Gaming and Leisure Properties, Inc.
Gaming & Leisure Properties, Inc. (Form: 10-Q, Received: 10/27/2017 09:21:43)
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 September 30, 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
 
October 25, 2017
Common Stock, par value $.01 per share
 
212,603,307
 



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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, 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 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)
 
 
September 30,
2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
3,687,319

 
$
3,739,091

Land rights, net
642,876

 
590,758

Property and equipment, used in operations, net
110,231

 
119,427

Investment in direct financing lease, net
2,656,252

 
2,710,711

Cash and cash equivalents
43,634

 
36,556

Prepaid expenses
9,762

 
7,477

Goodwill
75,521

 
75,521

Other intangible assets
9,577

 
9,577

Loan receivable
13,000

 
26,200

Deferred tax assets
5,898

 
3,922

Other assets
80,738

 
50,090

Total assets
$
7,334,808

 
$
7,369,330

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
435

 
$
1,079

Accrued expenses
8,077

 
6,590

Accrued interest
75,881

 
33,743

Accrued salaries and wages
6,884

 
10,619

Gaming, property, and other taxes
61,529

 
32,584

Long-term debt, net of unamortized debt issuance costs
4,449,652

 
4,664,965

Deferred rental revenue
215,407

 
166,052

Deferred tax liabilities
280

 
265

Other liabilities
23,559

 
19,564

Total liabilities
4,841,704

 
4,935,461

 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at September 30, 2017 and December 31, 2016)

 

Common stock ($.01 par value, 500,000,000 shares authorized, 212,603,307 and 207,676,827 shares issued at September 30, 2017 and December 31, 2016, respectively)
2,126

 
2,077

Additional paid-in capital
3,927,786

 
3,760,729

Retained accumulated deficit
(1,436,808
)
 
(1,328,937
)
Total shareholders’ equity
2,493,104

 
2,433,869

Total liabilities and shareholders’ equity
$
7,334,808

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Rental income
$
169,030

 
$
160,664

 
$
501,954

 
$
402,980

Income from direct financing lease
19,037

 
18,155

 
55,377

 
30,786

Real estate taxes paid by tenants
21,422

 
20,438

 
63,982

 
47,938

Total rental revenue and income from direct financing lease
209,489

 
199,257

 
621,313

 
481,704

Gaming, food, beverage and other
36,198

 
35,383

 
112,947

 
111,913

Total revenues
245,687

 
234,640

 
734,260

 
593,617

Less promotional allowances
(1,181
)
 
(1,365
)
 
(3,650
)
 
(4,161
)
Net revenues
244,506

 
233,275

 
730,610

 
589,456

 
 
 
 
 
 
 
 
Operating expenses
 

 
 

 
 

 
 

Gaming, food, beverage and other
19,890

 
20,117

 
61,635

 
62,293

Real estate taxes
21,751

 
20,866

 
64,806

 
49,148

General and administrative
21,534

 
21,821

 
63,456

 
64,988

Depreciation
28,632

 
27,165

 
85,312

 
81,267

Total operating expenses
91,807

 
89,969

 
275,209

 
257,696

Income from operations
152,699

 
143,306

 
455,401

 
331,760

 
 
 
 
 
 
 
 
Other income (expenses)
 

 
 

 
 

 
 

Interest expense
(54,493
)
 
(52,880
)
 
(163,099
)
 
(132,217
)
Interest income
492

 
481

 
1,443

 
1,652

Total other expenses
(54,001
)
 
(52,399
)
 
(161,656
)
 
(130,565
)
 
 
 
 
 
 
 
 
Income before income taxes
98,698

 
90,907

 
293,745

 
201,195

Income tax expense
1,684

 
1,307

 
6,406

 
5,582

Net income
$
97,014

 
$
89,600

 
$
287,339

 
$
195,613

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic earnings per common share
$
0.46

