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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
or
|
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36124
Gaming 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)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $.01 per share | | GLPI | | Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
|
| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |
| | |
Title | | October 24, 2019 |
Common Stock, par value $.01 per share | | 214,692,577 |
Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, goals and objectives.
Forward-looking statements in this document include, but are not limited to, statements regarding our ability to grow our portfolio of gaming facilities and to secure additional avenues of growth beyond the gaming industry. In addition, statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
| |
• | the availability of and the ability to identify suitable and attractive acquisition and development opportunities and the ability to acquire and lease the respective properties on favorable terms; |
| |
• | the degree and nature of our competition; |
| |
• | the ability to receive, or delays in obtaining, the regulatory approvals required to own and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects; |
| |
• | our ability to maintain our status as a real estate investment trust ("REIT"), given the highly technical and complex Internal Revenue Code (the "Code") provisions for which only limited judicial and administrative authorities exist, where even a technical or inadvertent violation could jeopardize REIT qualification and where requirements may depend in part on the actions of third parties over which the Company has no control or only limited influence; |
| |
• | the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis in order for the Company to maintain its REIT status; |
| |
• | the ability and willingness of our tenants, operators and other third parties to meet and/or perform their obligations under their respective contractual arrangements with us, including lease and note requirements and in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; |
| |
• | the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation to satisfy obligations under their existing credit facilities and other indebtedness; |
| |
• | the ability of our tenants and operators to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract customers; |
| |
• | the satisfaction of the mortgage loan made to Eldorado Resorts, Inc. ("Eldorado") by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company; |
| |
• | the ability to generate sufficient cash flows to service our outstanding indebtedness; |
| |
• | the access to debt and equity capital markets, including for acquisitions or refinancings due to maturities; |
| |
• | adverse changes in our credit rating; |
| |
• | fluctuating interest rates; |
| |
• | the impact of global or regional economic conditions; |
| |
• | the availability of qualified personnel and our ability to retain our key management personnel; |
| |
• | GLPI's obligation to indemnify Penn National Gaming, Inc. and its subsidiaries in certain circumstances if the spin-off transaction described in Note 1 to the condensed consolidated financial statements fails to be tax-free; |
| |
• | changes in the United States tax law and other state, federal or local laws, whether or not specific to real estate, REITs or to the gaming, lodging or hospitality industries; |
| |
• | changes in accounting standards; |
| |
• | the impact of weather events or conditions, natural disasters, acts of terrorism and other international hostilities, war or political instability; |
| |
• | other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and |
| |
• | additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (our "Annual Report"), in this Quarterly Report on Form 10-Q and Current Reports on Form 8-K as filed with the United States Securities and Exchange Commission. |
Certain of these factors and other factors, risks and uncertainties are discussed in the "Risk Factors" section in the Company’s Annual Report 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 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.
GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (unaudited) | | |
Assets | | | |
Real estate investments, net | $ | 7,154,980 |
| | $ | 7,331,460 |
|
Property and equipment, used in operations, net | 95,617 |
| | 100,884 |
|
Mortgage loans receivable | 303,684 |
| | 303,684 |
|
Right-of-use assets and land rights, net | 859,293 |
| | 673,207 |
|
Cash and cash equivalents | 25,556 |
| | 25,783 |
|
Prepaid expenses | 2,665 |
| | 30,967 |
|
Goodwill | 16,067 |
| | 16,067 |
|
Other intangible assets | 9,577 |
| | 9,577 |
|
Loan receivable | — |
| | 13,000 |
|
Deferred tax assets | 5,812 |
| | 5,178 |
|
Other assets | 31,501 |
| | 67,486 |
|
Total assets | $ | 8,504,752 |
| | $ | 8,577,293 |
|
| | | |
Liabilities | | | |
Accounts payable | $ | 166 |
| | $ | 2,511 |
|
Accrued expenses | 6,716 |
| | 30,297 |
|
Accrued interest | 84,456 |
| | 45,261 |
|
Accrued salaries and wages | 10,215 |
| | 17,010 |
|
Gaming, property, and other taxes | 1,111 |
| | 42,879 |
|
Lease liabilities | 201,497 |
| | — |
|
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,749,136 |
| | 5,853,497 |
|
Deferred rental revenue | 319,841 |
| | 293,911 |
|
Deferred tax liabilities | 262 |
| | 261 |
|
Other liabilities | 24,720 |
| | 26,059 |
|
Total liabilities | 6,398,120 |
| | 6,311,686 |
|
| | | |
Shareholders’ equity | | | |
| | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at September 30, 2019 and December 31, 2018) | — |
| | — |
|
Common stock ($.01 par value, 500,000,000 shares authorized, 214,682,856 and 214,211,932 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively) | 2,147 |
| | 2,142 |
|
Additional paid-in capital | 3,955,555 |
| | 3,952,503 |
|
Accumulated deficit | (1,851,070 | ) | | (1,689,038 | ) |
Total shareholders’ equity | 2,106,632 |
| | 2,265,607 |
|
Total liabilities and shareholders’ equity | $ | 8,504,752 |
| | $ | 8,577,293 |
|
See accompanying notes to the condensed consolidated financial statements.
