Gaming and Leisure Properties, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report. Unless otherwise noted, financial amounts are in U.S. dollars.
Business context
GLPI is a Pennsylvania REIT focused primarily on owning gaming real estate and leasing it to operators under long-term triple-net leases. At year-end, its portfolio included interests in 44 gaming and related facilities across 16 states; its properties were reported as 100% occupied. GLPI also operates two taxable REIT subsidiary casinos, Hollywood Casino Baton Rouge and Hollywood Casino Perryville. Penn, Eldorado and Boyd are its principal tenant and borrower relationships.
Financial performance and position
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $1,153.5 million | $1,055.7 million |
| Income from operations | $717.4 million | $593.8 million |
| Net income | $390.9 million | $339.5 million |
| Diluted EPS | $1.81 | $1.58 |
| Cash from operating activities | $750.3 million | $654.4 million |
| Dividends per common share | $2.74 | $2.57 |
- Operating margin was approximately 62.2% and net margin approximately 33.9% in 2019, calculated from reported revenue and income.
- Income from real estate rose 11.0% to $1,025.1 million. TRS gaming, food, beverage and other revenue fell 3.1% to $128.4 million.
- Year-end total assets were $8.43 billion; cash and cash equivalents were $26.8 million. Long-term debt, net of issuance costs and discounts, was $5.74 billion; gross debt was approximately $5.79 billion.
- The credit facility had $495 million outstanding and approximately $1.13 billion of available revolver capacity. GLPI reported compliance with debt covenants.
- Capital maintenance expenditures were $3.0 million. Operating cash flow exceeded cash dividends paid of $589.1 million.
- Fourth-quarter 2019 revenue was $289.0 million, operating income $188.3 million, net income $114.3 million and diluted EPS $0.53. Fourth-quarter 2018 net income was $45.9 million, including a $59.5 million goodwill impairment.
Material changes versus prior year
- Revenue increased 9.3% and net income increased 15.1%. Growth in rental and loan income mainly reflected the full-year contribution from the 2018 Tropicana and Penn-Pinnacle transactions, rent escalators and recognition of previously deferred rent.
- Operating income rose despite higher depreciation, reflecting the expanded property base and the absence of 2018’s goodwill impairment and retirement costs. Reported operating expenses fell 5.6%, partly because adoption of lease accounting guidance eliminated the gross-up of tenant-paid real estate taxes from both revenue and expense.
- Interest expense increased 21.7% to $301.5 million, principally reflecting debt issued in 2018 and 2019. A $21.0 million loss on early debt extinguishment followed the 2019 refinancing and tender offer.
- Operating cash flow increased $95.9 million, primarily due to higher tenant receipts. Investing cash outflow fell substantially from 2018, when GLPI funded property acquisitions and real estate loans.
- Debt refinancing included issuance of $400 million of 3.35% notes due 2024 and $700 million of 4.00% notes due 2030; GLPI tendered $784.8 million of its 4.875% notes due 2020.
Outlook, commentary and risks
- Management said operating cash flow, cash on hand and credit-facility availability should be adequate for anticipated debt service, capital expenditures, working capital and dividends. It expects future growth mainly from acquisitions and may need additional debt or equity funding for significant deals. No quantified earnings or revenue guidance is provided.
- Tenant concentration is material: Penn accounted for approximately 79% of 2019 income from real estate, Eldorado 11% and Boyd 9%. GLPI depends on operators’ ability to generate sufficient cash to meet lease and loan obligations.
- Casino Queen’s operating results weakened; GLPI wrote off its $13.0 million unsecured loan. Lease payments remained current at year-end, but the tenant was in violation of its rent-coverage requirement and GLPI had reserved its rights.
- Penn closed Resorts Casino Tunica in June 2019. GLPI accelerated related depreciation and land-right amortization; management said the unitary, cross-collateralized Penn lease did not permit a rent reduction for the individual closure.
- TRS revenue declined amid weakness in the Baton Rouge market and the regional casino smoking ban. GLPI had recorded a $59.5 million Baton Rouge goodwill impairment in 2018; no goodwill impairment was recorded in 2019.
- The $246.0 million Eldorado real estate loan became unsecured after its first anniversary in October 2019. The parties anticipated repayment at maturity, potentially through substitution of acceptable property, but this outcome was not assured.
- Other disclosed risks include gaming regulation and competition, REIT qualification and distribution requirements, access to capital, interest-rate exposure and the LIBOR transition, environmental liabilities, and casualty or cybersecurity events. GLPI said it was monitoring the LIBOR transition and expected no significant overall operational impact.
- GLPI reported no material adverse effect expected from ordinary-course legal proceedings. The auditor issued an unqualified opinion on the financial statements and internal controls; the audit identified real estate investment impairment assessment as a critical audit matter.
Important facts for investors to verify
- Review Penn’s, Eldorado’s and Boyd’s financial condition and lease coverage, given GLPI’s tenant concentration and percentage-rent exposure.
- Check the status and repayment or property-substitution outcome of the Eldorado loan, and the effect of Casino Queen’s rent-coverage breach on lease performance.
- Assess the debt maturity schedule, refinancing needs, floating-rate exposure and availability under the revolver; confirm progress on replacing LIBOR provisions.
- Verify the sustainability of the $2.74 annual dividend against REIT taxable income, operating cash flow, debt covenants and future capital needs.
- Monitor casino-market conditions, regulatory changes and impairment assumptions, particularly for the TRS properties and any single-property leases.