Gaming and Leisure Properties touts Rhode Island deal; Q2 revenue tops Street forecast

July 31, 2022 7:07 PM
  • Matthew Crowley, CDC Gaming Reports
July 31, 2022 7:07 PM
  • Matthew Crowley, CDC Gaming Reports

During its second-quarter earnings presentation, a top Gaming and Leisure Properties executive touted his company’s ability to seize opportunity amid volatility. Fiscal strength allowed the real estate investment trust to swing a $1 billion deal that, if consummated, would add land for two casinos and an 18th U.S. jurisdiction to its portfolio.

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Beyond the deal, Wyomissing, Pennsylvania-based Gaming and Leisure reported increases in funds from operation and revenue, although only the latter topped expectations.

In a statement Thursday, Gaming and Leisure said funds from operation were $215.3 million, or 84 cents per share, for the three months ended June 30, up from $195.1 million, or 83 cents per share, a year earlier.

The latest funds from operation missed the 88-cents-per-share average forecast of analysts surveyed by Seeking Alpha. Funds from operation are a closely watched fiscal yardstick for real estate investment trusts, taking net income and adding back depreciation and amortization.

Adjusted earnings before interest, taxes, depreciation, and amortization, a cash-flow measure that excludes one-time costs, rose 11.4% to $307.6 million from $276.2 million.

Revenue rose 2.7% to $326.5 million from $317.8 million and topped the $325.4 million forecast of Seeking Alpha-polled analysts.

On June 28, Gaming and Leisure said it agreed to buy the land and buildings of two Rhode Island casinos, Twin River in Lincoln and Bally’s Tiverton in Tiverton, for $1 billion from Providence, Rhode Island-based Bally’s Corp. The deal needs state approval to proceed.

If the deal proceeds and closes, Gaming and Leisure would add both properties to its master lease with Bally’s, which includes casino properties and buildings at Bally’s Quad Cities in Rock Island, Ill., and Bally’s Black Hawk in Black Hawk, Colorado. Gaming and Leisure acquired the latter two properties on April 4 for $150 million as part of a lease-back agreement.

In April 2021, Bally’s agreed to buy the Tropicana in Las Vegas from Gaming and Leisure for $308 million.

Gaming and Leisure, which ended the second quarter with lease agreements tied to 57 gambling and gambling-related properties in 17 states, said it expects the Rhode Island properties to add $76.3 million in rental revenue annually if the deal closes.

Matthew Demchyk, Gaming and Leisure’s chief investment officer, said Gaming and Leisure’s financial staying power let the REIT zig as rivals zagged.

“At a time when few large-scale transactions have been announced, we were able to use structuring and other levers to achieve a noteworthy 7.6% cap rate,” he said. “We’ve again demonstrated discipline with our funding for the transactions, locking in adequate equity — a key in conjunction with our transaction announcement to position our balance sheet well within our target leverage range of five to five-and-a-half times.”

Beyond the Rhode Island deal, baseball added a dash of intrigue to Gaming and Leisure’s quarter. The Las Vegas Review-Journal reported in May that Major League Baseball’s Oakland Athletics met with officers from his company and Bally’s to discuss redeveloping the Tropicana site, perhaps to accommodate a new baseball stadium, if the team moves to Las Vegas.

Carlino told the R-J the Athletics “have a very, very, strong interest” in the Tropicana site, but that any deal would have to benefit everyone – the team,   the REIT, and the REIT’s shareholders.

Gaming and Leisure Properties shares fell 66 cents, or 1.25 percent, Friday to close at $51.99 on the Nasdaq Stock Market. The shares added back 33 cents, or 0.63%, after hours to settle at $52.32.

Follow Matthew Crowley on Twitter @copyjockey