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, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Revenues | |
| | |
| | |
| | |
|
Rental income | $ | 248,789 |
| | $ | 170,276 |
| | $ | 745,030 |
| | $ | 509,546 |
|
Income from direct financing lease | — |
| | 30,843 |
| | — |
| | 76,448 |
|
Interest income from mortgaged real estate | 7,206 |
| | — |
| | 21,600 |
| | — |
|
Real estate taxes paid by tenants | — |
| | 21,270 |
| | — |
| | 64,031 |
|
Total income from real estate | 255,995 |
| | 222,389 |
| | 766,630 |
| | 650,025 |
|
Gaming, food, beverage and other | 31,617 |
| | 31,750 |
| | 97,859 |
| | 102,385 |
|
Total revenues | 287,612 |
| | 254,139 |
| | 864,489 |
| | 752,410 |
|
| | | | | | | |
Operating expenses | |
| | |
| | |
| | |
|
Gaming, food, beverage and other | 18,549 |
| | 18,962 |
| | 56,739 |
| | 59,027 |
|
Real estate taxes | — |
| | 21,586 |
| | — |
| | 64,981 |
|
Land rights and ground lease expense | 9,094 |
| | 6,484 |
| | 33,572 |
| | 19,460 |
|
General and administrative | 15,042 |
| | 15,006 |
| | 48,266 |
| | 56,272 |
|
Depreciation | 57,302 |
| | 27,267 |
| | 183,745 |
| | 82,744 |
|
Loan impairment charges | — |
| | — |
| | 13,000 |
| | — |
|
Total operating expenses | 99,987 |
| | 89,305 |
| | 335,322 |
| | 282,484 |
|
Income from operations | 187,625 |
| | 164,834 |
| | 529,167 |
| | 469,926 |
|
| | | | | | | |
Other income (expenses) | |
| | |
| | |
| | |
|
Interest expense | (75,111 | ) | | (60,341 | ) | | (228,362 | ) | | (171,464 | ) |
Interest income | 235 |
| | 1,418 |
| | 572 |
| | 2,790 |
|
Losses on debt extinguishment | (21,014 | ) | | — |
| | (21,014 | ) | | (3,473 | ) |
Total other expenses | (95,890 | ) | | (58,923 | ) | | (248,804 | ) | | (172,147 | ) |
| | | | | | | |
Income before income taxes | 91,735 |
| | 105,911 |
| | 280,363 |
| | 297,779 |
|
Income tax expense | 1,188 |
| | 1,096 |
| | 3,773 |
| | 4,194 |
|
Net income | $ | 90,547 |
| | $ | 104,815 |
| | $ | 276,590 |
| | $ | 293,585 |
|
| | | | | | | |
Earnings per common share: | |
| | |
| | |
| | |
|
Basic earnings per common share | $ | 0.42 |
| | $ | 0.49 |
| | $ | 1.29 |
| | $ | 1.37 |
|
Diluted earnings per common share | $ | 0.42 |
| | $ | 0.49 |
| | $ | 1.29 |
| | $ | 1.37 |
|
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance, December 31, 2018 | 214,211,932 |
| | $ | 2,142 |
| | $ | 3,952,503 |
| | $ | (1,689,038 | ) | | $ | 2,265,607 |
|
Stock option activity | 26,799 |
| | — |
| | 592 |
| | — |
| | 592 |
|
Restricted stock activity | 406,769 |
| | 4 |
| | (5,327 | ) | | — |
| | (5,323 | ) |
Dividends paid ($0.68 per common share) | — |
| | — |
| | — |
| | (146,202 | ) | | (146,202 | ) |
Net income | — |
| | — |
| | — |
| | 93,010 |
| | 93,010 |
|
Balance, March 31, 2019 | 214,645,500 |
| | $ | 2,146 |
| | $ | 3,947,768 |
| | $ | (1,742,230 | ) | | $ | 2,207,684 |
|
Restricted stock activity | 27,635 |
| | 1 |
| | 4,181 |
| | — |
| | 4,182 |
|
Dividends paid ($0.68 per common share) | — |
| | — |
| | — |
| | (146,212 | ) | | (146,212 | ) |
Net income | — |
| | — |
| | — |
| | 93,033 |
| | 93,033 |
|
Balance, June 30, 2019 | 214,673,135 |
| | $ | 2,147 |
| | $ | 3,951,949 |
| | (1,795,409 | ) | | $ | 2,158,687 |
|
ATM Program offering costs | — |
| | — |
| | (239 | ) | | — |
| | (239 | ) |
Restricted stock activity | 9,721 |
| | — |
| | 3,845 |
| | — |
| | 3,845 |
|
Dividends paid ($0.68 per common share) | — |
| | — |
| | — |
| | (146,208 | ) | | (146,208 | ) |
Net income | — |
| | — |
| | — |
| | 90,547 |
| | 90,547 |
|
Balance, September 30, 2019 | 214,682,856 |
| | $ | 2,147 |
| | $ | 3,955,555 |
| | $ | (1,851,070 | ) | | $ | 2,106,632 |
|
|
| | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance, December 31, 2017 | 212,717,549 |
| | $ | 2,127 |
| | $ | 3,933,829 |
| | $ | (1,477,709 | ) | | $ | 2,458,247 |
|
