Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

 

OR

 

o        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.)

 

825 Berkshire Blvd., Suite 400

Wyomissing, PA 19610

(Address of principal executive offices) (Zip Code)

 

610-401-2900

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Title

 

Outstanding as of July 22, 2014

Common Stock, par value $.01 per share

 

112,338,317

 

 

 



Table of Contents

 

Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. (“GLPI”) and its subsidiaries (collectively, the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, and goals and objectives.

 

Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

·                  the ability to receive, or delays in obtaining, the regulatory approvals required to own, develop and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects, including our ability to identify and reach definitive agreements with a third party operator for our planned acquisition of The Meadows Racetrack and Casino;

 

·                  there being no need for any further dividend of historical accumulated earnings and profits in order to qualify as a real estate investment trust (“REIT”) for the fiscal year ending December 31, 2014;

 

·                  our ability to qualify as a REIT, given the highly technical and complex 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 intended election of REIT status;

 

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

 

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

 

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

 

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

 

·                  the degree and nature of our competition;

 

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

 

·                  the access to debt and equity capital markets;

 

·                  fluctuating interest rates;

 

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

 

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

 

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

 

·                  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

 

1



Table of Contents

 

·                  additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as filed with the United States Securities and Exchange Commission.

 

Certain of these factors and other factors, risks and uncertainties are discussed in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond the control of the Company.

 

You should consider the areas of risk described above, as well as those set forth in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, 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.

 

2



Table of Contents

 

GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

4

 

Condensed Consolidated Balance Sheets — June 30, 2014 and December 31, 2013

4

 

Condensed Consolidated Statements of Income — Three and Six Months Ended June 30, 2014 and 2013

5

 

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity —Six Months Ended June 30, 2014

6

 

Condensed Consolidated Statements of Cash Flows —Six Months Ended June 30, 2014 and 2013

7

 

Notes to the Condensed Consolidated Financial Statements

8

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

36

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

36

 

 

 

PART II.

OTHER INFORMATION

37

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

37

 

 

 

ITEM 1A.

RISK FACTORS

37

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

37

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

37

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

37

 

 

 

ITEM 5.

OTHER INFORMATION

37

 

 

 

ITEM 6.

EXHIBITS

37

 

 

 

SIGNATURE

 

38

 

 

 

EXHIBIT INDEX

 

39

 

3



Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Gaming and Leisure Properties, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Real estate investments, net

 

$

2,178,613

 

$

2,010,303

 

Property and equipment, used in operations, net

 

139,010

 

139,121

 

Cash and cash equivalents

 

41,679

 

285,221

 

Prepaid expenses

 

4,779

 

5,983

 

Deferred income taxes

 

1,933

 

2,228

 

Other current assets

 

37,087

 

17,367

 

Goodwill

 

75,521

 

75,521

 

Other intangible assets

 

9,577

 

9,577

 

Debt issuance costs, net of accumulated amortization of $5,288 and $1,270 at June 30, 2014 and December 31, 2013, respectively

 

43,165

 

46,877

 

Loan receivable

 

36,000

 

 

Other assets

 

14,313

 

17,041

 

Total assets

 

$

2,581,677

 

$

2,609,239

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Accounts payable

 

$

49,074

 

$

21,397

 

Accrued expenses

 

7,423

 

13,783

 

Accrued interest

 

17,490

 

18,055

 

Accrued salaries and wages

 

10,441

 

10,337

 

Gaming, property, and other taxes

 

26,759

 

18,789

 

Income taxes

 

 

17,256

 

Other current liabilities

 

15,344

 

12,911

 

Long-term debt

 

2,526,000

 

2,350,000

 

Deferred income taxes

 

2,068

 

4,282

 

Total liabilities

 

2,654,599

 

2,466,810

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.01 par value, 550,000,000 shares authorized, 112,274,380 and 88,659,448 shares issued at June 30, 2014 and December 31, 2013, respectively)

 

1,123

 

887

 

Additional paid-in capital

 

869,861

 

3,651

 

Retained (deficit) earnings

 

(943,906

)

137,891

 

Total shareholders’ (deficit) equity

 

(72,922

)

142,429

 

Total liabilities and shareholders’ (deficit) equity

 

$

2,581,677

 

$

2,609,239

 

 

See accompanying notes to the condensed consolidated financial statements.

