Strong tenant business buoyed Gaming and Leisure Properties’ second quarter and made for a happy sendoff for retiring CFO Steven Snyder. The real estate investment trust said it collected virtually all the rents from its clients and reported a cash flow measure and revenue that topped Wall Street forecasts.
In a statement Thursday, Pennsylvania-based Gaming and Leisure said adjusted funds from operation were $180.6 million, or 84 cents per share, for the three months ended June 30, down 2.4% from net income of $185 million, or 86 cents per share a year earlier. The latest result topped the 74 cents-per-share average forecasts of analysts polled by Seeking Alpha.
Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization.
Net income was $112.4 million, or 52 cents per share, up from net income of $93 million, or 43 cents per share, a year earlier.
Revenue fell 9.3% to $262 million from $289 million but topped the $285.5 million forecast of Seeking Alpha-polled analysts.
Gaming and Leisure Chief Executive Officer Peter Carlino highlighted many bright notes in the company’s earnings statement. Proceeds from a $500 million senior notes offering and a debt restructuring slowed the REIT to pay off all borrowings under its $1.175 billion credit facility, he said, and 43 of 45 tenants have reopened from their mandated coronavirus shutdowns.
Also, the Missouri Gaming Commission on June 24 OK’d the REIT’s acquisition of Lumiere Place in St. Louis. Carlino said Gaming and Leisure will enter a new lease deal with Caesars Entertainment for the hotel-casino by Oct. 1.
Senior Vice President Investments Matthew Demchyk said the pandemic stressed the importance of solvency.
“The value of permanent capital in our lease structures really as permanent capital gets,” Demchyk said in a conference call with analysts. “You can also look at where operators have priced debt in recent trades, and that suggests that our capital is attractive from the cost perspective. And when we look at our capital sources, we definitely see a functioning capital market. but from a bottom-up perspective … operators really been focused on survival, successfully reopening their properties.”
During the call, Carlino said the tenants’ reopenings have gone surprisingly well and that regional properties will drive the REIT’s success.
“A few of our tenants’ properties (have) produced stunning and unexpected results. Business volumes are surprisingly strong, but margins have proven to be even stronger,” he said. “(It) is my belief that the real strength of our industry lies with the regional properties, not on the Las Vegas Strip. … Regional properties have long been undervalued and we deserve equal or even greater appreciation for that.”
Tropicana sale update
Gaming and Leisure is attempting to sell the Tropicana Las Vegas, which it acquired in a sale lease-back with Penn National Gaming in April for $307.5 million worth of rent credits. Penn has yet to reopen the Tropicana but has made room reservations available beginning Sept. 1.
“I would make it clear that these 35.1 acres are Strip frontage,” Snyder said on the conference call. “Others talk about strip proximate. There’s nothing proximate about being on the corner of Las Vegas Boulevard and Tropicana Boulevard. This is the corner of Main and Main and you know everything that’s going on down there.”
SunTrust Robinson gaming analyst Barry Jonas told investors the casino acquisition environment was “highly active entering the pandemic,” but operators are now more focused on securing their balance sheets and re-opening their properties.
“(Gaming and Leisure) management continues to evaluate potential options for their acquired Tropicana asset,” Jonas said. “Prior to the pandemic, we had heard potential re-positioning away from gaming post-sale, while management noted they see it likely a future bidder would invest incremental capital post-sale given the current layout is non-ideal.”
CFO retires
Snyder, 60, said in July that he’ll leave Gaming and Leisure, heading to Nashville, Tennessee, with his family to retire. He said he was grateful to Carlino, whom he’d worked with at Penn National, and the boards at Gaming and Leisure and Penn for helping him thrive.
“I think while we were at Penn, we laid the foundation for Penn to now be the leading regional gaming operator here in the United States,” Snyder said. “And certainly, over the last seven years at GLPI, we’ve created a new asset class in the triple-net lease space, which others have come to copy, which to me is the highest form of flattery.”
Under triple-net lease agreements, casino operator tenants maintain the properties and pay real estate taxes and building insurance. REITs must pay at least 90 percent of their taxable income to shareholders.
Gaming and Leisure said it hired Los Angeles-based management consulting firm Korn Ferry to lead a search for Snyder’s successor.
The REIT’s shares rose 85 cents, or 2.4%, Friday to close at $36.21 on the Nasdaq. Gaming and Leisure’s share price has fallen by 15.3% in 2020.
Follow Matthew Crowley on Twitter @copyjockey