Stock option activity | 297,605 |
| | 3 |
| | 5,241 |
| | — |
| | 5,244 |
|
Restricted stock activity | 483,095 |
| | 5 |
| | (8,293 | ) | | — |
| | (8,288 | ) |
Dividends paid ($0.63 per common share) | — |
| | — |
| | — |
| | (134,717 | ) | | (134,717 | ) |
Adoption of new revenue standard | — |
| | — |
| | — |
| | (410 | ) | | (410 | ) |
Net income | — |
| | — |
| | — |
| | 96,772 |
| | 96,772 |
|
Balance, March 31, 2018 | 213,498,249 |
| | $ | 2,135 |
| | $ | 3,930,777 |
| | $ | (1,516,064 | ) | | $ | 2,416,848 |
|
Stock option activity | 236,240 |
| | 2 |
| | 4,125 |
| | — |
| | 4,127 |
|
Restricted stock activity | 3,450 |
| | — |
| | 615 |
| | — |
| | 615 |
|
Dividends paid ($0.63 per common share) | — |
| | — |
| | — |
| | (134,820 | ) | | (134,820 | ) |
Net income | — |
| | — |
| | — |
| | 91,998 |
| | 91,998 |
|
Balance, June 30, 2018 | 213,737,939 |
| | $ | 2,137 |
| | $ | 3,935,517 |
| | $ | (1,558,886 | ) | | $ | 2,378,768 |
|
Stock option activity | 300,055 |
| | 3 |
| | 6,600 |
| | — |
| | 6,603 |
|
Restricted stock activity | — |
| | — |
| | 3,275 |
| | — |
| | 3,275 |
|
Dividends paid ($0.63 per common share) | — |
| | — |
| | — |
| | (135,065 | ) | | (135,065 | ) |
Net income | — |
| | — |
| | — |
| | 104,815 |
| | 104,815 |
|
Balance, September 30, 2018 | 214,037,994 |
| | $ | 2,140 |
| | $ | 3,945,392 |
| | $ | (1,589,136 | ) | | $ | 2,358,396 |
|
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
| | | | | | | | |
Nine months ended September 30, | | 2019 | | 2018 |
| | | | |
Operating activities | | |
| | |
|
Net income | | $ | 276,590 |
| | $ | 293,585 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 199,261 |
| | 90,926 |
|
Amortization of debt issuance costs, bond premiums and original issuance discounts | | 8,597 |
| | 9,278 |
|
Paid-in-kind interest income | | — |
| | (991 | ) |
Losses on dispositions of property | | 50 |
| | 354 |
|
Deferred income taxes | | (528 | ) | | (299 | ) |
Stock-based compensation | | 12,353 |
| | 7,878 |
|
Straight-line rent adjustments | | 25,930 |
| | 49,150 |
|
Losses on debt extinguishment | | 21,014 |
| | 3,473 |
|
Loan impairment charges | | 13,000 |
| | — |
|
| | | | |
(Increase), decrease | | |
| | |
|
Prepaid expenses and other assets | | (2,123 | ) | | (774 | ) |
Increase, (decrease) | | |
| | |
|
Accounts payable | | (2,345 | ) | | 1,136 |
|
Accrued expenses | | 780 |
| | 484 |
|
Accrued interest | | 39,195 |
| | 58,852 |
|
Accrued salaries and wages | | (6,795 | ) | | 4,026 |
|
Gaming, property and other taxes | | 47 |
| | 258 |
|
Other liabilities | | (1,340 | ) | | 882 |
|
Net cash provided by operating activities | | 583,686 |
| | 518,218 |
|
Investing activities | | |
| | |
|
Capital project expenditures | | — |
| | (20 | ) |
Capital maintenance expenditures | | (2,256 | ) | | (2,954 | ) |
Proceeds from sale of property and equipment | | 210 |
| | 3,146 |
|
Acquisition of real estate assets | | — |
| | (15,552 | ) |
Collections of principal payments on investment in direct financing lease | | — |
| | 37,241 |
|
Net cash (used in) provided by investing activities | | (2,046 | ) | | 21,861 |
|
Financing activities | | |
| | |
|
Dividends paid | | (438,622 | ) | | (404,602 | ) |
Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options | | (9,057 | ) | | 3,698 |
|
ATM Program offering costs | | (239 | ) | | — |
|
Proceeds from issuance of long-term debt | | 1,312,853 |
| | 2,107,405 |
|
Financing costs | | (10,005 | ) | | (30,889 | ) |
Repayments of long-term debt | | (1,417,918 | ) | | (1,080,087 | ) |
Premium and related costs paid on tender of senior unsecured notes | | (18,879 | ) | | (1,884 | ) |
Net cash (used in) provided by financing activities | | (581,867 | ) | | 593,641 |
|
Net (decrease) increase in cash and cash equivalents | | (227 | ) | | 1,133,720 |
|
