Gaming and Leisure Properties, Inc.
Gaming & Leisure Properties, Inc. (Form: 10-Q, Received: 05/03/2017 11:54:39)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q  
(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
 
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 and 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)
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  x  No  ¨
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  x  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  x
 
Accelerated filer  ¨
 
 
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a 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  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date
Title
 
May 1, 2017
Common Stock, par value $.01 per share
 
208,199,736
 



Table of Contents

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 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, 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 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 generate sufficient cash flows to service our outstanding indebtedness;

the access to debt and equity capital markets;

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

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;


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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, 2016 , 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 (the "SEC").
 
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, 2016 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, 2016 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)
 
 
March 31,
2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
3,714,190

 
$
3,739,091

Land rights, net
588,447

 
590,758

Property and equipment, used in operations, net
116,447

 
119,427

Investment in direct financing lease, net
2,693,099

 
2,710,711

Cash and cash equivalents
23,361

 
36,556

Prepaid expenses
8,122

 
7,477

Goodwill
75,521

 
75,521

Other intangible assets
9,577

 
9,577

Loan receivable
13,000

 
26,200

Deferred tax assets
4,678

 
3,922

Other assets
67,957

 
50,090

Total assets
$
7,314,399

 
$
7,369,330

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
955

 
$
1,079

Accrued expenses
6,023

 
6,590

Accrued interest
75,671

 
33,743

Accrued salaries and wages
3,385

 
10,619

Gaming, property, and other taxes
41,580

 
32,584

Income taxes
2,938

 

Long-term debt, net of unamortized debt issuance costs
4,573,194

 
4,664,965

Deferred rental revenue
182,297

 
166,052

Deferred tax liabilities
264

 
265

Other liabilities
20,756

 
19,564

Total liabilities
4,907,063

 
4,935,461

 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2017 and December 31, 2016)

 

Common stock ($.01 par value, 500,000,000 shares authorized, 208,137,358 and 207,676,827 shares issued at March 31, 2017 and December 31, 2016, respectively)
2,081

 
2,077

Additional paid-in capital
3,769,502

 
3,760,729

Retained accumulated deficit
(1,364,247
)
 
(1,328,937
)
Total shareholders’ equity
2,407,336

 
2,433,869

Total liabilities and shareholders’ equity
$
7,314,399

 
$
7,369,330

 
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 March 31,
 
2017
 
2016
 
 
 
 
Revenues
 

 
 

Rental income
$
165,161

 
$
100,215

Income from direct financing lease
17,824

 

Real estate taxes paid by tenants
21,720

 
11,827

Total rental revenue and income from direct financing lease
204,705

 
112,042

Gaming, food, beverage and other
39,260

 
38,159

Total revenues
243,965

 
150,201

Less promotional allowances
(1,252
)
 
(1,381
)
Net revenues
242,713

 
148,820

 
 
 
 
Operating expenses
 

 
 

Gaming, food, beverage and other
21,076

 
20,987

Real estate taxes
22,143

 
12,207

General and administrative
21,231

 
20,906

Depreciation
28,257

 
27,083

Total operating expenses
92,707

 
81,183

Income from operations
150,006

 
67,637

 
 
 
 
Other income (expenses)
 

 
 

Interest expense
(53,949
)
 
(33,401
)
Interest income
464

 
517

Total other expenses
(53,485
)
 
(32,884
)
 
 
 
 
Income before income taxes
96,521

 
34,753

Income tax expense
2,530

 
2,004

Net income
$
93,991

 
$
32,749

 
 
 
 
Earnings per common share:
 

 
 

Basic earnings per common share
$
0.45

 
$
0.28

Diluted earnings per common share
$
0.45

 
$
0.27

 
 
 
 
Dividends paid per common share
$
0.62

 
$
0.56

 
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
 
Retained Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2016
207,676,827

 
$
2,077

 
$
3,760,729

 
$
(1,328,937
)
 
$
2,433,869

Issuance of common stock

 

 
(105
)
 

 
(105
)
Stock option activity
333,293

 
3

 
6,700

 

 
6,703

Restricted stock activity
127,238

 
1

 
2,178

 

 
2,179

Dividends paid

 

 

 
(129,301
)
 
(129,301
)
Net income

 

 

 
93,991

 
93,991

Balance, March 31, 2017
208,137,358

 
$
2,081

 
$
3,769,502

 
$
(1,364,247
)
 
$
2,407,336

 
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)
 
Three months ended March 31,
 
2017
 
2016
 
 
 
 
 
Operating activities
 
 

 
 

Net income
 
$
93,991

 
$
32,749

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

 
 

Depreciation and amortization
 
30,568

 
27,083

Amortization of debt issuance costs
 
3,257

 
5,582

Losses (gains) on dispositions of property
 
105

 
(15
)
Deferred income taxes
 
(742
)
 
(79
)
Stock-based compensation
 
4,483

 
4,572

Straight-line rent adjustments
 
16,245

 
13,956

(Increase), decrease
 
 

 
 

Prepaid expenses and other assets
 
(1,070
)
 
3,848

Increase, (decrease)
 
 

 
 

Accounts payable
 
(181
)
 
