Gaming & Leisure Properties, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. GLPI is a REIT focused primarily on owning gaming real estate leased to operators under triple-net arrangements; it also operates two casino properties through taxable REIT subsidiaries. Its 44-property portfolio spanned 16 states and was reported 100% occupied at quarter-end.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $283.5 million | $287.9 million | Down 1.5% |
| Income from operations | $186.4 million | $170.8 million | Up 9.1% |
| Net income | $96.9 million | $93.0 million | Up 4.2% |
| Diluted EPS | $0.45 | $0.43 | Up $0.02 |
| Operating cash flow | $198.8 million | $221.4 million | Down $22.6 million |
| Cash at period-end | $559.5 million | $26.8 million at Dec. 31, 2019 | Up $532.7 million |
Income from real estate rose 0.7% to $256.7 million, supported primarily by lease escalations. TRS gaming, food, beverage and other revenue fell 18.9% to $26.8 million as both casinos closed in mid-March due to COVID-19. Operating expenses declined 17.0% to $97.1 million, including because Q1 2019 included a $13.0 million Casino Queen loan impairment and Q1 2020 had lower TRS expenses and depreciation. Interest expense decreased to $72.0 million from $76.7 million, but a $17.3 million debt-extinguishment loss contributed to higher total other expenses.
Reported operating and net margins were approximately 65.7% and 34.2%, respectively, compared with 59.3% and 32.3% a year earlier. These calculated margins reflect the expense and debt-extinguishment items described above. Non-GAAP measures were FFO of $151.2 million, AFFO of $188.8 million and Adjusted EBITDA of $258.8 million, versus $148.7 million, $183.0 million and $258.4 million, respectively, in Q1 2019.
At March 31, 2020, long-term debt was $6.300 billion gross and $6.256 billion net of unamortized items, versus $5.786 billion gross at December 31, 2019. The company drew the full $1.175 billion revolver during Q1 and had no available revolver capacity at quarter-end; cash was $559.5 million. GLPI reported compliance with its debt covenants. Operating cash flow was $198.8 million; investing activities used $0.6 million and financing activities provided $334.6 million. Dividends paid were $150.8 million ($0.70 per share).
Material changes and management commentary
- COVID-19 caused casino closures in mid-March, affecting GLPI’s TRS operations and creating uncertainty about tenants’ ability to pay rent, reopening timing and the pace of recovery. Management said Q1 results may not indicate full-year results.
- Management did not expect lease rent escalations to be triggered in 2020 because of the pandemic. Variable rent was about 16% of 2019 cash rental income; management expected annual variable-rent reductions of approximately $1.5 million under the Boyd lease and $5.0 million under the Amended Pinnacle lease following their scheduled resets.
- GLPI redeemed $615.2 million of notes due in November 2020 and April 2021, funding repayments and added liquidity with revolver borrowings. The redemptions generated the $17.3 million extinguishment loss. The next debt maturity after these redemptions was the $449 million Term Loan A-1, due April 2021.
- A March 30 credit-agreement amendment allows qualifying non-cash rent and cash to be recognized in specified covenant calculations. Management stated it had ample liquidity and did not anticipate needing further covenant relief, assuming tenants continued complying with their leases.
- Management reported collecting all April cash rent except from Casino Queen, with which it was negotiating a rent deferral. Casino Queen’s rent payments were current at March 31, although it was in violation of a lease rent-coverage ratio; its $13 million loan principal had been written off in 2019.
Outlook, subsequent events and risks
The filing provides no explicit full-year earnings forecast. Reopening dates and operating recovery remained uncertain, and tenant financial stress could result in rent deferrals or non-cash rent. Other risks include tenant concentration, especially exposure to Penn; lower variable rent; interest-rate and refinancing risk; and the ability to realize value from Tropicana Las Vegas.
- On April 16, 2020, GLPI acquired the Tropicana Las Vegas real property from Penn for $307.5 million in rent credits. Penn would operate it for nominal rent while GLPI pursued a sale; the timing and proceeds were uncertain, and Penn could receive a share of proceeds above the specified threshold under the sale terms.
- GLPI expected to complete a separate acquisition of land beneath Penn’s planned Morgantown, Pennsylvania facility for $30 million in rent credits. The filing also describes Penn’s option to buy the Perryville casino operations, with a proposed leaseback if exercised.
- On April 29, the board declared a Q2 dividend of $0.60 per share, comprising $0.48 in stock and $0.12 in cash. Management said the reduced dividend reflected COVID-19 impacts and anticipated continued tenant performance of rent obligations.
- LIBOR was expected to be phased out; GLPI said it was monitoring the transition and expected to renegotiate its revolving credit agreement. The filing also notes ordinary-course legal proceedings, without management expecting a material adverse effect, and the risk that Tropicana Las Vegas may take time to sell or fail to realize significant value.
Important facts for investors to verify
- Subsequent rent collections, any deferral or non-cash rent arrangements, and the financial condition and lease compliance of major tenants.
- Casino reopening progress and the effect of closures and recovery on variable rents, tenant rent coverage and GLPI’s TRS results.
- Cash usage, debt maturities, refinancing access and covenant headroom, particularly with no revolver availability at quarter-end.
- Sale proceeds and timing for Tropicana Las Vegas, completion and terms of the Morgantown transaction, and whether the declared stock-and-cash dividend is sustained.