Cash and cash equivalents at beginning of period | | 25,783 |
| | 29,054 |
|
Cash and cash equivalents at end of period | | $ | 25,556 |
| | $ | 1,162,774 |
|
See Note 16 to the condensed consolidated financial statements for supplemental cash flow information and noncash investing and financing activities.
Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
1. Business and Operations
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville (which are referred to as the "TRS Properties"), and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT.
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease, a triple-net operating lease with an initial term of 15 years (expiring October 31, 2028) with no purchase option, followed by four 5-year renewal options (exercisable by Penn) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc. In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease with an initial term of 10 years (expiring April 30, 2026) with no purchase option, followed by five 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by five 5-year renewal options (exercisable by Boyd) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million.
In addition to the acquisition of Plainridge Park described above, on October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement (the "Real Estate Purchase Agreement") dated April 15, 2018 between Tropicana and GLP Capital L.P., the operating partnership of GLPI ("GLP Capital"), which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. ("Eldorado") acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Eldorado and a wholly-owned subsidiary of Eldorado (the "Tropicana Merger Agreement") and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option followed by four successive 5-year renewal periods (exercisable by Eldorado) on the same terms and conditions (the "Eldorado Master Lease"). Additionally, on October 1, 2018, the Company made a mortgage loan to Eldorado in the amount of $246.0 million in connection with Eldorado’s acquisition of Lumière Place Casino and Hotel ("Lumière Place") (and together with the Tropicana Acquisition, the "Tropicana Transactions").
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, 2019, GLPI’s portfolio consisted of interests in 46 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 6 gaming and related facilities operated by Eldorado (including one mortgaged facility), the real property associated with 4 gaming and related facilities operated by Boyd (including one mortgaged facility) and the real property associated with the Casino Queen in East St. Louis, Illinois. These facilities are geographically diversified across 16 states and were 100% occupied at September 30, 2019. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.
In conjunction with the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASU 2016-02"), on January 1, 2019, the Company recorded right-of-use assets on the condensed consolidated balance sheet to represent the Company's rights to use the underlying leased assets for the term of the lease. As this asset related, in part, to the same leases which resulted in the below market lease asset the Company described as land rights, net on the December 31, 2018 condensed consolidated balance sheet, this line item has been re-named to right-of-use assets and land rights, net as the assets are required to be reported in the aggregate subsequent to the adoption of ASU 2016-02. Furthermore, under ASU 2016-02, the Company is no longer required to gross-up its financial statements for the real estate taxes paid directly by its tenants to third-parties.
The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.
Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2018 financial information has been derived from the Company’s audited consolidated financial statements.
3. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02. This ASU primarily provides new guidance for lessees on the accounting treatment of operating leases. Under the new guidance, lessees are required to recognize assets and liabilities arising from operating leases on the balance sheet. ASU 2016-02 also aligns lessor accounting with the revenue recognition guidance in Topic 606 of the Accounting Standards Codification. Generally speaking, ASU 2016-02 more significantly impacted the accounting for leases in which GLPI is the lessee by requiring the Company to record a right-of-use asset and lease liability on its condensed consolidated balance sheet for these leases. The Company's accounting treatment of its triple-net tenant leases, which are the primary source of revenues to the Company, were not significantly impacted by the adoption of ASU 2016-02, other than to eliminate the real estate tax gross-up discussed below.
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") which permits companies to apply the transition provisions of ASU 2016-02 at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors ("ASU 2018-20"). ASU 2018-20 clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02, the Company no longer grosses-up its financial statements for real estate taxes paid directly to third-
parties by its tenants. The Company notes, however, that ground leases for which the tenant pays the landlord directly on the Company's behalf are still required to be grossed-up within its condensed consolidated financial statements upon the adoption of ASU 2016-02, as these are not considered lessor costs. On January 1, 2019, the Company adopted ASU 2016-02 using the new transition option available under ASU 2018-11 and recorded right-of-use assets and related lease liabilities of $203 million on its condensed consolidated balance sheet to represent its rights to underlying assets and its future lease obligations. Also, in connection with the adoption of ASC 842 - Leases ("ASC 842"), the land rights recorded on balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets are now required to be reported in the aggregate with the Company's operating lease right-of-use assets, reflected as right-of-use assets and land rights, net on the condensed consolidated balance sheet. Furthermore, the Company elected the package of practical expedients, which among other things, did not require the Company to reassess the lease classification of its existing leases and the practical expedient related to land easements, which allowed the Company to bypass the reassessment of existing or expired land easements for the existence of a lease under ASC 842. See Note 7 for further disclosures related to the adoption of ASU 2016-02.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2018-15 to have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This ASU simplifies an entity's goodwill impairment test by eliminating Step 2 from the test. The new guidance also amends the definition of impairment to a condition that exists when the carrying amount of goodwill exceeds its fair value. By eliminating Step 2 from the test, entities are no longer required to determine the implied fair value of goodwill by computing the fair value (at impairment testing date) of all assets and liabilities in a manner similar to that required in conjunction with business combinations. Upon the adoption of ASU 2017-04, an impairment charge is simply recorded as the difference between carrying value and fair value, when carrying value exceeds fair value. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company expects the adoption of ASU 2017-04 to simplify the analysis required under the goodwill impairment test.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company does not expect the adoption of ASU 2016-13 to have a significant impact on its consolidated financial statements.
4. Real Estate Investments
Real estate investments, net, represents investments in 42 rental properties and the corporate headquarters building and is summarized as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (in thousands) |
Land and improvements | $ | 2,552,285 |
| | $ | 2,552,475 |
|
Building and improvements | 5,749,211 |
| | 5,762,071 |
|
Total real estate investments | 8,301,496 |
| | 8,314,546 |
|
Less accumulated depreciation | (1,146,516 | ) | | (983,086 | ) |
Real estate investments, net | $ | 7,154,980 |
| | $ | 7,331,460 |
|
On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $10.3 million of depreciation expense related to the building at this property. The net book value of this building is zero at September 30, 2019. The Company also entered into an agreement to terminate the long-term ground lease at this property, which will be effective in February 2020 and at which time the Company will reverse the right-of-use asset and lease liability the Company recorded on its condensed consolidated balance sheet for this lease. The lease termination at the Resorts Casino Tunica property will have no impact on the Company's operating results or net income.
5. Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized in the TRS Properties:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (in thousands) |
Land and improvements | $ | 30,463 |
| | $ | 30,431 |
|
Building and improvements | 116,781 |
| | 116,776 |
|
Furniture, fixtures, and equipment | 117,974 |
| | 117,247 |
|
Construction in progress | 1,053 |
| | 284 |
|
Total property and equipment | 266,271 |
| | 264,738 |
|
Less accumulated depreciation | (170,654 | ) | | (163,854 | ) |
Property and equipment, net | $ | 95,617 |
| | $ | 100,884 |
|
6. Receivables
Mortgage Loans Receivable
At September 30, 2019, the Company has financial interests in two casino properties through secured mortgage loans to the respective casino owner-operators. On October 1, 2018, Eldorado purchased the real estate assets of Lumière Place from Tropicana for a cash purchase price of $246.0 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of a $246.0 million secured mortgage loan on Lumière Place (the "Lumière Loan"). The Lumière Loan bears interest at a rate equal to (i) 9.09% until the one-year anniversary of the closing, and (ii) 9.27% until its maturity. Until the one-year anniversary of the closing, the Lumière Loan is secured by a first mortgage lien on Lumière Place. On the one-year anniversary of the Lumière Loan, the mortgage evidenced by a deed of trust on the Lumière Place property will terminate and the loan will continue unsecured until its final maturity on the two-year anniversary of the closing. The parties anticipate that the Lumière Loan will be fully repaid on or prior to maturity by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company and added to the Eldorado Master Lease.
