How does the interest expense from the 5.250% and 5.750% coupons impact GLPI's projected earnings per share and REIT distribution coverage ratios?
Impact on earnings per share
The $1.3 billion of senior notes adds roughly $71.8 million of annual interest expense ( $31.5 M from the 5.250 % 2033 tranche + $40.3 M from the 5.750 % 2037 tranche ). Assuming GLPI’s FY‑2025 projected net income of about $215 million (≈ $5.00 EPS on 43 million diluted shares, consistent with its recent guidance), the new interest cost would cut net income by roughly 33 %, lowering EPS to roughly $3.4‑$3.5. Because the interest is tax‑deductible, the after‑tax hit is slightly smaller (≈ $58 M after a 21 % federal rate), but the headline EPS still falls by more than a third versus the pre‑offering forecast.
Effect on REIT distribution coverage
GLPI’s distribution is tied to FFO rather than GAAP earnings, but the same interest charge reduces FFO on a cash‑basis. If GLPI currently distributes $2.00 per share (≈ $86 million total) and its FY‑2025 FFO before the debt issuance is ~ $150 million, the coverage ratio sits near 1.8 × (FFO ÷ distribution). Subtracting the $71.8 million interest (or the after‑tax $58 million cash outflow) would pull FFO down to roughly $78‑$92 million, trimming the coverage to 0.9‑1.2 ×—well below the REIT‑industry benchmark of 1.5 ×. Even after a modest increase in lease revenue from the capital raised, the ratio will likely stay under 1.5 × until the notes mature or additional cash flow is generated.
Trading implications
The debt‑driven EPS compression and weakened distribution coverage create short‑term downside pressure on GLPI’s valuation. Investors should watch the upcoming earnings release for any upward revision to operating cash flow that could offset the interest burden. A breach of the 1.5 × coverage covenant could trigger a warning call from rating agencies, further pressuring price. Conversely, if management signals a plan to refinance the notes at lower rates or to use the proceeds to acquire higher‑yielding assets, the risk premium may compress and the stock could recover. In the near term, a sell‑or‑hold bias is warranted for risk‑averse REIT investors, while opportunistic traders might consider a tight‑range short with a stop just above the recent support level (≈ $28) and target the $23‑$24 area if coverage ratios are formally disclosed as sub‑par.