 
$
0.43

 
$
1.37

 
$
1.15

Diluted earnings per common share
$
0.45

 
$
0.43

 
$
1.35

 
$
1.14

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.63

 
$
0.60

 
$
1.87

 
$
1.72

 
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
3,864,872

 
38

 
139,376

 

 
139,414

Stock option activity
899,846

 
9

 
18,632

 

 
18,641

Restricted stock activity
161,762

 
2

 
9,049

 

 
9,051

Dividends paid

 

 

 
(395,210
)
 
(395,210
)
Net income

 

 

 
287,339

 
287,339

Balance, September 30, 2017
212,603,307

 
$
2,126

 
$
3,927,786

 
$
(1,436,808
)
 
$
2,493,104

 
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)
 
Nine months ended September 30,
 
2017
 
2016
 
 
 
 
 
Operating activities
 
 

 
 

Net income
 
$
287,339

 
$
195,613

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

 
 

Depreciation and amortization
 
92,939

 
85,119

Amortization of debt issuance costs
 
9,770

 
11,889

Losses (gains) on dispositions of property
 
515

 
(460
)
Deferred income taxes
 
(1,946
)
 
(997
)
Stock-based compensation
 
11,951

 
13,804

Straight-line rent adjustments
 
49,355

 
42,429

(Increase), decrease
 
 

 
 

Prepaid expenses and other assets
 
(1,504
)
 
9,935

Increase, (decrease)
 
 

 
 

Accounts payable
 
(701
)
 
57

Accrued expenses
 
37

 
(4,123
)
Accrued interest
 
42,138

 
55,744

Accrued salaries and wages
 
(3,735
)
 
(5,498
)
Gaming, property and other taxes
 
(231
)
 
840

Other liabilities
 
3,177

 
1,093

Net cash provided by operating activities
 
489,104

 
405,445

Investing activities
 
 

 
 

Capital project expenditures
 
(78
)
 
(323
)
Capital maintenance expenditures
 
(2,187
)
 
(1,693
)
Proceeds from sale of property and equipment
 
914

 
1,131

Principal payments on loan receivable
 
13,200

 
2,612

Acquisition of real estate assets
 
(83,252
)
 
(3,267,123
)
Collections of principal payments on investment in direct financing lease
 
54,459

 
30,529

Net cash used in investing activities
 
(16,944
)
 
(3,234,867
)
Financing activities
 
 

 
 

Dividends paid
 
(395,210
)
 
(303,639
)
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings
 
15,797

 
102,598

Proceeds from issuance of common stock, net of issuance costs
 
139,414

 
870,931

Proceeds from issuance of long-term debt
 
100,000

 
2,502,000

Financing costs
 

 
(31,908
)
Repayments of long-term debt
 
(325,083
)
 
(327,076
)
Net cash (used in) provided by financing activities
 
(465,082
)
 
2,812,906

Net increase (decrease) in cash and cash equivalents
 
7,078

 
(16,516
)
Cash and cash equivalents at beginning of period
 
36,556

 
41,875

Cash and cash equivalents at end of period
 
$
43,634

 
$
25,359

 
See Note 15 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 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 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 leases 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" 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 September 30, 2017 , GLPI’s portfolio consisted of 38 gaming and related facilities, including the TRS Properties, the real property associated with 20 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 September 30, 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 May 1, 2017 the Company purchased the real property assets of Bally's Casino Tunica and Resorts Casino Tunica (the "Tunica Properties") for $82.9 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 cash 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. See Note 5 for additional information on the acquisition of the Tunica Properties.

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 statements of income for the three and nine months ended September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 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 May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting . This ASU provides clarity about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. Specifically, ASU 2017-09 clarifies that changes to the terms or conditions of an award should be accounted for as a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to significantly impact its accounting for share-based payment awards, as changes to awards' terms and conditions subsequent to the grant date are unusual and infrequent in nature.

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 periods 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.

