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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number:  001-36124 
Gaming & Leisure Properties, Inc.
(Exact name of registrant as specified in its charter) 
Pennsylvania
 
46-2116489
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
845 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip Code)
 
610-401-2900
(Registrant’s telephone number, including area code)
 Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
GLPI
 
Nasdaq
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act: 
Large accelerated filer
Accelerated filer 
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title
 
August 7, 2019
Common Stock, par value $.01 per share
 
214,682,856



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Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, goals and objectives.
 
Forward-looking statements in this document include, but are not limited to, statements regarding our ability to grow our portfolio of gaming facilities and to secure additional avenues of growth beyond the gaming industry. In addition, statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

the availability of and the ability to identify suitable and attractive acquisition and development opportunities and the ability to acquire and lease the respective properties on favorable terms;

the degree and nature of our competition;

the ability to receive, or delays in obtaining, the regulatory approvals required to own and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects;

our ability to maintain our status as a real estate investment trust ("REIT"), given the highly technical and complex Internal Revenue Code (the "Code") provisions for which only limited judicial and administrative authorities exist, where even a technical or inadvertent violation could jeopardize REIT qualification and where requirements may depend in part on the actions of third parties over which the Company has no control or only limited influence;

the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis in order for the Company to maintain its REIT status;

the ability and willingness of our tenants, operators and other third parties to meet and/or perform their obligations under their respective contractual arrangements with us, including lease and note requirements and in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;

the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation to satisfy obligations under their existing credit facilities and other indebtedness;

the ability of our tenants and operators to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract customers;

the satisfaction of the mortgage loan made to Eldorado Resorts, Inc. ("Eldorado") by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company;

the ability to generate sufficient cash flows to service our outstanding indebtedness;

the access to debt and equity capital markets, including for acquisitions or refinancings due to maturities;

adverse changes in our credit rating;

fluctuating interest rates;

the impact of global or regional economic conditions;

the availability of qualified personnel and our ability to retain our key management personnel;

GLPI's obligation to indemnify Penn National Gaming, Inc. and its subsidiaries in certain circumstances if the spin-off transaction described in Note 1 to the condensed consolidated financial statements fails to be tax-free;

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changes in the United States tax law and other state, federal or local laws, whether or not specific to real estate, real estate investment trusts or to the gaming, lodging or hospitality industries;

changes in accounting standards;

the impact of weather events or conditions, natural disasters, acts of terrorism and other international hostilities, war or political instability;

other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and

additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, in this Quarterly Report on Form 10-Q and Current Reports on Form 8-K as filed with the United States Securities and Exchange Commission.
 
Certain of these factors and other factors, risks and uncertainties are discussed in the "Risk Factors" section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and this Quarterly Report on Form 10-Q. Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond the control of the Company.
 
You should consider the areas of risk described above, as well as those set forth in the "Risk Factors" section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and this Quarterly Report on Form 10-Q, in connection with considering any forward-looking statements that may be made by the Company generally. Except for the ongoing obligations of the Company to disclose material information under the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.


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GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
 
 
June 30,
2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
7,210,028

 
$
7,331,460

Property and equipment, used in operations, net
97,219

 
100,884

Mortgage loans receivable
303,684

 
303,684

Right-of-use assets and land rights, net
862,927

 
673,207

Cash and cash equivalents
24,739

 
25,783

Prepaid expenses
2,943

 
30,967

Goodwill
16,067

 
16,067

Other intangible assets
9,577

 
9,577

Loan receivable

 
13,000

Deferred tax assets
5,721

 
5,178

Other assets
30,959

 
67,486

Total assets
$
8,563,864

 
$
8,577,293

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
171

 
$
2,511

Accrued expenses
6,778

 
30,297

Accrued interest
53,340

 
45,261

Accrued salaries and wages
8,120

 
17,010

Gaming, property, and other taxes
966

 
42,879

Lease liabilities
202,098

 

Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
5,796,990

 
5,853,497

Deferred rental revenue
311,198

 
293,911

Deferred tax liabilities
233

 
261

Other liabilities
25,283

 
26,059

Total liabilities
6,405,177

 
6,311,686

 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2019 and December 31, 2018)

 

Common stock ($.01 par value, 500,000,000 shares authorized, 214,673,135 and 214,211,932 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)
2,147

 
2,142

Additional paid-in capital
3,951,949

 
3,952,503

Accumulated deficit
(1,795,409
)
 
(1,689,038
)
Total shareholders’ equity
2,158,687

 
2,265,607

Total liabilities and shareholders’ equity
$
8,563,864

 
$
8,577,293

 
See accompanying notes to the condensed consolidated financial statements.

