Gaming and Leisure Properties, Inc. — 10-Q Summary
Reporting period: Three and six months ended June 30, 2020; unaudited. GLPI is a REIT focused primarily on owning gaming real estate leased to operators under triple-net arrangements, alongside its operated TRS casino properties.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $262.0 million | $289.0 million | $545.5 million | $576.9 million |
| Operating income | $180.7 million | $170.8 million | $367.1 million | $341.5 million |
| Net income | $112.4 million | $93.0 million | $209.2 million | $186.0 million |
| Diluted EPS | $0.52 | $0.43 | $0.97 | $0.86 |
| Operating cash flow | Not stated separately | Not stated separately | $229.7 million | $364.1 million |
Q2 operating margin was approximately 69.0%, compared with 59.1% a year earlier; net margin was approximately 42.9%, versus 32.2%. For the first half, operating margin was approximately 67.3% versus 59.2%, and net margin approximately 38.4% versus 32.2%.
- Q2 revenue fell 9.4%, while net income rose 20.8%. First-half revenue declined 5.4%, while net income increased 12.5%.
- Real estate income was $252.0 million in Q2, down 1.5%; first-half real estate income was $508.7 million, down 0.4%. Lower percentage rent and ground-rent revenue were partly offset by lease escalators and lower straight-line rent deferrals.
- TRS gaming, food, beverage and other revenue declined 70.0% in Q2 and 44.5% for the first half, principally because of pandemic closures. Expense reductions, lower depreciation and lower interest expense supported operating income and net income.
- Adjusted EBITDA, a non-GAAP measure, was $246.9 million in Q2 versus $260.9 million; first-half Adjusted EBITDA was $505.7 million versus $519.3 million. First-half AFFO was $369.4 million versus $368.0 million.
Cash, debt and liquidity
- Cash and cash equivalents were $74.1 million at June 30, up from $26.8 million at year-end 2019. Operating cash flow was $229.7 million; investing activities used $1.1 million and financing activities used $181.4 million.
- Operating cash flow declined $134.4 million year over year, reflecting lower tenant and customer receipts, including the noncash Tropicana Las Vegas rent-credit transaction and COVID-related effects.
- Gross long-term debt was $5.825 billion ($5.768 billion net of issuance costs and discounts), versus $5.786 billion gross at year-end. Outstanding senior notes totaled $5.175 billion. The company reported $1.175 billion of available revolver capacity and was in compliance with debt covenants at quarter-end.
- GLPI refinanced near-term notes in Q1, recording a $17.3 million early-extinguishment loss. In June, it issued $500 million of 4.00% notes due 2031 and added $200 million of Term Loans A-2, using proceeds and cash to repay revolver borrowings. A further approximately $224 million of term loans was extended to May 2023.
- Q2’s $0.60-per-share dividend was paid partly in cash and partly in stock: approximately $25.8 million cash and $103.2 million stock. The board reduced the quarterly dividend from $0.70 to $0.60 per share.
Material developments, outlook and risks
- All casino operations closed in mid-March due to COVID-19. As of July 30, 43 of 45 properties had reopened with capacity limits. GLPI said it had collected contractual rent through July from tenants other than Casino Queen; Casino Queen had made partial payments, was in payment default, and was negotiating a deferred-rent agreement.
- GLPI acquired Tropicana Las Vegas real estate from Penn for $307.5 million in rent credits, applied against specified 2020 rent. Penn operates it for nominal rent while GLPI pursues a sale; Penn may share in qualifying sale proceeds during the first two years. GLPI cautioned that it may not realize a return on the investment.
- The Caesars master lease amendment became effective July 23, 2020. It extends the initial lease term to 20 years, removes variable rent beginning in lease year three and establishes specified base rent and escalations, while also allowing certain property substitutions or severance and providing closure-related relief.
- GLPI acquired Belterra Park real estate in May in satisfaction of its $57.7 million loan, subject to a long-term lease. It also expected to acquire the land under Penn’s Morgantown facility for $30 million in rent credits, with initial annual rent of $3.0 million after leasing it back.
- Caesars’ $246 million Lumière Place loan was unsecured at quarter-end and matured October 1, 2020. GLPI had regulatory approval to own the real estate and expected to complete the acquisition and lease it before maturity.
- Management said major tenants had raised liquidity and were current on rent, and that GLPI had ample liquidity and was in covenant compliance. However, it could not predict the pace of casino recovery or rule out renewed closures, rent deferrals or noncash rent concessions. Its TRS reopenings had performed well to date, but management cautioned that results may have benefited from pent-up demand and stimulus.
- Other risks include tenant concentration—particularly Penn—variable rent reductions, Casino Queen’s financial distress, interest-rate and LIBOR-transition exposure, REIT qualification and the uncertain value and timing of a Tropicana Las Vegas sale. No quantitative full-year earnings guidance is provided in the supplied filing text.
Important facts for investors to verify
- Subsequent rent collections, reopening status and any renewed closures or rent concessions, especially for Penn and Casino Queen.
- Progress and sale proceeds for Tropicana Las Vegas, including the effect of the $307.5 million rent-credit consideration.
- Completion and terms of the Lumière Place transaction before the loan maturity, and the status of the planned Morgantown acquisition.
- Actual rent effects of lease resets and the amended Caesars lease, and compliance with debt covenants and available revolver capacity.
- Future cash-versus-stock dividend composition and the sustainability of distributions relative to cash generation.