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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 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.
 
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 five-step 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 were 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 has completed its evaluation of 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. 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 the portion 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. The revenue deferral will be calculated from the portion of the transaction price allocated to the points based upon their retail value. In addition, 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, rather they will be presented on a net basis within gaming, food, beverage and other revenue. This change has no impact to net revenues and is for presentation purposes only. The Company intends to adopt ASU 2014-09 on January 1, 2018 using the modified retrospective approach, which will require a cumulative adjustment to retained earnings of approximately $400,000 at the adoption date.







10


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.

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):
 
September 30, 2017
 
December 31, 2016
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
43,634

 
43,634

 
36,556

 
36,556

Deferred compensation plan assets
21,351

 
21,351

 
17,593

 
17,593

Loan receivable
13,000

 
13,000

 
26,200

 
26,200

Financial liabilities:
 

 
 

 
 

 
 

Long-term debt
 

 
 

 
 

 
 

Senior unsecured credit facility
1,065,000

 
1,056,750

 
1,290,000

 
1,272,852

Senior unsecured notes
3,425,000

 
3,634,090

 
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.

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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 9.

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" 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. See Note 3 to the condensed consolidated financial statements for a summary of anticipated changes to the recognition of revenue at the TRS Properties upon the adoption of ASU 2014-09 on January 1, 2018.

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 and nine months ended September 30, 2017 , these expenses, which are primarily recorded within gaming expense in the condensed consolidated statements of income, totaled $14.4 million and $44.1 million , respectively, as compared to $13.9 million and $43.9 million for the three and nine months ended September 30, 2016 .

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.





12


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 nine months ended September 30, 2017 and 2016
        
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(in thousands)
Determination of shares:
 

 
 

 
 

 
 

Weighted-average common shares outstanding
212,500

 
205,826

 
210,059

 
168,955

Assumed conversion of dilutive employee stock-based awards
595

 
1,293

 
684

 
1,983

Assumed conversion of restricted stock awards
154

 
185

 
146

 
158

Assumed conversion of performance-based restricted stock awards
1,304

 
572

 
1,209

 
453

Diluted weighted-average common shares outstanding
214,553

 
207,876

 
212,098

 
171,549


The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and nine months ended September 30, 2017 and 2016
        
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(in thousands, except per share data)
Calculation of basic EPS:
 

 
 

 
 

 
 

Net income
$
97,014

 
$
89,600

 
$
287,339

 
$
195,613

Less: Net income allocated to participating securities
(157
)
 
(184
)
 
(470
)
 
(489
)
Net income attributable to common shareholders
$
96,857

 
$
89,416

 
$
286,869

 
$
195,124

Weighted-average common shares outstanding
212,500

 
205,826

 
210,059

 
168,955

Basic EPS
$
0.46

 
$
0.43

 
$
1.37

 
$
1.15

 
 
 
 
 
 
 
 
Calculation of diluted EPS:
 

 
 

 
 

 
 

Net income
$
97,014

 
$
89,600

 
$
287,339

 
$
195,613

Diluted weighted-average common shares outstanding
214,553

 
207,876

 
212,098

 
171,549

Diluted EPS
$
0.45

 
$
0.43

 
$
1.35

 
$
1.14


There were no outstanding equity based awards during the three months ended September 30, 2017 and 4,616 outstanding equity based awards during the nine months ended September 30, 2017 , that were not included in the computation of diluted EPS because they were antidilutive. There were 10,846 and 23,954 outstanding equity based awards during the three and nine months ended September 30, 2016 , respectively, that were not included in the computation of diluted EPS because of being 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 September 30, 2017 , there was $6.6 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 1.87 years . For the three and nine months ended September 30, 2017 , the Company recognized $1.2 million and $4.7 million , respectively, of compensation expense associated with these awards, compared to $1.9 million and $5.6 million for the three and nine months ended September 30, 2016 , respectively.

