-note fair value was $5.90 billion, compared with carrying principal of $5.375 billion. Interest-rate exposure is principally variable-rate credit-facility debt; the filing also flags the expected transition away from LIBOR.
Material changes and drivers
- Real estate income increased $7.1 million, reflecting favorable straight-line rent adjustments, stronger percentage rent under the Penn Master Lease, and rent from the Morgantown Lease. Partly offsetting these items were lower percentage rent under other leases, lower Caesars cash rent, and $2.1 million of deferred Casino Queen rent.
- TRS revenue rose $10.9 million as Baton Rouge and Perryville were operating during the full quarter, unlike Q1 2020, when both closed in mid-March. Management attributed strong post-reopening results partly to higher spend per visit and reduced costs on curtailed amenities.
- Interest expense fell $1.6 million. The prior-year quarter included $17.3 million of debt-extinguishment charges from retiring near-term notes; their absence materially supported the year-over-year increase in net income.
- Total liabilities were $6.37 billion and shareholders’ equity was $2.65 billion at March 31, 2021. Total assets were $9.01 billion.
Outlook, transactions and risks
The filing provides no specific earnings or financial guidance. Management said reopened tenant casinos had produced strong results, but cautioned that performance may not persist; results may have benefited from pent-up demand, reduced competition and federal stimulus. GLPI noted that all its properties were open as of the filing, while COVID-19 variants, renewed restrictions, consumer spending and casino attendance remain uncertain.
Pending transactions included sales of the operating businesses at Hollywood Casino Baton Rouge for $28.2 million and Hollywood Casino Perryville for $31.1 million, with GLPI retaining the real estate and leasing it to the buyers; both were subject to approvals and expected in the second half of 2021. The company also expected to acquire Tropicana Evansville and Dover Downs real estate for approximately $340 million and $144 million, respectively, with a planned $40 million annual Bally’s Master Lease rent. In April 2021, GLPI announced a $150 million proposed acquisition of Bally’s Black Hawk and Rock Island real estate, expected to add $12 million of rent, and a proposed Tropicana Las Vegas arrangement under which GLPI would retain the land and receive initial annual ground rent of $10.5 million. These proposals and closings were subject to conditions and approvals.
Key risks include COVID-19 effects on tenants and operations, tenant ability to meet lease obligations, concentration of rent from Penn and other major operators, substantial indebtedness and refinancing or interest-rate risk, LIBOR transition, REIT qualification and distribution requirements, regulatory approvals, acquisition execution, and litigation or other contingencies. GLPI said ordinary-course legal proceedings were not expected to have a material adverse effect, but outcomes and insurance coverage are uncertain.
Important facts for investors to verify
- Whether tenant casino operating results and rent coverage remain strong as pandemic-related restrictions and stimulus effects change.
- Collection timing for the $2.1 million of deferred Casino Queen rent and completion of the Baton Rouge and Perryville operating-business sales and lease arrangements.
- Regulatory approvals, purchase funding, closing dates and realized rent for the announced Bally’s transactions and other pending acquisitions.
- Debt maturities, available revolver capacity, covenant headroom, refinancing costs and the effect of LIBOR replacement on variable-rate borrowings.
- How much reported growth reflects recurring cash rent versus straight-line rent adjustments and the unusually weak Q1 2020 comparison.