45

Accrued expenses
 
218

 
(987
)
Accrued interest
 
41,928

 
25,225

Accrued salaries and wages
 
(7,234
)
 
(8,623
)
Gaming, property and other taxes
 
813

 
(201
)
Income taxes
 
2,938

 

Other liabilities
 
(630
)
 
703

Net cash provided by operating activities
 
184,689

 
103,858

Investing activities
 
 

 
 

Capital project expenditures
 
(8
)
 
(265
)
Capital maintenance expenditures
 
(482
)
 
(362
)
Proceeds from sale of property and equipment
 

 
233

Principal payments on loan receivable
 
13,200

 
1,537

Deposit for pending acquisition of real estate assets
 
(8,230
)
 

Collections of principal payments on investment in direct financing lease
 
17,613

 

Net cash provided by investing activities
 
22,093

 
1,143

Financing activities
 
 

 
 

Dividends paid
 
(129,301
)
 
(65,670
)
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings
 
4,456

 
23,089

Costs related to continuous equity offering
 
(105
)
 

Financing costs
 

 
(709
)
Repayments of long-term debt
 
(95,027
)
 
(42,025
)
Net cash used in financing activities
 
(219,977
)
 
(85,315
)
Net (decrease) increase in cash and cash equivalents
 
(13,195
)
 
19,686

Cash and cash equivalents at beginning of period
 
36,556

 
41,875

Cash and cash equivalents at end of period
 
$
23,361

 
$
61,561

 
See accompanying notes to the condensed consolidated financial statements.


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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 beginning on January 1, 2014 to be treated as a REIT and the Company, together with its indirect wholly-owned subsidiary of the Company, 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 and leases back most of those assets to Penn for use by its subsidiaries, under a 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 leases these assets back to Pinnacle, under a 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" and together with the Penn Master Lease, the "Master Leases").
 
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 March 31, 2017 , GLPI’s portfolio consisted of 36 gaming and related facilities, including the TRS Properties, the real property associated with 18 gaming and related facilities operated by Penn, the real property associated with 15 gaming and related facilities operated by Pinnacle and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 14 states and were 100% occupied at March 31, 2017 .

GLPI expects to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms. For example, on March 27, 2017 the Company entered into an agreement to purchase the real property assets of Bally's Casino Tunica and Resorts Casino Tunica (the "Tunica properties") for $82.6 million . Penn purchased the operating assets of the Tunica properties directly from the seller, operates both properties and leases the real property assets from the Company under the Penn Master Lease. The initial annual rent of $9.0 million for the Tunica properties will be subject to rent escalators and adjustments consistent with the other properties under the Penn Master Lease. The transaction closed on May 1, 2017.

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 order to conform to the current presentation of the statement of income, the Company combined certain line items on the condensed consolidated statement of income for the three months ended March 31, 2016 . Specifically, the Company aggregated the former revenue line items gaming revenue and food, beverage and other revenue into the line item gaming, food, beverage and other revenues and aggregated the former expense line items gaming expenses and food, beverage and other expenses into the line item gaming, food, beverage and other expenses. These reclassifications were made only for presentation purposes and had no impact on the Company's financial results for the three months ended March 31, 2016 .
 

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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 months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2016 financial information has been derived from the Company’s audited consolidated financial statements.

3.    New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). This ASU amends certain aspects of accounting for share-based payments to employees, including (i) requiring all income tax effects of share-based awards to be recognized in the income statement when the award vests or settles and eliminating APIC pools, (ii) permitting employers to withhold the share equivalent of an employee's maximum tax liability without triggering liability accounting and (iii) allowing companies to make a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 on January 1, 2017 and it did not have a significant impact on how the Company accounts for share-based payments.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . 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 period beginning after December 15, 2019 and early adoption is permitted. The Company does not expect the adoption of ASU 2017-04 to significantly impact its goodwill impairment testing.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"). This ASU provides clarifying guidance on what constitutes a business acquisition versus an asset acquisition. Specifically, the new guidance lays out a screen to more easily determine if a set of integrated assets and activities does in fact represent a business. Under the ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets do not represent a business. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017. As a REIT, GLPI generally acquires only real estate assets; therefore it does not expect this clarifying language to have an impact on the Company's accounting treatment of its acquisitions.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus of the FASB Emerging Issues Task Force ("ASU 2016-15") . This ASU provides clarifying guidance on the presentation of certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of ASU 2016-15 to impact its presentation of cash receipts and payments on its consolidated statements of cash flows.

