Gaming & Leisure Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. GLPI is a REIT focused on owning gaming real estate and leasing it to operators, generally under triple-net arrangements. Its 59-property portfolio was 100% occupied across 18 states.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Real estate income | $356.6 million | $326.5 million | $711.8 million | $641.5 million |
| Operating income | $238.3 million | $237.1 million | $505.1 million | $436.9 million |
| Net income | $160.1 million | $155.8 million | $348.8 million | $277.5 million |
| Net income attributable to common shareholders | $155.6 million | $151.3 million | $339.0 million | $270.6 million |
| Diluted EPS | $0.59 | $0.61 | $1.29 | $1.09 |
| Operating margin | 66.8% | 72.6% | 71.0% | 68.1% |
Q2 operating margin declined mainly because the credit-loss provision rose to $28.1 million from $2.2 million. Six-month adjusted EBITDA, a non-GAAP measure, was $648.6 million versus $600.9 million; AFFO was $499.1 million versus $450.2 million. Q2 adjusted EBITDA was $325.5 million versus $307.6 million, and AFFO was $250.4 million versus $231.6 million.
Cash flow and distributions: Six-month operating cash flow was $493.1 million, compared with $458.5 million. Investing activities used $445.9 million, including $419.0 million for acquisitions; financing activities used $276.9 million. Cash ended at $9.5 million, down from $239.1 million at year-end 2022. GLPI paid $444.1 million in dividends during the half, including a $0.25-per-share special dividend related to the Tropicana Las Vegas building sale.
Debt and liquidity: Gross debt was $6.29 billion ($6.25 billion net of issuance costs and discounts), versus $6.18 billion gross at year-end 2022. Debt included $5.675 billion of fixed-rate senior notes, a $600 million term loan and $15 million drawn on the revolver. The company reported $1.735 billion of available revolver capacity and compliance with required financial covenants. Interest expense for the first half was $160.7 million.
Material changes and developments
- Revenue increased 9.2% in Q2 and 11.0% for the first half, chiefly from acquisitions, lease escalations and favorable straight-line rent adjustments. The January 2023 acquisition of Bally’s Biloxi and Tiverton added $48.5 million of annual rent.
- GLPI recorded a $28.1 million Q2 credit-loss provision on its Cordish-related financing receivables, citing lower projected commercial real estate values. The allowance rose to $41.5 million from $19.1 million at year-end; tenants were current on rent at June 30.
- GLPI redeemed $500 million of 5.375% notes due 2023 in February, primarily funding the redemption with cash and proceeds from a forward equity sale. It drew the $600 million term loan to support the Bally’s acquisition.
- Common shares outstanding increased to 262.6 million from 260.7 million at year-end, including shares issued through equity offerings and settlement of a forward sale agreement.
Outlook, risks and contingencies
Management provided no specific earnings or AFFO guidance. It said operating cash flow, cash on hand, revolver availability and potential equity sales should be adequate for anticipated debt service, capital spending, working capital and dividends. Future growth is expected primarily from acquisitions, which could require additional debt or equity funding.
GLPI anticipates a $5 million to $6 million annual reduction in percentage rent under the Amended PENN Master Lease, partly offset by a $4.2 million annual building-base-rent increase beginning November 1, 2023; management estimated the net 2023 rental-income effect at a reduction of $0.1 million to $0.3 million.
Material risks include tenant financial strength and performance, concentration of rent from PENN and other gaming operators, higher interest rates and debt refinancing, economic conditions affecting gaming activity, and changes in property values that could alter credit-loss reserves. GLPI has funding commitments of up to $225 million for PENN’s Aurora relocation and, if requested, up to $350 million for other PENN projects. A May 2023 letter of intent concerning a possible stadium at the Tropicana Las Vegas site contemplates up to $175 million of GLPI funding; the transaction remains subject to approvals, including MLB and Nevada gaming approvals. Litigation in the ordinary course was not expected by management to materially affect results, although outcomes are uncertain.
Investor verification priorities
- Track Cordish property performance, rent coverage and future credit-loss allowance changes, particularly for the Pennsylvania Live! financing receivable.
- Review tenant concentration and operating performance, especially PENN’s ability to meet lease obligations and the effect of lease restructurings or competing facilities.
- Assess debt maturities, floating-rate exposure, refinancing costs and the company’s remaining revolver capacity against its acquisition and dividend plans.
- Confirm the timing, conditions and funding terms of PENN development commitments and any Tropicana stadium transaction; the latter is not a completed transaction.
- Compare non-GAAP AFFO and adjusted EBITDA with GAAP cash flows and earnings, noting that the company cautions these measures are not substitutes for liquidity or cash flow.