Gaming & Leisure Properties(GLPI) - 2019 Q4 - Annual Report

PART I Business GLPI is a self-administered REIT primarily acquiring and leasing real estate to gaming operators under triple-net arrangements - GLPI is a self-administered Pennsylvania REIT formed from the 2013 tax-free spin-off of Penn National Gaming's real estate assets[20] - The company's primary business involves acquiring, financing, and owning real estate leased to gaming operators under triple-net arrangements, where tenants cover all property expenses[26] Property Portfolio Summary (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Total Properties | 44 gaming and related facilities | | Geographic Diversification | 16 states | | Total Square Footage | ~22.1 million sq. ft. | | Occupancy Rate | 100% | - GLPI operates two segments: GLP Capital, holding leased real property, and TRS Properties, comprising Hollywood Casino Perryville and Hollywood Casino Baton Rouge[90] Property Portfolio As of December 31, 2019, GLPI's portfolio included interests in 44 gaming and related facilities, geographically diverse across 16 states, totaling approximately 22.1 million square feet with over 11,800 hotel rooms Portfolio Composition (as of Dec 31, 2019) | Property Type | Count | Key Tenants/Operators | | :--- | :--- | :--- | | Tenant Occupied Properties | 41 | Penn, Boyd, Eldorado, Casino Queen | | Financed Property | 1 | Boyd | | TRS Properties | 2 | GLPI | | Total | 44 | | - The portfolio is geographically diversified across 16 states, including Indiana, Illinois, Ohio, Pennsylvania, Nevada, New Jersey, and Mississippi[40] - The company's portfolio includes approximately 22.1 million square feet of property and 11,837 hotel rooms[45] Tenants and Lease Structure GLPI's revenue primarily stems from long-term, triple-net master leases with major gaming operators, featuring fixed base rent with escalators and variable performance-based components - The company's main tenants are Penn National Gaming, Eldorado Resorts, and Boyd Gaming, leading multi-jurisdictional gaming property owners and managers[29] - Leases are structured as triple-net, requiring tenants to cover all facility maintenance, insurance, taxes (excluding lessor's income tax), and utilities[37] - The Penn Master Lease rent structure includes a fixed component with a potential 2% annual escalator and a variable component based on facility performance, adjusted every five years or monthly for specific Ohio properties[31][32] - Amended Pinnacle (now Penn), Eldorado, and Boyd Master Leases feature a similar structure with a fixed component, a potential 2% annual escalator, and a variable component based on net revenues, adjusted every two years[33] REIT and Tax Status GLPI elected REIT status in 2014, requiring annual distribution of at least 90% of taxable income to avoid federal corporate income tax, though its TRS Properties remain subject to income taxes - The company elected REIT status for its 2014 tax year and aims to maintain this qualification[27] - A key REIT requirement is the annual distribution of at least 90% of its REIT taxable income to shareholders, generally avoiding federal income tax on distributed income[27] - Failure to qualify as a REIT would subject the company to regular corporate income tax rates and a four-year disqualification from re-electing REIT status[27][140] - The company's TRS Properties are taxable REIT subsidiaries, allowing non-qualifying REIT income generation, with their earnings subject to corporate income taxes[28][108] Competition and Regulation GLPI competes for property investments with other REITs and firms, while its tenants face intense competition in the gaming industry, all subject to extensive gaming regulations requiring licenses and approvals - The company competes for property acquisitions with other REITs, including MGM Growth Properties LLC and VICI Properties Inc., alongside private equity and hedge funds[87] - The gaming industry is highly competitive, facing pressure from land-based casinos, Native American gaming, internet gaming, and sports betting[89] - Ownership and operation of gaming facilities are subject to extensive regulation, requiring GLPI and its affiliates to maintain licenses as a key business entity or supplier in numerous jurisdictions[147] Risk Factors The company faces significant risks including heavy dependence on its primary tenant, gaming industry downturns, regulatory hurdles, complex REIT tax provisions, and substantial debt exposure - A majority of the company's revenues depend on Penn and its subsidiaries, making GLPI's financial position vulnerable to adverse effects on Penn's business[159] - As a gaming facilities landlord, the company is exposed to gaming industry risks, including economic downturns, changes in consumer spending, and intense competition[164][166] - Failure to maintain REIT qualification would subject the company to U.S. federal income tax as a regular corporation, potentially leading to substantial tax liability and reduced cash for shareholder distributions[198] - The company holds $5.7 billion in indebtedness as of December 31, 2019, potentially limiting financial flexibility, dedicating significant cash flow to debt service, and increasing vulnerability to economic downturns[217][219] - If the 2013 Spin-Off from Penn is deemed a taxable transaction, GLPI could face significant tax liabilities