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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Rental income
$
248,563

 
$
169,865

 
$
496,241

 
$
339,270

Income from direct financing lease

 
26,984

 

 
45,605

Interest income from mortgaged real estate
7,201

 

 
14,394

 

Real estate taxes paid by tenants

 
21,483

 

 
42,761

Total income from real estate
255,764

 
218,332

 
510,635

 
427,636

Gaming, food, beverage and other
33,249

 
35,889

 
66,242

 
70,635

Total revenues
289,013

 
254,221

 
576,877

 
498,271

 
 
 
 
 
 
 
 
Operating expenses
 

 
 

 
 

 
 

Gaming, food, beverage and other
19,168

 
20,407

 
38,190

 
40,065

Real estate taxes

 
21,800

 

 
43,395

Land rights and ground lease expense
15,229

 
6,444

 
24,478

 
12,976

General and administrative
15,984

 
24,806

 
33,224

 
41,266

Depreciation
67,865

 
27,523

 
126,443

 
55,477

Loan impairment charges

 

 
13,000

 

Total operating expenses
118,246

 
100,980

 
235,335

 
193,179

Income from operations
170,767

 
153,241

 
341,542

 
305,092

 
 
 
 
 
 
 
 
Other income (expenses)
 

 
 

 
 

 
 

Interest expense
(76,523
)
 
(57,055
)
 
(153,251
)
 
(111,123
)
Interest income
248

 
891

 
337

 
1,372

  Losses on debt extinguishment

 
(3,473
)
 

 
(3,473
)
Total other expenses
(76,275
)
 
(59,637
)
 
(152,914
)
 
(113,224
)
 
 
 
 
 
 
 
 
Income before income taxes
94,492

 
93,604

 
188,628

 
191,868

Income tax expense
1,459

 
1,606

 
2,585

 
3,098

Net income
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic earnings per common share
$
0.43

 
$
0.43

 
$
0.87

 
$
0.88

Diluted earnings per common share
$
0.43

 
$
0.43

 
$
0.86

 
$
0.88

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2018
214,211,932

 
$
2,142

 
$
3,952,503

 
$
(1,689,038
)
 
$
2,265,607

Stock option activity
26,799

 

 
592

 

 
592

Restricted stock activity
406,769

 
4

 
(5,327
)
 

 
(5,323
)
Dividends paid ($0.68 per common share)

 

 

 
(146,202
)
 
(146,202
)
Net income

 

 

 
93,010

 
93,010

Balance, March 31, 2019
214,645,500

 
$
2,146

 
$
3,947,768

 
$
(1,742,230
)
 
$
2,207,684

Restricted stock activity
27,635

 
1

 
4,181

 

 
4,182

Dividends paid ($0.68 per common share)

 

 

 
(146,212
)
 
(146,212
)
Net income

 

 

 
93,033

 
93,033

Balance, June 30, 2019
214,673,135

 
$
2,147

 
$
3,951,949

 
$
(1,795,409
)
 
$
2,158,687

 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2017
212,717,549

 
$
2,127

 
$
3,933,829

 
$
(1,477,709
)
 
$
2,458,247

Stock option activity
297,605

 
3

 
5,241

 

 
5,244

Restricted stock activity
483,095

 
5

 
(8,293
)
 

 
(8,288
)
Dividends paid ($0.63 per common share)

 

 

 
(134,717
)
 
(134,717
)
Adoption of new revenue standard

 

 

 
(410
)
 
(410
)
Net income

 

 

 
96,772

 
96,772

Balance, March 31, 2018
213,498,249

 
$
2,135

 
$
3,930,777

 
$
(1,516,064
)
 
$
2,416,848

Stock option activity
236,240

 
2

 
4,125

 

 
4,127

Restricted stock activity
3,450

 

 
615

 

 
615

Dividends paid ($0.63 per common share)

 

 

 
(134,820
)
 
(134,820
)
Net income

 

 

 
91,998

 
91,998

Balance, June 30, 2018
213,737,939

 
$
2,137

 
$
3,935,517

 
$
(1,558,886
)
 
$
2,378,768


See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended June 30,
 
2019
 
2018
 
 
 
 
 
Operating activities
 
 

 
 

Net income
 
$
186,043

 
$
188,770

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
138,939

 
60,932

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
5,790

 
6,296

Losses on dispositions of property
 
13

 
225

Deferred income taxes
 
(466
)
 
(117
)
Stock-based compensation
 
8,508

 
4,603

Straight-line rent adjustments
 
17,287

 
33,233

Losses on debt extinguishment
 

 
3,473

Loan impairment charges
 
13,000

 