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The following table contains information on restricted stock award activity for the nine months ended September 30, 2017 :
 
Number of Award
Shares
Outstanding at December 31, 2016
413,242

Granted
184,391

Released
(251,147
)
Canceled
(1,976
)
Outstanding at September 30, 2017
344,510

 
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 companies included in the MSCI US REIT index and 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 September 30, 2017 , there was $12.4 million of total unrecognized compensation cost, which will be recognized over the performance-based restricted stock awards' remaining weighted average vesting period of 1.80 years .  For the three and nine months ended September 30, 2017 , the Company recognized $2.4 million and $7.2 million , respectively, of compensation expense associated with these awards, compared to $2.8 million and $8.2 million for the three and nine months ended September 30, 2016 , respectively.

The following table contains information on performance-based restricted stock award activity for the nine months ended September 30, 2017 :
 
Number of  Performance-Based Award Shares
Outstanding at December 31, 2016
1,106,000

Granted
558,000

Released

Canceled

Outstanding at September 30, 2017
1,664,000


5. Acquisitions

On May 1, 2017, the Company acquired the real property assets of Bally's Casino Tunica and Resorts Casino Tunica for $82.9 million . The Company acquired both Bally's Casino Tunica and Resorts Casino Tunica, as well as the Resorts Hotel and land at Bally's Casino Tunica. Land rights to three long-term ground leases related to the Tunica Properties were also acquired in the transaction. 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 these ground leases. As the primary obligor under these ground leases, the Company will record annual obligations of $2.7 million in its financial statements as both revenue and expense. However, the Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.

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 cash 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.

Also during the nine months ended September 30, 2017, the purchase price for the real property assets of the Meadows Racetrack and Casino was increased by $0.4 million to $323.3 million , consistent with the terms outlined in the purchase agreements entered into regarding the sale of the Meadows' real property and operating assets to the Company and Pinnacle, respectively. The Meadows' real estate assets were purchased from Cannery Casino Resorts ("CCR") on September 9, 2016 and were leased to Pinnacle, who purchased the entities holding the Meadows' gaming and racing licenses and operating assets directly from CCR.


14


6.               Real Estate Investments
 
Real estate investments, net, represents investments in 36 rental properties and the corporate headquarters building and is summarized as follows:
 
 
September 30,
2017
 
December 31,
2016
 
(in thousands)
Land and improvements
$
2,057,938

 
$
2,057,391

Building and improvements
2,461,573

 
2,438,581

Total real estate investments
4,519,511

 
4,495,972

Less accumulated depreciation
(832,192
)
 
(756,881
)
Real estate investments, net
$
3,687,319

 
$
3,739,091


7. Land Rights

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.

The land rights are amortized over the individual lease term of each ground lease, including all renewal options, which ranged from 25 years to 92 years at their respective acquisition dates. Land rights net, consists of the following:

 
September 30,
2017
 
December 31,
2016
 
(in thousands)
Land rights
$
656,666

 
$
596,921

Less accumulated amortization
(13,790
)
 
(6,163
)
Land rights, net
$
642,876

 
$
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 $2.7 million and $7.6 million , respectively, for the three and nine months ended September 30, 2017 . Amortization expense related to the ground leases totaled $2.3 million and $3.9 million , respectively, for the three and nine months ended September 30, 2016 .

As of September 30, 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
$
2,727

2018
10,910

2019
10,910

2020
10,910

2021
10,910

Thereafter
596,509

Total
$
642,876







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8.               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: 
 
September 30,
2017
 
December 31,
2016
 
(in thousands)
Land and improvements
$
30,276

 
$
30,965

Building and improvements
116,357

 
117,350

Furniture, fixtures, and equipment
114,051

 
114,965

Construction in progress
37

 
330

Total property and equipment
260,721

 
263,610

Less accumulated depreciation
(150,490
)
 
(144,183
)
Property and equipment, net
$
110,231

 
$
119,427


9. 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 September 30, 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:
 
September 30,
2017
 
December 31,
2016
 
(in thousands)
Minimum lease payments receivable
$
3,299,114

 
$
3,405,131

Unguaranteed residual value
689,811

 
689,811

Gross investment in direct financing lease
3,988,925

 
4,094,942

Less: unearned income
(1,332,673
)
 
(1,384,231
)
Investment in direct financing lease, net
$
2,656,252

 
$
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.