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 loans receivable and net investments in direct financing leases, amongst other financial instruments.  ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred

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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.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 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. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and is required to be adopted on a modified retrospective basis, meaning the new leasing model will be applied to the earliest year presented in the financial statements and thereafter. The Company is evaluating the impact of adopting this new accounting standard on its financial statements but does not expect the adoption of the new guidance to have a significant impact on the accounting treatment of its triple-net tenant leases, which are the primary source of revenue to the Company. Generally speaking, ASU 2016-02 will more significantly impact 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 books for these leases at adoption.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. ASU 2014-09 provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. At the April 1, 2015 FASB meeting, the board voted to defer the effective date for the new revenue recognition standard to annual reporting periods beginning after December 15, 2017. The pronouncement was originally effective for annual reporting periods beginning after December 15, 2016, and companies are permitted to elect the adoption of the standard as of the original effective date. When adopted, the new guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and internal revenue recognition policies. The Company does not believe the majority of its revenue recognition policies will be impacted by the new standard, as leases (the source of the Company's majority of revenues) are excluded from ASU 2014-09. Currently, the Company believes only the accounting treatment for the customer loyalty programs at the TRS properties will be impacted by the adoption of ASU 2014-09. Specifically, the recognition of revenue associated with these points based programs will be impacted by eliminating the current accrual for the cost of the points awarded at the time of play and instead deferring an increased value of the revenue received from the customer at the time of play and attributed to the awarded points until a later period when the points are redeemed or forfeited. In addition, the Company believes that upon the adoption of ASU 2014-09, promotional allowances representing the retail value of food, beverages and other services furnished to guests without charge will no longer be presented as a separate line item on the consolidated statements of income.

4.               Summary of Significant Accounting Policies
 
Fair Value of Financial Instruments
 
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 Accounting Standards Code ("ASC") 820 "Fair Value Measurements and Disclosures" ("ASC 820"). Deferred compensation plan assets are included within other assets on the condensed consolidated balance sheets.





10


Loan Receivable

The fair value of the loan receivable approximates the carrying value of the Company's loan receivable, as collection on the outstanding loan balance is reasonably assured and the interest rate approximates market rates for a similar instrument. The fair value measurement of the loan receivable is considered a Level 3 measurement as defined under ASC 820.

Long-term Debt
 
The fair value of the senior unsecured 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):
 
March 31, 2017
 
December 31, 2016
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
23,361

 
23,361

 
36,556

 
36,556

Deferred compensation plan assets
19,221

 
19,221

 
17,593

 
17,593

Loan receivable
13,000

 
13,000

 
26,200

 
26,200

Financial liabilities:
 

 
 

 
 

 
 

Long-term debt
 

 
 

 
 

 
 

Senior unsecured credit facility
1,195,000

 
1,184,900

 
1,290,000

 
1,272,852

Senior unsecured notes
3,425,000

 
3,556,000

 
3,425,000

 
3,573,500

 
Revenue Recognition
 
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 recognizes income from tenants subject to direct financing leases ratably over the lease term using the effective interest rate method which produces a constant periodic rate of return on the net investment in the leased property. At lease inception, the Company records an asset which represents the Company's net investment in the direct financing lease. This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, less unearned income. Over the lease term, the investment in the direct financing lease is reduced and income is recognized for the building portion of rent. Furthermore, as the net investment in direct financing lease includes only future minimum lease payments, percentage rent that is not fixed and determinable at the lease inception is excluded from the determination of the rent attributable to the leased assets and will therefore be recorded as income from the direct financing lease in the period earned. For further detail on the Company's direct financing lease refer to Note 8.

Additionally, in accordance with ASC 605, "Revenue Recognition," the Company records revenue for the real estate taxes paid by its tenants on the leased properties with an offsetting expense in real estate taxes within the condensed consolidated statement of income as the Company has concluded it is the primary obligor. Similarly, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in general and administrative 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.
 
Gaming revenue generated by the TRS Properties mainly consists of video lottery gaming revenue, and to a lesser extent, table game and poker revenue. Video lottery gaming revenue 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"

11


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 in accordance with ASC 605-50, "Revenue Recognition— Customer Payments and Incentives." The Company records certain sales incentives and points earned in point-loyalty programs as a reduction of revenue.

Gaming and Admission Taxes
 
For the TRS Properties, the Company is subject to gaming and admission taxes based on gross gaming revenues in the jurisdictions in which it operates, as well as state gaming device fees, based upon a standard per game assessment. 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. Admission taxes are only assessed in Louisiana, while state gaming device fees are only assessed in Maryland. The Company records gaming and admission 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 and admission tax rates change during the year, such changes are applied prospectively in the determination of gaming and admission tax expense in future interim periods.  For the three months ended March 31, 2017 and 2016 , these expenses, which are primarily recorded within gaming expense in the condensed consolidated statements of income, totaled $15.1 million and $14.7 million , respectively.

Earnings Per Share
 
The Company calculates earnings per share ("EPS") in accordance with ASC 260, "Earnings per Share." 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 "Earnings per Share," the Company includes all performance-based restricted shares that would have vested based upon the Company’s performance at quarter-end in the 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 months ended March 31, 2017 and 2016
        
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
(in thousands)
Determination of shares:
 
 

 
 

Weighted-average common shares outstanding
 
207,880

 
116,671

Assumed conversion of dilutive employee stock-based awards
 
695

 
1,821

Assumed conversion of restricted stock awards
 
149

 
122

Assumed conversion of performance-based restricted stock awards
 
802

 
203

Diluted weighted-average common shares outstanding
 
209,526

 
118,817

 







12


The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three months ended March 31, 2017 and 2016
        
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(in thousands, except per share data)
Calculation of basic EPS:
 
 

 
 

Net income
 
$
93,991

 
$
32,749

Less: Net income allocated to participating securities
 
(175
)
 
(135
)
Net income attributable to common shareholders
 
$
93,816

 
$
32,614

Weighted-average common shares outstanding
 
207,880

 
116,671

Basic EPS
 
$
0.45

 
$
0.28

 
 
 
 
 
Calculation of diluted EPS:
 
 

 
 

Net income
 
$
93,991

 
$
32,749

Diluted weighted-average common shares outstanding
 
209,526

 
118,817

Diluted EPS
 
$
0.45

 
$
0.27


There were 23,954 and 257,321 outstanding equity based awards during the three months ended March 31, 2017 and 2016 , respectively, that were not included in the computation of diluted EPS because they were antidilutive.