 
 
 
 
 
(Increase), decrease
 
 

 
 

Prepaid expenses and other assets
 
(2,312
)
 
(1,123
)
Increase, (decrease)
 
 

 
 

Accounts payable
 
(2,340
)
 
(254
)
Accrued expenses
 
1,305

 
157

Accrued interest
 
8,079

 
2,367

Accrued salaries and wages
 
(8,890
)
 
6,607

Gaming, property and other taxes
 
(98
)
 
(119
)
Other liabilities
 
(777
)
 
572

Net cash provided by operating activities
 
364,081

 
305,622

Investing activities
 
 

 
 

Capital project expenditures
 

 
(14
)
Capital maintenance expenditures
 
(1,547
)
 
(1,984
)
Proceeds from sale of property and equipment
 
190

 
227

Collections of principal payments on investment in direct financing lease
 

 
29,239

Net cash (used in) provided by investing activities
 
(1,357
)
 
27,468

Financing activities
 
 

 
 

Dividends paid
 
(292,414
)
 
(269,537
)
Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options
 
(9,057
)
 
(2,905
)
Proceeds from issuance of long-term debt
 
155,000

 
1,000,000

Financing costs
 
(236
)
 
(19,745
)
Repayments of long-term debt
 
(217,061
)
 
(923,601
)
Premium and related costs paid on tender of senior unsecured notes
 

 
(1,884
)
Net cash used in financing activities
 
(363,768
)
 
(217,672
)
Net (decrease) increase in cash and cash equivalents
 
(1,044
)
 
115,418

Cash and cash equivalents at beginning of period
 
25,783

 
29,054

Cash and cash equivalents at end of period
 
$
24,739

 
$
144,472

 
See Note 16 to the condensed consolidated financial statements for supplemental cash flow information and noncash investing and financing activities.

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Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
 
1.              Business and Operations
 
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville, which are referred to as the "TRS Properties," and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT.

As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease, a triple-net operating lease with an initial term of 15 years (expiring October 31, 2028) with no purchase option, followed by four 5-year renewal options (exercisable by Penn) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc. In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease with an initial term of 10 years (expiring April 30, 2026) with no purchase option, followed by five 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by five 5-year renewal options (exercisable by Boyd) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million.

In addition to the acquisition of Plainridge Park described above, on October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. (“Tropicana”) and certain of its affiliates pursuant to a Purchase and Sale Agreement (the “Real Estate Purchase Agreement”) dated April 15, 2018 between Tropicana and GLP Capital L.P., the operating partnership of  GLPI (“GLP Capital”), which was subsequently amended on October 1, 2018 (as amended, the “Amended Real Estate Purchase Agreement”). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the “GLP Assets”) from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. ("Eldorado") acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Eldorado and a wholly-owned subsidiary of Eldorado (the "Tropicana Merger Agreement") and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option followed by four successive 5-year renewal periods (exercisable by Eldorado) on the same terms and conditions (the “Eldorado Master Lease”). Additionally, on October 1, 2018 the Company made a mortgage loan to Eldorado in the amount of $246.0 million in connection with Eldorado’s acquisition of Lumière Place Casino and Hotel ("Lumière Place") (and together with the Tropicana Acquisition the "Tropicana Transactions").


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GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of June 30, 2019, GLPI’s portfolio consisted of interests in 46 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 6 gaming and related facilities operated by Eldorado (including one mortgaged facility), the real property associated with 4 gaming and related facilities operated by Boyd (including one mortgaged facility) and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 16 states and were 100% occupied at June 30, 2019. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.

2.              Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.

In conjunction with the adoption of ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), on January 1, 2019, the Company recorded right-of-use assets on the condensed consolidated balance sheet to represent the Company's rights to use the underlying leased assets for the term of the lease. As this asset related, in part, to the same leases which resulted in the below market lease asset the Company described as land rights, net on the December 31, 2018 condensed consolidated balance sheet, this line item has been re-named to right-of-use assets and land rights, net as the assets are required to be reported in the aggregate subsequent to the adoption of ASU 2016-02. Furthermore, under ASU 2016-02, the Company is no longer required to gross-up its financial statements for the real estate taxes paid directly by its tenants to third-parties.

The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.

Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2018 financial information has been derived from the Company’s audited consolidated financial statements.

