Gaming and Leisure Properties, Inc., reported strong third quarter earnings Tuesday morning, with net revenue, net income, Adjusted EBITDA and adjusted funds from operations checking at levels in-line with company guidance.
“Our diverse, national portfolio of triple-net gaming assets continues to provide steady, predictable cash flows, as evidenced by our third quarter results,” said Peter Carlino, GLPI’s chief executive officer.
The quarter saw significant year-over-year revenue growth largely due to the acquisition of 14 properties from Pinnacle Entertainment and overall stability in the regional gaming market. The period marked the first full quarter after the close of a $4.75 billion deal with Pinnacle – in which GLPI agreed to purchase the underlying real estate assets and lease them back to Pinnacle.
“We immediately benefited from these additional assets as our increased scale, combined with the ongoing stability of the regional gaming market, led to revenue growth of approximately 58% over the third quarter of 2015,” said Carlino.
GLPI also finalized its acquisition of the Meadows Racetrack and Casino, outside of Pittsburgh, at a total cost of $327.8 million during the third quarter.
“Looking ahead, we continue to pursue incremental acquisitions as our balance sheet naturally deleverages further, and while transaction activity in the regional gaming space remains lumpy, we believe there are opportunities for us to utilize our industry knowledge and relationships to create significant additional value,” Carlino added, emphasizing that the company offers an intriguing value to investors in the form of long-term growth and a stable dividend.
With the Pinnacle and Meadows transactions formalized, GLPI’s real estate portfolio now includes 4,350 acres of land, 36 properties and 15.1 million square feet of building space. At the end of the quarter, the company had $25.4 million in cash on hand and $4.7 billion in total debt. Management stated that it was on track to reaching its target debt to adjusted EBITDA ratio of 5.5 times.
Management didn’t provide detail on potential future transactions aside from explaining that because there are relatively few opportunities, they need to exercise patience and diligence. “We’re not buying shopping centers; gaming is much more limited. So we need to be focused as we look state to state,” Carlino said.
The quarterly performance was in-line with expectations on Wall Street, but there is some caution over the lack of transactions in the pipeline.
“In the end, though we are believers in the dedicated gaming REIT concept as stewarded by GLPI’s capable management team over the longer term, we believe incremental acquisition activity could be limited in the near term, in turn restricting the opportunity for meaningful shareholder value creation beyond the current dividend (currently an 8.0 percent yield),” wrote Steven Wieczynski, an analyst with Stifel Nicolaus Capital Markets.
The company noted that a lack of willing sellers in the gaming space makes the dealmaking process “lumpy.” While GLPI was in the running to acquire Isle of Capri during the quarter, its offer was ultimately outmatched by Eldorado Resorts.
“There aren’t 20 guys out there looking to sell their properties today,” Carlino said. “At the end of the day, it takes a motivated seller who’s not looking for the highest price. Now, what we’re confronted with is ‘Well, if you hit the right price, I’m willing to sell.’ That generally doesn’t yield transactions that make a lot of sense.”
Carlino noted, however, that GLPI would be open to acquisitions outside of the gaming space. “We have looked outside of gaming on occasion at other possibilities, but we haven’t yet seen something that makes sense for us. We’re not bound in a box, but we continue to remain focused on gaming properties around the United States.”
