Gaming & Leisure Properties, Inc. Q1 FY2025 Earnings Call

Greetings, and welcome to the Gaming and Leisure Properties First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Jaffoni, of Investor Relations. Thank you, sir. You may begin.

Thank you, Christine. Good morning, everyone, and thank you for joining Gaming and Leisure Properties First Quarter 2025 Earnings Call and Webcast. The press release distributed yesterday afternoon is available in the Investor Relations section on our website at www.glpropinc.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. Forward-looking statements may include those related to revenue, operating income, and financial guidance as well as non-GAAP financial measures such as FFO and AFFO. As a reminder, forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to the risk factors and forward-looking statements contained in the company's filings with the SEC, including its 10-Q, and in the earnings release, as well as the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release. On this morning's call, we are joined by Peter Carlino, chairman and chief executive officer at Gaming and Leisure Properties, as well as Brandon Moore, president and chief operating officer, Desiree Burke, chief financial officer and treasurer, Steve Ladany, senior vice president, chief development officer, and Matthew Demchyk, senior vice president and chief investment officer. With that, it's my pleasure to turn the call over to Peter Carlino. Peter, please go ahead.

Well, thank you, Joe. And good morning, everyone, and it's always fun to introduce a good quarter. It's another good quarter for us here at GLPI. We have announced in our release an array of new projects, financing adjustments, and the like, which are well documented and will be discussed in more detail as you hear from Desiree and Matt. I won't run through them, though. There is one item that I think I will raise in advance, and that is Chicago. We've had a lot of questions. I've read a lot of reports overnight through this morning asking about Chicago, which is understandable. But that project, I think you need to know, is well underway. Jim Baum, our head of construction, is in Chicago significantly monitoring what and how that is proceeding. I'd highlight that we only got control of that ground in July, and it's a complex project requiring lots and lots of city approvals and the like. It was delayed first because the contractor managed to knock a concrete or masonry wall into the river, which caused some environmental problems and needless to say delays, understandable, but delays. And then the complexities of putting a building on a site that has probably been developed over several hundred years in underground conditions meant that the caissons that are upon which the structure is built have to be approved and were examined very, very, very carefully by the city. So there are 331 caissons required at this project. I forget, Steve, the number's 200 and how many in now? Two seventy-two, I believe. Two seventy-two. I got a new report this morning. I just forgot to write the number down. 272 of those are done. They are installed. They'll all be finished in another month and a half. Notably too, you should know that steel has been long ordered and expected to arrive sometime in July. And that was an order placed quite early. So that all looks very good. The company is committed. Remember, we're not the developer. Bally's is. But the company is committed to this project. It is very well underway. And I just want to diffuse any thought to the contrary. So, hopefully, I've done that. And with that, Desiree, would you take the floor?

Sure. Good morning. For the first quarter of 2025, our total income from real estate exceeded the first quarter of 2024 by over $19 million. This growth was driven by increases in cash rent of over $26 million resulting from acquisitions and escalation. The acquisition of Valley Chicago Land increased our cash income by $5 million. Tropicana funding increased it by $1 million. Kansas City and Shreveport increased it by $8 million. The Tioga acquisition increased it by $1.4 million. The Rockford increased it by $1.9 million. The strategic acquisition increased our cash income by $2.3 million. And lastly, the ION cash income increased by $500,000 for that funding. The recognition of escalators and percentage rent adjustments on our leases added approximately $6.7 million of cash income. The combination of non-cash revenue gross-ups and vest and lease adjustments, and straight-line adjustments partially offset these increases, driving a collective year-over-year decrease of approximately $7.6 million. On the expense side, our operating expenses increased by $18 million, but it was mainly resulting from a non-adjustment in the provision for credit losses due to a more pessimistic forward-looking economic forecast. For the company's development properties, we will continue to capitalize interest and defer all our rent during a development period for financial reporting purposes. However, we will add these back as we have been doing and deduct the capitalized interest in deriving at AFFO. Included in today's release is an updated full-year 2025 guidance ranging from $3.84 to $3.87 per diluted share in OP units. The reduction in the high end of our guidance from the prior quarter is primarily a result of the assumption that the escalation on the Pinnacle lease will not be achieved. Please note that the guidance does not include the impact of future acquisitions. However, it does include our anticipated funding of approximately $35 million for the development projects and the expectations to settle our forward sale agreements in June of 2025. Our rent coverage ratios remain strong ranging from 1.73 to 2.51 times on our master leases as of the end of the prior quarter. With that, I'll turn it over to Matthew.