3.    New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02. This ASU primarily provides new guidance for lessees on the accounting treatment of operating leases. Under the new guidance, lessees are required to recognize assets and liabilities arising from operating leases on the balance sheet. ASU 2016-02 also aligns lessor accounting with the revenue recognition guidance in Topic 606 of the Accounting Standards Codification. Generally speaking, ASU 2016-02 more significantly impacted the accounting for leases in which GLPI is the lessee by requiring the Company to record a right-of-use asset and lease liability on its condensed consolidated balance sheet for these leases. The Company's accounting treatment of its triple-net tenant leases, which are the primary source of revenues to the Company, were not significantly impacted by the adoption of ASU 2016-02, other than to eliminate the real estate tax gross-up discussed below.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") which permits companies to apply the transition provisions of ASU 2016-02 at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors ("ASU 2018-20"). ASU 2018-20 clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02, the Company no longer grosses-up its financial statements for real estate taxes paid directly to third-parties by its tenants. The Company notes, however, that ground leases for which the tenant pays the landlord directly on the

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Company's behalf are still required to be grossed-up within its condensed consolidated financial statements upon the adoption of ASU 2016-02, as these are not considered lessor costs. On January 1, 2019, the Company adopted ASU 2016-02 using the new transition option available under ASU 2018-11 and recorded right-of-use assets and related lease liabilities of $203 million on its condensed consolidated balance sheet to represent its rights to underlying assets and its future lease obligations. Also in connection with the adoption of ASC 842 - Leases ("ASC 842"), the land rights recorded on balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets are now required to be reported in aggregate with the Company's operating lease right-of-use assets, reflected as right-of-use assets and land rights, net on the condensed consolidated balance sheet. Furthermore, the Company elected the package of practical expedients, which among other things, did not require the Company to reassess the lease classification of its existing leases and the practical expedient related to land easements, which allowed the Company to bypass the reassessment of existing or expired land easements for the existence of a lease under ASC 842. See Note 7 for further disclosures related to the adoption of ASU 2016-02.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2018-15 to have a significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This ASU simplifies an entity's goodwill impairment test by eliminating Step 2 from the test. The new guidance also amends the definition of impairment to a condition that exists when the carrying amount of goodwill exceeds its fair value. By eliminating Step 2 from the test, entities are no longer required to determine the implied fair value of goodwill by computing the fair value (at impairment testing date) of all assets and liabilities in a manner similar to that required in conjunction with business combinations. Upon the adoption of ASU 2017-04, an impairment charge is simply recorded as the difference between carrying value and fair value, when carrying value exceeds fair value. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company expects the adoption of ASU 2017-04 to simplify the analysis required under the goodwill impairment test.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage and other loans receivable, amongst other financial instruments.  ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company does not expect the adoption of ASU 2016-13 to have a significant impact on its consolidated financial statements.

4.              Real Estate Investments
 
Real estate investments, net, represents investments in 42 rental properties and the corporate headquarters building and is summarized as follows:
 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Land and improvements
$
2,552,285

 
$
2,552,475

Building and improvements
5,749,212

 
5,762,071

Total real estate investments
8,301,497

 
8,314,546

Less accumulated depreciation
(1,091,469
)
 
(983,086
)
Real estate investments, net
$
7,210,028

 
$
7,331,460




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On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $10.3 million of depreciation expense related to the building at this property and bringing the net book value of this building to zero at June 30, 2019.

5.              Property and Equipment Used in Operations
 
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized in the TRS Properties: 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Land and improvements
$
30,463

 
$
30,431

Building and improvements
116,779

 
116,776

Furniture, fixtures, and equipment
118,159

 
117,247

Construction in progress
527

 
284

Total property and equipment
265,928

 
264,738

Less accumulated depreciation
(168,709
)
 
(163,854
)
Property and equipment, net
$
97,219

 
$
100,884



6. Receivables

Mortgage Loans Receivable

At June 30, 2019, the Company has financial interests in two casino properties through secured mortgage loans to the respective casino owner-operators. On October 1, 2018, Eldorado purchased the real estate assets of Lumière Place from Tropicana for a cash purchase price of $246.0 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of a $246.0 million secured mortgage loan on Lumière Place (the "Lumière Loan"). The Lumière Loan bears interest at a rate equal to (i) 9.09% until the one-year anniversary of the closing, and (ii) 9.27% until its maturity. Until the one-year anniversary of the closing, the Lumière Loan is secured by a first mortgage lien on Lumière Place. On the one-year anniversary of the Lumière Loan, the mortgage evidenced by a deed of trust on the Lumière Place property will terminate and the loan will continue unsecured until its final maturity on the two-year anniversary of the closing. The parties anticipate that the Lumière Loan will be fully repaid on or prior to maturity by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company and added to the Eldorado Master Lease.