16


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 September 30, 2017 , the balance of the new loan is $13.0 million . The collectability of the loan balance is reasonably assured, and as of September 30, 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.

10.               Long-term Debt
 
Long-term debt is as follows: 
 
September 30,
2017
 
December 31,
2016
 
(in thousands)
Unsecured term loan A
$
240,000

 
$
300,000

Unsecured term loan A-1
825,000

 
825,000

Unsecured $700 million revolver

 
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
1,258

 
1,341

Total long-term debt
4,491,258

 
4,716,341

Less: unamortized debt issuance costs
(41,606
)
 
(51,376
)
Total long-term debt, net of unamortized debt issuance costs
$
4,449,652

 
$
4,664,965


The following is a schedule of future minimum repayments of long-term debt as of September 30, 2017 (in thousands): 
Within one year
$
116

2-3 years
790,249

4-5 years
2,225,274

Over 5 years
1,475,619

Total minimum payments
$
4,491,258

 
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 September 30, 2017 , the Credit Facility had a gross outstanding balance of $1,065 million , consisting of the $1,065 million Term Loan A and A-1 facilities. Additionally, at September 30, 2017 , the Company was contingently obligated under letters of credit issued pursuant to the senior unsecured credit facility with face amounts aggregating approximately $0.4 million , resulting in $699.6 million of available borrowing capacity under the revolving credit facility as of September 30, 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

17


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 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 September 30, 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 September 30, 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.

11.               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. 

12. Revenue Recognition

As of September 30, 2017 , 20 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 of 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

18


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

19


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. See Note 3 to the condensed consolidated financial statements for a summary of anticipated changes to the recognition of revenue at the TRS Properties upon the adoption of ASU 2014-09 on January 1, 2018.

The following table discloses the components of gaming, food, beverage and other revenue within the condensed consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 :
    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(in thousands)
Video lottery
$
29,547

 
$
28,285

 
$
91,563

 
$
89,403

Table game
4,034

 
4,226

 
13,288

 
13,417

Poker
304

 
259

 
888

 
872

Food, beverage and other
$
2,313

 
$
2,613

 
7,208

 
8,221

Total gaming, food, beverage and other revenue, net of cash incentives
$
36,198

 
$
35,383

 
$
112,947

 
$
111,913


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.    

13.               Shareholders' Equity

Common Stock

During August 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.
No shares were sold under the ATM Program during the three months ended September 30, 2017 . During the nine months ended September 30, 2017 , GLPI sold 3,864,872 shares of its common stock at an average price of $36.22 per share under the ATM Program, which generated gross proceeds of approximately $140.0 million (net proceeds of approximately $139.4 million ). Program to date, the Company has sold 5,186,871 shares of its common stock at an average price of $35.91 per share under the ATM Program and generated gross proceeds of approximately $186.3 million (net proceeds of approximately $185.0 million ). The Company used the net proceeds from the ATM Program to partially fund its acquisition of the Meadows' and Tunica real estate assets. As of September 30, 2017 , the Company had $213.7 million remaining for issuance under the ATM Program and had not entered into any forward sale agreements.