and may need to indemnify Penn for material taxes under the Tax Matters Agreement[233] Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - None[239] Properties As of December 31, 2019, the company's portfolio includes 41 rental properties under triple-net leases, one financed property, and two owned and operated TRS Properties, plus its corporate headquarters - The company's portfolio includes 41 rental properties leased to operators like Penn, Eldorado, and Boyd, all under long-term triple-net leases[241] - GLPI holds a financial interest in one casino property, Belterra Park, via a real estate loan to its owner-operator[242][84] - The company owns and operates two TRS Properties: Hollywood Casino Baton Rouge in Louisiana and Hollywood Casino Perryville in Maryland[243][244] Legal Proceedings The company is subject to various legal proceedings in the normal course of business, but management does not anticipate a material adverse effect on its financial position or operations - The Company is subject to various legal and administrative proceedings related to personal injuries, employment matters, and commercial transactions arising in the normal course of business[247] - Management does not believe the final outcome of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations[247] Mine Safety Disclosures This item is not applicable to the company - Not applicable[248] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities GLPI common stock trades on NASDAQ under 'GLPI', with the company required to distribute at least 90% of REIT taxable income annually, and approximately 714 record holders as of February 18, 2020 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "GLPI"[251] - The dividend policy mandates distributing at least 90% of its REIT taxable income annually to comply with U.S. federal income tax law for REITs[252] - As of February 18, 2020, there were approximately 714 holders of record of the common stock[251] Selected Financial Data This section provides a five-year summary of GLPI's consolidated financial and operating data from 2015 to 2019, showing significant growth in revenues, assets, and net income driven by major acquisitions Selected Financial Data (2015-2019) | Year Ended Dec 31, | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues ($M) | 1,153.5 | 1,055.7 | 971.3 | 828.3 | 575.1 | | Income from Operations ($M) | 717.4 | 593.8 | 605.5 | 480.6 | 257.4 | | Net Income ($M) | 390.9 | 339.5 | 380.6 | 289.3 | 128.1 | | Diluted EPS ($) | 1.81 | 1.58 | 1.79 | 1.60 | 1.08 | | Total Assets ($M) | 8,434.3 | 8,577.3 | 7,246.9 | 7,369.3 | 2,448.2 | | Long-term Debt, net ($M) | 5,738.0 | 5,853.5 | 4,442.9 | 4,665.0 | 2,510.3 | - Significant growth in assets and financial performance in 2016 and 2017 was driven by the $4.8 billion acquisition of Pinnacle's real property assets in April 2016[257] - Further growth in 2018 and 2019 resulted from the October 2018 acquisitions of five Tropicana properties for approximately $992.5 million and Plainridge Park for approximately $250.9 million[257] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) GLPI's 2019 financial performance improved due to full-year rental income from 2018 acquisitions, with revenues reaching $1.15 billion and net income $390.9 million, supported by liquidity from operations, debt, and equity Financial Highlights (2019 vs. 2018) | Metric (in millions) | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenues | $1,153.5 | $1,055.7 | | Income from Operations | $717.4 | $593.8 | | Net Income | $390.9 | $339.5 | - The 2019 revenue and income increase was primarily due to the full-year impact of the Tropicana Transactions and Penn-Pinnacle Merger, which closed in October 2018[277] - Critical accounting estimates include lease accounting, income taxes (REIT compliance), real estate investment valuation, and goodwill impairment testing[280] - The company uses non-GAAP measures like FFO, AFFO, and Adjusted EBITDA for performance benchmarking; Adjusted EBITDA was $1,040.3 million in 2019, up from $926.6 million in 2018[311][314] Results of Operations In 2019, total revenues increased by 9.3% to $1.15 billion due to acquisitions, while operating expenses decreased by 5.6% to $436.1 million due to accounting changes and absence of prior year impairment, leading to $717.4 million in income from operations Revenue Breakdown (2019 vs. 2018) | Revenue Source (in thousands) | 2019 | 2018 | Variance | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income | $996,166 | $747,654 | $248,512 | 33.2% | | Income from direct financing lease | $0 | $81,119 | ($81,119) | -100.0% | | Interest income from real estate loans | $28,916 | $6,943 | $21,973 | 316.5% | | Real estate taxes paid by tenants | $0 | $87,466 | ($87,466) | -100.0% | | Total income from real estate | $1,025,082 | $923,182 | $101,900 | 11.0% | | Gaming, food, beverage and other | $128,391 | $132,545 | ($4,154) | -3.1% | | Total revenues | $1,153,473 | $1,055,727 | $97,746 | 9.3% | Operating Expense Breakdown (2019 vs. 2018) | Expense Category (in thousands) | 2019 | 2018 | Variance | % Change | | :--- | :--- | :--- | :--- | :--- | | Real estate taxes | $0 | $88,757 | ($88,757) | -100.0% | | Depreciation | $240,435 | $137,093 | $103,342 | 75.4% | | Loan impairment charges | $13,000 | $0 | $13,000 | N/A | | Goodwill impairment charges | $0 | $59,454 | ($59,454) | -100.0% | | Total