Stock-Based Compensation
 
The Company accounts for stock compensation under ASC 718, "Compensation - Stock Compensation," which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day of grant. The Company utilizes a third party valuation firm to measure the fair value of performance-based restricted stock awards at grant date using the Monte Carlo model.
 
As of March 31, 2017 , there was $8.9 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 2.16 years . For the three months ended March 31, 2017 and 2016 , the Company recognized $2.1 million and $1.8 million , respectively, of compensation expense associated with these awards.

The following table contains information on restricted stock award activity for the three months ended March 31, 2017 :
 
Number of Award
Shares
Outstanding at December 31, 2016
413,242

Granted
173,902

Released
(199,348
)
Canceled

Outstanding at March 31, 2017
387,796

 
Performance-based restricted stock awards have a three -year cliff vesting with the amount of restricted shares vesting at the end of the three -year period determined based upon the Company’s performance as measured against its peers.  More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three -year total shareholder return measured against the three -year return of the MSCI US REIT index and/or the Company's stock performance ranking among a group of triple-net REIT peer companies. The triple-net measurement group includes publicly traded REITS deriving at least 75% of revenues from triple-net leases. As of March 31, 2017 , there was $17.2 million of total unrecognized compensation cost, which will be recognized over the performance-based restricted stock awards' remaining weighted average vesting period of 2.16 years .  For the three months ended March 31, 2017 and 2016 , the Company recognized $2.4 million and $2.7 million , respectively, of compensation expense associated with these awards.


13


The following table contains information on performance-based restricted stock award activity for the three months ended March 31, 2017 :
 
Number of  Performance-Based Award Shares
Outstanding at December 31, 2016
1,106,000

Granted
558,000

Released

Canceled

Outstanding at March 31, 2017
1,664,000


5.               Real Estate Investments
 
Real estate investments, net, represents investments in 34 rental properties and the corporate headquarters building and is summarized as follows:
 
 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Land and improvements
$
2,057,391

 
$
2,057,391

Building and improvements
2,438,583

 
2,438,581

Total real estate investments
4,495,974

 
4,495,972

Less accumulated depreciation
(781,784
)
 
(756,881
)
Real estate investments, net
$
3,714,190

 
$
3,739,091


6. Land Rights

Land rights, net represents the Company's rights to land subject to long-term ground leases. The Company acquired ground leases at several of the Pinnacle properties and immediately subleased the land back to Pinnacle. The land rights are amortized over the individual lease term of each ground lease, including all renewal options, which ranged from 33 years to 92 years at the time of the Pinnacle acquisition. Land rights net, consists of the following:

 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Land rights
$
596,921

 
$
596,921

Less accumulated amortization
(8,474
)
 
(6,163
)
Land rights, net
$
588,447

 
$
590,758


Amortization expense related to the ground leases is recorded within general and administrative expenses in the condensed consolidated statements of income and totaled $2.3 million for the three months ended March 31, 2017 .

As of March 31, 2017 , estimated future amortization expense related to the Company’s ground leases by fiscal year is as follows (in thousands):

Year ending December 31,
 
2017
$
6,933

2018
9,244

2019
9,244

2020
9,244

2021
9,244

Thereafter
544,538

Total
$
588,447



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7.               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: 
 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Land and improvements
$
30,965

 
$
30,965

Building and improvements
117,341

 
117,350

Furniture, fixtures, and equipment
113,718

 
114,965

Construction in progress
682

 
330

Total property and equipment
262,706

 
263,610

Less accumulated depreciation
(146,259
)
 
(144,183
)
Property and equipment, net
$
116,447

 
$
119,427


8. Receivables

Investment in Direct Financing Lease, Net

Under ASC 840 - Leases ("ASC 840"), the Pinnacle Master Lease is bifurcated between an operating lease and a direct financing lease. The fair value assigned to the land (inclusive of the land rights) qualifies for operating lease treatment, while the fair value assigned to the buildings is classified as a direct financing lease. Under ASC 840, the accounting treatment for direct financing leases requires the Company to record an investment in direct financing leases on its books at lease inception and subsequently recognize interest income and a reduction in the investment for the building portion of rent. This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, less unearned income. The interest income recorded under the direct financing lease is included in income from direct financing lease in the Company's condensed consolidated statements of income and is recognized over the 35 -year lease term using the effective interest rate method which produces a constant periodic rate of return on the net investment in the leased property. Furthermore, as the net investment in direct financing lease includes only future minimum lease payments, rent that is not fixed and determinable at the lease inception is excluded from the determination of the rent attributable to the leased assets and will therefore be recorded as income from direct financing lease in the period earned. The unguaranteed residual value is the Company's estimate of what it could realize upon the sale of the property at the end of the lease term.

