Gaming & Leisure Properties(GLPI) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q2 and H1 2020 financial statements show increased net income despite revenue decline, driven by lower expenses and the Tropicana Las Vegas acquisition Condensed Consolidated Balance Sheets Total assets increased to $8.67 billion by June 30, 2020, driven by the Tropicana Las Vegas acquisition, while liabilities also rose Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $8,665,425 | $8,434,298 | | Real estate investments, net | $7,049,408 | $7,100,555 | | Real estate of Tropicana Las Vegas, net | $306,715 | $— | | Cash and cash equivalents | $74,050 | $26,823 | | Total Liabilities | $6,562,660 | $6,360,053 | | Long-term debt, net | $5,768,330 | $5,737,962 | | Deferred rental revenue | $515,495 | $328,485 | | Total Shareholders' Equity | $2,102,765 | $2,074,245 | Condensed Consolidated Statements of Income Q2 2020 revenues decreased to $262.0 million due to COVID-19, yet net income increased to $112.4 million from lower expenses Condensed Consolidated Statements of Income Highlights (in thousands USD) | Metric | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $261,968 | $289,013 | $545,450 | $576,877 | | Income from Operations | $180,716 | $170,767 | $367,066 | $341,542 | | Net Income | $112,350 | $93,033 | $209,244 | $186,043 | | Diluted EPS | $0.52 | $0.43 | $0.97 | $0.86 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $229.7 million in H1 2020, impacted by non-cash deferred rent and lower TRS revenues Condensed Consolidated Statements of Cash Flows Highlights (in thousands USD) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $229,713 | $364,081 | | Net cash used in investing activities | $(1,134) | $(1,357) | | Net cash used in financing activities | $(181,352) | $(363,768) | | Net increase in cash | $47,227 | $(1,044) | Notes to the Condensed Consolidated Financial Statements Notes detail REIT operations, Tropicana Las Vegas acquisition, debt refinancing, and the material impact of COVID-19 on property closures - The company's portfolio consisted of 45 gaming and related facilities across 16 states as of June 30, 2020, with major tenants including Penn National, Caesars, and Boyd Gaming[33] - On April 16, 2020, the company acquired the real property of Tropicana Las Vegas from Penn National in exchange for $307.5 million of rent credits[32][47] - In Q1 2020, the company redeemed $215.2 million of its 4.875% notes due 2020 and $400 million of its 4.375% notes due 2021, incurring a $17.3 million loss on debt extinguishment[79][183] - The Q2 2020 dividend of $0.60 per share was paid with $25.8 million in cash and $103.2 million in common stock[119] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A covers COVID-19's impact, revenue decline, increased net income from expense cuts, liquidity enhancements, and strategic acquisitions Recent Developments and Business Outlook COVID-19 closures impacted business, but most properties reopened; company bolstered liquidity and expects CARES Act tax benefits - All of the company's tenants' casino operations and its two TRS Properties were closed in mid-March 2020 due to COVID-19. As of July 30, 2020, 43 out of 45 total properties have reopened at limited capacity[34][143] - The company enhanced liquidity on June 25, 2020, by extending the maturity of its Term Loan A-1, raising $200 million in additional term loans, and issuing $500 million of 4.00% senior unsecured notes due 2031. Proceeds were used to repay all outstanding amounts under its revolving credit facility[75][144] - The CARES Act allows for NOL carrybacks and increases the business interest expense deduction limit from 30% to 50% of adjusted taxable income for 2019 and 2020, which is expected to benefit the TRS Properties[144] Results of Operations Q2 2020 revenues decreased 9.4% to $262.0 million due to COVID-19, but income from operations and net income increased from expense cuts Results of Operations Summary (in thousands USD) | Metric | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $261,968 | $289,013 | $545,450 | $576,877 | | Total Operating Expenses | $81,252 | $118,246 | $178,384 | $235,335 | | Income from Operations | $180,716 | $170,767 | $367,066 | $341,542 | | Net Income | $112,350 | $93,033 | $209,244 | $186,043 | - TRS Properties revenue decreased by $23.3 million in Q2 2020 and $29.5 million in H1 2020 compared to the prior year, due to property closures from COVID-19[152] - Total operating expenses decreased by $37.0 million in Q2 2020, primarily due to lower TRS operating expenses ($15.1 million) and lower depreciation and land right amortization expense in the REIT segment ($20.5 million)[152] Non-GAAP Financial Measures (FFO, AFFO, and Adjusted EBITDA) Q2 2020 FFO increased to $166.9 million, while AFFO and Adjusted EBITDA slightly decreased due to lower revenues from property closures Non-GAAP Financial Measures Reconciliation (in thousands USD) | Metric | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $112,350 | $93,033 | $209,244 | $186,043 | | Funds from operations (FFO) | $166,893 | $158,607 | $318,067 | $307,299 | | Adjusted funds from operations (AFFO) | $180,597 | $185,018 | $369,407 | $368,033 | | Adjusted EBITDA | $246,860 | $260,870 | $505,673 | $519,289 | Liquidity and Capital Resources Net cash from operations decreased to $229.7 million in H1 2020; company enhanced liquidity through debt refinancing and maintained covenant compliance - Net cash provided by operating activities decreased by $134.4 million for the six months ended June 30, 2020, primarily due to the recognition of $130.8 million in non-cash deferred rent and the impact of COVID-19 on TRS properties[187] - On June 25, 2020, the company amended its credit facility, extending the maturity of ~$224 million in term loans to 2023, borrowing an additional $200 million, and issuing $500 million in new senior notes due 2031. Proceeds were used to fully repay the revolver[193] - As of June 30, 2020, the company had $1,174.6 million (or $1.17 billion) of available borrowing capacity under its revolver and was in compliance with all debt covenants[194][196] Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on $5.82 billion total debt, with $5.18 billion fixed-rate and $649 million variable-rate tied to LIBOR - As of June 30, 2020, total debt was $5.82 billion, of which $5.18 billion was fixed-rate and $649 million was variable-rate[207][209] - The company's variable-rate debt is indexed to LIBOR, which is expected to be phased out in late 2021. The transition to a new standard rate like SOFR is being monitored[205] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2020, with new controls implemented for credit loss accounting standard (ASU 2016-13) - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[211] - Changes in internal control were made to properly assess the impact of the new credit loss accounting standard (ASU 2016-13) which became effective January 1, 2020[212] PART II. OTHER INFORMATION Legal Proceedings The company faces various legal proceedings in the normal course of business, not expected to materially impact financial position or results - The company is involved in various legal proceedings from the normal course of business but does not expect them to have a material adverse effect[94][214] Risk Factors No material changes to risk factors except for the significant and ongoing impact of COVID-19 on tenant operations and rent obligations - The primary update to risk factors is the significant and ongoing impact of the COVID-19 pandemic on tenants' financial conditions and operations[215][216] - Temporary casino closures and subsequent reopening with capacity constraints may lead to tenant difficulties in funding rent obligations, potentially resulting in requests for rent deferrals or non-cash payments[217] Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases or unregistered equity securities sales occurred during the second quarter of 2020 - No common stock was repurchased and no unregistered securities were sold during the second quarter of 2020[218] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - There were no defaults upon senior securities during the reporting period[219] Exhibits This section lists exhibits filed with Form 10-Q, including debt indentures, credit agreement amendments, and required certifications