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 triple-net arrangements. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. At quarter-end, GLPI reported interests in 57 gaming and related facilities across 17 states; its properties were 100% occupied.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $326.5 million | $317.8 million | $641.5 million | $619.3 million |
| Income from operations | $237.1 million | $212.1 million | $436.9 million | $412.2 million |
| Net income | $155.8 million | $138.2 million | $277.5 million | $265.4 million |
| Net income attributable to common shareholders | $151.3 million | $138.2 million | $270.6 million | $265.4 million |
| Diluted EPS | $0.61 | $0.59 | $1.09 | $1.14 |
| Adjusted EBITDA | $307.6 million | $276.2 million | $600.9 million | $542.8 million |
| AFFO | $231.6 million | $203.8 million | $450.2 million | $399.5 million |
Q2 operating margin was approximately 72.6%, compared with 66.7% in Q2 2021. For the first half, operating margin was approximately 68.1%, versus 66.6%. FFO, AFFO, and Adjusted EBITDA are non-GAAP measures; GLPI cautions they are not substitutes for GAAP results or cash flow measures.
- Revenue mix: Q2 rental income was $289.6 million and interest income from investments in leases was $36.9 million. No gaming, food, beverage, and other revenue was reported in 2022, following the sale of casino operations in 2021.
- Cash flow: Six-month operating cash flow was $458.5 million, up from $402.6 million. Investing activities used $289.1 million; financing activities used $887.7 million, including $405.1 million of dividends and $877.0 million of debt repayments, partly offset by $424.0 million of debt issuance.
- Liquidity: Cash and equivalents were $6.3 million at June 30, down from $724.6 million at year-end 2021. The $1.75 billion revolver had $394.0 million outstanding and $1.356 billion of available capacity, including the effect of letters of credit.
- Debt: Gross long-term debt was $6.570 billion ($6.522 billion net of issuance costs and other adjustments). Of gross debt, $6.175 billion was fixed-rate senior notes and $394.0 million was variable-rate revolver borrowings. GLPI said it complied with applicable debt covenants at quarter-end.
- Dividend: GLPI paid $0.705 per common share for Q2; it also paid the previously accrued $59.3 million special dividend in January 2022.
Material changes versus the prior comparable period
- Q2 total revenue rose 2.8%, while income from real estate increased 19.1% to $326.5 million. Rental additions and escalations lifted cash rental income; the increase was partly offset in reported total revenue by the absence of $43.7 million of prior-year gaming and related revenue following the sales of the Perryville and Baton Rouge operations.
- Six-month total revenue increased 3.6%, and income from real estate increased 19.2%. New or expanded leases—including Casino Queen, Bally’s, Perryville, Maryland Live! and Pennsylvania Live!—increased cash rental income by $83.9 million for the six-month comparison, according to management.
- Operating expenses fell 15.4% in Q2, largely because gaming operating expenses were no longer incurred after the divestitures. For the first half, expenses declined 1.2%; this included a $28.9 million provision for expected credit losses on financing receivables, partially offset by lower operating costs.
- Interest expense increased $7.8 million in Q2 and $15.4 million in the first half, reflecting borrowing to fund acquisitions. GLPI also recorded a $2.2 million debt extinguishment loss after refinancing its credit facility.
- Six-month diluted EPS declined from $1.14 to $1.09 despite higher net income, in part reflecting increased shares and income attributable to noncontrolling operating partnership interests.
Outlook, risks, contingencies and unusual items
- Management said cash generated from operations, cash on hand and revolver availability were expected to cover anticipated debt service, capital spending, working capital and dividend requirements. No specific earnings or AFFO guidance was provided in the supplied filing text.
- On June 28, GLPI announced a binding term sheet to acquire the real estate of Bally’s Lincoln and Tiverton for $1.0 billion, with expected incremental annual rent of $76.3 million, subject to regulatory approvals and, for Lincoln, lender consent. If approvals for Lincoln are not timely received, the alternative is Tiverton and Hard Rock Biloxi for $635 million and $48.5 million of rent, with an option to acquire Lincoln later subject to consents.
- After quarter-end, on July 1, GLPI issued 7.935 million common shares for approximately $351 million in proceeds to help fund the proposed Bally’s transaction. GLPI also expected $150 million of proceeds from the planned sale of Tropicana Las Vegas’s non-land real estate assets and a 50-year ground lease; that transaction was expected to close in the second half of 2022.
- GLPI completed the $150 million acquisition of Bally’s Black Hawk and Rock Island real estate in April, adding $12 million of annual rent under the Bally’s Master Lease. The Pennsylvania Live! acquisition was accounted for as a financing receivable; its related allowance for credit losses was $32.7 million at June 30. Total allowance for credit losses on financing receivables was $41.1 million, and six-month credit-loss expense was $28.9 million. Management noted that changes in economic assumptions and tenant forecasts could materially affect future provisions or recoveries; tenants were current on rent at quarter-end.
- Key risks include inflation and weaker discretionary spending affecting tenants, rising interest rates and SOFR exposure, tenant ability to meet lease obligations, refinancing and acquisition funding needs, COVID-19 uncertainty, REIT qualification, and regulatory or other delays to proposed transactions. GLPI disclosed no material changes to the risk factors in its 2021 Form 10-K. It reported ordinary-course legal proceedings and said it did not expect them to have a material adverse effect, while noting outcomes and insurance coverage remain uncertain.
- Unusual items included a $3.3 million land impairment after GLPI agreed to sell excess land for $3.5 million, and a $2.2 million debt extinguishment loss. The filing also reports a substantial increase in financing-receivable credit-loss reserves.
Important facts for investors to verify
- Regulatory approvals, lender consent, closing timing, final funding mix and actual rent economics for the Bally’s acquisitions, including the alternative transaction provisions.
- Tenant rent coverage and the assumptions underlying the $41.1 million credit-loss allowance, particularly for the Pennsylvania Live! Master Lease.
- Tenant concentration and performance, including the contribution from Penn and the effect of lower percentage rent at Hollywood Casino Columbus and Toledo.
- Liquidity after the July 2022 equity issuance, planned acquisitions, dividends and debt maturities; also monitor variable-rate borrowing costs as rates and SOFR change.
- Completion and proceeds of the Tropicana Las Vegas sale and ground lease, and the timing and use of proceeds from the July equity offering.