The net investment in the direct financing lease is evaluated for impairment as necessary, if indicators of impairment are present, to determine if there has been an-other-than-temporary decline in the residual value of the property or a change in the lessee's credit worthiness. At March 31, 2017 , there were no indicators of a decline in the estimated residual value of the property and collectability of the remaining receivable balance is reasonably assured.

The Company's investment in direct financing lease, net, consists of the following and represents the building assets acquired from Pinnacle:
 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Minimum lease payments receivable
$
3,370,181

 
$
3,405,131

Unguaranteed residual value
689,811

 
689,811

Gross investment in direct financing lease
4,059,992

 
4,094,942

Less: unearned income
(1,366,893
)
 
(1,384,231
)
Investment in direct financing lease, net
$
2,693,099

 
$
2,710,711


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 for $140.7 million .  GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the 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.

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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, to partially finance their acquisition of Lady Luck Casino in Marquette, Iowa. The cash proceeds were net settled. The new loan bears an interest rate of 15% and is pre-payable at any time. As of March 31, 2017 , the balance of the new loan is $13.0 million . The collectability of the loan balance is reasonably assured, and as of March 31, 2017 , there is no indication that the obligor will not remit all mandatory principal and interest payments in full and on time. The loan balance is recorded at carrying value which approximates fair value. Interest income related to the loan is recorded in interest income within the Company's condensed consolidated statements of income in the period earned.

9.               Long-term Debt
 
Long-term debt is as follows: 
 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Unsecured term loan A
$
300,000

 
$
300,000

Unsecured term loan A-1
825,000

 
825,000

Unsecured $700 million revolver
70,000

 
165,000

$550 million 4.375% senior unsecured notes due November 2018
550,000

 
550,000

$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

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

 
975,000

Capital lease
1,314

 
1,341

Total long-term debt
4,621,314

 
4,716,341

Less: unamortized debt issuance costs
(48,120
)
 
(51,376
)
Total long-term debt, net of unamortized debt issuance costs
$
4,573,194

 
$
4,664,965


The following is a schedule of future minimum repayments of long-term debt as of March 31, 2017 (in thousands): 
Within one year
$
113

2-3 years
920,243

4-5 years
2,225,268

Over 5 years
1,475,690

Total minimum payments
$
4,621,314

 
Senior Unsecured Credit Facility

The Company has a $1,825 million senior unsecured credit facility (the "Credit Facility"), consisting of a $700 million revolving credit facility, a $300 million Term Loan A facility, and an $825 million Term Loan A-1 facility. The revolving credit facility and the Term Loan A facility mature on October 28, 2018 and the Term Loan A-1 facility matures on April 28, 2021.

At March 31, 2017 , the Credit Facility had a gross outstanding balance of $1,195 million , consisting of the $1,125 million Term Loan A and A-1 facilities and $70 million of borrowings under the revolving credit facility. Additionally, at March 31, 2017 , the Company was contingently obligated under letters of credit issued pursuant to the senior unsecured credit facility with face amounts aggregating approximately $0.9 million , resulting in $629.1 million of available borrowing capacity under the revolving credit facility as of March 31, 2017 .

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

16


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 on and after the effective date of its election to be treated as a REIT, which the Company elected on its 2014 U.S. federal income tax return. 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 March 31, 2017 , the Company was in compliance with all required financial covenants under the Credit Facility.

Senior Unsecured Notes
 
Each of the 4.375% Senior Unsecured Notes due 2018 (the "2018 Notes"), 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"), 4.375% Senior Unsecured Notes due 2021 (the "2021 Notes"), 5.375% Senior Unsecured Notes due 2023 (the "2023 Notes"), and 5.375% Senior Unsecured Notes due 2026 (the "2026 Notes") and collectively with the 2018 Notes, 2020 Notes, 2021 Notes and 2023 Notes, the "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 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 March 31, 2017 , the Company was in compliance with all required financial covenants under the Notes.

Capital Lease

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

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 March 31, 2017 , 18 of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Penn Master Lease and 14 of the Company's real estate investment properties were leased to a subsidiary of Pinnacle under the Pinnacle Master Lease. The obligations under the Penn and Pinnacle Master Leases are guaranteed by Penn and Pinnacle, respectively and by most Penn's and Pinnacle's subsidiaries that occupy and operate the facilities leased under the respective Master Leases. A default by Penn or its subsidiaries with regard to any facility will cause a default with regard to the Penn Master Lease and a default by Pinnacle or its subsidiaries with regard to any facility will cause a default with regard to the Pinnacle Master Lease. Additionally, the Meadows real estate assets are leased to Pinnacle under a single property triple-net lease separate from the Pinnacle Master Lease. GLPI also leases the Casino Queen property back to its operator on a triple-net basis on terms similar to those in the Master Leases (the "Casino Queen Lease").
 
The rent structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities, which is adjusted, subject to certain floors (i) every five years to an amount equal to 4% of the average net revenues of all facilities under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during

17


the preceding five years , and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month.