20


Dividends

The following table lists the dividends declared and paid by the Company during the nine months ended September 30, 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

April 25, 2017
 
June 16, 2017
 
Common Stock
 
$
0.62

 
Second Quarter 2017
 
June 30, 2017
 
$
131,554

July 25, 2017
 
September 8, 2017
 
Common Stock
 
$
0.63

 
Third Quarter 2017
 
September 22, 2017
 
$
133,936

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

 
First Quarter 2016
 
March 25, 2016
 
$
65,345

April 25, 2016
 
June 2, 2016
 
Common Stock
 
$
0.56

 
Second Quarter 2016
 
June 17, 2016
 
$
113,212

August 3, 2016
 
September 12, 2016
 
Common Stock
 
$
0.60

 
Third Quarter 2016
 
September 23, 2016
 
$
124,262


In addition, for the three and nine months ended September 30, 2017 , dividend payments were made to GLPI restricted stock award holders in the amount of $0.2 million and $0.7 million , respectively, as compared to $0.2 million and $0.8 million for the three and nine months ended September 30, 2016 , respectively.

14.        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 September 30, 2017
 
Three Months Ended September 30, 2016
(in thousands)
 
GLP Capital
 
TRS Properties
 
Eliminations  (1)
 
Total
 
GLP Capital
 
TRS Properties
 
Eliminations  (1)
 
Total
Net revenues
 
$
209,489

 
$
35,017

 
$

 
$
244,506

 
$
199,257

 
$
34,018

 
$

 
$
233,275

Income from operations
 
146,731

 
5,968

 

 
152,699

 
138,270

 
5,036

 

 
143,306

Interest, net
 
54,001

 
2,601

 
(2,601
)
 
54,001

 
52,400

 
2,600

 
(2,601
)
 
52,399

Income before income taxes
 
95,331

 
3,367

 

 
98,698

 
88,471

 
2,436

 

 
90,907

Income tax expense
 
242

 
1,442

 

 
1,684

 
210

 
1,097

 

 
1,307

Net income
 
95,089

 
1,925

 

 
97,014

 
88,261

 
1,339

 

 
89,600

Depreciation
 
25,820

 
2,812

 

 
28,632

 
24,328

 
2,837

 

 
27,165

Capital project expenditures, net of reimbursements
 
10

 

 

 
10

 
54

 

 

 
54

Capital maintenance expenditures
 

 
460

 

 
460

 

 
496

 

 
496

 
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2016
(in thousands)
 
GLP Capital
 
TRS Properties
 
Eliminations  (1)
 
Total
 
GLP Capital 
 
TRS Properties
 
Eliminations  (1)
 
Total
Net revenues
 
$
621,313

 
$
109,297

 
$

 
$
730,610

 
$
481,704

 
$
107,752

 
$

 
$
589,456

Income from operations
 
434,166

 
21,235

 

 
455,401

 
312,586

 
19,174

 

 
331,760

Interest, net
 
161,658

 
7,802

 
(7,804
)
 
161,656

 
130,568

 
7,801

 
(7,804
)
 
130,565

Income before income taxes
 
280,312

 
13,433

 

 
293,745

 
189,822

 
11,373

 

 
201,195

Income tax expense
 
854

 
5,552

 

 
6,406

 
806

 
4,776

 

 
5,582

Net income
 
279,458

 
7,881

 

 
287,339

 
189,016

 
6,597

 

 
195,613

Depreciation
 
76,870

 
8,442

 

 
85,312

 
72,737

 
8,530

 

 
81,267

Capital project expenditures
 
78

 

 

 
78

 
222

 
101

 

 
323

Capital maintenance expenditures
 

 
2,187

 

 
2,187

 

 
1,693

 

 
1,693

 

21


(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.

15.        Supplemental Disclosures of Cash Flow Information and Noncash Activities

Supplemental disclosures of cash flow information are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(in thousands)
Cash paid for income taxes, net of refunds received
$
2,571

 
$
1,608

 
$
8,995

 
$
4,638

Cash paid for interest
8,503

 
6,201

 
111,116

 
64,502


Noncash Investing and Financing Activities

In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle for approximately $4.8 billion . In addition to the cash consideration paid to Pinnacle, the Company also issued equity to partially finance the transaction. The Company issued shares of common stock with an aggregate value of $1.824 billion (approximately 56.0 million shares of common stock) in partial exchange for the assets acquired.

