Big sales of big Las Vegas properties — Circus Circus and Bellagio — last month have had some casino observers wondering whether Gaming and Leisure Properties was also trawling for a blockbuster.
But officials from the REIT on Thursday focused on third-quarter results — funds from operation topped Wall Street forecasts, revenue missed — and suggested it would act cautiously, not reactively.
On Oct. 15, MGM Resorts International made headlines by selling the Bellagio for $4.24 billion to the Blackstone Real Estate Investment Trust, an arm of private equity giant Blackstone Group, and selling Circus Circus for $825 million to real estate magnate Phil Ruffin.
But Gaming and Leisure CEO Peter Carlino acted immediately to head off speculation during a conference call with analysts and journalists.
“Those of you who have followed us for years know that we are very aggressive people. That hasn’t changed,” he said. “And we continue to look at a number of opportunities. But … we are in no hurry to rush into any transaction that is less than optimal for our company.
“So it’s an inevitable question, ‘What are you guys looking at?’ We’re looking at a number of things. But again, patience is, I think one of our strong suits, and we’re looking ahead to a strong year in 2020.”
Gaming and Leisure on Thursday said its adjusted funds from operation, a cash flow measure that excludes one-time costs, were $186.5 million, or 87 cents per share for the three months ended Sept. 30, up from net income of $164.1 million, or 76 cents per share, a year earlier.
The latest adjusted funds from operation topped the 85 cents-per-share analysts surveyed by Zacks Investment Research had forecast. Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization.
Zacks noted that Gaming and Leisure has topped funds from operation forecasts twice in the past four quarters.
Adjusted earnings before interest, taxes, depreciation and amortization, another cash flow measure that weeds out nonrecurring costs, rose 17.2 percent to $260.5 million from $222.2 million.
Revenue rose 13.2 percent, to $287.6 million from $254.1 million, but missed the $288.1 million revenue forecast of Zacks-polled analysts.
During a question-and-answer session, Carlino said he suspected the Blackstone Group’s deal wouldn’t be the end of private equity’s investing in casinos and their real estate. (Blackstone in 2014 bought The Cosmopolitan of Las Vegas from Deutsche Bank for $1.73 billion.)
“Private equity has exhaustive pools of capital that they are looking to deploy,” Carlino said in answering a question from Morgan Stanley analyst Thomas Allen. “The numbers that I’ve heard out of the Blackstone private REIT are staggering in terms of the monthly cash that they are generating in that business. So I think private equity will continue to look at any opportunities where they see potential dislocation to put capital to work in an accretive way.”
“It isn’t bad that Blackstone has come into this space … Bellagio is a very, very special, irreplaceable property,” Carlino added. “But look, it doesn’t hurt. And so, we think it is positive, but time will tell just what effect it has on pricing.”
Gaming and Leisure Senior Vice President and Chief Financial Officer Steve Snyder echoed Carlino’s earlier sentiment about valuing patience. He said his company’s goal is generating cash flow, not building monuments.
“I want to keep that (cash flow) number moving ahead as it has every year since we’ve been public in this business, year after year after year,” Snyder said, “and get there by means — any means possible, but not at any cost.”
Added Carlino, “So we’d just as soon manage our balance sheet, keep ready for whatever is next and stay tuned.”
Gaming and Lesiure Properties shares rose 83 cents, or 2.06 percent, Friday to close at $41.19 in regular trading on the Nasdaq; the shares fell after hours, dropping 58 cents, or 1.4 percent to $40.61.
Gaming and Leisure’s share price has risen 28 percent in 2019.
Follow Matthew Crowley on Twitter @copyjockey