Similar to the Penn Master Lease, the Pinnacle Master Lease also includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities, which is adjusted, subject to certain floors every two years to an amount equal to 4% of the average annual net revenues of all facilities under the Pinnacle Master Lease during the preceding two years .

 GLPI leases the Meadows real property assets to Pinnacle under a triple-net operating lease separate from the Pinnacle Master Lease with an initial term of 10 years with no purchase option and the option to renew for three successive 5 -year terms and one 4 -year term, at Pinnacle's option (the "Meadows Lease"). The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to a fixed amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million , at which point the escalator will be reduced to 2% annually thereafter.

The rent structure under the Casino Queen Lease also includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facility, which is reset every five years to a fixed amount equal to the greater of (i) the annual amount of non-fixed rent applicable for the lease year immediately preceding such rent reset year and (ii) an amount equal to 4% of the average annual net revenues of the facility for the trailing five year period.

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, (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

The Company determined, based on facts and circumstances prevailing at the time of each lease's inception, that neither Penn, Pinnacle (excluding the Meadows lease as described below) nor Casino Queen could effectively operate and run their respective business without the properties that are leased to it under the respective lease agreements with GLPI. Furthermore, at lease inception, all of Casino Queen's revenues and substantially all of Penn's and Pinnacle's revenues were generated from operations in connection with the leased properties. There are also various legal restrictions in the jurisdictions in which Penn, Pinnacle 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 Penn and Pinnacle Master Leases, Penn and Pinnacle must make their renewal election 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, Pinnacle or Casino Queen to renew the lease would impose a significant penalty on such tenant such that renewal of all lease renewal options appears at lease inception to be reasonably assured. Therefore, the Company concluded that the term of the leases with both Penn and Casino Queen is 35 years , equal to the initial 15 year term plus all four of the 5 -year renewal options. The lease term of the Pinnacle Master Lease is also 35 years , equal to the initial 10 year term plus all five of the 5 -year renewal options.

As described above, subsequent to purchasing the majority of Pinnacle's real estate assets and leasing them back to Pinnacle, GLPI entered into a separate triple-net lease with Pinnacle to lease the newly acquired Meadows real estate assets to Pinnacle. Because this lease involves 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. The Company concluded that failure by Pinnacle to renew the Meadows lease would not impose a significant penalty on such tenant as this property's operations represent only an incremental portion of Pinnacle's total business at lease inception. Therefore, the Company concluded that the lease term of the Meadows lease is 10 years , equal to the initial 10 -year term only.

Gaming revenue generated by the TRS Properties mainly consists of video lottery gaming revenue, and to a lesser extent, table game and poker revenue. Video lottery gaming revenue 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

18


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 in accordance with ASC 605-50, "Revenue Recognition— Customer Payments and Incentives." The Company records certain sales incentives and points earned in point-loyalty programs as a reduction of revenue.

The following table discloses the components of gaming, food, beverage and other revenue within the condensed consolidated statements of income for the three months ended March 31, 2017 and 2016 :
    
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Video lottery
$
31,698

 
$
30,353

Table game
4,803

 
4,716

Poker
314

 
314

Food, beverage and other
2,445

 
2,776

Total gaming, food, beverage and other revenue, net of cash incentives
$
39,260

 
$
38,159


The retail value of food and beverage and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances.    

12.               Shareholders' Equity

Common Stock

During 2016, the Company commenced a continuous equity offering under which the Company may sell up to an aggregate of $400 million of its common stock from time to time through a sales agent in “at the market” offerings (the “ATM Program”). Actual sales will depend on a variety of factors, including market conditions, the trading price of the Company's common stock and determinations of the appropriate sources of funding for proposed transactions. The Company may sell the shares in amounts and at times to be determined by the Company, but has no obligation to sell any of the shares in the ATM Program. The ATM Program also allows the Company to enter into forward sale agreements. In no event will the aggregate number of shares sold under the ATM Program (whether under any forward sale agreement or through a sales agent), have an aggregate sales price in excess of $400 million . The Company expects, that if it enters into a forward sale contract, to physically settle each forward sale agreement with the forward purchaser on one or more dates specified by the Company prior to the maturity date of that particular forward sale agreement, in which case the aggregate net cash proceeds at settlement will equal the number of shares underlying the particular forward sale agreement multiplied by the relevant forward sale price. However, the Company may also elect to cash settle or net share settle a particular forward sale agreement, in which case proceeds may or may not be received or cash may be owed to the forward purchaser.

In connection with the ATM Program, the Company engaged a sales agent who may receive compensation of up to 2% of the gross sales price of the shares sold. Similarly, in the event the Company enters into a forward sale agreement, it will pay the relevant forward seller a commission of up to 2% of the sales price of all borrowed shares of common stock sold during the applicable selling period of the forward sale agreement.
Through March 31, 2017 , GLPI sold 1,321,999 shares of its common stock at an average price of $35.00 per share under the ATM Program, which generated gross proceeds of approximately $46.3 million (net proceeds of approximately $45.5 million ). The Company used the net proceeds from the ATM Program to partially fund its acquisition of the Meadows real estate assets. As of March 31, 2017 , the Company had $353.7 million remaining for issuance under the ATM Program and had not entered into any forward sale agreements.