 

4



Table of Contents

 

Gaming and Leisure Properties, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Rental

 

$

107,298

 

$

 

$

213,412

 

$

 

Real estate taxes paid by tenants

 

12,446

 

 

24,444

 

 

Total rental revenue

 

119,744

 

 

237,856

 

 

Gaming

 

39,449

 

44,299

 

78,204

 

85,379

 

Food, beverage and other

 

3,088

 

3,374

 

5,919

 

6,589

 

Total revenues

 

162,281

 

47,673

 

321,979

 

91,968

 

Less promotional allowances

 

(1,495

)

(1,601

)

(2,865

)

(3,247

)

Net revenues

 

160,786

 

46,072

 

319,114

 

88,721

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Gaming

 

22,167

 

24,342

 

43,729

 

47,481

 

Food, beverage and other

 

2,509

 

2,783

 

5,055

 

5,550

 

Real estate taxes

 

12,856

 

406

 

25,279

 

812

 

General and administrative

 

19,531

 

5,824

 

40,472

 

11,763

 

Depreciation

 

26,349

 

3,627

 

52,871

 

7,215

 

Total operating expenses

 

83,412

 

36,982

 

167,406

 

72,821

 

Income from operations

 

77,374

 

9,090

 

151,708

 

15,900

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest expense

 

(29,108

)

 

(58,082

)

 

Interest income

 

668

 

1

 

1,214

 

1

 

Management fee

 

 

(1,381

)

 

 

(2,661

)

Total other expenses

 

(28,440

)

(1,380

)

(56,868

)

(2,660

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

48,934

 

7,710

 

94,840

 

13,240

 

Income tax provision

 

1,922

 

3,011

 

3,516

 

5,327

 

Net income

 

$

47,012

 

$

4,699

 

$

91,324

 

$

7,913

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.42

 

$

0.04

 

$

0.82

 

$

0.07

 

Diluted earnings per common share

 

$

0.40

 

$

0.04

 

$

0.78

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per common share

 

$

0.52

 

$

 

$

1.04

 

$

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5



Table of Contents

 

Gaming and Leisure Properties, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

Additional
Paid-In

 

Retained
Earnings

 

Total
Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

(Deficit)

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

88,659,448

 

$

887

 

$

3,651

 

$

137,891

 

$

142,429

 

Stock option activity

 

1,478,489

 

14

 

23,242

 

 

23,256

 

Restricted stock activity

 

156,622

 

2

 

(709

)

 

(707

)

Dividends paid, including purging distribution

 

21,979,821

 

220

 

843,677

 

(1,173,121

)

(329,224

)

Net income

 

 

 

 

91,324

 

91,324

 

Balance, June 30, 2014

 

112,274,380

 

$

1,123

 

$

869,861

 

$

(943,906

)

$

(72,922

)

 

See accompanying notes to the condensed consolidated financial statements.

 

6



Table of Contents

 

Gaming and Leisure Properties, Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Six months ended June 30,

 

2014

 

2013

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income

 

$

91,324

 

$

7,913

 

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

 

 

 

 

 

Depreciation

 

52,871

 

7,215

 

Amortization of debt issuance costs

 

4,018

 

 

Losses (Gains) on sales of property

 

159

 

(30

)

Deferred income taxes

 

(1,919

)

(373

)

Charge for stock-based compensation

 

5,087

 

 

(Increase) decrease,

 

 

 

 

 

Prepaid expenses and other current assets

 

(17,296

)

(247

)

Other assets

 

(1,309

)

6

 

Increase (decrease),

 

 

 

 

 

Accounts payable

 

8,183

 

135

 

Accrued expenses

 

(6,360

)

270

 

Accrued interest

 

(565

)

 

Accrued salaries and wages

 

104

 

(986

)

Gaming, pari-mutuel, property and other taxes

 

7,970

 

 

Income taxes

 

(18,476

)

(7,832

)

Other current and noncurrent liabilities

 

2,430

 

361

 

Net cash provided by operating activities

 

126,221

 

6,432

 

Investing activities

 

 

 

 

 

Capital project expenditures, net of reimbursements

 

(55,504

)

(554

)

Capital maintenance expenditures

 

(1,468

)

(1,744

)

Proceeds from sale of property and equipment

 

6

 

81

 

Funding of loan receivable

 

(43,000

)

 

Principal payments on loan receivable

 

7,000

 

 

Acquisition of real estate

 

(140,730

)

 

Net cash used in investing activities

 

(233,696

)

(2,217

)

Financing activities

 

 

 

 

 

Net advances to Penn National Gaming, Inc.