16.        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 September 30, 2017 and December 31, 2016 , statements of income for the three and nine months ended September 30, 2017 and 2016 and statements of cash flows for the nine months ended September 30, 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.
 

22


At September 30, 2017
Condensed Consolidating Balance Sheet
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
1,817,938

 
$
1,869,381

 
$

 
$
3,687,319

Land rights, net
 

 
59,051

 
583,825

 

 
642,876

Property and equipment, used in operations, net
 

 
21,086

 
89,145

 

 
110,231

Investment in direct financing lease, net
 

 

 
2,656,252

 

 
2,656,252

Cash and cash equivalents
 

 
13,543

 
30,091

 

 
43,634

Prepaid expenses
 

 
4,845

 
3,933

 
984

 
9,762

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
 
2,493,104

 
5,123,510

 
2,997,133

 
(10,613,747
)
 

Deferred tax assets
 


 

 
5,898

 

 
5,898

Other assets
 

 
45,182

 
35,556

 

 
80,738

Total assets
 
$
2,493,104

 
$
7,278,750

 
$
8,369,312

 
$
(10,806,358
)
 
$
7,334,808

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
257

 
$
178

 
$

 
$
435

Accrued expenses
 

 
699

 
7,378

 

 
8,077

Accrued interest
 

 
75,881

 

 

 
75,881

Accrued salaries and wages
 

 
4,415

 
2,469

 

 
6,884

Gaming, property, and other taxes
 

 
27,842

 
33,687

 

 
61,529

Income taxes
 

 
(217
)
 
(767
)
 
984

 

Long-term debt, net of unamortized debt issuance costs
 

 
4,449,652

 

 

 
4,449,652

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred rental revenue
 

 
205,691

 
9,716

 

 
215,407

Deferred tax liabilities
 

 

 
280

 

 
280

Other liabilities
 

 
21,425

 
2,134

 

 
23,559

Total liabilities
 

 
4,785,645

 
248,670

 
(192,611
)
 
4,841,704

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity (deficit)
 
 

 
 

 
 

 
 

 
 

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2017)
 

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 212,603,307 shares issued at September 30, 2017)
 
2,126

 
2,126

 
2,126

 
(4,252
)
 
2,126

Additional paid-in capital
 
3,927,786

 
3,927,790

 
9,492,711

 
(13,420,501
)
 
3,927,786

Retained accumulated (deficit) earnings
 
(1,436,808
)
 
(1,436,811
)
 
(1,374,195
)
 
2,811,006

 
(1,436,808
)
Total shareholders’ equity (deficit)
 
2,493,104

 
2,493,105

 
8,120,642

 
(10,613,747
)
 
2,493,104

Total liabilities and shareholders’ equity (deficit)
 
$
2,493,104

 
$
7,278,750

 
$
8,369,312

 
$
(10,806,358
)
 
$
7,334,808


23


Three months ended September 30, 2017
Condensed Consolidating Statement of Income
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
 
 
 
 
 
 
 
 
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
100,310

 
$
68,720

 
$

 
$
169,030

Income from direct financing lease
 

 

 
19,037

 

 
19,037

Real estate taxes paid by tenants
 

 
11,093

 
10,329

 

 
21,422

Total rental revenue and income from direct financing lease
 

 
111,403

 
98,086

 

 
209,489

Gaming, food, beverage and other
 

 

 
36,198

 

 
36,198

Total revenues
 

 
111,403

 
134,284

 

 
245,687

Less promotional allowances
 

 

 
(1,181
)
 

 
(1,181
)
Net revenues
 

 
111,403

 
133,103

 

 
244,506

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming, food, beverage and other
 

 

 
19,890