SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|☒||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended June 30, 2022
|☐||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)
|(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)
(Registrant’s telephone number, including area code)
(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||July 22, 2022|
|Common Stock, par value $.01 per share||255,479,343|
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 the extent and duration of the economic disruptions related to the novel coronavirus COVID-19 (including variants thereof, "COVID-19") global pandemic on our tenants' operations and statements regarding our ability to grow our portfolio of gaming facilities. 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 impact that higher inflation rates and uncertainty with respect to the future state of the economy could have on discretionary consumer spending, including the casino operations of our tenants;
•the impact of rising interest rates, inflation, and the impact of our recent transition to the Secured Overnight Financing Rate ("SOFR");
•unforeseen consequences related to United States government monetary policies and stimulus packages on inflation rates and economic growth;
•COVID-19 had, and may continue to have, a significant impact on our tenants' financial conditions and operations. As a result of the outbreak, our casino operations and those of our tenants were forced to close temporarily at the onset of the pandemic, as federal, state and local officials undertook various steps to mitigate the spread of infections from COVID-19. Although our tenants have recommenced operations to strong results and improved their liquidity profiles, there can be no assurance these results will continue in future periods, particularly with the potential for continued increased transmission from new strains of COVID-19;
•the current and uncertain future impact of the COVID-19 outbreak, including its effect on the ability or desire of people to gather in large groups (including in casinos), which is expected to impact our financial results, operations, outlooks, plans, goals, growth, cash flows, liquidity, and stock price;
•GLPI's ability to successfully consummate the announced transaction for the Tropicana Las Vegas Casino Hotel Resort ("Tropicana Las Vegas") with Bally's, including the ability of the parties to satisfy the various conditions to closing, including receipt of all required regulatory approvals, or other delays or impediments to completing the proposed transaction;
•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 ability to generate sufficient cash flows to service our outstanding indebtedness;
•our ability to access capital through debt and equity markets in amounts and at rates and costs acceptable to GLPI, including for acquisitions or refinancings due to maturities;
•adverse changes in our credit rating;
•the impact of global or regional economic conditions;
•the availability of qualified personnel and our ability to retain our key management personnel;
•changes in the United States tax law and other federal, state or local laws, whether or not specific to real estate, REITs or the gaming, lodging or hospitality industries;
•changes in accounting standards;
•the impact of weather or climate events or conditions, natural disasters, acts of terrorism and other international hostilities, war (including the current conflict between Russia and Ukraine) or political instability;
•the historical financing statements included herein do not reflect what the business, financial position or results of operations of GLPI may be in the future;
•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, 2021 (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. UNAUDITED FINANCIAL STATEMENTS
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
|Real estate investments, net||$||7,812,645 ||$||7,777,551 |
|Investment in leases, financing receivables, net||1,870,639 ||1,201,670 |
|Assets held for sale||81,228 ||77,728 |
|Right-of-use assets and land rights, net||841,537 ||851,819 |
|Cash and cash equivalents||6,286 ||724,595 |
|Other assets||45,399 ||57,086 |
|Total assets||$||10,657,734 ||$||10,690,449 |
|Accounts payable, dividend payable and accrued expenses||$||6,495 ||$||63,543 |
|Accrued interest||85,060 ||71,810 |
|Accrued salaries and wages||3,567 ||6,798 |
|Operating lease liabilities||182,900 ||183,945 |
|Financing lease liabilities||53,548 ||53,309 |
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
|6,522,306 ||6,552,372 |
|Deferred rental revenue||330,591 ||329,068 |
