Gaming & Leisure Properties, Inc. — Q1 2019 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. GLPI is a Pennsylvania REIT focused primarily on owning gaming real estate leased to operators under triple-net leases. Its portfolio comprised interests in 46 facilities across 16 states and was 100% occupied at quarter-end.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $287.9 million | $244.1 million | Up 18.0% |
| Income from real estate | $254.9 million | $209.3 million | Up $45.6 million |
| Operating income | $170.8 million | $151.9 million | Up $18.9 million |
| Net income | $93.0 million | $96.8 million | Down $3.8 million |
| Diluted EPS | $0.43 | $0.45 | Down $0.02 |
| Operating cash flow | $221.4 million | $185.8 million | Up $35.7 million |
| Adjusted EBITDA (non-GAAP) | $258.4 million | $221.3 million | Up $37.1 million |
| AFFO (non-GAAP) | $183.0 million | $168.7 million | Up $14.3 million |
Operating margin was approximately 59.3%, versus 62.2% a year earlier; net margin was approximately 32.3%, versus 39.7%. The filing reports total operating expenses of $117.1 million, including $58.6 million depreciation and a $13.0 million loan impairment charge. Interest expense rose 41.9% to $76.7 million, primarily reflecting debt issued or refinanced in 2018 to fund acquisitions and loans.
Balance sheet, debt and liquidity
- At March 31, 2019, cash was $30.3 million, total assets $8.65 billion, and shareholders’ equity $2.21 billion.
- Long-term debt was $5.80 billion net of issuance costs and discounts ($5.84 billion gross). Senior unsecured notes totaled $4.98 billion; the credit facility had $866 million outstanding.
- The $1.175 billion revolving facility had $833.6 million of available capacity, after borrowings and letters of credit. GLPI reported compliance with its credit-facility and note covenants.
- Cash dividends paid were $146.2 million, or $0.68 per common share. Financing activities used $216.5 million; cash increased $4.6 million to $30.3 million during the quarter.
- Operating cash flow exceeded net income, with working-capital movements—including higher accrued interest—contributing to the difference. Capital maintenance expenditures were $0.5 million.
Material changes and unusual items
- Revenue growth primarily reflected the October 2018 Tropicana transactions and Penn-Pinnacle transactions, including new Eldorado lease income, Plainridge Park rent, amended Pinnacle lease income, and interest on mortgage loans to Eldorado and Boyd. These additions were partly offset by a Penn Master Lease percentage-rent reset and the removal of real-estate-tax revenue gross-ups.
- Net income declined despite higher revenue and operating income, mainly as higher interest expense and depreciation, plus the $13.0 million Casino Queen loan write-off, offset growth.
- GLPI wrote off its $13.0 million unsecured loan to CQ Holding Company, an affiliate of Casino Queen. Casino Queen’s results weakened, a prospective buyer withdrew, and later bids were insufficient to repay creditors. Lease payments remained current at quarter-end, but Casino Queen breached the lease rent-coverage ratio and GLPI notified the tenant and its secured lenders.
- Hollywood Casino Baton Rouge revenue was lower, which management attributed partly to the June 2018 smoking ban and deterioration in the local market.
- GLPI adopted lease accounting standard ASC 842 on January 1, 2019, recording approximately $203 million of right-of-use assets and lease liabilities. The adoption also eliminated the presentation gross-up for real estate taxes tenants pay directly; management said annual minimum lease payments did not change.
Outlook, commentary and risks
GLPI provided no specific numerical earnings or revenue guidance in the supplied filing text. Management said it intends to pursue additional gaming-property acquisitions and may seek growth opportunities beyond gaming. It stated that the planned June 30, 2019 closure of Resorts Casino in Tunica, Mississippi, subject to regulatory approvals, was not expected to reduce Penn Master Lease rent because the lease is cross-collateralized and does not allow rent reductions for an individual property closure; GLPI was evaluating the property-level impact.
Key risks include reliance on Penn and other gaming tenants to meet lease and debt obligations; operator financial health and property performance affecting variable rent and escalators; acquisition and financing availability; interest rates and refinancing; REIT qualification and tax-law changes; and regulatory, competitive, economic, and property-related risks. GLPI reported no material off-balance-sheet arrangements and no material changes to the risk factors in its 2018 Form 10-K. It also stated that ordinary-course legal proceedings were not expected to materially affect results, while noting litigation outcomes and insurance coverage cannot be assured.
Most important facts for investors to verify
- Tenant concentration and the financial capacity of Penn, Eldorado, Boyd, and Casino Queen to meet contractual obligations.
- Casino Queen’s lease-coverage default, loan recovery prospects, and whether the tenant’s rent remains current.
- Debt maturities, variable-rate exposure, refinancing costs, and continued covenant compliance.
- How much reported rental growth is recurring cash rent versus acquisition effects, straight-line rent, and accounting presentation changes.
- TRS property trends, particularly the effect of the Baton Rouge smoking ban and market conditions.
- Whether the Tunica closure affects property value or operations despite management’s expectation that contracted Penn rent will not decline.