19


Dividends

The following table lists the dividends declared and paid by the Company during the three months ended March 31, 2017 and 2016 :
Declaration Date
 
Shareholder Record Date
 
Securities Class
 
Dividend Per Share
 
Period Covered
 
Distribution Date
 
Dividend Amount
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
2017
 
 
 
 
 
 
 
 
 
 
 
 
February 1, 2017
 
March 13, 2017
 
Common Stock
 
$
0.62

 
First Quarter 2017
 
March 24, 2017
 
$
129,007

 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
January 29, 2016
 
February 22, 2016
 
Common Stock
 
$
0.56

 
First Quarter 2016
 
March 25, 2016
 
$
65,345


In addition for both the three months ended March 31, 2017 and 2016 , dividend payments were made to GLPI restricted stock award holders in the amount of $0.3 million .

13.        Segment Information

Consistent with how the Company’s Chief Operating Decision Maker reviews and assesses the Company’s financial performance, the Company has two reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its assets) ("GLP Capital") and the TRS Properties. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Properties reportable segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge.

The following tables present certain information with respect to the Company’s segments.
 
 
 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
(in thousands)
 
GLP Capital
 
TRS Properties
 
Eliminations  (1)
 
Total
 
GLP Capital 
 
TRS Properties
 
Eliminations  (1)
 
Total
Net revenues
 
$
204,705

 
$
38,008

 
$

 
$
242,713

 
$
112,042

 
$
36,778

 
$

 
$
148,820

Income from operations
 
142,034

 
7,972

 

 
150,006

 
60,770

 
6,867

 

 
67,637

Interest, net
 
53,486

 
2,600

 
(2,601
)
 
53,485

 
32,884

 
2,601

 
(2,601
)
 
32,884

Income before income taxes
 
91,149

 
5,372

 

 
96,521

 
30,487

 
4,266

 

 
34,753

Income tax expense
 
370

 
2,160

 

 
2,530

 
386

 
1,618

 

 
2,004

Net income
 
90,779

 
3,212

 

 
93,991

 
30,101

 
2,648

 

 
32,749

Depreciation
 
25,424

 
2,833

 

 
28,257

 
24,212

 
2,871

 

 
27,083

Capital project expenditures
 
8

 

 

 
8

 
164

 
101

 

 
265

Capital maintenance expenditures
 

 
482

 

 
482

 

 
362

 

 
362

 
(1)               Amounts in the "Eliminations" column represent the elimination of intercompany interest payments from the Company’s TRS Properties business segment to its GLP Capital business segment.

14.        Supplemental Disclosures of Cash Flow Information

Supplemental disclosures of cash flow information are as follows:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Cash paid for income taxes, net of refunds received
$

 
$
234

Cash paid for interest
8,739

 
2,569








20


15.        Supplementary Condensed Consolidating Financial Information of Parent Guarantor and Subsidiary Issuers
 
GLPI guarantees the Notes issued by its subsidiaries, GLP Capital, L.P. and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. None of GLPI's subsidiaries guarantee the Notes.
 
Summarized balance sheets as of March 31, 2017 and December 31, 2016 , statements of income for the three months ended March 31, 2017 and 2016 and statements of cash flows for the three months ended March 31, 2017 and 2016 for GLPI as the parent guarantor, for GLP Capital, L.P. and GLP Financing II, Inc. as the subsidiary issuers and the other subsidiary non-issuers is presented below.
 

21


At March 31, 2017
Condensed Consolidating Balance Sheet
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
1,840,843

 
$
1,873,347

 
$

 
$
3,714,190

Land rights, net
 

 

 
588,447

 

 
588,447

Property and equipment, used in operations, net
 

 
22,084

 
94,363

 

 
116,447

Investment in direct financing lease, net
 

 

 
2,693,099

 

 
2,693,099

Cash and cash equivalents
 

 
1,403

 
21,958

 

 
23,361

Prepaid expenses
 

 
4,523

 
3,599

 

 
8,122

Goodwill
 

 

 
75,521

 

 
75,521

Other intangible assets
 

 

 
9,577

 

 
9,577

Loan receivable
 

 

 
13,000

 

 
13,000

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
2,407,336

 
5,169,785

 
2,918,982

 
(10,496,103
)
 

Deferred tax assets
 


 

 
4,678

 

 
4,678

Other assets
 

 
45,997

 
21,960

 

 
67,957

Total assets
 
$
2,407,336

 
$
7,278,230

 
$
8,318,531

 
$
(10,689,698
)
 
$
7,314,399

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
740

 
$
215

 
$

 
$
955

Accrued expenses
 

 
414

 
5,609

 

 
6,023

Accrued interest
 

 
75,671

 

 

 
75,671

Accrued salaries and wages
 

 
1,653

 
1,732

 

 
3,385

Gaming, property, and other taxes
 

 
22,323

 
19,257

 

 
41,580

Income taxes
 

 
389

 
2,549

 

 
2,938

Long-term debt, net of unamortized debt issuance costs
 

 
4,573,194

 

 