|Other liabilities||24,605 ||39,464 |
|Total liabilities||7,209,072 ||7,300,309 |
|Commitments and Contingencies (Note 10)|
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2022 and December 31, 2021)
|— ||— |
Common stock ($.01 par value, 500,000,000 shares authorized, 247,544,343 and 247,206,937 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)
|2,475 ||2,472 |
|Additional paid-in capital||4,953,946 ||4,953,943 |
|Total equity attributable to Gaming and Leisure Properties||3,109,872 ||3,185,013 |
Noncontrolling interests in GLPI's Operating Partnership (7,366,683 units and 4,348,774 units outstanding at June 30, 2022 and December 31, 2021, respectively)
|338,790 ||205,127 |
|Total equity ||3,448,662 ||3,390,140 |
|Total liabilities and equity ||$||10,657,734 ||$||10,690,449 |
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
| ||Three Months Ended June 30,||Six Months Ended June 30,|
|Revenues|| || || || |
|Rental income||$||289,574 ||$||274,102 ||$||577,351 ||$||537,944 |
|Interest income from investment in leases, financing receivables||36,939 ||— ||64,128 ||— |
Total income from real estate
|326,513 ||274,102 ||641,479 ||537,944 |
|Gaming, food, beverage and other||— ||43,659 ||— ||81,360 |
|Total revenues||326,513 ||317,761 ||641,479 ||619,304 |
|Operating expenses|| || || || |
|Gaming, food, beverage and other||— ||22,382 ||— ||42,308 |
|Land rights and ground lease expense||11,720 ||8,191 ||25,424 ||14,924 |
|General and administrative||12,212 ||16,821 ||27,944 ||32,903 |
|Losses (gains) from dispositions of property||— ||93 ||(51)||93 |
|Impairment charge on land||3,298 ||— ||3,298 ||— |
|Depreciation||59,964 ||58,150 ||119,093 ||116,851 |
|Provision for credit losses, net||2,222 ||— ||28,878 ||— |
|Total operating expenses||89,416 ||105,637 ||204,586 ||207,079 |
|Income from operations||237,097 ||212,124 ||436,893 ||412,225 |
|Other income (expenses)|| || || || |
|Interest income||102 ||54 ||124 ||178 |
| Losses on debt extinguishment||(2,189)||— ||(2,189)||— |
|Total other expenses||(80,344)||(70,359)||(158,244)||(140,648)|
|Income before income taxes||156,753 ||141,765 ||278,649 ||271,577 |
|Income tax expense||966 ||3,549 ||1,170 ||6,177 |
|Net income||$||155,787 ||$||138,216 ||$||277,479 ||$||265,400 |
|Net income attributable to noncontrolling interest in the Operating Partnership||(4,473)||— ||(6,897)||— |
|Net income attributable to common shareholders||$||151,314 ||$||138,216 ||$||270,582 ||$||265,400 |
|Earnings per common share:|| || || || |
|Basic earnings attributable to common shareholders||$||0.61 ||$||0.59 ||$||1.09 ||$||1.14 |
|Diluted earnings attributable to common shareholders||$||0.61 ||$||0.59 ||$||1.09 ||$||1.14 |
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
(in thousands, except share data)
| ||Common Stock||Additional|
|Noncontrolling Interest Operating Partnership||Total|
|Balance, December 31, 2021||247,206,937 ||$||2,472 ||$||4,953,943 ||$||(1,771,402)||$||205,127 ||$||3,390,140 |
|Issuance of common stock, net of costs||— ||— ||(37)||— ||— ||(37)|
Restricted stock activity
|337,406 ||3 ||(4,268)||— ||— ||(4,265)|
Dividends paid ($0.69 per common share)
|— ||— ||— ||(171,005)||— ||(171,005)|
|Issuance of operating partnership units||— ||— ||— ||— ||137,043 ||137,043 |
|Distributions to noncontrolling interest||— ||— ||— ||— ||(5,083)||(5,083)|
|119,268 ||2,424 ||121,692 |
|Balance, March 31, 2022||247,544,343 ||$||2,475 ||$||4,949,638 ||$||(1,823,139)||$||339,511 ||$||3,468,485 |
|Issuance of common stock, net of costs||— ||— ||— ||— ||— ||— |
Restricted stock activity
|— ||— ||4,308 ||— ||— ||4,308 |
Dividends paid ($0.705 per common share)
|— ||— ||— ||(174,724)||— ||(174,724)|
|Distributions to noncontrolling interest||— ||— ||— ||— ||(5,194)||(5,194)|
|— ||— ||— ||151,314 ||4,473 ||155,787 |
|Balance, June 30, 2022||247,544,343 ||$||2,475 ||$||4,953,946 ||$||(1,846,549)||$||338,790 ||$||3,448,662 |
| ||Common Stock||Additional|
|Noncontrolling Interest Operating Partnership||Total|
|Balance, December 31, 2020||232,452,220 ||$||2,325 ||$||4,284,789 ||$||(1,612,096)||$||— ||$||2,675,018 |
|Issuance of common stock, net of costs||— ||— ||(95)||— ||— ||(95)|
Restricted stock activity
|329,433 ||3 ||(3,971)||— ||— ||(3,968)|
Dividends paid ($0.65 per common share)
|— ||— ||— ||(151,496)||— ||(151,496)|
|— ||— ||— ||127,184 ||— ||127,184 |
|Balance, March 31, 2021||232,781,653 ||$||2,328 ||$||4,280,723 ||$||(1,636,408)||$||— ||$||2,646,643 |
|Issuance of common stock, net of costs||1,498,420 ||15 ||70,308 ||— ||— ||70,323 |
Restricted stock activity
|8,736 ||— ||3,612 ||— ||— ||3,612 |
Dividends paid ($0.67 per common share)