On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of $57.7 million secured mortgage loan on Belterra Park (the "Belterra Park Loan"). The Belterra Park Loan bears interest at an initial rate equal to 11.11% and matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). At June 30, 2019, the interest rate on the Belterra Park Loan had increased to 11.20%.

Loan Receivable

In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois.  GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for four successive five-year periods (the "Casino Queen Lease").

Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance their acquisition of Lady Luck Casino in Marquette, Iowa. The new loan bears an interest rate of 15% and is pre-payable at any time.

The Company evaluates loans for impairment when it is probable that it will not be able to collect all amounts due according to contractual terms. All amounts due under the contractual terms means that both contractual interest payments and

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contractual principal payments of a loan will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under their senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 and through June 30, 2019, the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind in the aggregate amount of $2.6 million. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of Events of Default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.
During the first quarter of 2019, the operating results of Casino Queen continued to decline, resulting in the anticipated acquirer withdrawing from the sales process. Subsequent offers for the operating assets of Casino Queen have declined substantially and proceeds from the sale are not expected to generate enough cash to repay all of Casino Queen’s creditors. Thus, because the Company does not expect Casino Queen to be able to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the six months ended June 30, 2019 to reflect the write-off of the Casino Queen loan.
At June 30, 2019, all lease payments due from Casino Queen remain current, however, Casino Queen was in violation of the rent coverage ratio required under its lease with the Company and the Company has provided notice to Casino Queen and its secured lenders of such default.

7. Lease Assets and Lease Liabilities

Lease Assets
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use assets and lease liabilities are recorded on the Company's condensed consolidated balance sheet at the lease commencement date for operating leases in which the Company acts as lessee. Right-of-use assets represent the Company's rights to use underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases cannot readily be determined, the Company utilizes its estimated incremental borrowing rate to determine the present value of its lease payments. Consideration is also given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics when determining the incremental borrowing rates of the Company's leases.
The Company includes options to extend the lease in its lease term, when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases associated with leased properties, the Company has included all available renewal options in the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components of these triple-net tenant leases as a single lease component. Leases with a term of 12 months or less are not recorded on the Company's condensed consolidated balance sheet.
Right-of-use assets and land rights are monitored for potential impairment in much the same way as the Company's real estate assets, using the impairment model in ASC 360 - Property, Plant and Equipment. If the Company determines the carrying amount of a right-of-use asset or land right is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.

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The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which are ground leases related to properties the Company leases to its tenants under triple-net operating leases. Details of the Company's significant ground leases can be found in the Form 10-K for the year ended December 31, 2018. For certain of these ground leases, the Company subleases the underlying assets to its tenants who are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its condensed consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its condensed consolidated balance sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its condensed consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the condensed consolidated balance sheet.

Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.

Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
 
June 30, 2019
Right-of use assets - operating leases
$
202,215

Land rights, net
660,712

Right-of-use assets and land rights, net
$
862,927



Land Rights

The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:

 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Land rights
$
694,077

 
$
700,997

Less accumulated amortization
(33,365
)
 
(27,790
)
Land rights, net
$
660,712

 
$
673,207



On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the ground lease at this property and bringing the net book value of this land right to zero at June 30, 2019.

As of June 30, 2019, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):

Year ending December 31,
 
2019 (remainder of year)
$
6,040

2020
12,081

2021
12,081

2022
12,081

2023
12,081

Thereafter
606,348

Total
$
660,712



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Lease Liabilities

At June 30, 2019, maturities of the Company's operating lease liabilities were as follows (in thousands):

Year ending December 31,
 
2019 (remainder of year)
$
7,800

2020
15,282

2021
15,133

2022
15,026

2023
15,005

Thereafter
685,974

Total lease payments
$
754,220

Less: interest
(552,122
)
Present value of lease liabilities
$
202,098



As a result of transitioning from the guidance in ASC 840 to ASC 842, the Company's annual minimum lease payments did not change.

Lease Expense

Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the condensed consolidated balance sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.

The components of lease expense were as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
(in thousands)
Operating lease cost
$
3,920

 
$
7,813

Variable lease cost
2,068

 
4,504

Short-term lease cost
273

 
511

Amortization of land right assets
9,406

 
12,496

Total lease cost
$
15,667

 
$
25,324



Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the condensed consolidated statements of income. The Company's short-term lease costs are recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income, while a small portion of operating lease costs is also recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income. Amortization expense related to the land right intangibles totaled $2.7 million and $5.5 million for the three and six months ended June 30, 2018, respectively, while other lease costs totaled $4.2 million and $8.5 million, respectively for the same periods.

