Gaming and Leisure Properties, Inc. grew net revenues and adjusted funds from operations ahead of schedule in the third quarter, on the heels of continued strength in regional gaming markets, the company reported Thursday morning.
GLPI, a gaming-focused real estate investment trust and landlord to most Penn National Gaming and Pinnacle Entertainment properties, grew revenues to $245 million – $1 million ahead of previously-issued company guidance and a 4.5 percent increase year-over-year.
AFFO, a REIT-specific financial metric that incorporates net income minus losses from sales of property, real estate depreciation, debt issuance amortization and other items, increased by 7.5 percent to $171 million, $2 million ahead of prior guidance.
The company declared a quarterly dividend payout, a key function of any REIT, of $0.63 per common share.
“The company’s results in the third quarter once again demonstrate the stable and highly predictable cash flow we generate for our shareholders,” said Peter J. Carlino, chief executive officer of GLPI.
“Our modest out-performance to guidance is the result of solid results at our managed TRS properties and at Penn National Gaming Inc.’s variable rent properties in Toledo and Columbus, Ohio,” he continued.
GLPI operates so-called “triple-net” leasing arrangements with casino tenants whereby the lessor is required to pay all costs associated to the property being leased, including taxes, insurance and maintenance costs in addition to rent.
It owns the land underlying 38 casino properties, 20 of which are leased to Penn National and 15 to Pinnacle, and controls more than 4,400 acres of land and 15 million square feet of building space – all of which, the company notes, is fully occupied.
The REIT continues to benefit from strong underlying trends in the markets where Penn National and Pinnacle operate, triggering rent escalators at multiple properties.
“Reflecting healthy regional gaming trends, our guidance for the fourth quarter now includes an annualized rent escalator from Penn of $4 million,” Carlino explained.
“During the calendar year 2017, we earned full escalators for Pinnacle Entertainment, Inc., Casino Queen and the Meadows Racetrack and Casino, while Penn is expected to earn approximately 75 percent of the full escalator, representing $10.6 million annually in the aggregate.”
This underlying strength has helped to solidify the REIT’s reputation as a stable and predictable dividend payout.
“All in all, GLPI’s results continue to reflect the consistency and predictability associated with the triple-net model. Furthermore, we believe generally improved regional gaming trends could help ease investors’ concerns regarding rent quality in the near term,” said Steven Wieczynski, an analyst with Stifel Nicolaus, in a note to clients.
But investors and observers shouldn’t be expecting any big moves on the mergers and acquisitions front in the near term, Wieczynski added:
“Looking ahead, 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 of size could be limited in the near term.”
The company paid down $75 million in long-term debt during the quarter, thereby reducing its leverage ratio to around 5.1x.
After opening trading on Thursday at $37.70, GLPI shares were trading down to $35.80 later in the morning.