On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of $57.7 million secured mortgage loan on Belterra Park (the "Belterra Park Loan"). The Belterra Park Loan bears interest at an initial rate equal to 11.11% and matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). At September 30, 2019, the interest rate on the Belterra Park Loan had increased to 11.20%.
Loan Receivable
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois. GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for four successive five-year periods (the "Casino Queen Lease").
Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance its acquisition of Lady Luck Casino in Marquette, Iowa. The new loan bears an interest rate of 15% and is pre-payable at any time.
The Company evaluates loans for impairment when it is probable that it will not be able to collect all amounts due according to contractual terms. All amounts due under the contractual terms means that both contractual interest payments and contractual principal payments of a loan will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under its senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 and through September 30, 2019, the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind in the aggregate amount of $3.2 million. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of events of default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.
During the first quarter of 2019, the operating results of Casino Queen continued to decline, resulting in the anticipated acquirer withdrawing from the sales process. Subsequent offers for the operating assets of Casino Queen have declined substantially and proceeds from the sale are not expected to generate enough cash to repay all of Casino Queen’s creditors. Thus, because the Company did not expect Casino Queen to be able to repay the $13.0 million of principal due to the Company under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the nine months ended September 30, 2019 to reflect the write-off of the Casino Queen loan.
At September 30, 2019, Casino Queen was in violation of the rent coverage ratio required under its lease with the Company and the Company provided notice and a reservation of rights to Casino Queen and its secured lenders of such default. At September 30, 2019, all lease payments due from Casino Queen remain current.
7. Lease Assets and Lease Liabilities
Lease Assets
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use assets and lease liabilities are recorded on the Company's condensed consolidated balance sheet at the lease commencement date for operating leases in which the Company acts as lessee. Right-of-use assets represent the Company's rights to use underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases cannot readily be determined, the Company utilizes its estimated incremental borrowing rate to determine the present value of its lease payments. Consideration is also given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics when determining the incremental borrowing rates of the Company's leases.
The Company includes options to extend the lease in its lease term, when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases associated with leased properties, the Company has included all available renewal options in the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components of these triple-net tenant leases as a single lease component. Leases with a term of 12 months or less are not recorded on the Company's condensed consolidated balance sheet.
Right-of-use assets and land rights are monitored for potential impairment in much the same way as the Company's real estate assets, using the impairment model in ASC 360 - Property, Plant and Equipment. If the Company determines the carrying amount of a right-of-use asset or land right is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.
The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which are ground leases related to properties the Company leases to its tenants under triple-net operating leases. Details of the Company's significant ground leases can be found in the Annual Report. For certain of these ground leases, the Company subleases the underlying assets to its tenants who are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its condensed consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its condensed consolidated balance sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its condensed consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the condensed consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
|
| | | |
| September 30, 2019 |
Right-of use assets - operating leases | $ | 201,602 |
|
Land rights, net | 657,691 |
|
Right-of-use assets and land rights, net | $ | 859,293 |
|
Land Rights
The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (in thousands) |
Land rights | $ | 694,077 |
| | $ | 700,997 |
|
Less accumulated amortization | (36,386 | ) | | (27,790 | ) |
Land rights, net | $ | 657,691 |
| | $ | 673,207 |
|
On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the ground lease at this property. The net book value of this land right is zero at September 30, 2019.
As of September 30, 2019, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
|
| | | |
Year ending December 31, | |
2019 (remainder of year) | $ | 3,020 |
|
2020 | 12,081 |
|
2021 | 12,081 |
|
2022 | 12,081 |
|
2023 | 12,081 |
|
Thereafter | 606,347 |
|
Total | $ | 657,691 |
|
Lease Liabilities
At September 30, 2019, maturities of the Company's operating lease liabilities were as follows (in thousands):
|
| | | |
Year ending December 31, | |
2019 (remainder of year) | $ | 3,882 |
|
2020 | 15,256 |
|
2021 | 15,134 |
|
2022 | 15,027 |
|
2023 | 15,006 |
|
Thereafter | 685,975 |
|
Total lease payments | $ | 750,280 |
|
Less: interest | (548,783 | ) |
Present value of lease liabilities | $ | 201,497 |
|
As a result of transitioning from the guidance in ASC 840 to ASC 842, the Company's annual minimum lease payments did not change.