Supplemental Disclosures Related to Leases

Supplemental balance sheet information related to the Company's operating leases was as follows:
 
June 30, 2019
Weighted average remaining lease term - operating leases
51.39 years
Weighted average discount rate - operating leases
6.7%




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Supplemental cash flow information related to the Company's operating leases was as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
(in thousands)
Cash paid for amounts included in the measurement of leases liabilities:
 
 
 
  Operating cash flows from operating leases (1)
$
555

 
$
1,111

 
 
 
 
Right-of-use assets obtained in exchange for new lease obligations:
 
 
 
   Operating leases
$
287

 
$
287


(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.

8.              Long-term Debt
 
Long-term debt is as follows: 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Unsecured $1,175 million revolver
$
340,000

 
$
402,000

Unsecured term loan A-1
525,000

 
525,000

$1,000 million 4.875% senior unsecured notes due November 2020
1,000,000

 
1,000,000

$400 million 4.375% senior unsecured notes due April 2021
400,000

 
400,000

$500 million 5.375% senior unsecured notes due November 2023
500,000

 
500,000

$850 million 5.25% senior unsecured notes due June 2025
850,000

 
850,000

$975 million 5.375% senior unsecured notes due April 2026
975,000

 
975,000

$500 million 5.75% senior unsecured notes due June 2028
500,000

 
500,000

$750 million 5.30% senior unsecured notes due January 2029
750,000

 
750,000

Finance lease liability
1,052

 
1,112

Total long-term debt
5,841,052

 
5,903,112

Less: unamortized debt issuance costs, bond premiums and original issuance discounts
(44,062
)
 
(49,615
)
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
$
5,796,990

 
$
5,853,497



The following is a schedule of future minimum repayments of long-term debt as of June 30, 2019 (in thousands): 
Within one year
$
126

2-3 years
1,925,271

4-5 years
840,298

Over 5 years
3,075,357

Total minimum payments
$
5,841,052


 
Senior Unsecured Credit Facility

The Company's senior unsecured credit facility (the "Credit Facility") consists of a $1,175 million revolving credit facility and a $525 million Term Loan A-1 facility. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021.

At June 30, 2019, the Credit Facility had a gross outstanding balance of $865 million, consisting of the $525 million Term Loan A-1 facility and $340 million of borrowings under the revolving credit facility. Additionally, at June 30, 2019, the Company was contingently obligated under letters of credit issued pursuant to the Credit Facility with face amounts

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aggregating approximately $0.4 million, resulting in $834.6 million of available borrowing capacity under the revolving credit facility as of June 30, 2019.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At June 30, 2019, the Company was in compliance with all required financial covenants under the Credit Facility.

Senior Unsecured Notes

 At June 30, 2019, the Company had $4,975 million of outstanding senior unsecured notes (the "Senior Notes"). Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
 
At June 30, 2019, the Company was in compliance with all required financial covenants under its Senior Notes.

Finance Lease Liability

The Company assumed the finance lease obligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the finance lease on its condensed consolidated balance sheet. The original term of the finance lease was 30 years and it will terminate in 2026.

9. Fair Value of Financial Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals. 

Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
        
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.






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Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.

Cash and Cash Equivalents
 
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.

Deferred Compensation Plan Assets

The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the condensed consolidated balance sheets.

Mortgage Loans Receivable

The fair value of the mortgage loans receivable approximates the carrying value of the Company's mortgage loans receivable, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the mortgage loans receivable is considered a Level 3 measurement as defined under ASC 820.

Long-term Debt
 
The fair value of the Senior Notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
24,739

 
24,739

 
25,783

 
25,783

Deferred compensation plan assets
26,896

 
26,896

 
22,709

 
22,709

Mortgage loans receivable
303,684

 
303,684

 
303,684

 
303,684

Financial liabilities:
 

 
 

 
 

 
 

Long-term debt:
 

 
 

 
 

 
 

Senior unsecured credit facility
865,000

 
859,750

 
927,000

 
909,308

Senior unsecured notes
4,975,000

 
5,316,563

 
4,975,000

 
4,958,455



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2019 are categorized in the table below based upon the lowest level of significant input to the valuation. There were no assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2018 or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2019 and 2018. 
 