Yes, indeed. Go ahead, Matt. Good morning, everyone. Thanks, Desiree. And welcome. In the first quarter, amid the market noise and macro uncertainty, we remain focused. We don't manage for the moment, we manage for the long term. And that discipline leads to consistent results. In choppy waters, our cash flows remain steady, transparent, and resilient. We respect our balance sheet as the foundation for all that we do. Our leverage is very healthy at 4.7 times annualized net debt to EBITDA, and that's before including the benefit of the forward pull-in that Desiree mentioned. Our maturities are also very well laddered and our pre-funding capital strategy is designed to reduce risk, maximize flexibility, and position us to act decisively when opportunities arise. In volatile times, that kind of readiness is an asset. The pipeline of opportunities we have built is intentional. It helps lay the groundwork for growth that reaches into 2026, 2027, and beyond. In periods like this, the value of a strong, reliable partner becomes even more evident. Our tenant partnerships rooted in a creative win-win mentality often open doors that others don't see. In a relationship-driven business, as we continue to grow our roster of tenants, our reputation continues to be one of our most valuable competitive advantages. Our strategic approach is simple, but not easy. Keep the balance sheet strong, deploy capital with discipline, and scale with purpose. Our teams, both at the core and in the specialized areas, are executing to monitor the active opportunities and also create new ones in our effort to maximize long-term intrinsic value per share. With those comments, I'll hand things back to Peter.

Alright. Thank you. And with that, Christine, would you open the floor to Q&A?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, while we poll for questions. A question. Thank you. First question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.

Hey. Good morning. I'm just curious, you know, on the expectation to build out from this point forward, is it basically just assuming that there's kinda no other complications? I guess, from this point forward.

Well, I mean, that was got the speculative. Question. Who knows? I mean, you're it's a massive project. Delays are always possible. But I can't predict what the future looks like. We're monitoring this process. As I mentioned, we have our head of construction who has built many, many projects with us through my years at Penn. And he's on-site and will remain on-site till this thing is well, well established. So could something else come up? Of course. I mean, that goes without saying. Is there any reason to expect that? Let's hope not. So but the point is things are well underway. The thing is coming out of the ground, which ought to be quite visible publicly visible, to anybody who rides by and wants to take a look. So Okay. Thank you. How's it going? So far, so good. It's the guy who falls out the top you know, window of a tall building. On the way down. You know? So far, so good. Mhmm. So Okay. I mean, look. I can't give you a better answer than that. And, Greg, that that is you know, we structured this to make sure we return pay a long way. So it's not like some of the other structures we have to wait till it opens to get our cash flow. And separately, we also capped our exposure as part of our as part of our deal structure.

Yeah. Right. Okay. But the cat And then all The cat draw for us is, is not predictable until we get there.

Okay. Yeah. No. No. That all makes sense. I can appreciate it. I was just trying to understand, you know, how much leeway was built into the assumptions. On the Penn projects, have you had any recent conversations with them, you know, Ameristar in Iowa just got approval from the state commission. There have been any recent conversations there as to whether or not, you know, they plan on taking the GLPI capital to help?

Please. Wanna take it, Steve? Sure. I think that it's a constant dialogue we have with them. I don't think we have any better clarity than we've conveyed in our documents here that we've published. I don't think our current expectation is that they withdraw funds this calendar year, but we will have to wait and see what comes of that. I can tell you that the dialogue around their reinvestment in properties is along the same lines as what you've seen in Boyd's announcements yesterday. I think the operators we talk to and deal with are starting to focus on the brick and mortar assets and we think that's a positive thing for our properties and our assets.

Yeah. Let me say this. I'm not totally sad that they haven't drawn on our cash right now. Suggest that they've gotten enough cash to do what they need to do. And, look. Penn is in the digital element aside, in a very strong position. They've got great properties. They're performing relatively well. And you know, that side of the business, the brick and mortar side, is doing extremely well. And I'm gratified, frankly, to see that they're actually highly focused now on bricks and mortar again. So good for them.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Hey. Just two quick ones for me. So I noticed the guidance, I think the assumptions for developing funding was reduced. I think it was $400 million last quarter. Now it's $375 million. Is that all related to Bally's? Just what what's the color behind that timing? And, you know, what sort of drove that know, sort of change? Thanks.

Yeah. So it's it's all timing, and it's just you know, pushing out some of the product projects due to the delays that Peter mentioned.