|— ||— ||— ||(157,063)||— ||(157,063)|
|— ||— ||— ||138,216 ||— ||138,216 |
|Balance, June 30, 2021||234,288,809 ||$||2,343 ||$||4,354,643 ||$||(1,655,255)||$||— ||$||2,701,731 |
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)
|Six months ended June 30,||2022||2021|
|Operating activities|| || |
|Net income||$||277,479 ||$||265,400 |
|Adjustments to reconcile net income to net cash provided by operating activities:|| || |
|Depreciation and amortization||128,373 ||122,700 |
|Amortization of debt issuance costs, bond premiums and original issuance discounts||5,250 ||4,940 |
|Accretion on financing receivables||(8,865)||— |
|Non-cash adjustment to financing lease liabilities||239 ||— |
|(Gains) losses from dispositions of property||(51)||93 |
|Deferred income taxes||— ||81 |
|Stock-based compensation||11,908 ||9,400 |
|Straight-line rent adjustments||1,523 ||(1,656)|
|Impairment charge on land||3,298 ||— |
|Losses on debt extinguishment||2,189 ||— |
|Provision for credit losses, net||28,878 ||— |
|(Increase), decrease|| || |
|Other assets||9,231 ||3,303 |
|Increase, (decrease)|| || |
|Accounts payable and accrued expenses||3,851 ||1,004 |
|Accrued interest||13,250 ||(1,687)|
|Accrued salaries and wages||(3,231)||(1,366)|
|Other liabilities||(14,860)||359 |
|Net cash provided by operating activities||458,462 ||402,571 |
|Investing activities|| || |
|Capital project expenditures||(9,918)||(1,120)|
|Capital maintenance expenditures||(36)||(1,352)|
|Proceeds from sales of property||51 ||93 |
|Investment in leases, financing receivables||(129,047)||— |
|Acquisition of real estate||(150,126)||(487,449)|
|Net cash used in investing activities||(289,076)||(489,828)|
|Financing activities|| || |
|Non-controlling interest distributions||(10,277)||— |
|Taxes paid related to shares withheld for tax purposes on restricted stock award vestings||(11,865)||(9,756)|
|(Costs) proceeds from issuance of common stock, net||(37)||70,228 |
|Proceeds from issuance of long-term debt||424,000 ||— |
|Financing costs||(7,415)||— |
|Repayments of long-term debt||(876,981)||(67)|
|Net cash used in financing activities||(887,695)||(248,154)|
|Net decrease in cash and cash equivalents, including cash classified within assets held for sale||(718,309)||(335,411)|
|Less net change in cash classified within assets held for sale||— ||3,446 |
|Net decrease in cash and cash equivalents||(718,309)||(338,857)|
|Cash and cash equivalents at beginning of period||724,595 ||486,451 |
|Cash and cash equivalents at end of period||$||6,286 ||$||147,594 |
See accompanying notes to the condensed consolidated financial statements and Note 15 for supplemental cash flow information and noncash investing and financing activities.
Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
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. (NASDAQ: PENN) ("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 assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 505-60 - Spinoffs and Reverse Spinoffs ("ASC 505").
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. In connection with the Spin-Off, Penn allocated its accumulated earnings and profits (as determined for U.S. federal income tax purposes) for periods prior to the consummation of the Spin-Off between Penn and GLPI. In connection with its election to be taxed as a REIT for U.S. federal income tax purposes, GLPI declared a special dividend to its shareholders to distribute any accumulated earnings and profits relating to the real property assets and attributable to any pre-REIT years, including any earnings and profits allocated to GLPI in connection with the Spin-Off, to comply with certain REIT qualification requirements. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas Casino Hotel Resort ("Tropicana Las Vegas"), elected to treat Tropicana LV, LLC as a TRS. Further, as partial consideration for the transactions with The Cordish Companies ("Cordish") described below, the Company's operating partnership (the "OP") issued 7,366,683 newly-issued operating partnership units ("OP Units") to affiliates of Cordish. OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. As a result of the contribution, the OP became treated as a regarded partnership for income tax purposes, with the REIT being deemed to contribute substantially all of the assets and liabilities of the REIT in exchange for the general partnership and a majority of the limited partnership interests, and a minority limited partnership interest being owned by Cordish (the "UPREIT Transaction"). In advance of the UPREIT Transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021.
