Gaming & Leisure Properties, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022. GLPI is a REIT focused on owning gaming real estate and leasing it, primarily under triple-net arrangements. Its portfolio included interests in 53 gaming and related facilities across 17 states and was 100% occupied.
Financial highlights
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $315.0 million | $301.5 million |
| Income from operations | $199.8 million | $200.1 million |
| Net income | $121.7 million | $127.2 million |
| Net income attributable to common shareholders | $119.3 million | $127.2 million |
| Diluted EPS | $0.48 | $0.54 |
| Operating cash flow | $233.2 million | $205.2 million |
| Cash and cash equivalents, March 31 | $156.0 million | $520.7 million at March 31, 2021 |
- Revenue rose 4.5%; real estate income increased 19.4% to $315.0 million, supported by acquired leases, rent escalations, and $27.2 million of interest income from financing receivables. Prior-year revenue included $37.7 million from casino operations sold in 2021.
- Operating margin was approximately 63.4%, versus 66.4% a year earlier. Lower net income reflected a $26.7 million credit-loss provision, higher interest expense and ground-lease costs, partly offset by higher real estate income.
- Non-GAAP measures: FFO was $180.3 million versus $183.6 million; AFFO was $218.6 million versus $195.7 million; Adjusted EBITDA was $293.3 million versus $266.6 million. AFFO and Adjusted EBITDA growth benefited substantially from excluding the credit-loss provision. These measures are not GAAP cash-flow or liquidity measures.
- Operating cash flow increased $28.0 million. Investing used $131.4 million, principally for the Pennsylvania Live! transaction; financing used $670.3 million, including $422.9 million of debt repayment and $230.4 million of dividends paid. Cash declined $568.6 million from year-end.
- At March 31, total debt was $6.60 billion gross ($6.56 billion net). GLPI had $424.0 million outstanding on its term loan, no revolver borrowings, and $1.17 billion of available revolver capacity. The $6.18 billion of senior notes were fixed-rate; variable-rate debt was $424.0 million. The credit facility and note covenants were in compliance.
- Total assets were $10.72 billion and total liabilities were $7.25 billion. The quarterly common dividend was $0.69 per share, up from $0.65.
Material changes and transactions
- GLPI closed the $689 million acquisition of the Philadelphia and Pittsburgh Live! real estate on March 1, 2022, adding a Cordish master lease with stated annual rent of $50 million. The transaction was accounted for as a financing receivable rather than a completed sale-leaseback for GAAP purposes. Consideration included approximately 3.0 million OP units and assumed debt that was repaid after closing.
- The Maryland Live! and Pennsylvania Live! leases are also reported as financing receivables. The net investment was $1.87 billion at quarter-end, with a $38.9 million credit-loss allowance. The quarter included a $32.3 million initial reserve for Pennsylvania Live!, partly offset by a $5.6 million reduction in the Maryland Live! reserve.
- On April 1, 2022, after quarter-end, GLPI closed its $150 million acquisition of Bally’s Black Hawk and Rock Island properties; these were added to the Bally’s Master Lease for $12 million of incremental rent.
- The Tropicana Las Vegas building sale to Bally’s for $150 million, with GLPI retaining the land and leasing it for 50 years at initial annual rent of $10.5 million, was expected to close in the second half of 2022.
Outlook, risks and contingencies
- Management said cash from operations, cash on hand and available credit were expected to cover debt service, the $150 million Bally’s property purchase, capital spending, working capital and dividends. No specific earnings or revenue guidance was provided.
- GLPI intended to refinance its credit facility and certain senior notes before their 2023 maturities. LIBOR transition to SOFR, rising interest rates and refinancing costs were identified as risks.
- Management cited inflation, economic uncertainty and COVID-19 effects on discretionary spending and casino tenants. Penn accounts for a significant share of the portfolio, creating tenant concentration exposure.
- Changes in tenant performance forecasts or economic assumptions could materially alter financing-receivable credit-loss provisions. Tenants were current on rent at March 31, 2022.
- The Tropicana Las Vegas transaction remained subject to closing conditions, including regulatory approvals. GLPI reported routine legal proceedings and said it did not expect them to materially affect its financial position or results, while noting outcomes and insurance coverage are not assured.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Investor facts to verify
- Track rent coverage and credit-loss assumptions for the Maryland and Pennsylvania Live! financing receivables, particularly the $38.9 million allowance.
- Confirm completion and terms of the Tropicana Las Vegas sale and ground lease, and assess the April 2022 Bally’s acquisition’s effect on rent and leverage.
- Review refinancing progress and borrowing costs ahead of the 2023 maturities, including LIBOR transition exposure.
- Assess tenant concentration, especially Penn, and whether inflation, economic conditions or renewed COVID-19 disruption affect tenant operations and lease coverage.
- Reconcile cash use, dividends paid, and the gap between GAAP net income and non-GAAP AFFO and Adjusted EBITDA when evaluating dividend coverage.