Yeah. Believe me. We just it's a guesstimate. As best we can make it, but you need to know. It's just a guesstimate of where things are are going.

Okay. Great. That that's helpful. I guess my my second question is just just going back to sort of the Chicago project. Maybe can you comment on just the latest update on gaming trends around the asset, nearby the assets. What you guys are seeing, what you're hearing, and if you can broaden that out to just regional gaming overall. I mean, you you mentioned Penn, but just curious about what trends you're seeing in regional gaming overall. And your views post tariff. Thanks.

Sure. Maybe starting in the Chicago land area. Look, I think that the trends have been pretty consistent, you know, so far this year with the one wrinkle being the recent opening of Wing Creek and the performance there, which I think has done what most people expected it to do, which is take some market share from other competitors. I think we're talking about Chicago, specifically. I think we did notice that the performance last month was up. Which is positive. I think there have been some changes there on the Valley side, and I think that we are looking forward to what those might bring to the property going forward. More broadly speaking, I think look, I think we what we hear and what we see from our tenants when we talk to them is very much in line with what you heard on Boyd's call yesterday. Yesterday, which is that they continue to see a resilient customer base they continue to see assets performing, and at the same time, they're very, very attentive to those trends and what is going on and their ability to pivot and, you know, take care and and manage their costs if in fact they have to do that. So I think we're we're seeing promising trends right now, and and as we all know, that's only good for as many minutes as, till the next tweet comes out.

Thanks, Steve.

Helpful. Thanks so much. That's it for me.

Our next question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question.

Yeah. Thanks. Good morning. First one is just with regards to the pipeline and your own thinking right now. Has anything changed in terms of know, what you might want in terms of a yield now versus even, like, a month or so ago? Just what your your thought process is there as you look at deals.

I'll I'll I'll go, and then anybody else wants to jump in again. Look. I think I think from my perspective, from our perspective, with respect to deals, I think, you know, obviously, we always want to get the most accretive transaction as possible. And and so when our cost of capital starts to climb, we obviously look to to keep the spread intact and and increase the cap rate at which we would transact. I I will tell you, though, anecdotally, and I think it's important, the the counterparties seem more more interested in in talking right now. So as you would imagine, as the markets gyrate and stock prices move around and and credit spreads move and the treasury moves, discussions which were maybe exploratory and soft in nature seem to be a renewed interest. That doesn't mean that transactions happen. It just means that there's a more attentive counterparty on the other end of the phone. So I I would share that with you anecdotally.

Okay. Thanks. And then just a quick follow-up on the guidance and just the assumption around the equity settlement at midyear. Is that just a placeholder Or do you, you know, do you intend to do it that way? Because it doesn't seem like you necessarily need the money. So just trying to think what

So we wanted to give everyone a placeholder for doing your modeling. Clearly, our forwards do expire by August for the majority of them anyway, so we just provided a placeholder.

Our next question comes from the line of Smedes Rose with Citi.

Hi. Thanks. I wanted to just maybe get a little more color kind of your thoughts. You mentioned your counterparty is being more attentive. Mean, do you just put do you just put that up to kind of just volatility and interest rates in the overall market, or is there anything else going on specifically? And then maybe just as the part two, you mentioned on your last quarterly call. Potentially with higher layoffs from the government, that that could encourage some states to look to issue, you know, more gaming license or to initiate gaming legislation. I'm just wondering if you're seeing anything on that. On that end of things.

Yes. I'll I'll take the first one maybe. With respect to the counterparties, look, I think I think the interest is yes. As you highlighted it, a lot of it's around what is their alternative capital sources, what could they do with capital, where do they find themselves in in the current universe. So I think folks who were maybe willing to dip their toe in and find out what they could get done and maybe were holding out for a very significant price. I think all of a sudden, they've they've seen that that the field and landscape in front of them is changing. And maybe they don't need to hold out for the last penny. So I I do think there it's just the macro climate has caused people to kind of have a renewed sense of where they sit in the grand scheme of things. With respect to other jurisdictions, I don't know if anybody else and then do wanna talk about just the regulatory climate?

