Gaming & Leisure Properties(GLPI) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2019 ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2019, including balance sheets, income statements, equity changes, cash flows, and accompanying notes Condensed Consolidated Financial Statements This subsection contains the core unaudited financial statements for the three months ended March 31, 2019, detailing financial position, operations, equity changes, and cash flows Consolidated Balance Sheets (in thousands) | | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total assets | $8,646,832 | $8,577,293 | | Total liabilities | $6,439,148 | $6,311,686 | | Total shareholders' equity | $2,207,684 | $2,265,607 | Consolidated Statements of Income (in thousands) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total revenues | $287,864 | $244,050 | | Income from operations | $170,775 | $151,851 | | Net income | $93,010 | $96,772 | | Diluted EPS | $0.43 | $0.45 | Consolidated Statements of Cash Flows (in thousands) | | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $221,423 | $185,756 | | Net cash (used in) provided by investing activities | ($348) | $17,387 | | Net cash used in financing activities | ($216,524) | ($186,777) | | Net increase in cash and cash equivalents | $4,551 | $16,366 | Notes to the Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and specifics on financial statement items, including business structure, acquisitions, new accounting standards, debt, and segment performance - The company's primary business involves acquiring, financing, and owning real estate leased to gaming operators in triple-net arrangements, with a portfolio of 46 gaming facilities across 16 states as of March 31, 2019[30] - Adoption of ASU 2016-02 (Topic 842) on January 1, 2019, led to the recognition of $203 million in right-of-use assets and lease liabilities, eliminating the gross-up of financial statements for real estate taxes paid directly by tenants[36][37][38] - A full impairment charge of $13.0 million was recorded for the unsecured loan to CQ Holding Company (Casino Queen) due to declining operating results and insufficient expected proceeds from asset sales[52][88] Total Long-Term Debt (in thousands) | Debt Component | Amount (in thousands) | | :--- | :--- | | Unsecured revolver and term loan | $866,000 | | Senior unsecured notes | $4,975,000 | | Finance lease liability | $1,082 | | Total long-term debt | $5,842,082 | Segment Performance Q1 2019 (in thousands) | Segment (Q1 2019) | Total Revenues (in thousands) | Income from Operations (in thousands) | | :--- | :--- | :--- | | GLP Capital | $254,871 | $164,869 | | TRS Properties | $32,993 | $5,906 | | Total | $287,864 | $170,775 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's operational performance, financial condition, and liquidity, highlighting revenue growth from recent acquisitions, a significant loan impairment, and the impact of new lease accounting standards Our Operations and Executive Summary GLPI operates as a REIT, primarily acquiring and owning real estate leased to gaming operators, with Q1 2019 revenues increasing to $287.9 million and income from operations rising to $170.8 million due to 2018 acquisitions - The company's primary business involves acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements, with a portfolio of 46 gaming facilities across 16 states[136] Key Financial Metrics Q1 2019 vs Q1 2018 | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Total Revenues | $287.9M | $244.1M | | Income from Operations | $170.8M | $151.9M | - The increase in total income from real estate was primarily due to the Tropicana Transactions and the Penn-Pinnacle Merger, both completed in the fourth quarter of 2018[143] - Operating expenses increased mainly due to a $13.0 million loan impairment charge related to the unsecured loan to Casino Queen and higher depreciation from new assets[145] Results of Operations This section provides a detailed analysis of consolidated results, showing total revenues grew 18.0% year-over-year, driven by real estate income from acquisitions, while operating expenses rose 27.0% due to a loan impairment and increased depreciation Revenue Breakdown (in thousands) | Revenue Category | Q1 2019 (in thousands) | Q1 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total income from real estate | $254,871 | $209,304 | 21.8% | | Gaming, food, beverage and other | $32,993 | $34,746 | (5.0)% | | Total revenues | $287,864 | $244,050 | 18.0% | Operating Expense Breakdown (in thousands) | Operating Expense Category | Q1 2019 (in thousands) | Q1 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Real estate taxes | $0 | $21,595 | (100.0)% | | Depreciation | $58,578 | $27,954 | 109.6% | | Loan impairment charges | $13,000 | $0 | N/A | | Total operating expenses | $117,089 | $92,199 | 27.0% | - Real estate tax expense decreased to zero because the adoption of ASU 2016-02 (ASC 842) on January 1, 2019, eliminated the requirement to gross-up financial statements for real estate taxes paid directly by tenants[171] Non-GAAP Financial Metrics (in thousands) | Non-GAAP Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net Income | $93,010 | $96,772 | | Funds from Operations (FFO) | $148,692 | $121,870 | | Adjusted Funds from Operations (AFFO) | $183,015 | $168,701 | | Adjusted EBITDA | $258,419 | $221,345 | Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and borrowings, with net cash from operating activities increasing to $221.4 million in Q1 2019, while financing activities used $216.5 million primarily for dividends and debt repayments - Net cash provided by operating activities increased by $35.7 million for Q1 2019 compared to Q1 2018, primarily due to a $55.1 million increase in cash receipts from tenants following the 2018 acquisitions[180] - Financing activities in Q1 2019 used $216.5 million, driven by $146.2 million in dividend payments and $123.0 million in debt repayments, partially offset by $62.0 million in proceeds from new debt[182] - As of March 31, 2019, the company had $833.6 million of available borrowing capacity under its revolving credit facility[186] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate risk related to its $5.84 billion in debt, where rising rates could increase financing costs for its variable-rate debt - The company's primary market risk exposure is interest rate risk with respect to its $5.84 billion of indebtedness at March 31, 2019[192] - Of the total debt, $4.975 billion consists of fixed-rate Senior Notes, mitigating some interest rate risk, while the remaining variable-rate debt is subject to interest rate fluctuations[192] Debt Fair Value (in thousands) | Debt Type | Total (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | | Fixed rate | $4,975,000 | $5,191,775 | | Variable rate | $866,000 | $857,495 | ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, with a change in internal control noted due to the adoption of the new lease accounting standard - Based on an evaluation as of March 31, 2019, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective[195] - A change in internal control over financial reporting occurred during the quarter to implement controls for the adoption of the new lease accounting standard, ASU 2016-02, on January 1, 2019[196] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, and other miscellaneous disclosures ITEM 1. LEGAL PROCEEDINGS The company is subject to various legal proceedings arising in the normal course of business but does not believe their final outcome will have a material adverse effect on its consolidated financial position or results of operations - The Company is subject to various legal proceedings in the normal course of business but does not believe the final outcome will have a material adverse effect on its financial position or results[89][198] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in the company's risk factors from those previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[199] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not repurchase any shares of its common stock or sell any unregistered securities during the three months ended March 31, 2019 - During the three months ended March 31, 2019, the Company did not repurchase any common stock or sell any unregistered securities[200] Other Items (Defaults, Mine Safety, Other Info, Exhibits) This section confirms that there were no defaults upon senior securities during the period, and disclosures for mine safety and other information were not applicable - No defaults upon senior securities were reported for the period[201] - Mine Safety Disclosures and Other Information sections were not applicable[202][203]