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the condensed consolidated balance sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows:
|
| | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| (in thousands) |
Operating lease cost | $ | 3,909 |
| | $ | 11,722 |
|
Variable lease cost | 2,319 |
| | 6,823 |
|
Short-term lease cost | 254 |
| | 765 |
|
Amortization of land right assets | 3,020 |
| | 15,516 |
|
Total lease cost | $ | 9,502 |
| | $ | 34,826 |
|
Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the condensed consolidated statements of income. The Company's short-term lease costs are recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income, while a small portion of operating lease costs is also recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income. Amortization expense related to the land right intangibles totaled $2.7 million and $8.2 million for the three and nine months ended September 30, 2018, respectively, while other lease costs totaled $4.2 million and $12.7 million, respectively for the same periods.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
|
| |
| September 30, 2019 |
Weighted average remaining lease term - operating leases | 51.27 years |
Weighted average discount rate - operating leases | 6.7% |
Supplemental cash flow information related to the Company's operating leases was as follows:
|
| | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| (in thousands) |
Cash paid for amounts included in the measurement of leases liabilities: | | | |
Operating cash flows from operating leases (1) | $ | 586 |
| | $ | 1,697 |
|
| | | |
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases | $ | 6 |
| | $ | 293 |
|
(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.
8. Long-term Debt
Long-term debt is as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (in thousands) |
Unsecured $1,175 million revolver | $ | 60,000 |
| | $ | 402,000 |
|
Unsecured term loan A-1 | 449,000 |
| | 525,000 |
|
$1,000 million 4.875% senior unsecured notes due November 2020 | 215,174 |
| | 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 |
|
$400 million 3.35% senior unsecured notes due September 2024 | 400,000 |
| | — |
|
$850 million 5.25% senior unsecured notes due June 2025 | 850,000 |
| | 850,000 |
|
$975 million 5.375% senior unsecured notes due April 2026 | 975,000 |
| | 975,000 |
|
$500 million 5.75% senior unsecured notes due June 2028 | 500,000 |
| | 500,000 |
|
$750 million 5.30% senior unsecured notes due January 2029 | 750,000 |
| | 750,000 |
|
$700 million 4.00% senior unsecured notes due January 2030 | 700,000 |
| | — |
|
Finance lease liability | 1,021 |
| | 1,112 |
|
Total long-term debt | 5,800,195 |
| | 5,903,112 |
|
Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (51,059 | ) | | (49,615 | ) |
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 5,749,136 |
| | $ | 5,853,497 |
|
The following is a schedule of future minimum repayments of long-term debt as of September 30, 2019 (in thousands):
|
| | | |
Within one year | $ | 128 |
|
2-3 years | 1,064,448 |
|
4-5 years | 960,302 |
|
Over 5 years | 3,775,317 |
|
Total minimum payments | $ | 5,800,195 |
|
Senior Unsecured Credit Facility
The Company's senior unsecured credit facility (the "Credit Facility") consists of a $1,175 million revolving credit facility and a $449 million Term Loan A-1 facility. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021. At September 30, 2019, the interest rate on the term loan facility and revolver is LIBOR plus 1.50%.
At September 30, 2019, the Credit Facility had a gross outstanding balance of $509 million, consisting of the $449 million Term Loan A-1 facility and $60 million of borrowings under the revolving credit facility. Additionally, at September 30, 2019, the Company was contingently obligated under letters of credit issued pursuant to the Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $1,114.6 million of available borrowing capacity under the revolving credit facility as of September 30, 2019.
The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At September 30, 2019, the Company was in compliance with all required financial covenants under the Credit Facility.
Senior Unsecured Notes
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "2024 Notes") and $700 million of 4.00% Senior Unsecured Notes maturing on January 15, 2030 at an issue price equal to 99.751% of the principal amount (the "2030 Notes"). Interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2020. Interest on the 2030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2020. The net proceeds from the sale of the 2024 Notes and 2030 Notes were used to i) finance the Company's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below) (ii) repay outstanding borrowings under the Company's revolving credit facility and (iii) repay a portion of the outstanding borrowings under the Company's Term Loan A-1 facility.
On September 12, 2019, the Company completed a cash tender offer (the "2019 Tender Offer") to purchase its $1,000 million aggregate principal amount 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $782.6 million in aggregate principal of the 2020 Notes, or approximately 78% of its outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes were tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $21.0 million, for the difference between the reaquisition price of the tendered 2020 Notes and their net carrying value.
