Gaming and Leisure Properties, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. GLPI is a REIT that primarily owns gaming real estate and leases it to operators under triple-net arrangements. Its 61-property portfolio spanned 18 states, was 100% occupied and included approximately 28.7 million square feet.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total income from real estate | $359.6m | $333.8m | $1,071.4m | $975.3m |
| Income from operations | $268.3m | $317.6m | $773.4m | $754.5m |
| Net income | $189.3m | $226.2m | $538.1m | $503.7m |
| Net income attributable to common shareholders | $184.0m | $220.0m | $523.0m | $490.5m |
| Diluted EPS | $0.70 | $0.85 | $1.99 | $1.95 |
| Adjusted EBITDA (non-GAAP) | $327.1m | $308.8m | $975.7m | $909.7m |
| AFFO (non-GAAP) | $251.2m | $235.0m | $750.2m | $685.2m |
Q3 income from real estate rose 7.7%, while nine-month income rose 9.8%. Nine-month operating and net margins were approximately 72.2% and 50.2%, respectively, compared with 77.4% and 51.6% in 2022. Q3 operating and net margins were approximately 74.6% and 52.6%, versus 95.1% and 67.8%; the prior-year comparison included a $67.4m pre-tax gain on the Tropicana Las Vegas building sale. Margins are calculated from reported income and revenue.
Cash flow, debt and liquidity
- Operating cash flow: $746.4m for the first nine months, up from $699.5m. Investing used $635.3m, including $455.6m for real estate acquisitions, $100.2m for the Rockford lease investment, $40.0m advanced under the Rockford Loan and $39.5m of capital project spending. Financing used $269.0m. Cash declined $157.9m to $81.1m.
- Debt: $6,285.5m gross long-term debt ($6,246.2m carrying value, net of issuance costs and discounts) at September 30, versus $6,175.6m gross at year-end 2022. Gross debt less cash was approximately $6.20bn. The $5,675m senior notes are fixed-rate; $610m of revolving and term-loan borrowings are variable-rate. Weighted-average rates reported for the term loan and revolver were 6.73%.
- Availability and compliance: $1,739.6m available under the $1.75bn revolving facility, with $10m drawn and approximately $0.4m of letters of credit. GLPI reported compliance with required debt covenants.
- Distributions and equity: $636.4m of dividends paid in the nine-month period, including a $0.25-per-share special dividend related to the Tropicana building sale. GLPI issued shares under its ATM program, raising $224.9m net during the nine months; $774.0m remained available under the program at quarter-end.
Material changes and notable transactions
- Revenue growth primarily reflected acquisitions and lease escalations: recent acquisitions contributed $56.8m of additional cash rental income over the nine-month comparison. Rent escalations added $11.1m.
- Q3 operating income and net income fell year over year, mainly because 2022 included the Tropicana Las Vegas sale gain. Nine-month net income increased despite higher depreciation and interest expense.
- The nine-month credit-loss provision was $24.0m, compared with $28.9m in 2022. The allowance for losses on lease financing receivables was $40.8m at quarter-end; management cited reduced long-term commercial-property price forecasts as a key factor in the year-to-date reserve increase.
- GLPI acquired Bally’s Biloxi and Tiverton real estate in January, adding $48.5m of annual rent under the Bally’s Master Lease; acquired the Rockford development site in August with $8m initial annual ground rent; and acquired Casino Queen Marquette real estate in September, adding $2.7m annual rent. The Baton Rouge landside project opened in late August and rent was adjusted to an 8.25% yield on $77m of project costs.
Outlook, risks and contingencies
Management said operating cash flow, cash on hand, revolver availability and potential share issuance should be adequate for anticipated debt service, capital expenditures, working capital and dividends. It expects most future growth to come from acquisitions; significant acquisitions could require additional debt or equity financing. The filing provides no specific earnings or AFFO guidance.
- GLPI may fund up to $225m for PENN’s Aurora relocation and, if requested, up to $350m for other PENN relocation and hotel projects. The commitments expire January 1, 2026.
- The Rockford Loan commitment is up to $150m at 10%; $40m was outstanding and $110m remained undrawn at September 30. The Hard Rock casino opening was expected in September 2024.
- A May 2023 letter of intent concerning a proposed Athletics stadium at the Tropicana site contemplated up to $175m of GLPI funding for specified site and public-space construction costs. The transaction remained subject to definitive agreements and approvals, including MLB and Nevada gaming approvals; the LOI identified December 1, 2023 as the date by which MLB-owner relocation approval was required.
- Key risks include tenant financial capacity and lease performance, operator and tenant concentration, interest rates and refinancing costs, economic conditions affecting gaming and discretionary spending, acquisition and development execution, REIT qualification, and future credit-loss estimates. GLPI stated that tenants were current on rent at quarter-end. Routine legal proceedings were not expected by management to materially affect results, though outcomes and insurance sufficiency are not assured.
Important facts for investors to verify
- Tenant credit quality, rent coverage and concentration—particularly exposure to PENN and other gaming operators—and the effect of any deterioration on lease payments.
- Credit-loss assumptions and future reserve movements, especially for the Cordish financing-receivable leases and Rockford commitments.
- Execution, funding requirements, approvals and rent economics for the Rockford project, PENN development commitments and proposed Tropicana stadium transaction.
- Debt maturities, variable-rate exposure, refinancing access and the sustainability of dividends alongside acquisition funding needs.
- ATM share issuance and potential dilution; non-GAAP AFFO and Adjusted EBITDA definitions and reconciliations when comparing performance across periods or peers.