operating expenses | $436,050 | $461,917 | ($25,867) | -5.6% | - The decrease in real estate tax expense is due to ASC 842 adoption, eliminating the gross-up for taxes paid directly by tenants[332] - A $13.0 million loan impairment charge was recorded in 2019 to write off the unsecured loan to Casino Queen's affiliate, as repayment was no longer expected[337] Liquidity and Capital Resources GLPI's liquidity primarily stems from operations, credit facilities, and debt/equity offerings; 2019 net cash from operations increased to $750.3 million, with total debt at $5.7 billion and $1.13 billion available under its revolving credit facility - Net cash from operating activities increased by $95.9 million to $750.3 million in 2019, primarily due to a $151.0 million increase in cash receipts from customers/tenants following 2018 acquisitions[350] Debt Structure (as of Dec 31, 2019) | Debt Instrument | Outstanding Balance | | :--- | :--- | | Senior Unsecured Credit Facility | $495.0 million | | Senior Unsecured Notes | $5,290.2 million | | Finance Lease Liabilities | $1.0 million | | Total Long-term Debt, net | $5,738.0 million | - As of December 31, 2019, the company had $1,128.6 million of available borrowing capacity under its revolving credit facility[358] - The company is monitoring the expected phase-out of LIBOR in late 2021, which will affect its variable rate debt under the revolving credit facility and Term Loan A-1[371] Quantitative and Qualitative Disclosures About Market Risk GLPI's primary market risk is interest rate risk on its $5.8 billion debt, with $5.3 billion fixed-rate and variable-rate debt exposed to LIBOR phase-out, potentially increasing future borrowing costs - The primary market risk is interest rate risk associated with its $5.8 billion of indebtedness as of December 31, 2019[380] - $5.3 billion of the company's debt consists of fixed-rate senior unsecured notes, while $495 million is variable-rate debt under its credit facility, indexed to LIBOR[380][384] - The company is exposed to risk from the expected phase-out of LIBOR in late 2021, which will affect its variable rate borrowings[229][371] Financial Statements and Supplementary Data This section presents GLPI's audited consolidated financial statements for 2019, including balance sheets, income statements, cash flow statements, and notes, reflecting its REIT status, real estate investments, and long-term debt Consolidated Balance Sheet Highlights (as of Dec 31, 2019) | Account (in thousands) | Amount | | :--- | :--- | | Assets | | | Real estate investments, net | $7,100,555 | | Total assets | $8,434,298 | | Liabilities & Equity | | | Long-term debt, net | $5,737,962 | | Total liabilities | $6,360,053 | | Total shareholders' equity | $2,074,245 | Consolidated Statement of Income Highlights (Year Ended Dec 31, 2019) | Account (in thousands) | Amount | | :--- | :--- | | Total revenues | $1,153,473 | | Income from operations | $717,423 | | Net income | $390,881 | | Diluted earnings per common share | $1.81 | - Deloitte & Touche LLP, the independent auditor, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[386][619] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[612] Controls and Procedures Management concluded that GLPI's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes during the fourth quarter, though new controls were implemented for ASC 842 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[613] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[614] - There were no material changes in internal control over financial reporting during the fourth quarter of 2019[616] Other Information The company reports no other information for this item - None[626] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item is incorporated by reference to the Company's definitive proxy statement for its 2020 Annual Meeting of Shareholders[628] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2020 definitive proxy statement - The information called for in this item is hereby incorporated by reference to the 2020 Proxy Statement[629] Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters Information regarding security ownership is incorporated by reference from the company's 2020 definitive proxy statement - The information called for in this item is hereby incorporated by reference to the 2020 Proxy Statement[630] Certain Relationships and Related Transactions and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2020 definitive proxy statement - The information called for in this item is hereby incorporated by reference to the 2020 Proxy Statement[631] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 definitive proxy statement - The information called for in this item is hereby incorporated by reference to the 2020 Proxy Statement[632] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including details on Real Estate and Mortgage Loans, and a comprehensive exhibit index - This item lists the Consolidated Financial Statements filed under Item 8[635] - Financial Statement Schedules include Schedule III (Real Estate and Accumulated Depreciation) and Schedule IV (Mortgage Loans on Real Estate)[635] - A detailed Exhibit Index is included, listing all agreements and other documents filed with or incorporated by reference into the report[636][639] Form 10-K Summary The company has not provided a summary for this item - None[637]