Why GLPI Stock Has Large Upside Potential
The house always wins, which is key to gaming stocks like Gaming and Leisure Properties Inc (NASDAQ:GLPI).
Interest rates may be at decade highs, and fears of a recession may still linger, but that hasn’t seemed to make a difference for fun-loving Americans and tourists trying their luck at the country’s casinos.
In 2023, America’s commercial casinos pulled in $66.5 billion from gamblers who didn’t have lady luck on their side. That record high was up by 10% from 2022. (Source: “U.S. Casinos Won $66.5B in 2023, Their Best Year Ever as Gamblers Showed No Economic Fear,” Associated Press, February 20, 2024.)
To put that into perspective, $66.5 billion is more than the annual gross domestic products (GDPs) of countries like El Salvador, Honduras, Libya, Myanmar, Serbia, Slovenia, Sudan, and Tunisia. (Source: “GDP by Country,” Worldometer, last accessed April 23, 2024.)
Online gaming might have its fans, but in-person gaming is the bread and butter of casinos. Slot machines continue to be the most popular attractions at U.S. commercial casinos, ringing in $35.51 billion in 2023, up by 3.8% from 2022. Table games generated $10.31 billion in winnings for the casinos in 2023, up by 3.5% from 2022.
Through the first two months of 2024, U.S. commercial gaming revenues were $11.46 billion, up by 6.8% from the record-high pace in 2023. (Source: “AGA Commercial Gaming Revenue Tracker,” American Gaming Association, April 11, 2024.)
About Gaming and Leisure Properties Inc
That’s good news for Gaming and Leisure Properties, the first U.S. gaming-focused real estate investment trust (REIT).
At the end of February, the company’s property portfolio consisted of 62 gaming facilities and 14,900 hotel rooms across 19 states. It owned or leased 6,400 acres, and its properties covered 29.0 million square feet (approximately equal to 503.5 NFL fields). (Source: “Investor Presentation: March 2024,” Gaming and Leisure Properties Inc, last accessed April 23, 2024.)
While the gaming industry took a massive hit during the 2020 COVID-19 crisis, Gaming and Leisure Properties collected 100% of its rent.
Part of that has to do with who its tenants are. About 88% of Gaming and Leisure Properties’ rent comes from premier, publicly traded gaming companies, including Bally’s Corp (NYSE:BALY), Boyd Gaming Corporation (NYSE:BYD), Caesars Entertainment Inc (NASDAQ:CZR), and Penn Entertainment Inc (NASDAQ:PENN).
The company’s portfolio continues to grow, too.
For instance, in February, it announced that it had acquired the real estate assets of Tioga Downs Casino Resort in Nichols, New York from American Racing & Entertainment, LLC for $175.0 million. (Source: “Gaming and Leisure Properties Acquires Real Estate Assets of Tioga Downs Casino Resort for $175 Million,” Gaming and Leisure Properties Inc, February 6, 2024.)
Concurrent with the acquisition, Gaming and Leisure Properties and American Racing & Entertainment entered a triple-net master lease agreement for an initial 30-year term. The initial annual rent is $14.5 million, which represents an 8.3% capitalization rate.
The rent tied to the lease is subject to a fixed 1.75% annual escalation beginning on the first anniversary of the agreement, as well as a fixed annual escalation of 2.0% beginning in year 15 of the lease and carrying forward through the balance of the lease’s term.
The Tioga Downs Casino Resort property, which roughly spans 162 acres, features a 32,600-square-foot gaming floor, a 2,500-square-foot “FanDuel” sports book, a 160-room hotel, a 5/8-mile harness horse track, seven food and beverage locations, and a separate 18-hole championship golf course.
Management Reported Record-Best Q4 Results
Gaming and Leisure Properties closed out 2023 with four consecutive quarters of record-best results.
