Gaming and Leisure Properties, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. GLPI is a REIT focused on owning gaming real estate leased primarily under triple-net arrangements. At quarter-end its portfolio included 21 gaming and related facilities across 12 states, including two company-operated casinos.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Net revenue | $148.8 million | $148.7 million | Up 0.1% |
| Income from operations | $67.6 million | $64.8 million | Up 4.4% |
| Net income | $32.7 million | $33.1 million | Down 1.2% |
| Basic / diluted EPS | $0.28 / $0.27 | $0.29 / $0.28 | Down $0.01 each |
| Operating margin, approximate | 45.4% | 43.6% | Up |
| FFO / AFFO | $56.4 / $83.6 million | $57.1 / $80.0 million | FFO down; AFFO up |
| Adjusted EBITDA | $113.2 million | $110.6 million | Up 2.4% |
| Operating cash flow | $103.9 million | $100.8 million | Up $3.1 million |
| Dividends per common share | $0.56 | $0.55 | Up $0.01 |
Rental revenue increased 1.0% to $112.0 million, primarily from the Penn lease escalator and higher variable rent at two properties; lower pass-through real estate tax revenue partly offset the increase. TRS Properties net revenue fell about $1.0 million, principally from lower gaming volume at Hollywood Casino Baton Rouge, partly offset by improvement at Perryville. Operating expenses declined $2.7 million, including a $1.5 million reduction in real estate taxes following a property tax appeal settlement.
Cash, debt and liquidity
- Cash was $61.6 million at March 31, compared with $41.9 million at year-end 2015. Operating cash flow was $103.9 million; investing activities provided $1.1 million and financing activities used $85.3 million.
- Gross debt was $2.499 billion, including $2.050 billion of fixed-rate senior notes and $448 million outstanding under the credit facility. Debt net of issuance costs and current maturities was $2.469 billion. The credit facility had $551.1 million of available revolving capacity; GLPI reported compliance with debt covenants.
- Interest expense rose 13.0% to $33.4 million, largely because of amortization of Pinnacle bridge-financing fees. Cash interest paid was $2.6 million; accrued interest increased $25.2 million during the quarter.
- Capital project and maintenance expenditures totaled approximately $0.6 million. Cash dividends paid were $65.7 million.
Transactions, outlook and risks
- GLPI expected to complete its Pinnacle transaction around April 28, 2016. The deal would add substantially all of Pinnacle’s real estate, issue 0.85 GLPI shares for each Pinnacle share, and involve assumption and refinancing of approximately $2.7 billion of Pinnacle debt. Completion remained subject to closing conditions.
- After quarter-end, GLPI closed an offering of 28.75 million shares at $30 per share, receiving approximately $826 million net. It also priced $1.375 billion of senior notes, with approximately $1.357 billion expected net proceeds, intended to help fund the Pinnacle transaction. The notes offering was expected to close with the merger; if the merger did not close by June 30, the notes would be redeemable.
- The Meadows acquisition and related sale of its operating assets to Pinnacle were expected to close in late Q3 2016. GLPI planned to retain the real estate and lease it to Pinnacle; the proposed lease’s initial annual rent was approximately $25.5 million. Both transactions were subject to conditions and timing uncertainty.
- Management cited tenant concentration as a key exposure: substantially all current rental income depended on Penn, with substantial dependence on Penn and Pinnacle expected after the merger. Tenant financial health, lease performance, gaming regulation, REIT qualification, financing access, interest rates, and integration and management of the expanded portfolio are material risks.
- A new Prince George’s County casino, expected to open in late 2016, could adversely affect Perryville. Management reported no material expected adverse effect from pending ordinary-course legal proceedings, while noting litigation outcomes and insurance coverage are uncertain.
- No specific full-year earnings or cash-flow guidance was provided. Management stated Q1 results are not necessarily indicative of full-year 2016 results. It declared a second-quarter dividend of $0.56 per share after quarter-end.
Most important facts to verify
- Whether the Pinnacle merger and the associated debt and equity financing closed on the anticipated terms, and the resulting debt, share dilution and lease economics.
- Whether Penn and Pinnacle can sustain rent, tax, insurance and maintenance obligations under the master leases, given GLPI’s tenant concentration.
- How recurring operating cash flow compares with reported cash flow, particularly the substantial quarter-end increase in accrued interest.
- Whether the Meadows transactions close as expected and deliver the stated purchase price and lease rent.
- Whether gaming performance at Baton Rouge and Perryville, including the impact of the new Maryland casino, affects tenant and GLPI cash flows or dividend capacity.