On July 1, 2021, the Company sold the operations of Hollywood Casino Perryville to Penn and is leasing the real estate to Penn pursuant to a standalone lease. On December 17, 2021, the Company sold the operations of Hollywood Casino Baton Rouge to Casino Queen and is leasing the real estate to Casino Queen pursuant to the Casino Queen Master Lease as described below. On December 17, 2021, GLPI declared a special dividend to the Company's shareholders to distribute the accumulated earnings and profits attributable to these sales. In 2021, as a result of the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, GLP Holdings, Inc. was merged into GLP Capital, L.P., a wholly owned subsidiary of GLPI.
GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of June 30, 2022, GLPI’s portfolio consisted of interests in 57 gaming and related facilities, including approximately 35 acres of real estate at Tropicana Las Vegas, the real property associated with 34 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars Entertainment Corporation (NASDAQ: CZR) ("Caesars"), the real property associated with 4 gaming and related facilities operated by Boyd Gaming Corporation (NYSE: BYD) ("Boyd"), the real property associated with 6 gaming and related facilities operated by Bally's Corporation (NYSE: BALY) ("Bally's"), the real property associated with 3 gaming and related facilities operated by Cordish and the real property associated with 2 gaming and related facilities operated by Casino Queen Holding Company ("Casino Queen"). These facilities, including our corporate headquarters building, are geographically diversified across 17 states and contain approximately $29.0 million square feet. As of June 30, 2022, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries pursuant to a unitary master lease (the "Penn Master Lease"). The Penn Master Lease is a triple-net operating lease, the current term of which expires October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions. See Note 11 for a discussion regarding such renewal options.
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
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, the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) 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 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 the tenant) 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 (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property. The Belterra Park Lease rent terms are consistent with the Boyd Master Lease. The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% 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 Belterra Park during the preceding two years in excess of a contractual baseline.
The real estate assets of the Meadows Racetrack and Casino are leased to Penn pursuant to a single property triple-net lease (the "Meadows Lease"). The Meadows Lease commenced on September 9, 2016 and has 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 (exercisable by the tenant) on the same terms and conditions. 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 an 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 a maximum of 2% annually thereafter.
Amended and Restated Caesars Master Lease
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 dated April 15, 2018 between Tropicana and GLP Capital L.P. ("GLP Capital"), the operating partnership of GLPI, 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. (now doing business as Caesars) 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, Caesars and a wholly-owned subsidiary of Caesars 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 the tenant) on the same terms and conditions (the "Caesars Master Lease").
On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year, increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease years, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable, (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review and approval of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement (the "Exchange Agreement") with subsidiaries of Caesars in which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. In connection with the Exchange Agreement, the annual building base rent was increased to $62.5 million and the annual land component was increased to $23.7 million.
Lumière Place Lease
On October 1, 2018, the Company entered into a loan agreement with Caesars in connection with Caesars’s acquisition of Lumière Place Casino ("Lumière Place"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan. On September 29, 2020, the transaction closed and we entered into a new triple net lease with Caesars (the "Lumière Place Lease") the initial term of which expires on October 31, 2033, with four separate renewal options of five years each, exercisable at the tenant's option. The Lumière Place Lease's rent was adjusted on December 1, 2021 such that the annual escalator is now fixed at 1.25% for the second through fifth lease years, increasing to 1.75% for the sixth and seventh lease years and thereafter increasing by 2.0% for the remainder of the lease.
Bally's Master Lease
On June 3, 2021, the Company completed its previously announced transaction pursuant to which a subsidiary of Bally's acquired 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company reacquired the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company purchased the real estate assets of Dover Downs Hotel & Casino from Bally's for a cash purchase price of approximately $144.0 million. The real estate assets of these two facilities were added to a new triple net master lease (the "Bally's Master Lease") which has an initial term of 15 years, with no purchase option, followed by four 5-year renewal options (exercisable by the tenant) on the same terms and conditions.
On April 1, 2022, the Company completed the previously announced acquisition from Bally's of the land and real estate assets of Bally's three Black Hawk Casinos in Black Hawk, Colorado and Bally's Quad Cities Casino & Hotel in Rock Island, Illinois for $150 million in total consideration. These properties were added to the existing Bally's Master Lease and the initial rent for the lease was increased by $12.0 million on an annual basis, subject to the escalation clauses described above.
On June 28, 2022, the Company announced that it entered into a binding term sheet with Bally's to acquire the real property assets of Bally's Twin River Lincoln Casino Resort ("Lincoln") and Bally's Tiverton Casino & Hotel ("Tiverton"), subject to customary regulatory approvals with Lincoln also subject to lender consent. Pursuant to the terms of the transaction,
Bally’s would immediately lease back both properties and continue to own, control, and manage all the gaming operations of the facilities on an uninterrupted basis. Total consideration for the acquisition is $1.0 billion and GLPI intends to fund the transaction through a mix of debt, equity, and OP Units. Both properties are expected to be added to the existing Bally’s Master Lease with incremental rent of $76.3 million.