Level 1
 
Level 2
 
Level 3
 
Total Impairment Charges Recorded during the Six Months Ended June 30, 2019
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Loan receivable

 

 

 
13,000

Total assets measured at fair value on a nonrecurring basis
$

 
$

 
$

 
$
13,000



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Loan Receivable

During the first quarter of 2019, the Company recorded an impairment charge of $13.0 million related to the write-off of the principal due to the Company under its unsecured loan to CQ Holding Company. The Company no longer expects the proceeds from the sale of the operating assets of Casino Queen to generate enough cash to repay all of Casino Queen's creditors, including the Company. Thus, because the Company does not expect Casino Queen to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the six months ended June 30, 2019 to reflect the write-off of the Casino Queen loan. See Note 6 for further details surrounding the Casino Queen loan.

10.              Commitments and Contingencies
 
Litigation

The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, and other matters arising in the normal course of business. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming, and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. 

11. Revenue Recognition

As of June 30, 2019, 20 of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Penn Master Lease, an additional 12 of the Company's real estate investment properties were leased to a subsidiary of Penn under the Amended Pinnacle Master Lease, 5 of the Company's real estate investment properties were leased to a subsidiary of Eldorado under the Eldorado Master Lease and 3 of the Company's real estate investment properties were leased to a subsidiary of Boyd under the Boyd Master Lease. Additionally, the Meadows real estate assets are leased to Penn under a single property triple-net lease and the Casino Queen real estate assets are leased back to the operator under an additional single property triple-net lease.

The obligations under the Penn and Amended Pinnacle Master Leases are guaranteed by Penn and, with respect to each lease, by Penn's subsidiaries that occupy and operate the facilities covered by such lease. As a result, the tenant’s obligations under each of the Penn Master Lease and Amended Pinnacle Master Lease are jointly and severally guaranteed by Penn as the ultimate parent company and by each of its subsidiaries benefiting from the applicable lease. Similarly, the obligations under the Eldorado Master Lease are jointly and severally guaranteed by Eldorado and by most of Eldorado's subsidiaries that occupy and operate the facilities leased under the Eldorado Master Lease. The obligations under the Boyd Master Leases are jointly and severally guaranteed by Boyd's subsidiaries that occupy and operate the facilities leased under the Boyd Master Lease.
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured. Additionally, percentage rent that is fixed and determinable at the lease inception date is recorded on a straight-line basis over the lease term, resulting in the recognition of deferred rental revenue on the Company’s condensed consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the lease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that is not fixed and determinable at lease inception is recognized only when the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.

The Company’s triple-net tenant leases all contain a fixed component, a portion of which is subject to an annual escalator (typically 2%) if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities subject to such lease, which is adjusted, subject to certain floors, every 2 to 5 years to an amount equal to 4% of the average annual net revenues of all facilities under the related tenant lease during the preceding 2 to 5 years ("percentage rent"). The Penn Master Lease also provides for a component that is based on the performance of two Ohio facilities, which is adjusted, subject to certain floors monthly by an amount equal to 20% of the net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo (together, the "Ohio Properties") during the preceding month. Furthermore, the Company's master

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leases provide for a floor on the percentage rent described above, should the Company's tenants acquire or commence operating a competing facility within a restricted area (typically 60 miles from a property under the existing master lease with such tenant). These clauses provide landlord protections by basing the percentage rent floor for any affected facility on the net revenues of such facility for the calendar year immediately preceding the year in which the competing facility is acquired or first operated by the tenant.

In addition to rent, as triple-net lessees, all of the Company's tenants are required to pay the following executory costs: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, including coverage of the landlord's interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Additionally, in accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the condensed consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.

The Company determined, based on facts and circumstances prevailing at the time of each lease's inception, that neither Penn nor Casino Queen could continue as a going concern without the property(ies) that are leased to them under the respective master lease agreement (in the instance of Penn) and single property lease (in the instance of Casino Queen) with the Company. At lease inception, all of Casino Queen's revenues and substantially all of Penn's revenues were generated from operations in connection with the leased properties. There are also various legal restrictions in the jurisdictions in which Penn, and Casino Queen operate that limit the availability and location of gaming facilities, which makes relocation or replacement of the leased gaming facilities restrictive and potentially impracticable or unavailable. Moreover, under the terms of the master lease, Penn must make renewal elections with respect to all of the leased property together; the tenant is not entitled to selectively renew certain of the leased property while not renewing other property. Accordingly, the Company concluded that failure by Penn or Casino Queen to renew the lease would impose a significant penalty on such tenant such that renewal of all lease renewal options appeared at lease inception to be reasonably assured. Therefore, the Company concluded that the term of Penn Master Lease and the Casino Queen Lease is 35 years, equal to the initial 15-year term plus all four of the 5-year renewal options.

