Gaming & Leisure Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. GLPI is a REIT primarily owning gaming real estate leased to operators, generally under triple-net arrangements. At quarter-end, its portfolio included interests in 50 gaming and related facilities across 17 states; properties were 100% occupied.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $317.8 million | $262.0 million | $619.3 million | $545.5 million |
| Income from operations | $212.1 million | $180.7 million | $412.2 million | $367.1 million |
| Net income | $138.2 million | $112.4 million | $265.4 million | $209.2 million |
| Diluted EPS | $0.59 | $0.52 | $1.14 | $0.97 |
| Operating margin (calculated) | 66.8% | 69.0% | 66.6% | 67.3% |
Q2 revenue rose 21.3% and net income rose 23.1% year over year. Six-month revenue increased 13.5% and net income 26.8%. Comparisons reflect the effects of COVID-related casino closures in 2020, particularly for GLPI’s TRS-operated properties. For Q2, real estate income increased 8.8%, while TRS gaming, food, beverage and other revenue increased to $43.7 million from $10.0 million.
Cash flow: Six-month operating cash flow was $402.6 million, versus $229.7 million a year earlier. Investing used $489.8 million, chiefly the $487.4 million Bally’s-related real estate acquisition; financing used $248.2 million, including $308.6 million of dividends, partly offset by $70.2 million of ATM equity proceeds. Cash and cash equivalents were $147.6 million at June 30, excluding $25.6 million classified in assets held for sale.
Debt and liquidity: Gross debt was $5.80 billion ($5.76 billion net of issuance costs and discounts), compared with $5.80 billion gross at year-end 2020. GLPI had $1.175 billion of available revolver capacity, subject to approximately $0.4 million of letters of credit, and reported compliance with debt covenants. Most debt is fixed-rate; $424.0 million of term-loan debt is variable-rate. The company’s $5.375 billion of senior notes had a disclosed fair value of $6.053 billion.
Margins and non-GAAP measures: Q2 operating margin was lower than the prior-year quarter, while net margin increased to approximately 43.5% from 42.9%. Six-month net margin increased to approximately 42.9% from 38.4%. Management reported six-month FFO of $378.7 million, AFFO of $399.5 million and Adjusted EBITDA of $542.8 million, all non-GAAP measures that should not be treated as substitutes for GAAP earnings or cash flow.
Material changes and transactions
- On June 3, GLPI acquired the real estate of Tropicana Evansville and Dover Downs for approximately $487.4 million and added them to a new Bally’s master lease. Initial annual rent is $40 million, subject to CPI-linked increases.
- GLPI issued 1.5 million shares under its ATM program in Q2 for $70.2 million net proceeds; $528.9 million remained available under the program at June 30.
- Quarterly dividends were $0.67 per share, up from $0.60 in Q2 2020; Q2 2020’s distribution was partly paid in stock.
- Penn completed its purchase of the Hollywood Casino Perryville operations on July 1, 2021; GLPI retained the real estate and leases it to Penn for initial annual rent of $7.77 million.
Outlook, commentary and risks
- Management said tenant casinos had reopened and were producing strong results. It attributed strength at its TRS properties to pent-up demand, federal stimulus and reduced competition from other leisure activities. The filing provides no formal full-year earnings or revenue guidance.
- Full rent escalators took effect May 1 on the Amended Pinnacle, Boyd and Belterra Park leases, increasing annualized rent by $6.1 million. Management anticipated a potential $5.6 million annualized increase on the Penn Master Lease after its November 2021 coverage test.
- Pending transactions included the planned sale of Tropicana Las Vegas non-land assets and a 50-year ground lease to Bally’s, expected in early 2022, and a proposed $150 million acquisition of Bally’s real estate in Black Hawk and Rock Island, also expected in early 2022. The planned Casino Queen transaction involving Hollywood Casino Baton Rouge was expected to close in the second half of 2021, subject to approvals and conditions.
- COVID-19 remains a risk: renewed outbreaks or restrictions could affect casino operations, tenant finances and rent components tied to property performance. GLPI also highlights tenant concentration, refinancing and interest-rate exposure, the LIBOR transition, access to capital, REIT qualification, regulatory approvals and litigation. It reported no material change in previously disclosed risk factors and no litigation expected to materially affect results, while noting outcomes remain uncertain.
Most important facts for investors to verify
- Tenant rent coverage and the sustainability of percentage rent and lease escalators as pandemic-related comparisons normalize.
- Tenant concentration and financial capacity, particularly exposure to Penn and other major gaming operators.
- Closing status, regulatory conditions and final economics of the pending Bally’s and Casino Queen transactions.
- Debt maturities, variable-rate exposure and the effect of benchmark-rate transition or higher refinancing costs.
- Cash available after acquisitions and dividends, and the use and dilution impact of remaining ATM capacity.