If all third-party consents and approvals for the acquisition of Lincoln are not timely received, then GLPI would instead acquire the real property assets of the Hard Rock Hotel & Casino Biloxi in Mississippi along with Tiverton, for $635 million with total rent of $48.5 million. In that event, GLPI would also have the option, subject to receipt of required consents, to acquire the real property assets of Lincoln prior to December 31, 2024 for a purchase price of $771 million and additional rent of $58.8 million.
In connection with GLPI’s commitment to consummate the Bally’s acquisitions, it also agreed to pre-fund, at Bally’s election, a deposit of up to $200.0 million, which will be credited or repaid to GLPI at the earlier of closing and December 31, 2023, in either case along with a $9.0 million transaction fee to be credited against the purchase price at closing.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries closed on its previously announced transaction to acquire the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of rent credits which were applied against future rent obligations due under the parties' existing leases during 2020. An affiliate of Penn continues to operate the casino and hotel business of Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the earlier of two years or until the Tropicana Las Vegas is sold. See Note 16 for the anticipated sale of the building and sale-lease back of the land for this asset.
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of Penn for an initial term of 20 years, followed by six 5-year renewal options exercisable by the tenant (the "Morgantown Lease").
Casino Queen Master Lease
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million (the "HCBR transaction"). The HCBR transaction closed on December 17, 2021. The Company retained ownership of all real estate assets at Hollywood Casino Baton Rouge and simultaneously entered into a triple net master lease with Casino Queen, which includes the Casino Queen property in East St. Louis that is currently leased by the Company to Casino Queen and the Hollywood Casino Baton Rouge facility ("Casino Queen Master Lease"). The initial annual cash rent is approximately $21.4 million and the lease has an initial term of 15 years with four 5-year renewal options exercisable by the tenant. This rental amount will be increased annually by 0.5% for the first six years. Beginning with the seventh lease year through the remainder of the lease term, if the Consumer Price Index ("CPI") increases by at least 0.25% for any lease year then annual rent shall be increased by 1.25%, and if the CPI increase is less than 0.25% then rent will remain unchanged for such lease year. Additionally, the Company will complete the current landside development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The Company will also have a right of first refusal with Casino Queen for other sale leaseback transactions up to $50 million over the next 2 years.
On December 15, 2020, the Company announced that Penn exercised its option to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million. The transaction closed on July 1, 2021 and the real estate assets of the Hollywood Casino Perryville are being leased to Penn on a triple net basis (the "Perryville Lease").
Maryland Live! Lease and Pennsylvania Live! Lease
On December 6, 2021, the Company announced that it had agreed to acquire the real property assets of Live! Casino & Hotel Maryland, Live! Casino & Hotel Philadelphia, and Live! Casino Pittsburgh, including applicable long-term ground leases, from affiliates of Cordish for aggregate consideration of approximately $1.81 billion, excluding transaction costs at deal announcement. The transaction also includes a binding partnership on future Cordish casino developments, as well as potential financing partnerships between the Company and Cordish in other areas of Cordish's portfolio of real estate and operating businesses. On December 29, 2021, the Company completed its acquisition of the real property assets of Live! Casino & Hotel Maryland and entered into a single asset lease for Live! Casino & Hotel Maryland (the "Maryland Live Lease") that has an initial lease terms of 39 years, with a maximum term of 60 years inclusive of tenant renewal options. On March 1, 2022, the Company completed its acquisition of the real estate assets of Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh for $689 million and leased back the real estate to Cordish pursuant to a new triple net master lease with Cordish (the "Pennsylvania Live! Master Lease"). The annual rent for the Maryland Live! Lease is $75.0 million and the Pennsylvania Live! Master Lease is $50.0 million, both of which have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
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.
The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries as well as the Company's operating partnership, which is a variable interest entity ("VIE") in which the Company is the primary beneficiary. The Company presents non-controlling interests and classifies such interests as a separate component of equity, separate from GLPI's stockholders' equity and as net income attributable to non-controlling interest in the Condensed Consolidated Statement of Income. 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. Certain prior period amounts have been reclassified to conform to the current period presentation. Specifically, property and equipment, net, is now classified in other assets on the Condensed Consolidated Balance Sheets, accounts payable has been combined with dividend payable and accrued expenses and finally, gaming, property and other taxes and income taxes payable were reclassified to other liabilities on the Condensed Consolidated Balance Sheets.
Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2021 financial information has been derived from the Company’s audited consolidated financial statements.