On October 15, 2018, in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended by a fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety. Because the properties under the Amended Pinnacle Master Lease, do not represent a meaningful portion of Penn's business at the time Penn assumed the lease, the Company has concluded that the lease term of the Amended Pinnacle Master Lease is 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease), equal to the initial 10-year term only.

Subsequent to purchasing the majority of Pinnacle's real estate assets and leasing them back to Pinnacle, the Company entered into a separate triple-net lease with Pinnacle to lease the Meadows real estate assets to Pinnacle. Because this lease involved only a single property within Pinnacle's portfolio, GLPI concluded it was not reasonably assured at lease inception that Pinnacle would elect to exercise all lease renewal options. Therefore, the Company concluded that the lease term of the Meadows Lease is 10 years, equal to the initial 10-year term only. In conjunction with the Penn-Pinnacle Merger, Penn assumed the Meadows Lease. The accounting for the Meadows Lease, including the lease term was not impacted by the change in tenant. Based upon similar fact patterns, the Company concluded it was not reasonably assured at lease inception that Eldorado or Boyd would elect to exercise all lease renewal options under their respective master leases. The properties under each master lease do not represent a meaningful portion of either tenant's business at lease inception; therefore the Company has concluded that the lease term of the Eldorado Master Lease is 15 years and the lease term of the Boyd Master Lease is 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease), equal to the initial terms of such master leases only.





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Details of the Company's rental income for the three and six months ended June 30, 2019 was as follows (in thousands):
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Building base rent (1)
$
164,270

 
$
327,607

Land base rent
47,543

 
94,984

Percentage rent
40,062

 
79,838

Total cash rental income
$
251,875

 
$
502,429

Straight-line rent adjustments
(8,643
)
 
(17,287
)
Ground rent in revenue
5,188

 
10,751

Other rental revenue
143

 
348

Total rental income
$
248,563

 
$
496,241



(1) Building base rent is subject to the annual rent escalators described above.
The Company may periodically loan funds to casino owner-operators pursuant to secured mortgage loans for the purchase of gaming related properties. Interest income related to mortgage loans receivable is recorded as revenue from mortgaged real estate within the Company's condensed consolidated statements of income in the period earned. At June 30, 2019, the Company had financial interests in two casino properties, Belterra Park and Lumière Place, pursuant to the secured mortgage loans made by the Company to the respective casino owner-operators, Boyd and Eldorado.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines, and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines is the aggregate net difference between gaming wins and losses with liabilities recognized for funds deposited by customers before gaming play occurs, for "ticket-in, ticket-out" coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increases. Table game gaming revenue is the aggregate of table drop adjusted for the change in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Additionally, food and beverage revenue is recognized as services are performed.

Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenue from Contracts with Customers. The Company also defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play and attributed to the awarded points until a later period when the points are redeemed or forfeited.

For the TRS Properties, the Company is subject to gaming taxes based on gross gaming revenues in the jurisdictions in which it operates. The Company recognizes gaming tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where wagering occurs. The Company records gaming taxes at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods.  For the three and six months ended June 30, 2019, these expenses, which are recorded within gaming, food, beverage and other expense in the condensed consolidated statements of income, totaled $14.2 million and $28.2 million, respectively, as compared to $15.1 million and $29.3 million for the three and six months ended June 30, 2018, respectively.

12. Earnings Per Share
 
The Company calculates earnings per share ("EPS") in accordance with ASC 260 - Earnings per Share ("ASC 260"). Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted EPS reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. In accordance with ASC 260, the Company includes all performance-based restricted shares that would have vested based upon the Company’s performance at quarter-end in the

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calculation of diluted EPS. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2019 and 2018
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Determination of shares:
 

 
 

 
 

 
 

Weighted-average common shares outstanding
214,664

 
213,579

 
214,645

 
213,442

Assumed conversion of dilutive employee stock-based awards

 
262

 

 
325

Assumed conversion of restricted stock awards
103

 
62

 
80

 
50

Assumed conversion of performance-based restricted stock awards
838

 
658

 
795

 
689

Diluted weighted-average common shares outstanding
215,605

 
214,561

 
215,520

 
214,506



The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and six months ended June 30, 2019 and 2018
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands, except per share and share data)
Calculation of basic EPS:
 

 
 

 
 

 
 

Net income
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

Less: Net income allocated to participating securities
(146
)
 
(129
)
 
(291
)
 
(265
)
Net income attributable to common shareholders
$
92,887

 
$
91,869

 
$
185,752

 
$
188,505

Weighted-average common shares outstanding
214,664

 
213,579

 
214,645

 
213,442

Basic EPS
$
0.43

 
$
0.43

 
$
0.87

 
$
0.88