Gaming & Leisure Properties(GLPI) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Gaming and Leisure Properties, Inc. for the quarter ended March 31, 2023, including Balance Sheets, Statements of Income, Statements of Changes in Equity, and Statements of Cash Flows, with detailed notes on accounting policies and significant transactions Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets to $11.12 billion as of March 31, 2023, from $10.93 billion at year-end 2022, primarily driven by a rise in net real estate investments, with total liabilities also increasing to approximately $7.0 billion due to higher long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Real estate investments, net | $8,281,960 | $7,707,935 | | Cash and cash equivalents | $6,822 | $239,083 | | Total assets | $11,116,095 | $10,930,386 | | Liabilities & Equity | | | | Long-term debt, net | $6,291,470 | $6,128,468 | | Total liabilities | $6,997,904 | $6,812,290 | | Total equity | $4,118,191 | $4,118,096 | Condensed Consolidated Statements of Income For the three months ended March 31, 2023, total revenues increased to $355.2 million from $315.0 million in the prior-year period, with net income attributable to common shareholders rising significantly to $183.4 million, or $0.70 per diluted share, compared to $119.3 million, or $0.48 per diluted share, in Q1 2022 Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $355,214 | $314,966 | | Income from operations | $266,849 | $199,796 | | Net income | $188,670 | $121,692 | | Net income attributable to common shareholders | $183,351 | $119,268 | | Diluted earnings per common share | $0.70 | $0.48 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $241.2 million for Q1 2023, a slight increase from $233.2 million in Q1 2022, while investing activities used $422.1 million primarily for real estate acquisition, and financing activities used $51.4 million reflecting debt repayments and dividend payments, resulting in a significant decrease in cash and cash equivalents to $6.8 million Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $241,183 | $233,182 | | Net cash used in investing activities | ($422,076) | ($131,417) | | Net cash used in financing activities | ($51,368) | ($670,340) | | Net decrease in cash and cash equivalents | ($232,261) | ($568,575) | | Cash and cash equivalents at end of period | $6,822 | $156,020 | Notes to the Condensed Consolidated Financial Statements The notes provide detailed information on the company's business operations, portfolio, significant lease agreements, accounting policies, and specific financial statement line items, including the acquisition of properties from Bally's, amendments to the PENN master leases, and details on debt financing and credit loss provisions - As of March 31, 2023, GLPI's portfolio consisted of interests in 59 gaming and related facilities across 18 states, which were 100% occupied[27] - On January 3, 2023, the company acquired the land and real estate assets of Bally's Biloxi and Bally's Tiverton for $635.0 million, adding these properties to the existing Bally's Master Lease and increasing the annual rent by $48.5 million[39][123] - Effective January 1, 2023, the Original PENN Master Lease was amended, creating two separate leases: the Amended PENN Master Lease (annual rent of $284.1 million) and the new PENN 2023 Master Lease (annual rent of $232.2 million)[29][30][31] - The company recorded a benefit for credit losses of $5.7 million in Q1 2023, a significant reversal from the $26.7 million provision in Q1 2022, primarily due to the outperformance of properties underlying the Pennsylvania Live! Master Lease[60][202][203] - On February 12, 2023, the company redeemed all of its $500 million, 5.375% Senior Notes due in 2023, incurring a loss on debt extinguishment of $0.6 million[95] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance for Q1 2023, highlighting a $40.2 million increase in total revenues to $355.2 million driven by recent acquisitions and lease escalations, and a $26.8 million decrease in operating expenses primarily due to a reversal of the provision for credit losses, while also covering liquidity, capital resources, debt management, and a growth strategy focused on acquiring additional gaming facilities Our Operations GLPI's primary business involves owning and financing real estate leased to gaming operators via triple-net arrangements, with a portfolio of 59 properties operated by major tenants like PENN, Caesars, Boyd, Bally's, and Cordish as of March 31, 2023, including details on major lease agreements such as the newly created PENN 2023 Master Lease and the Amended PENN Master Lease - GLPI's portfolio is geographically diversified across 18 states, containing approximately 30.2 million square feet, and was 100% occupied as of March 31, 2023[161] - The company's revenue is primarily derived from triple-net master leases where tenants are responsible for all facility maintenance, insurance, taxes, and utilities[180] Executive Summary The executive summary highlights strong financial performance in Q1 2023, with total revenues reaching $355.2 million and income from operations at $266.8 million, up from $315.0 million and $199.8 million respectively in Q1 2022, driven primarily by acquisitions adding $25.8 million in cash rental