Rent escalations, contributions from recent deals, and the pandemic’s slow fade helped boost Gaming and Leisure Properties’ cash flow in the third quarter. The real estate investment trust posted higher funds from operation, but lower revenue, though both figures topped Wall Street forecasts.
In a statement, Wyomissing, Pennsylvania-based Gaming and Leisure Properties reported $209.1 million, or 89 cents per share, in funds from operation in the three months ended Sept. 30, up from $182.2 million, or 83 cents per share, a year earlier.
The most recent results topped the 84-cents-per-share consensus forecast of analysts surveyed by Seeking Alpha. Funds from operation, which take net income and add back depreciation and amortization, are a closely watched fiscal yardstick for real estate investment trusts.
Adjusted earnings before interest, taxes, depreciation and amortization, another cash flow measure that excludes one-time costs, rose 4.3% to $276.7 million from $265.2 million.
Revenue fell 2.9% to $298.7 million from $307.6 million, but topped Seeking Alpha-polled analysts’ $295.5 million consensus forecast.
During the quarter, Gaming and Leisure, which has interests in 50 gaming and related facilities, closed its $31 million sale of the operations of Hollywood Casino Perryville in Perryville, Maryland, to Penn National Gaming.
As part of the deal, Gaming and Leisure entered a new 20-year triple-net lease with Penn National for the real estate associated with the property. The lease has three five-year renewal options and initial annual rent of $7.77 million, $5.83 million of which will be subject to annual 1.5% escalation starting in lease years two through four, then increasing 1.25% annually afterward assuming a Consumer Price Index rise of at least 0.5% for the preceding lease year.
Gaming and Leisure Chief Executive Officer Peter Carlino said the REIT’s four publicly traded tenants, which collectively generate 99% of the REIT’s rents, have bolstered their balance sheets and enhanced their liquidity since COVID-19’s onset. This recovery, he suggested, kept the tenants fiscally strong when contractual triggers hiked their rents.
“GLPI’s high-quality tenant roster continues to highlight the strength and resiliency of regional gaming markets as our operators continue to enjoy strong consumer demand and elevated margins,” Carlino said in the statement.
In June, Gaming and Leisure closed deals to buy the land and real estate assets of Tropicana Evansville’s (Evansville, Indiana) from Caesars Entertainment Corp. and the Dover Downs hotel-casino (Dover, Delaware) from Bally’s Corp. for an aggregate $484 million in cash. In a conference call with analysts and journalists, Chief Accounting Officer Desiree Burke said that deal boosted the REIT’s third-quarter income by $10 million.
In April, Gaming and Leisure sold the Tropicana Las Vegas for $308 million to Providence, Rhode Island-based Bally’s Corp. The deal is to close early next year.
On Aug. 27, Gaming and Leisure’s board of directors declared a 67-cents-per-share third-quarter cash dividend payable Sept. 24 to shareholders of record Sept. 10.
As he did in the second quarter, Carlino told analysts and journalists on a conference call that Gaming and Leisure was near new acquisitions, but again indicated neither names nor times.
“We remain focused on strengthening our balance sheet at favorable levels as we get down to what we like around here to call ‘fighting weight’ in preparation for whatever may be our next opportunity,” Carlino said. “Several announced transactions are on the near horizon, subject to regulatory approval and the usual timing complications.”
During the call, Mizuho Bank analyst Haendel St. Juste asked Carlino whether he was sorry his REIT wasn’t the one to merge with MGM Growth Properties (as VICI Properties did in a $17.2 billion deal.) Carlino said not making the deal was the right choice for Gaming and Leisure.
“The problem is simply, we couldn’t make the numbers work in a manner that we felt confident for our shareholders, period,” he said. “And you’ve all heard me say time and time again, there is no deal we have to do, no transaction that is a must for us. If there isn’t an appropriate spread, if the risk can’t be managed in a manner that we feel comfortable with our shareholders’ money, then we’re not going to do it. … It’s a better deal for (VICI) than it would have been for us.”
Gaming Leisure shares sold off Friday, dropping $1.54, or 3.08%, to close at $48.49. The shares are up 23.4% in 2021.
Follow Matthew Crowley on Twitter @copyjockey.
