Gaming and Leisure Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. GLPI is a REIT focused primarily on owning gaming properties and leasing them to operators under triple-net arrangements. Its portfolio included interests in 50 facilities across 17 states and was 100% occupied at quarter-end.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $298.7 million | $307.6 million | $918.0 million | $853.0 million |
| Income from operations | $225.1 million | $200.7 million | $637.3 million | $567.8 million |
| Net income | $149.1 million | $127.1 million | $414.5 million | $336.4 million |
| Diluted EPS | $0.63 | $0.58 | $1.77 | $1.55 |
| Operating cash flow | Not separately stated | Not separately stated | $616.0 million | $310.5 million |
Q3 operating margin was approximately 75.4%, compared with 65.3% a year earlier; nine-month operating margin was approximately 69.4%, versus 66.6%. These percentages are calculated from reported revenue and operating income. Rental income rose 5.9% in Q3 to $283.3 million and 7.7% in the nine-month period to $821.2 million. Gaming, food, beverage and other revenue fell 55.1% in Q3, principally because GLPI sold Perryville’s operations on July 1, but rose 36.1% for the nine months as properties operated for more of the period than in pandemic-affected 2020.
Nine-month FFO was $587.8 million, AFFO $606.7 million and Adjusted EBITDA $819.4 million, versus $500.3 million, $564.0 million and $770.9 million, respectively, in 2020. These are non-GAAP measures; the company cautions they are not substitutes for GAAP results or cash flow.
Balance sheet, liquidity and capital allocation
- At September 30, 2021, cash and cash equivalents were $423.2 million, total assets $9.28 billion, and shareholders’ equity $2.88 billion.
- Gross long-term debt was $5.80 billion ($5.76 billion net of issuance costs and related adjustments), including $5.375 billion of fixed-rate senior notes. The revolver was undrawn; approximately $1.175 billion remained available, net of letters of credit.
- GLPI reported compliance with required debt covenants. Nine-month cash dividends paid were $468.2 million; quarterly dividends were $0.67 per share in Q2 and Q3.
- GLPI raised $253.1 million net through its at-the-market equity program during the first nine months, selling approximately 5.2 million shares; $345.5 million of program capacity remained at September 30.
- Cash declined by $63.2 million from year-end 2020. Investing used $457.8 million, primarily for the Bally’s-related property acquisitions; financing used $225.0 million, largely reflecting dividends, partly offset by equity proceeds.
Material changes, outlook and risks
- GLPI acquired the real estate of Tropicana Evansville and Dover Downs in June for approximately $487.5 million in total purchase price and added both to the Bally’s Master Lease. That lease initially produces $40 million in annual rent, subject to CPI-linked escalation.
- Perryville’s operating assets were sold to Penn for $31.1 million. GLPI retained the real estate and leases it to Penn for initial annual rent of $7.77 million. The sale generated a $15.6 million pre-tax gain in Q3.
- Management said reopened casino operations had produced strong results, citing pent-up demand, cost controls, federal stimulus and reduced competition from other leisure activities. No full-year earnings or revenue guidance is provided in the supplied filing text.
- Management anticipated that the Penn Master Lease’s rent coverage calculation at November 1, 2021 would trigger a full escalation, increasing annualized rent by $5.6 million. Escalations effective May 1, 2021 on the Pinnacle, Boyd and Belterra Park leases increased annualized rent by $6.1 million.
- Pending transactions expected in early 2022 included Bally’s acquisition of Tropicana Las Vegas operating/non-land assets for $150 million, with GLPI retaining the land and entering a 50-year ground lease at initial annual rent of $10.5 million; and GLPI’s proposed $150 million acquisition of Bally’s Black Hawk and Rock Island real estate, expected to add $12 million of annual rent, subject to approvals.
- Key risks include renewed COVID-19 disruption and effects on tenants, tenant/operator ability to meet lease obligations, significant tenant and Penn concentration, interest rates and refinancing access, the LIBOR transition, REIT qualification and regulatory approvals. Most debt is fixed-rate, but the $424.0 million term loan and revolver are LIBOR-indexed. The filing reports no material change in risk factors from the 2020 Form 10-K.
- Ordinary-course litigation is disclosed; management does not expect its outcome to materially affect consolidated results or financial position, but notes outcomes and insurance coverage remain uncertain.
Investor facts to verify
- Whether Penn and other major tenants sustain operating performance and satisfy lease obligations, particularly as pandemic-related conditions change.
- Whether the anticipated Penn rent escalation occurs and the expected timing, approvals and economics of the pending Bally’s transactions.
- How much reported earnings and cash flow depend on one-time or period-comparison items, including the Perryville gain, prior-year debt-extinguishment charges and pandemic-related comparisons.
- Debt maturity and refinancing exposure, variable-rate borrowing costs and the transition from LIBOR to a replacement benchmark.
- Dividend sustainability relative to recurring cash generation, acquisition funding needs and REIT distribution requirements.