Business context and reporting period
Gaming and Leisure Properties, Inc. (GLPI) is a Pennsylvania REIT that primarily owns gaming real estate and leases it to operators under long-term triple-net leases. This Form 10-K covers the fiscal year ended December 31, 2022; it does not provide standalone fourth-quarter results. At year-end, GLPI reported interests in 57 facilities across 17 states, with properties 100% occupied.
Financial performance
Amounts below are in U.S. dollars; financial results are for the year ended December 31.
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,311.7 million | $1,216.4 million |
| Income from operations | $1,029.9 million | $841.8 million |
| Operating margin | 78.5% | 69.2% |
| Net income | $703.3 million | $534.1 million |
| Net income attributable to common shareholders | $684.7 million | $534.0 million |
| Diluted earnings per share | $2.70 | $2.26 |
| Operating cash flow | $920.1 million | $803.8 million |
| Investing cash flow | $(354.5) million | $(1,030.8) million |
| Financing cash flow | $(1,051.2) million | $443.1 million |
GLPI reported non-GAAP FFO of $887.3 million, AFFO of $924.4 million, and Adjusted EBITDA of $1,221.7 million, up from $765.7 million, $812.0 million, and $1,096.6 million, respectively, in 2021. The company cautions that these measures are not substitutes for GAAP results or cash flow measures.
At December 31, 2022, cash and cash equivalents were $239.1 million; total assets were $10.93 billion; total liabilities were $6.81 billion; and long-term debt, net of issuance costs and related adjustments, was $6.13 billion. Principal outstanding on senior unsecured notes was $6.175 billion. The $1.75 billion revolving facility was undrawn, with approximately $1.75 billion of availability after letters of credit. The company paid regular dividends of $2.805 per common share during 2022.
Material changes versus 2021
- Total revenue increased 7.8%, while income from real estate rose $205.0 million, or 18.5%, to $1.312 billion. Growth reflected new or fuller-year lease contributions, contractual rent escalations, and $19.4 million of accretion on financing receivables.
- Gaming, food, beverage and other revenue fell $109.7 million to zero, reflecting the 2021 sales of the operating businesses at Hollywood Casino Perryville and Hollywood Casino Baton Rouge; GLPI retained and leased the real estate.
- Operating expenses declined $92.8 million. This included a $67.4 million pre-tax gain from selling the Tropicana Las Vegas building, partially offset by increased ground-lease costs and other expenses.
- Interest expense rose $26.3 million to $309.3 million, primarily due to borrowings associated with acquisitions. Net cash from operations increased $116.3 million.
- GLPI acquired Bally’s Black Hawk and Quad Cities real estate for $150 million and acquired Philadelphia and Pittsburgh Live! real estate for $689 million during 2022. It also funded a $200 million deposit toward the Bally’s Biloxi and Tiverton acquisition, which closed in January 2023.
Outlook, risks and unusual items
- Management expects cash from operations, cash on hand, and revolving-credit availability to meet anticipated debt service, capital expenditure, working-capital and dividend needs. Growth is expected to rely substantially on acquisitions, which may require additional debt or equity financing. No numeric earnings or revenue guidance is provided.
- In January 2023, GLPI completed the $635 million acquisition of Bally’s Biloxi and Tiverton, funded in part with a $600 million delayed-draw term loan. The properties added $48.5 million of initial annual rent. GLPI also retained an option, subject to required consents, to acquire Bally’s Lincoln real estate for $771 million, which would add $58.8 million of rent.
- Effective January 1, 2023, GLPI divided specified PENN properties between amended and new master leases. Disclosed initial rent was approximately $284.1 million under the amended lease and $232.2 million under the new lease; the new lease rent is fixed and escalates 1.5% annually. GLPI also agreed to fund specified PENN development projects, including up to $225 million for an Aurora relocation and, if requested, up to $350 million for other identified projects.
- GLPI redeemed its $500 million, 5.375% notes in February 2023, using cash and $64.6 million of proceeds from settlement of a forward sale agreement.
- Key risks include tenant concentration and reliance on PENN, which generated approximately 65% of 2022 income from real estate; gaming-sector and discretionary-spending exposure; inflation and higher interest rates; refinancing and capital-market access; tenant credit and lease performance; regulatory approvals; and maintaining REIT qualification. Variable rent was approximately 11.7% of 2022 cash rental income; management expected it to decline to about 5.3% in 2023.
- Unusual items included the Tropicana Las Vegas sale gain, a $3.3 million land impairment, $6.9 million of net credit-loss provision, and a $2.2 million debt-extinguishment loss. The filing identifies rent coverage and credit-loss estimates for the Cordish financing leases as significant judgment areas. All tenants were current on rent at year-end.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Review tenant concentration, rent coverage, and the credit quality of PENN and other major operators, particularly the Cordish financing-lease exposures and related credit-loss allowances.
- Confirm post-year-end effects of the Bally’s acquisitions, the $600 million term loan, the note redemption, and the amended/new PENN leases on rent, leverage, interest expense, and liquidity.
- Assess how rising rates, refinancing needs, debt covenants, and any future equity issuance could affect cash available for dividends and acquisitions.
- Track the composition and sustainability of reported earnings, including gains on property sales, non-GAAP measures, variable rent, and acquisition-related accretion.
- Monitor REIT qualification, gaming-regulatory compliance, and the execution, cost, and rent impact of planned development funding.