Tribal Gaming Investments Will Create New Revenue Opportunities

Key Takeaways

• Strategic acquisitions and property investments are boosting income and revenue growth, with future cash income expected from ongoing development projects.
  
• Liquidity from bond issuances supports funding and development, while innovative tribal gaming investments present new scalable revenue opportunities.
  
• Shift towards development-focused investments and innovative financing introduces risks of cost overruns, delays, and execution uncertainty, impacting margins and revenue stability.

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.

• Gaming and Leisure Properties expects significant growth from nearly $2 billion in investment activity at an attractive blended yield of 8.4% in 2024, which should positively impact future revenue and earnings.
  
• Strategic acquisitions, including the Tioga and Rockford acquisitions, have increased income, and continued investments in properties such as Bally's Chicago are expected to contribute to future cash income, impacting revenue growth.
  
• The company's successful completion of a 30-year bond issuance and entry into forward sale agreements provide ample cash liquidity, which is likely to support future project funding and development, potentially impacting net margins.
  
• The innovative tribal gaming investments, starting with the Ione loan, provide a new revenue stream and a unique market opportunity for GLPI, which could enhance both revenue and margins if scalable.
  
• Anticipated contingent escalation on the PENN Master Lease is expected to increase rent revenues by approximately $4.2 million, which would positively impact earnings.

Gaming and Leisure Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gaming and Leisure Properties's revenue will grow by 10.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 51.5% today to 47.3% in 3 years time.
• Analysts expect earnings to reach $952.6 million (and earnings per share of $3.15) by about January 2028, up from $778.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.4x on those 2028 earnings, up from 16.6x today. This future PE is lower than the current PE for the US Specialized REITs industry at 24.4x.
• Analysts expect the number of shares outstanding to grow by 2.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.64%, as per the Simply Wall St company report.

Gaming and Leisure Properties Future Earnings Per Share Growth

Risks

• The reliance on forward-looking statements and assumptions introduces risks associated with uncertainties that may cause actual results to differ, potentially impacting future revenues and earnings.
  
• The move towards development-focused investments rather than cash-flowing assets, such as the Bally's Chicago project, could introduce risks related to construction delays and cost overruns, affecting net margins.
  
• The increased operating expenses due to non-cash provisions for credit losses and lease reclassifications highlight potential risks to profitability and earnings stability.
  
• The use of innovative financing structures for tribal gaming transactions, while promising, carries uncertainties about their acceptance and execution risk, which could impact future revenue streams.
  
• The company’s overall risk profile may be influenced by rising interest rates and the resulting cost of capital increases, potentially affecting future net earnings and investment returns.

Valuation

• The analysts have a consensus price target of $55.67 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 $2.0 billion, earnings will come to $952.6 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 6.6%.
• Given the current share price of $47.1, the analyst's price target of $55.67 is 15.4% higher.
• 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.