GLPI - Gaming and Leisure Properties: Q3 Confirms Solid Dividend Yield

2023-11-22 22:20:50 ET

Summary

• Despite inflationary pressures, GLPI reports positive financials, including a revenue increase of 7.72%.
• The company can make an annual distribution of $3.15 per share, which represents a dividend yield of 7.03%.
• After comparing the forward P/FFO of 11.64x with the sector median of 11.56x, we can say that the company is fairly valued at current valuation.

Investment Thesis

Gaming and Leisure Properties ( GLPI ) primarily focuses on acquiring, owning, and financing property to be leased to gaming operators. The company has recently reported its quarterly results and managed to maintain its revenue growth. I believe it can sustain its growth in the future as a result of its recent acquisition which can increase its cash flows and help it in sustaining its dividend payout.

About GLPI

GLPI is a self-managed and self-administered real estate investment trust in Pennsylvania that deals in acquiring, owning, and financing property to be leased to gaming operators. These are primarily leased in triple-net lease arrangements. In such types of leases, the lessee pays the lessor including all insurance, taxes, maintenance expenses, and utilities arising from the use of the property. The Company owned 57 rental properties as of December 31, 2022. The properties span 18 states geographically and have improvements totaling around 28.7 million square feet. On March 1, 2022, the Company finalized the previously stated deal with Cordish, acquiring the real estate assets of Live Casino Pittsburgh and Live Casino & Hotel Philadelphia. At the same time, the Company entered into a Pennsylvania Live Master Lease, enabling Cordish to carry on with the operation of the properties.

Financials

The gaming industry was highly impacted by the global COVID-19 pandemic which resulted in lower participation from the U.S. population. However, it has managed to rebound significantly after the pandemic. In addition, it managed well to continue its growth trajectory as casinos tend to be more recession-resistant which helps it to sustain its stability and growth. As per the American Gaming Association , over the previous 12 months, more Americans than ever engaged in gaming-related entertainment. This shows us the growing demand in the gaming industry and reflects the potential opportunities for the participants. Identifying these scenarios, recently, the firm declared the acquisition of the land linked to the Hard Rock Casino development project in Rockford, IL. The purchase was completed from an affiliate of 815 Entertainment, LLC, collectively referred to as "815 Entertainment," for a total of $100.0 million. In addition to acquiring the property, GLPI also signed a 99-year ground lease with 815 Entertainment. It has an initial yearly rent of $8.0 million, with a set 2.0% annual escalation starting on the first anniversary of the lease and continuing for the duration of the agreement. I believe this acquisition can act as a catalyst to boost the company’s growth as it can help it significantly expand its footprint by adding a new tenant and property to its portfolio which can further help it generate additional lease income and expand its profit margins.

The company has reported its quarterly results . It reported a revenue of $359.60 million, up 7.72% compared to $338.80 million in Q322. This growth was mainly fueled by to significant rise in rental revenues. Net income declined by 16.31% YoY from $226.21 million to $189.30 million. This decrease mainly resulted from high operating expenses due to an inflationary environment. It reported a diluted EPS of $0.70. The operating expenses stood at $91.25 million. GLPI reported $81.14 million in liquidity and adjusted EBITDA stood at $327.09 million.

The company performed well despite the inflationary pressures and I believe it can sustain its performance in the coming quarters as a result of significant growth in the gaming industry and its recent acquisitions which can help it earn additional revenues and expand its profit margins in the future.

Dividend Yield

The company has a long history of consistent dividend payouts which indicates its healthy positioning. In 2022, the company paid a dividend of $0.69 in Q1 and $0.705 in each of the next three quarters respectively. This dividend payout totaled $2.805 per share annually. This payout represented a dividend yield of 6.23%. It paid a dividend of $0.97, $0.72, and $0.73 per quarter in 2023, and observing the positive industry growth and recent expansion, I believe it can sustain a $0.73 per share dividend in Q4. It can make an annual distribution of $3.15 per share, which represents a dividend yield of 7.03%. As the firm is expanding its footprint through acquisitions, I believe it can generate additional revenue in the future that could significantly increase its payout. This appealing dividend yield makes the firm an attractive option for risk-averse and retired investors seeking predictable regular income.

What is the Main Risk Faced by GLPI?

The operation, ownership, and management of gaming and racing facilities are subject to high regulation. As a result of GLPI's status as a landlord, several gaming and racing regulatory agencies in the jurisdictions where their tenants operate require GLPI, its affiliates, and specific officers and directors to maintain licenses as a key business entity, principal affiliate, business entity qualifier, operator, supplier, or key person. If the regulations change due to any reason, it can impact the company’s operations and can further contract its profit margins.

Valuation

The Gaming industry in the USA is experiencing strong demand dynamics which has created opportunities for the participants. I believe the company is strongly positioned to cater to the growing demand as it has recently acquired land linked to the Hard Rock Casino development project in Rockford, IL, which can increase its lease income and expand its profit margins. After considering all the above factors, I am estimating a FFO per share of $3.85 for FY2024 which gives the forward P/FFO ratio of 11.64x (share price: $44.80). After comparing the forward P/FFO ratio of 11.64x with the sector median of 11.56x , we can say that the company is fairly valued at current valuation. Though the stock is fairly valued, it has a stable dividend payout which can grow in the future as the company is focused on acquisitions that can generate higher cash flows.

Conclusion

The company operates in a rapidly growing industry and has a significant footprint which creates a strong presence in the market. It has also reported decent quarterly results despite the adverse macroeconomic conditions which indicates its resilience. The company has acquired land linked to the Hard Rock Casino development project in Rockford, IL which I believe can significantly increase its lease income and help it to expand its profit margins and cash flows as well. The company is currently fairly valued and I think its stable dividend payouts makes it one of the attractive stock option to hold in the portfolio. As per my analysis, the company even has the potential to increase the payouts in the future as a result of its strong cash flows and expansion activities. After considering all the above factors, I assign a hold rating to GLPI.

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