Gaming and Leisure Properties Q4: Near 7% Yield And Dividend Growth Make Them A Buy

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Gaming and Leisure Properties reported Q4 and although FFO ticked up by $0.01, revenue beat by nearly $7 million.For the full-year, FFO declined roughly 4% while revenue grew by double-digits over the...

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Matthias Tunger/DigitalVision via Getty Images Introduction I've long been a fan of Gaming and Leisure Properties (NASDAQ:GLPI) and a matter of fact I owned the REIT very briefly before selling it to consolidate my portfolio. REITs are staples in my portfolio for the steady stream of income they produce, especially the higher-quality ones like GLPI. The company recently reported their Q4 earnings to close out the year and also raised the dividend by 4.1%, a testament to the solid financials & fundamentals of the company. In this article I discuss why GLPI is a REIT to bet your bottom dollar on. Previous Thesis I last covered Gaming and Leisure Properties in an article back in January titled: Overshadowed By VICI Properties But A REIT To Own In 2024. The title is pretty self-explanatory and although peer VICI Properties (VICI), who also happens to be my largest REIT holding, gets all the attention, the lesser-known GLPI should be a strong consideration for your portfolio if you want a steady stream of income. In the article I discussed the company's financials, which had been resilient throughout the first three quarters despite the challenging economic backdrop. FFO was flat at $0.92 for the entire three quarters but the REIT managed to grow their revenue nicely over the same period. I also touched on the REIT's payout ratio and how they had room for further increases which they did after reporting their latest earnings. They also made a move into Las Vegas like peer VICI with a land lease, further strengthening their portfolio with steady income, increasing this by $2.5 million. Latest Earnings Gaming and Leisure Properties reported Q4 earnings on February 27th with solid financials, once again showing resiliency during tough economic times. FFO of $0.93 ticked up slightly from $0.92 while revenue of $369 million beat by over $7 million. Again, nothing to get super excited about, but financials that are in-line or a slight beat is impressive all things considered. With high interest rates and consumer confidence dwindling, any type of beat on earnings makes me quite happy. FFO was in-line with estimates but decreased by roughly 4% from $0.97 the year prior. Despite the decline, their FFO still covered the dividend by a sizable margin. However, revenue did climb nearly double-digits from $336.4 million to $369 million over the same period to close out the year strong. And in the chart below you can see despite FFO & AFFO being relatively flat for the year, revenue continue trending upward. Author creation GLPI's strong revenue growth could be attributed to the addition of Bally's Biloxi and Tiverton which drove an increase of cash rental income by $12.1 million, and the Rockford acquisition which increased this by another $3 million. The Marquette and Baton Rouge landside development increased it by $2.3 million along with rent escalators & adjustments also played a part as well. FFO for the full-year was $3.73, while AFFO was $3.69. These were up 9.7% and roughly 4% year-over-year, again showing the REIT's resiliency in lieu of tighter consumer spending and suppressed investment spreads. The AFFO total came in right at the guidance range of $3.68 - $3.69 that management set during the previous quarter. And for 2024 they were a bit conservative setting the lower end at a penny higher at $3.70 - $3.74. Although this may be disappointing for GLPI investors, with uncertainty remaining ahead, this was smart for management to set expectations and they will likely move the goal post as visibility concerning the environment becomes clearer in the coming months. Dividend Coverage Remains Strong With the recent dividend increase, GLPI's payout ratio did tick up above 80% from 79% at the end of Q3. Although this is slightly above the range management likes to stay around or about, even with the increase this puts their payout ratio at a safe range of 82%, still under the 90% REITs typically pay out. I do, however, like to see under 80% but a higher payout doesn't usually concern me unless its above 85%, where I start keeping a closer eye. Using the midpoint of $3.72, GLPI's payout ratio remains above 80% but as previously mentioned this is nothing for investors to be concerned about. If interest rates fall as expected this year, this could decrease, especially if AFFO exceeds management's current guidance range which the chances are likely if GLPI continues to make accretive acquisitions like they have been. Author creation GLPI's current payout ratio is higher than direct peer VICI's 76%, but