The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report and since the date of those financial statements, the Company has not had any significant changes to these accounting policies that have had a material impact on the Company's financial statements.
As described in Note 1, due to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, the Company's operations consist solely of investments in real estate for which all such real estate properties are similar to one another in that they consist of destination and leisure properties and related offerings, whose tenants offer casino gaming, hotel, convention, dining, entertainment and retail amenities, have similar economic characteristics and are governed by triple-net operating leases. The operating results of the Company's real estate investments are reviewed in the aggregate, by the chief operating decision maker (as such term is defined in ASC 280 - Segment Reporting). As such as of January 1, 2022, the Company has one reportable segment.
3. New Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2022, the FASB issued ASU No 2022-02, Financial Instruments-Credit Losses which eliminates the accounting guidance for troubled debt restructurings ("TDRs) and requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured and Amortized Cost. The Company early adopted the amendments in this update which had no impact on its financial statements or related disclosures as the Company has no TDRs or write-offs to disclose on its net investment in leases.
4. Investment in leases, financing receivables, net
In connection with the Maryland Live! Lease that became effective on December 29, 2021 and the Pennsylvania Live! Master Lease that became effective March 1, 2022, the Company recorded an Investment in leases, financing receivables, net, as the sale lease back transactions were accounted for as failed sale leasebacks. The following is a summary of the balances of the Company's Investment in leases, financing receivables, net.
|Minimum lease payments receivable||$||6,740,133 ||$||4,012,937 |
|Estimated residual values of lease property (unguaranteed)||940,885 ||601,947 |
|Total||7,681,018 ||4,614,884 |
|Less: Unearned income||(5,769,275)||(3,400,988)|
|Less: Allowance for credit losses||(41,104)||(12,226)|
|Investment in leases - financing receivables, net||$||1,870,639 ||$||1,201,670 |
The present value of the net investment in the lease payment receivable and unguaranteed residual value at June 30, 2022 was $1,862.8 million and $48.9 million compared to $1,178.0 million and $35.9 million at December 31, 2021.
At June 30, 2022, minimum lease payments owed to us for each of the five succeeding years under the Company's financing receivables was as follows (in thousands):
|Year ending December 31,||Future Minimum Lease Payments|
|2022 (remainder of year)||$||63,605 |
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investment in leases - financing receivables, net, which do not include any unfunded commitments. The Company has elected to use an econometric default and loss rate model to estimate the allowance for credit losses, or CECL allowance. This model requires us to calculate and input lease and
property-specific credit and performance metrics which in conjunction with forward-looking economic forecasts, project estimated credit losses over the life of the lease. The Company then records a CECL allowance based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within our cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of our Investment in leases - financing receivables, net. We have engaged a nationally recognized data analytics firm to assist us with estimating both the PD and LGD. The PD and LGD are estimated during the initial term of the leases. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model was developed using the average historical default rates and historical loss rates, respectively, of over 100,000 commercial real estate loans dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivables. Management will monitor the credit risk related to its financing receivable by obtaining the rent coverage on the lease on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant. We are unable to use our historical data to estimate losses as the Company has no loss history to date on its lease portfolio. Our tenants were current on all of their rental obligations as of June 30, 2022 and December 31, 2021.
The rollforward of the allowance for credit losses for the Company's financing receivables is illustrated below (in thousands):
|Maryland Live! Lease||Pennsylvania Live! Master Lease||Total|
|Balance at December 31, 2021||$||12,226 ||$||— ||$||12,226 |
|Change in allowance||(5,621)||32,277 ||26,656 |
|Ending balance at March 31, 2022||6,605 ||32,277 ||38,882 |
|Change in allowance||1,783 ||439 ||2,222 |
Ending balance at June 30, 2022
|$||8,388 ||$||32,716 ||$||41,104 |
The amortized cost basis of the Company's investment in leases, financing receivables by year of origination is shown below as of June 30, 2022 (in thousands):
|Investment in leases, financing receivables||$||691,674 ||$||1,220,069 ||$||1,911,743 |
|Allowance for credit losses||(32,716)||(8,388)||(41,104)|
Amortized cost basis at June 30, 2022
|$||658,958 ||$||1,211,681 ||$||1,870,639 |
|Allowance as a percentage of outstanding financing receivable||(4.73)||%||(0.69)||%||(2.15)||%|
During the six months ended June 30, 2022, the Company received an updated earnings forecast from its tenant on the Maryland Live! Casino & Hotel operations for 2022. This resulted in an improved rent coverage ratio in its reserve calculation which led to a reduction in the Maryland Live! Lease reserve at June 30, 2022. The reason for the higher allowance for credit losses as a percentage of the outstanding investment in leases for the Pennsylvania Live! Master Lease compared to the Maryland Live! Lease is primarily due to the significantly higher rent coverage ratio on the Maryland Live! Lease compared to the Pennsylvania Live! Master Lease. Future changes in economic probability factors and earnings assumptions at the underlying facilities may result in non-cash provisions or recoveries in future periods that could materially impact our results of operations.