For the fourth quarter, the company announced that its revenues increased to a record-high $369.0 million. Its income from operations climbed in the quarter by 7.1% year-over-year to $295.3 million. (Source: “Gaming and Leisure Properties, Inc. Reports Record Fourth Quarter Results, Establishes 2024 Guidance and Announces 2024 First Quarter Dividend of $0.76 Per Share,” Gaming and Leisure Properties Inc, February 27, 2024.)
The REIT’s fourth-quarter net income rallied by 8.9% year-over-year to $217.3 million, or $0.78 per diluted share. Its funds from operations (FFO) advanced nine percent year-over-year to $282.2 million, or $1.02 per diluted share, while its adjusted FFO (AFFO) rallied by 7.3% to $256.6 million, or $0.93 per diluted share.
The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to $331.4 million.
Gaming and Leisure Properties Inc’s full-year 2023 revenues climbed by 9.8% year-over-year to a record-high $1.44 billion. Its full-year income from operations inched up by 3.8% to $1.07 billion. Its full-year net income climbed to $755.4 million, or $2.77 per diluted share.
The company’s full-year FFO grew by 14.5% to $1.02 billion, or $3.73 per diluted share, while its full-year AFFO advanced to $1.0 billion, or $3.69 per diluted share. Its adjusted EBITDA climbed in 2023 to $1.31 billion.
Peter Carlino, Gaming and Leisure Properties Inc’s chairman and CEO, commented, “We generated record fourth quarter and full year 2023 results while again increasing our cash dividend as we delivered growth across all key financial metrics for both the quarter and full year.” (Source: Ibid.)
He continued, “Our record fourth quarter and full year financial results reflect GLPI’s stable base of leading regional gaming operator tenants and recent acquisitions, which we expect will continue to benefit comparisons in 2024 and beyond.”
For 2024, Gaming and Leisure Properties expects to report AFFO in the range of $1.04 billion to $1.05 billion, or $3.70 to $3.74 per diluted share.
Quarterly Distribution Increased to $0.76 Per Share
Thanks to its high AFFO, Gaming and Leisure Properties is able to provide investors with reliable, high-yield dividends.
In December 2023, it paid a dividend of $0.73 per share. Then, in March 2024, it increased its dividend to $0.76 per share. (Source: “Dividend History,” Gaming and Leisure Properties Inc, last accessed April 23, 2024.)
As of this writing, that works out to a yield of 6.84%.
Gaming and Leisure Properties Stock Has 40%+ Upside
Despite Gaming and Leisure Properties Inc reporting a string of record-best quarterly results, GLPI stock hasn’t rallied the way you might think it would.
In 2023, Gaming and Leisure Properties stock advanced less than one percent. In 2024, it’s actually down by about 10% year-to-date (as of this writing). It last hit a record high in April 2023 ($49.31).
This may have more to do with high interest rates, which makes borrowing capital more expensive and cuts into profits. After all, REITs have to borrow a lot of money to expand their operations. Once interest rates start going down, sentiment toward REITs could change pretty quickly.
Despite GLPI stock’s lethargic moves, its outlook is bullish—at least it is for conservative Wall Street analysts. They have a 12-month share-price target in the range of $52.00 to $63.00. This points to potential gains of 19% to 44% from shares of Gaming and Leisure Properties Inc.
Even hitting the median target of $52.00 would put Gaming and Leisure Properties stock in record-high territory.
Chart courtesy of StockCharts.com
The Lowdown on Gaming and Leisure Properties Inc
Gaming and Leisure Properties is an outstanding specialty REIT with a growing, diverse portfolio of gaming properties across the U.S.
With its focused operating strategy, the company has expanded its tenant roster from just one tenant 10 years ago to eight premier tenants across 62 properties in 19 states.
Gaming and Leisure Properties Inc reported record fourth-quarter and full-year results and entered 2024 with historically low leverage and significant capital available to expand its operations. This has led management to say it’s “optimistic about a range of growth opportunities that we will pursue in 2024.”
That might not bode well for gamblers, but it certainly bodes well for GLPI stock’s price and high-yield, inflation-crushing dividends.