income and a significant reversal of credit loss provisions that lowered operating expenses - Total income from real estate increased by $40.2 million YoY, benefiting from recent acquisitions ($25.8 million), lease escalations ($3.5 million), favorable variable rent resets ($1.2 million), and positive straight-line rent adjustments ($7.2 million)[183] - Total operating expenses decreased by $26.8 million YoY, mainly due to a $32.4 million positive swing in the provision for credit losses (a $5.7 million benefit in Q1 2023 vs. a $26.7 million provision in Q1 2022)[183] - Net income increased by $67.0 million for Q1 2023 compared to the prior-year period, driven by higher revenues and lower operating expenses[183] Results of Operations This section provides a detailed breakdown of the company's operational results, showing total revenues for Q1 2023 increased by 12.8% YoY to $355.2 million, while operating expenses decreased by 23.3% to $88.4 million largely due to the reversal of credit loss provisions, consequently leading to a significant rise in income from operations to $266.8 million from $199.8 million in the prior year Revenues Breakdown (in thousands) | Revenue Type | Q1 2023 | Q1 2022 | Variance | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income | $317,968 | $287,777 | $30,191 | 10.5% | | Interest income from real estate | $37,246 | $27,189 | $10,057 | 37.0% | | Total income from real estate | $355,214 | $314,966 | $40,248 | 12.8% | Operating Expenses Breakdown (in thousands) | Expense Type | Q1 2023 | Q1 2022 | Variance | % Change | | :--- | :--- | :--- | :--- | :--- | | Land rights and ground lease expense | $12,014 | $13,704 | ($1,690) | (12.3)% | | General and administrative | $16,450 | $15,732 | $718 | 4.6% | | Depreciation | $65,554 | $59,129 | $6,425 | 10.9% | | (Benefit) Provision for credit losses | ($5,653) | $26,656 | ($32,309) | (121.2)% | | Total operating expenses | $88,365 | $115,170 | ($26,805) | (23.3)% | Non-GAAP Financial Measures (in thousands) | Measure | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $188,670 | $121,692 | | Funds from operations (FFO) | $253,754 | $180,300 | | Adjusted funds from operations (AFFO) | $248,630 | $218,628 | | Adjusted EBITDA | $323,099 | $293,306 | Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and borrowings, with net cash from operations at $241.2 million in Q1 2023, while investing activities used $422.1 million mainly for the Bally's acquisition, and financing activities included drawing down a $600 million term loan, redeeming $500 million in senior notes, and paying $254.8 million in dividends, leaving $1.69 billion of available borrowing capacity under its amended credit agreement as of March 31, 2023 - Net cash from operating activities increased by $8.0 million YoY to $241.2 million in Q1 2023[213] - On January 3, 2023, the company drew down the entire $600 million Term Loan Credit Facility to partially fund the acquisition of Bally's Biloxi and Bally's Tiverton[76][220] - The company redeemed its $500 million, 5.375% Senior Notes due in 2023, funded by cash on hand and proceeds from a forward sale agreement that raised $64.6 million[236] - As of March 31, 2023, the company had $5.675 billion of outstanding senior unsecured notes and $1.69 billion of available borrowing capacity under its revolving credit facility[229][232] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate risk related to its $6.34 billion in total debt as of March 31, 2023, with a significant portion of $5.68 billion in fixed-rate senior unsecured notes mitigating some exposure, though rising interest rates could increase future financing costs and refinancing existing variable-rate debt - The primary market risk exposure is interest rate risk on its $6.34 billion of indebtedness[245] Debt Maturity Profile as of March 31, 2023 (in thousands) | Debt Type | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fixed rate | $400,000 | $850,000 | $975,000 | $0 | $3,450,000 | $5,675,000 | | Variable rate | $0 | $0 | $60,000 | $600,000 | $0 | $660,000 | ITEM 4. CONTROLS AND PROCEDURES Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures as of March 31, 2023, concluding their effectiveness, with no material changes to the company's internal control over financial reporting during the quarter - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2023[248] - No material changes in internal control over financial reporting occurred during the first quarter of 2023[249] PART II. OTHER INFORMATION 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 financial position, with the majority of these matters subject to indemnification by tenants - Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements[251] 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, 2022 - No material changes in risk factors were reported from those previously disclosed in the Annual Report[252] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not repurchase any common stock or sell any unregistered securities during the three months ended March 31, 2023 - No unregistered sales of equity securities or share repurchases occurred in Q1 2023[253] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including amended lease agreements, certifications from the CEO and CFO, and financial data formatted in Inline XBRL