Yeah. Sure. Well, I think and either we are monitoring legislation in a number of different states for different reasons. So you have bills that were proposed in states like Georgia and Alabama that would introduce gaming for the first time, I think those look unlikely in those states. But you have other states where iGaming and VLT in Illinois and other states. And and we take a very close watch on those for the impacts those could have on the bricks and mortar businesses and our tenants. I think those are all complicated endeavors, and it's different in each state. So there's a lot of different factions at play when you have those kinds of regulations that are being proposed, and you have a lot of different groups that are pushing and pulling on those. To handicap the legislation in some of these other states would be a bit speculative right now, but but I think you're seeing a very intent focus on things like iGaming and supply expansion because people are starting to realize the impacts that those things have, and it's not as simple as just build it and they will come. So I think those are pretty complex. I think you're gonna continue to see legislation on iGaming and sports betting. Sports betting is now prevalent in the majority of states. But you'll see it in states that don't have it. And I think you'll continue to see legislation this year and in future years in states that don't have gaming. Georgia, Alabama, South Carolina, North Carolina. Now some of those have tribal gaming. But the ones that don't have commercial gaming, I think you'll continue to see those coming up. Texas in somebody's near lifetime.

Thank you. Appreciate it. Our next question comes from the line of Todd Thomas with KeyBanc. Please proceed with your question.

Hi, thanks. Good morning. I just wanted to follow-up a little bit on the investment landscape and and sort of thinking about funding future investments, just given the comments that conversations are active around potential new deals. So you have you have the $400 million of unsettled equity, but you aren't active this quarter at all, and the stock is up on the year. Your absolute cost of capital seems to be holding in relatively well. And in the past, you've been fairly proactive about raising capital and pre-funding investments. I'm just curious how you're thinking about your equity capital here today.

Yeah. Our Todd, our philosophy remains the same. If you look at our business plan for this year, we've got $3.75 going out. You've got 400 plus coming in from that forward settlement, and you've also got a free cash flow, which is about $200 million per year. So if you look at it in isolation, in a cash positive position for the calendar year. Before anything new happens. And to your point, you know, we're always looking out at least twelve months and thinking about the needs beyond the end of the calendar year and also thinking about our pipeline. And, you know, you're right. We've used our ATM program as a tool historically, and we'll continue to have that. I mean, our goal is to continue to pre-fund but always to do it in a very measured and balanced way. And if you look at our balance sheet, we've got some flexibility and some capacity. So we're gonna continue doing what we did. That wouldn't take this one quarter in isolation as any read in any direction. We're we're in a very solid place.

Okay. And then if I just wanted to also, just following up on the $75 million of fundings that are in guidance. You know, I realize it's it's fluid a little bit, not entirely in your control. And I think that it was initially described as being back end loaded during the year. But just curious if there are any updated thoughts at this point around the cadence of that amount? And then any early thoughts on how we should think about fundings in '26 just given the timing of Bally Chicago was pushed out into 'twenty seven at this point and some of those amounts seem to be spread out a little bit further than we previously may have thought.

I mean, can start with 75 is still back end loaded. We had only funded about $12 million in the quarter. As far as pushing it out, as I think I said on the last call, we do fund after Valley has done the work. So therefore, we pushed ours out to 27 because, you know, the funding will lag when the work is completed and can be reviewed and signed off. So I do think that everything is consistent with what we said on our last call.

Okay. Thank you.

Our next question comes from the line of Jay Kornreich with Wedbush. Please proceed with your question.

Just going back for one follow-up to the Balaji Casino development. Are you expecting any impact just from the recent tariffs maybe increasing the cost of building items and maybe just the overall cost of the total project, does that I guess, does that lead to any changes in your funding commitments if that happens? And know, any significant impact to how you think about stabilized rent for the overall asset if it does become more expensive? Or stabilized rent coverage, I mean?

It's it's hard to know just because we're so early in the game. Many of the expensive components have already been ordered and are are in hand. We'll get a report somewhere down the road in the next weeks about where they are in purchases and so forth and what's locked in and what is not. The goal, of course, is always to lock in as many of the big contracts as you possibly can, steel, concrete, a lot of the electronics and coupling equipment and so forth. And that might a good bit of that has been ordered and is in the queue. So we need more information on our end, frankly, to kind of know just where that is, what percentage is bought out. We'll know that fairly soon. And what percentage is still out there.

And a lot of that was domestically sourced. So the tariffs would not have an impact on that. Things like steel would not have had a big any impact on that anyway. Yeah. From a rent perspective, our financing commitment, is a lock number. So you know, if you extrapolated an impact, that would just mean that we're buying less assets, but we're spending the same amount of dollars. And, therefore, your stabilized rent math will be the same thing because my rent's gonna be a function of the amount of spend I have. It would just mean that their return on capital from the Valley side of the equation would be worse if they had to actually fund more dollars into the project to get the same amount of EBITDA.