 
4,573,194

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred rental revenue
 

 
177,160

 
5,137

 

 
182,297

Deferred tax liabilities
 

 

 
264

 

 
264

Other liabilities
 

 
19,351

 
1,405

 

 
20,756

Total liabilities
 

 
4,870,895

 
229,763

 
(193,595
)
 
4,907,063

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity (deficit)
 
 

 
 

 
 

 
 

 
 

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2017)
 

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 208,137,358 shares issued at March 31, 2017)
 
2,081

 
2,081

 
2,081

 
(4,162
)
 
2,081

Additional paid-in capital
 
3,769,502

 
3,769,502

 
9,333,655

 
(13,103,157
)
 
3,769,502

Retained accumulated (deficit) earnings
 
(1,364,247
)
 
(1,364,248
)
 
(1,246,968
)
 
2,611,216

 
(1,364,247
)
Total shareholders’ equity (deficit)
 
2,407,336

 
2,407,335

 
8,088,768

 
(10,496,103
)
 
2,407,336

Total liabilities and shareholders’ equity (deficit)
 
$
2,407,336

 
$
7,278,230

 
$
8,318,531

 
$
(10,689,698
)
 
$
7,314,399

 



22


Three months ended March 31, 2017
Condensed Consolidating Statement of Income
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
97,752

 
$
67,409

 
$

 
$
165,161

Income from direct financing lease
 

 

 
17,824

 

 
17,824

Real estate taxes paid by tenants
 

 
11,156

 
10,564

 

 
21,720

Total rental revenue and income from direct financing lease
 

 
108,908

 
95,797

 

 
204,705

Gaming, food, beverage and other
 

 

 
39,260

 

 
39,260

Total revenues
 

 
108,908

 
135,057

 

 
243,965

Less promotional allowances
 

 

 
(1,252
)
 

 
(1,252
)
Net revenues
 

 
108,908

 
133,805

 

 
242,713

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming, food, beverage and other
 

 

 
21,076

 

 
21,076

Real estate taxes
 

 
11,183

 
10,960

 

 
22,143

General and administrative
 

 
10,895

 
10,336

 

 
21,231

Depreciation
 

 
23,248

 
5,009

 

 
28,257

Total operating expenses
 

 
45,326

 
47,381

 

 
92,707

Income from operations
 

 
63,582

 
86,424

 

 
150,006

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 

Interest expense
 

 
(53,949
)
 

 


 
(53,949
)
Interest income
 

 

 
464

 

 
464

Intercompany dividends and interest
 

 
115,773

 
1,123

 
(116,896
)
 

Total other income (expenses)
 

 
61,824

 
1,587

 
(116,896
)
 
(53,485
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
125,406

 
88,011

 
(116,896
)
 
96,521

Income tax expense
 

 
370

 
2,160

 

 
2,530

Net income (loss)
 
$

 
$
125,036

 
$
85,851

 
$
(116,896
)
 
$
93,991


23


Three months ended March 31, 2017
Condensed Consolidating Statement of Cash Flows
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating activities
 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
$

 
$
125,036

 
$
85,851

 
$
(116,896
)
 
$
93,991

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 

 
 

 
 

 
 

 
 

Depreciation and amortization
 

 
23,248

 
7,320

 

 
30,568

Amortization of debt issuance costs
 

 
3,257

 

 

 
3,257

Losses on dispositions of property
 

 

 
105

 

 
105

Deferred income taxes
 

 

 
(742
)
 

 
(742
)
Stock-based compensation
 

 
4,483

 

 

 
4,483

Straight-line rent adjustments
 

 
13,956

 
2,289

 

 
16,245

(Increase) decrease,
 
 

 
 

 
 

 
 

 
 
Prepaid expenses and other assets
 

 
(1,856
)
 
45

 
741

 
(1,070
)
Intercompany
 

 
(2,195
)
 
2,195

 

 

Increase (decrease),
 
 

 
 

 
 

 
 

 
 
Accounts payable
 

 
270

 
(451
)
 

 
(181
)
Accrued expenses
 

 
(20
)
 
238

 

 
218

Accrued interest
 

 
41,928

 

 

 
41,928

Accrued salaries and wages
 

 
(6,258
)
 
(976
)
 

 
(7,234
)
Gaming, property and other taxes
 

 
966

 
(153
)
 

 
813

Income taxes
 

 
370

 
3,309

 
(741
)
 
2,938

Other liabilities
 

 
1,462

 
(2,092
)
 

 
(630
)
Net cash provided by (used in) operating activities
 

 
204,647

 
96,938

 
(116,896
)
 
184,689

Investing activities
 
 

 
 

 
 

 
 

 
 

Capital project expenditures
 

 
(8
)
 

 

 
(8
)
Capital maintenance expenditures
 

 

 
(482
)
 

 
(482
)
Principal payments on loan receivable
 

 

 
13,200

 

 
13,200

Deposit for pending acquisition of real estate assets
 

 
(8,230
)
 

 

 
(8,230
)
Collection of principal payments on investment in direct financing lease
 

 

 
17,613

 

 
17,613

Net cash (used in) provided by investing activities
 

 
(8,238
)
 
30,331