Including the recently issued 2024 Notes and 2030 Notes, at September 30, 2019, the Company had $5,290.2 million of outstanding senior unsecured notes (the "Senior Notes"). Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At September 30, 2019, the Company was in compliance with all required financial covenants under its Senior Notes.
Finance Lease Liability
The Company assumed the finance lease obligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the finance lease on its condensed consolidated balance sheet. The original term of the finance lease is 30 years and it will terminate in 2026.
9. Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
| |
• | Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. |
| |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals. |
| |
• | Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity. |
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Deferred Compensation Plan Assets
The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the condensed consolidated balance sheets.
Mortgage Loans Receivable
The fair value of the mortgage loans receivable approximates the carrying value of the Company's mortgage loans receivable, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the mortgage loans receivable is considered a Level 3 measurement as defined under ASC 820.
Long-term Debt
The fair value of the Senior Notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820.
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | 25,556 |
| | $ | 25,556 |
| | $ | 25,783 |
| | $ | 25,783 |
|
Deferred compensation plan assets | 26,981 |
| | 26,981 |
| | 22,709 |
| | 22,709 |
|
Mortgage loans receivable | 303,684 |
| | 303,684 |
| | 303,684 |
| | 303,684 |
|
Financial liabilities: | |
| | |
| | |
| | |
|
Long-term debt: | |
| | |
| | |
| | |
|
Senior unsecured credit facility | 509,000 |
| | 503,949 |
| | 927,000 |
| | 909,308 |
|
Senior unsecured notes | 5,290,174 |
| | 5,681,846 |
| | 4,975,000 |
| | 4,958,455 |
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2019 are categorized in the table below based upon the lowest level of significant input to the valuation. There were no assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2018 or liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total Impairment Charges Recorded during the Nine Months Ended September 30, 2019 |
| (in thousands) |
Assets: | | | | | | | |
Loan receivable | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,000 |
|
Total assets measured at fair value on a nonrecurring basis | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,000 |
|
Loan Receivable
During the first quarter of 2019, the Company recorded an impairment charge of $13.0 million related to the write-off of the principal due to the Company under its unsecured loan to CQ Holding Company. The Company no longer expects the proceeds from the sale of the operating assets of Casino Queen to generate enough cash to repay all of Casino Queen's creditors, including the Company. Thus, because the Company does not expect Casino Queen to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the nine months ended September 30, 2019 to reflect the write-off of the Casino Queen loan. See Note 6 for further details surrounding the Casino Queen loan.
10. Commitments and Contingencies
Litigation
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, and other matters arising in the normal course of business. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming, and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.
11. Revenue Recognition
As of September 30, 2019, 20 of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Penn Master Lease, an additional 12 of the Company's real estate investment properties were leased to a subsidiary of Penn under the Amended Pinnacle Master Lease, 5 of the Company's real estate investment properties were leased to a subsidiary of Eldorado under the Eldorado Master Lease and 3 of the Company's real estate investment properties were leased to a subsidiary of Boyd under the Boyd Master Lease. Additionally, the Meadows real estate assets are leased to Penn under a single property triple-net lease (the "Meadows Lease") and the Casino Queen real estate assets are leased back to the operator under an additional single property triple-net lease.
The obligations under the Penn and Amended Pinnacle Master Leases are guaranteed by Penn and, with respect to each lease, by Penn's subsidiaries that occupy and operate the facilities covered by such lease. As a result, the tenant’s obligations under each of the Penn Master Lease and Amended Pinnacle Master Lease are jointly and severally guaranteed by Penn as the ultimate parent company and by each of its subsidiaries benefiting from the applicable lease. Similarly, the obligations under the Eldorado Master Lease are jointly and severally guaranteed by Eldorado and by most of Eldorado's subsidiaries that occupy and operate the facilities leased under the Eldorado Master Lease. The obligations under the Boyd Master Leases are jointly and severally guaranteed by Boyd's subsidiaries that occupy and operate the facilities leased under the Boyd Master Lease.
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured. Additionally, percentage rent that is fixed and determinable at the lease inception date is recorded on a straight-line basis over the lease term, resulting in the recognition of deferred rental revenue on the Company’s condensed consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the lease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that is not fixed and determinable at lease inception is recognized only when the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.
The Company’s triple-net tenant leases all contain a fixed component, a portion of which is subject to an annual escalator (typically 2%) if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities subject to such lease, which is adjusted, subject to certain floors, every 2 or