Co-Investments And New Opportunities Will Shape The Future Of Gaming Real Estate

Key Takeaways

• Strong co-investment and development projects bolster revenue and future cash flow, enhancing earnings through impactful rent increases.
  
• Strategic financial flexibility and tenant relationships drive growth opportunities and revenue in gaming real estate, contributing to long-term stability.
  
• Uncertain project funding, variable rate debt, and tenant financial health pose risks to revenue and earnings growth, while expansion and M&A depend on favorable conditions.

Catalysts

GLPI is engaged in the business of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements, pursuant to which the tenant is responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

• The company's pipeline for co-investment projects, particularly with Cordish and gaming real estate transactions, is robust, which can lead to increased revenue and long-term cash flow.
  
• Development projects like Bally's Chicago are expected to significantly contribute to income once completed, impacting future earnings through increased rent.
  
• Gaming and Leisure Properties' conservative and flexible financial approach allows them to capitalize on market opportunities, supporting long-term earnings growth and intrinsic value per share.
  
• Tenant relationships help GLPI uncover and secure new opportunities in gaming real estate, leading to potential increases in revenue and earnings.
  
• Potential future deals in tribal gaming could unlock a new avenue for growth, contributing to increased revenue and long-term financial stability.

Gaming and Leisure Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gaming and Leisure Properties's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 51.2% today to 50.9% in 3 years time.
• Analysts expect earnings to reach $919.3 million (and earnings per share of $3.23) by about March 2028, up from $784.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $707.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.7x on those 2028 earnings, up from 17.7x today. This future PE is lower than the current PE for the US Specialized REITs industry at 27.9x.
• Analysts expect the number of shares outstanding to grow by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Gaming and Leisure Properties Future Earnings Per Share Growth

Risks

• The company faces uncertainty in project funding timelines which can impact revenue projections as cash flow depends on the timing of deployment. This uncertainty could affect future earnings.
  
• There is reliance on variable rate debt, which could lead to increased interest expenses if rates rise further, impacting net margins and earnings in a higher for longer interest rate environment.
  
• Gaming and Leisure Properties' future developments are tied closely to tenants' financial health and decisions, which could limit growth if tenants face financial difficulties, affecting long-term revenue.
  
• The strategic expansion into tribal gaming and development funding presents execution risk. If these ventures do not deliver expected returns, they could impact projected earnings growth and cash flow.
  
• The dependence on favorable market conditions for large M&A transactions poses a risk. Fluctuations in interest rates or economic instability could lead to a slower acquisition pace, affecting growth in rental revenue.

Valuation

• The analysts have a consensus price target of $55.413 for Gaming and Leisure Properties based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $61.0, and the most bearish reporting a price target of just $48.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $919.3 million, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 7.1%.
• Given the current share price of $50.57, the analyst price target of $55.41 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.