I expect this will decline as the REIT continues to grow its portfolio with additional acquisitions accretive to its AFFO. In comparison, GLPI is much smaller which should make it easier to grow going forward. Management addressed the payout ratio during earnings stating: We are not changing our target, around 80%, we've always been around 80% of the payout ratio. Obviously, it does change based on what our taxable income is at any point in time. And we are reflecting a payout ratio to meet our taxable income distribution requirements. Its peer VICI Properties has grown at an exponential rate which has some investors worried about their growth going forward with a current market cap over $30 billion compared to GLPI's current market cap slightly over $12 billion. So, the latter has plenty of room to continue growing with only 62 properties in 19 states. And as Las Vegas continues to expand, I suspect GLPI will look to make new deals to capture some of this growth. Healthy Balance Sheet One way to do this is by keeping their leverage at healthy levels which the company has been doing despite the recent acquisitions. The REIT ended the year with a net leverage level under 5x, under management's current target range of 5x - 5.5x. This along with their liquidity of $684 million in cash allows GLPI to be opportunistic in use if debt and equity for new deals/acquisitions. And although they will have to refinance some debt this year at higher rates, their debt maturities remain well-laddered with only $400 million due this year, which the company has more than the amount in current cash on hand and $1.7 billion on the revolving credit facility. This has a weighted-average interest rate of 3.3%. But as you can see in the chart below, the higher for longer interest rate environment doesn't pose a huge threat as the REIT's maturities are more than manageable. GLPI 8-K Potential Upside With a current yield nearing 7% and a P/AFFO ratio below their 5-year average, GLPI presents a great buying opportunity for income investors looking for a nice yield above treasuries plus upside potential. Their P/AFFO ratio of 12.2x at the time of writing currently sits below the sector median of 13.63x and VICI's 13.86x. For those not very familiar with Gaming and Leisure Properties, the REIT was trading near $55 roughly a year ago, and when interest rates fall, I think the chance of it trading near that price range again is highly likely given its quality. Furthermore, they currently sport buy ratings from SA analysts & Wall Street, and warrant a strong buy from Quant, further signaling this is a high-quality stock on sale. And with a price target of $53.51, this gives investors a well-covered dividend and the potential for double-digit upside from the current price of $45.   Seeking Alpha After rates decline, I do see them commanding a 15x - 16x P/AFFO ratio. This implies a fair value of roughly $55 a share, where the stock was trading before the start of rate hikes. And when rates decline, I wouldn't be surprised to see GLPI near here or even surpassing, moving closer to their high price target of $61. That's roughly 35% upside from the current price. Plus, collecting the $0.76 dividend doesn't hurt while you wait for the share price to recover. Risks To Thesis Due to their business structure investing into casinos, I think GLPI's risks are limited because of the high barriers to entry and tenants willing to continue paying rent in lieu of economic downturns. However, one risk the company faces is the seemingly sticky inflation. Because of this, the FED will be less likely to cut interest rates as expected. Some analysts are even saying a raise could be an option at the next meeting. If so, this will put further stress on cap rates making it harder for REITs to make attractive acquisitions at spreads that are advantageous to the company. Higher rates also mean maturing debt will likely be refinanced at higher rates, and this will take capital away from reinvesting back into the business to continue sustaining growth. While this remains to be seen, this is something investors should be aware of when looking to invest in REITs. Investor Takeaway Gaming and Leisure Properties is a high-quality REIT that although is lesser known than peer VICI Properties, offers a compelling, well-covered dividend and the potential for strong upside once interest rates decline. Furthermore, they continue to make accretive acquisitions and have plenty of room to continue growing their portfolio considering their smaller size in comparison to VICI.  Their financial position along with their low-leveraged balance sheet gives the REIT flexibility to continue navigating the high interest rate environment if it does remain higher for longer. Because of their near 7% dividend yield that is well-covered and solid fundamentals, I continue to rate GLPI a buy.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2417038254"}