Debt issued by casino landlord Gaming and Leisure Properties (NASDAQ: GLPI) looks appealing despite a recent spate of new issuance.
In a new note to clients, GimmeCredit analyst Kim Noland acknowledged that it’s been a brisk summer for the real estate investment trust (REIT) as it’s engaged in a variety of transactions that support long-term growth, but also resulted in the need to issue some new bonds. Some of those proceeds will be directed to paying for maturing debt that comes due next month.
In addition to agreeing to finance $110 million for the Belle of Baton Rouge to come ashore, GLPI announced in July that it’s providing Bally’s (NYSE: BALY) with $2.07 billion in financing that, among other objectives, will help the regional casino operator complete its permanent gaming venue in Chicago.
The provision of construction financing to tenants has become an important part of GLPI’s growth initiatives. In addition to the July deal, it already agreed to provide Bally’s with construction financing for a sports stadium that complements Bally’s gaming resort in Las Vegas. While construction financing is somewhat riskier than the more usual propco/opco transactions of existing properties, the higher interest income is helping to expand GLPI’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Bally’s and Penn Entertainment (NASDAQ: PENN) are GLPI’s two largest tenants, though the REIT counts other casino operators among its clients.
In addition to the Chicago financing, GLPI said it’s acquiring the real estate of Bally’s Kansas City and Bally’s Shreveport for a total of $395 million. The combined annual rent on those properties will be $32.2 million, representing an 8.2% initial cash capitalization rate.
That brings more rental income in for the landlord, and those contracts typically come with escalators that gradually increase rent over time, meaning more cash flow to support GLPI’s debt servicing efforts. Additionally, the REIT gained rights to purchase the real estate of Bally’s Twin River casino in Lincoln, RI before the end of 2026 for $735 million. That’s a reduction from the previously discussed purchase price of $771 million and assuming that deal is executed, the REIT would bring in another $58.8 million in annual rent.
Financing to clients to enhance venues already owned by REITs is a new growth avenue for GLPI and rivals because, as Noland pointed out, that’s not the typical operating methodology in triple-net leases.
Second quarter financial results included consolidated total revenue of $381 million, a 7% increase from the prior year. Adjusted EBITDA was $340 million, a 4.6% rise from $325 million in the previous year period. While annual interest expense has increased to near $350 million on a pro forma basis, capex is modest since the leases require the tenants to maintain the properties.
REITs, including casino owners such as GLPI, are sensitive to changes in interest rates. That explains the group’s laggard performance over the past couple of years and why some investors believe real estate equities could rally should the Federal Reserve lower borrowing costs in September.
In rating GLPI debt maturing in 2027 and 2030 “outperform,” GimmeCredit’s Noland highlighted the REIT’s cash flow and strong competitive advantages. The gaming REIT has good cash flow visibility; its business model benefits from high barriers to entry due to limited supply and a significant regulatory environment for gaming operator tenants. While GLPI’s rental income is still weighted toward PENN, newer tenants such as leading gaming companies Caesars, Boyd Gaming, and Bally reduce the risk of individual tenant underperformance.
 strengthens its position with strategic financing and new bonds, driving long-term growth and strong cash flow.){kind=link}