5. Real Estate Investments
Real estate investments, net, represents investments in 56 rental properties and the corporate headquarters building and is summarized as follows:
| ||(in thousands)|
|Land and improvements||$||3,189,141 ||$||3,141,646 |
|Building and improvements||6,407,312 ||6,311,573 |
|Construction in progress||15,618 ||5,699 |
|Total real estate investments||9,612,071 ||9,458,918 |
|Less accumulated depreciation||(1,799,426)||(1,681,367)|
|Real estate investments, net||$||7,812,645 ||$||7,777,551 |
6. Assets Held for Sale
On April 13, 2021, Bally’s agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI will retain ownership of the land and concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million. The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022. The Company has classified the building value of Tropicana Las Vegas in Assets held for sale which totals $77.7 million and the land value in Real estate investments, net on the Condensed Consolidated Balance Sheets since the transaction is expected to close in the second half of 2022.
During the three months ended June 30, 2022, the Company entered into an agreement to sell excess land for $3.5 million and incurred an impairment charge of $3.3 million as the anticipated proceeds to be received in the third quarter of 2022 were less than the carrying value of the asset.
7. Lease Assets and Lease Liabilities
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. These ground leases may include fixed rent, as well as variable rent based upon an individual property’s performance or changes in an index such as the CPI, and have maturity dates ranging from 2028 to 2108, when considering all renewal options. For certain of these ground leases, the Company’s tenants 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 sheets 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 sheets 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 sheets.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
|June 30, 2022||December 31, 2021|
Right-of use assets - operating leases
|$||182,134 ||$||183,136 |
|Land rights, net||659,403 ||668,683 |
|Right-of-use assets and land rights, net||$||841,537 ||$||851,819 |
The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:
|Land rights||$||727,796 ||$||730,783 |
|Less accumulated amortization||(68,393)||(62,100)|
|Land rights, net||$||659,403 ||$||668,683 |
During the six month period ended June 30, 2022, the Company recorded $2.7 million of accelerated land right amortization as it donated a portion of the land underlying a ground lease.
As of June 30, 2022, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
|Year ending December 31, |
|2022 (remainder of year)||$||6,579 |
Operating Lease Liabilities
At June 30, 2022, maturities of the Company's operating lease liabilities were as follows (in thousands):
|Year ending December 31,|
|2022 (remainder of year)||$||6,778 |
|Total lease payments||$||671,443 |
Present value of lease liabilities
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the condensed consolidated balance sheets. 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 (in thousands):
|Three Months Ended June 30,||Six Months Ended June 30,|
|Operating lease cost||$||3,370 ||$||3,228 ||$||6,740 ||$||6,156 |
|Variable lease cost ||5,072 ||2,129 ||9,427 ||3,139 |
|Short-term lease cost||— ||301 ||— ||628 |
|Amortization of land right assets||3,290 ||3,006 ||9,280 ||5,849 |
|Total lease cost||$||11,732 ||$||8,664 ||$||25,447 ||$||15,772 |
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.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
|June 30, 2022|
|Weighted average remaining lease term - operating leases||51.45 years|
|Weighted average discount rate - operating leases||6.6%|
Supplemental cash flow information related to the Company's operating leases was as follows:
|Three Months Ended June 30,||Six Months Ended |
|(in thousands)||(in thousands)|
|Cash paid for amounts included in the measurement of lease liabilities:|
Operating cash flows from operating leases (1)
|$||404 ||$||403 ||$||809 ||$||807 |
(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 condensed consolidated financial statements under ASC 842.
