Billed as the first real estate investment trust (REIT) to focus on the gaming industry, Gaming and Leisure Properties Inc. (GLPI) just released its third-quarter financials on October 31. The quarter, generally speaking, wasn’t too bad for the company – it managed to grow its total revenue by 13.2% compared to Q3 of last year. However, net income dropped by a little more than that amount, but this isn’t necessarily a bad thing. It came as a result of the extinguishment of some of its debt.
Revenue for the quarter was $287.6 million, up from the $254.1 million a year earlier. Operational income also increased, climbing from $164.8 million to $187.6 million. After all the bills and debts were paid, the company saw its net income go from $104.8 million to $90.5 million.
That dip, according to a company press release, was due primarily to the “non-recurring losses” attributed to a debt extinguishment worth $21 million. That came as part of the company’s cash tender offer that was submitted to purchase 4.875% senior unsecured notes during the quarter, with those notes due next year.
The company’s CEO, Peter M. Carlino, adds in the press release, “GLPI delivered another quarter of solid financial results reflecting our initiatives and strategies to drive cash flow growth from accretive transactions while actively managing our capital structure and cost of capital. Our diversified portfolio of regional gaming assets, managed by the industry’s leading operators, continues to generate one of the most stable cash flow streams in the triple-net REIT sector. During the third quarter, we further strengthened our balance sheet through an opportunistic refinancing that reduced our borrowing costs and extended our average debt maturities. Our talented team remains focused on identifying and pursuing portfolio enhancing accretive transactions to position GLPI to extend its long-term record of dividend growth and value creation for shareholders.”
Looking at the positive growth, and considering what should be a one-off drop on net income, Union Gaming (UG) is happy with the performance. Analyst John Decree comments on the company’s financial health, asserting that next year will see a 6.2% yield on UG’s $45 price point and estimates the dividend to reach $2.82, 4% more than the current amount. He adds:
“Given the durability of regional casino revenue streams and security of GLPI’s rental income under its leases, we believe GLPI offers an attractive and stable yield opportunity. Further, the shares are currently trading at 11.8x our 2020 AFFO [adjusted funds from operations] estimates, which is quite cheap given the security of its rental income and dividend. As the cap rate compression story evolves for gaming real estate, GLPI should continue to benefit from improving valuation.”
GLPI may be considered the first gaming-related REIT, but it isn’t the biggest. That claim can be made by Vici Properties, which also recently published its financial health. It is maintaining its strength and continues to seek out new acquisitions to grow its portfolio. That performance led Decree to assert that Vici, like GLPI, deserves a “Buy” rating. UG keeps its price target at $28, a 16x multiple of the analyst’s 2021 AFFO estimate, which is $1.81. The analyst adds, “VICI is emerging as the REIT to beat in the gaming sector and is our Top Pick in the space overall.”