And this tariff thing, as you all know, is pretty fluid. So it's not real clear, kind of who, what, where, and when. That's the understatement of the day. So when it hits the dock. But we'll know it when we see it.

Okay. Appreciate that thought. And then just, you know, one follow-up. I guess going into the iON band investment, looks like you guys have invested $18 million out of $110 million commitment. Just curious of your thoughts on is the pace of investment going along as planned? And just any overall thoughts about you know, how that progress is going in the overall just general opportunity set of tribal land investments?

Brandon, you wanna do that? Yeah. The ION investment is going as we had expected. There's a GMP contract there. So I think if there's a question on tariffs and things like that, that's been covered. On the ION project. We were out there recently for a tribal meeting and had an opportunity to see the site. I think that project is going great. We're enthusiastic about that project. And tribal gaming in general, you know, we were out at the Indian gaming trade show and convention in San Diego a few weeks ago. We had two days of meetings with a lot of different tribes. And, I think there is a healthy level of interest from both tribes. And quite frankly, professional tribal advisers in our structure. And I'm not saying that's things that people are going or or definitively deciding they need. But I think they are recognizing that they need to consider it as part of their overall financing program when they are refinancing debt, entering into expansion programs, and doing greenfield investments. So we're out there, and we're talking to a lot of folks. I think it will take some time to get traction on additional deals and to say we will or we won't do additional deals, I don't think we're there yet. But I would say the interest level, it tribal country for our financing structure on tribal land is robust at the moment.

Okay. Appreciate the thoughts. Thank you.

As a reminder, if you would like to ask a question, press 1 on your telephone keypad. Next question comes from the line of Barry Jonas with Truist. Please proceed with your question.

Do you guys think Valley's risk profile has evolved since you started the relationship?

It's an interesting question. I'm looking for somebody who wants to jump on that one.

Yeah. Look. I think that we have, obviously, we have more exposure to them now than we had before, which is stating an obvious. They obviously were more broadly held as a public equity when we started the relationship. That's obviously changed. Casino Queen, when we started some of this, was in a significantly worse position and standard general was involved there, which they turned that around. And then now that's part of Valley. So that's another aspect that is uniquely changed here. So I think the relationship has continued to evolve. I think, you know, we continue to look at it in ways that we can be a cooperative long-term partner while supporting their business and at the same time making sure we don't take undue risk for our shareholders. And that's partly how we ended up structuring Chicago the way in which we structured it, which is direct funding hard cost as opposed to providing a loan alongside of all the rest of their capital structure. So things like that were done in a thoughtful manner. We capped the amount of exposure we had on that financing, driven by our underwriting of the asset.

Yeah. I'll also say, and I'm not discounting the Valley's parent corporation credit risk as an important and integral component of what we look at. But the underlying assets that we have in our portfolio are strong assets. They're performing very well. And you can see that in the earnings release and the table there and the coverage the four-wall coverage at those properties is very strong. So and and I will say, Valleys has in front of them some challenging yet potentially very big opportunities when you look at Chicago, Las Vegas, and other things they do. So they've proven to be a very good partner to us, but but I don't wanna underestimate the value of the assets that we have in our portfolio and the importance that we place on that.

Yeah. As you know, we opened two essentially new projects with them. At the Hollywood of Baton Rouge property, which we completely redeveloped. It's really exceeded all expectations. And the Belle Of Baton Rouge, of course, is under construction now. The hotel has opened, and the gaming facility is fourth quarter target. It's first rate. It is really, really first rate. So, they are they have single-handedly transformed that market, which is going landside and building high-quality property.

And I don't think it's unique to that market. I think you're seeing with Boyd and others, the transition from boat to landside. Is proving to be a pretty profitable move. And so and so that move off the water at the bell we'll see how much that grows the market there. But but it's proving in other situations to be a good investment.

Yeah. I think it spurred Penn to move seriously to going landside where they can. And it's it's hard to mistake the reality that, you know, going landside beats the heck out of the three-story boat.

And that concludes the Q&A session. Thank you. We have reached the end of the question and answer session. Would now like to turn the floor back over to management for closing comments.

Well, that's pretty simple. We thank all of you who have dialed in this morning. To to many of the questions asked. Stay tuned. Maybe by next quarter, we'll be able to give you some more color. And, we thank you See you next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.