Financing Lease Liabilities
In connection with the acquisition of the real property assets of Live! Casino & Hotel Maryland, the Company acquired the rights to land subject to a long-term ground lease which expires on June 6, 2111. As the Maryland Live! Lease was accounted for as an Investment in lease, financing receivable, the underlying ground lease was accounted for as a financing lease obligation within Lease liabilities on the Condensed Consolidated Balance Sheets. In accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenant with an offsetting expense in interest expense as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The ground lease contains variable lease payments based on a percentage of gaming revenues generated by the facility and has fixed minimum annual payments. The Company discounted the fixed minimum annual payments at 5.0% to arrive at the initial lease obligation. At June 30, 2022, maturities of this finance lease were as follows (in thousands):
|Six Months Ended June 30, 2022|
|2022 (remainder of year)||$||1,105 |
|Total lease payments||$||314,498 |
|Present value of finance lease liability||$||53,548 |
8. Long-term Debt
Long-term debt is as follows:
| ||(in thousands)|
Unsecured $1,750 million revolver
|$||394,000 ||$||— |
|Unsecured term loan A-2||— ||424,019 |
$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 ||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 ||700,000 |
$700 million 4.00% senior unsecured notes due January 2031
|700,000 ||700,000 |
$800 million 3.25% senior unsecured notes due January 2032
|800,000 ||800,000 |
|Other||655 ||725 |
|Total long-term debt||6,569,655 ||6,599,744 |
|Less: unamortized debt issuance costs, bond premiums and original issuance discounts||(47,349)||(47,372)|
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
|$||6,522,306 ||$||6,552,372 |
The following is a schedule of future minimum repayments of long-term debt as of June 30, 2022 (in thousands):
|2022 (remainder of year)||$||72 |
|Over 5 years||3,450,000 |
|Total minimum payments||$||6,569,655 |
Senior Unsecured Credit Agreement
The Company, through GLP Capital, historically had access to a senior unsecured credit facility (the "Amended Credit Facility") consisting of a $1,175 million revolving credit facility and a $424 million Term Loan A-2 facility. The Amended Credit Facility was scheduled to mature on May 21, 2023. On May 13, 2022, GLP Capital terminated its Amended Credit Facility and entered into a credit agreement (the "Credit Agreement") providing for a $1.75 billion revolving credit facility maturing in May 2026, plus two six-month extensions at GLP Capital's option. GLP Capital was the primary obligor under the Amended Credit Facility, which was guaranteed by GLPI and GLP Capital is the primary obligor under the Credit Agreement, which is guaranteed by GLPI. The Company recorded a debt extinguishment loss of $2.2 million in connection with this transaction.
At June 30, 2022, the Credit Agreement had a gross outstanding balance of $394.0 million. Additionally, at June 30, 2022, the Company was contingently obligated under letters of credit issued pursuant to the Credit Agreement with face amounts aggregating approximately $0.4 million, resulting in $1,355.6 million of available borrowing capacity under the Credit Agreement as of June 30, 2022.
The interest rates payable on the loans are, at GLP Capital's option, equal to either a Secured Overnight Financing Rate ("SOFR") based rate or a base rate plus an applicable margin, which ranges from 0.725% to 1.40% per annum for SOFR loans and 0.0% to 0.4% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Credit Agreement. The current applicable margin is 1.05% for SOFR loans and 0.05% for base rate loans. Notwithstanding the foregoing, in no event shall the base rate be less than 1.00%. In addition, GLP Capital will pay a facility fee on the commitments under the Revolver, regardless of usage, at a rate that ranges from 0.125% to 0.3% per annum, depending on the credit rating assigned to the Credit Agreement from time to time. The current facility fee rate is 0.25%. The Credit Agreement is not subject to interim amortization. GLP Capital is not required to repay any loans under the Credit Agreement prior to maturity. GLP Capital may prepay all or any portion of the loans under the Credit Agreement prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders and may reborrow loans that it has repaid.
The Credit Agreement 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, engage in acquisitions, mergers or consolidations, or pay certain dividends and make other restricted payments. The financial covenants include the following, which are measured quarterly on a trailing four-quarter basis: (i) maximum total debt to total asset value ratio, (ii) maximum senior secured debt to total asset value ratio, (iii) maximum ratio of certain recourse debt to unencumbered asset value, and (iv) a minimum fixed charge coverage ratio. GLPI is required to maintain its status as a REIT and is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status. 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 Agreement also contains certain customary affirmative covenants and events of default. The occurrence and continuance of an event of default, which includes, among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants, will enable the lenders to accelerate the loans and terminate the commitments thereunder. At June 30, 2022, the Company was in compliance with all required financial covenants under the Credit Agreement.
Senior Unsecured Notes
At June 30, 2022, the Company had $6,175.0 million of outstanding senior unsecured notes (the "Senior Notes"). Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At June 30, 2022, the Company was in compliance with all required financial covenants under its Senior Notes.
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.
Investment in leases, financing receivables, net
The fair value of the Company's net investment in leases, financing receivables, is based on the value of the underlying real estate property the Company owns related to the Maryland Live! Lease and the Pennsylvania Live! Master Lease. The initial fair value was the price paid by the Company to acquire the real estate. The initial fair value is then adjusted for changes in the commercial real estate price index and as such is a Level 3 measurement as defined under ASC 820.
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.