 

 

(377

)

Dividends paid

 

(329,224

)

 

Proceeds from exercise of options

 

17,463

 

 

Proceeds from issuance of long-term debt

 

208,000

 

 

Financing costs

 

(306

)

 

Payments of long-term debt

 

(32,000

)

 

Net cash used in financing activities

 

(136,067

)

(377

)

Net increase in cash and cash equivalents

 

(243,542

)

3,838

 

Cash and cash equivalents at beginning of year

 

285,221

 

14,562

 

Cash and cash equivalents at end of year

 

$

41,679

 

$

18,400

 

 

See accompanying notes to the condensed consolidated financial statements.

 

7



Table of Contents

 

Gaming and Leisure Properties, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

 

1.              Organization and Operations

 

On November 15, 2012, Penn National Gaming, Inc. (“Penn”) announced that it intended to pursue a plan to separate the majority of its operating assets and real property assets into two publicly traded companies including an operating entity, and, through a tax-free spin-off of its real estate assets to holders of its common and preferred stock, a newly formed publicly traded real estate investment trust (“REIT”), Gaming and Leisure Properties, Inc. (“GLPI”) (the “Spin-Off”).

 

GLPI (together with its subsidiaries, the “Company”) was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn. In connection with the Spin-Off, which was completed 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,” in a tax-free distribution. The Company intends to elect on its United States (“U.S.”) federal income tax return for its taxable year beginning on January 1, 2014 to be treated as a REIT and the Company, together with an indirectly wholly-owned subsidiary of the Company, GLP Holdings, Inc., intend to jointly elect to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a “taxable REIT subsidiary” (a “TRS”) effective on the first day of the first taxable year of GLPI as a REIT. As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets and leases back most of those assets to Penn for use by its subsidiaries, under a master lease, a “triple-net” operating lease with an initial term of 15 years with no purchase option, followed by four 5 year renewal options (exercisable by Penn) on the same terms and conditions (the “Master Lease”), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc.

 

Prior to the Spin-Off, GLPI and Penn entered into a Separation and Distribution Agreement setting forth the mechanics of the Spin-Off, certain organizational matters and other ongoing obligations of Penn and GLPI. Penn and GLPI or their respective subsidiaries, as applicable, also entered into a number of other agreements prior to the Spin-Off to provide a framework for the restructuring and for the relationships between GLPI and Penn after the Spin-Off.

 

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, 2014, GLPI’s portfolio consisted of 22 gaming and related facilities, which included the TRS Properties, the real property associated with 19 gaming and related facilities operated by Penn (including two properties under development in Ohio, Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course), and the real property associated with the Casino Queen in East St. Louis, Illinois, that was acquired in January 2014.  These facilities are geographically diversified across 13 states. GLPI expects to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms, which may or may not include Penn.

 

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 (the “Purging Distribution”). The Purging Distribution, which was paid on February 18, 2014, totaled approximately $1.05 billion and was comprised of cash and GLPI common stock.  See Note 9 for further details.

 

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 adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

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

 

8



Table of Contents

 

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

 

Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2013 (our “Annual Report”) should be read in conjunction with these condensed consolidated financial statements.  The December 31, 2013 financial information has been derived from the Company’s audited consolidated financial statements.

 

2.    New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. ASU 2014-09 provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for annual reporting periods beginning after December 15, 2016 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and internal revenue recognition policies.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014 -08”). This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the new guidance, only disposals representing a strategic shift that will have a major effect on operations and financial results should be presented as discontinued operations.  ASU 2014 -08 is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in previously issued financial statements. The impact of the adoption of ASU 2014-08 on the Company’s results of operations, financial position, cash flows and disclosures will be based on the Company’s future disposal activity.

 

3.              Summary of Significant Accounting Policies

 

Fair Value of Financial Instruments

 

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:

 

Cash and Cash Equivalents

 

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

 

Long-term Debt

 

The fair value of the senior unsecured notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under Accounting Standards Code (“ASC”) 820 “Fair Value Measurements and Disclosures.”

 

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

 

9



Table of Contents

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,679

 

$

41,679

 

$

285,221

 

$

285,221

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

Senior unsecured credit facility

 

476,000

 

459,340

 

300,000

 

294,750

 

Senior notes

 

2,050,000

 

2,115,500

 

2,050,000

 

2,058,750

 

 

Comprehensive Income

 

Comprehensive income includes net income and all other non-owner changes in shareholders’ equity during a period. The Company did not have any non-owner changes in shareholders’ equity for the three and six months ended June 30, 2014 and 2013, and comprehensive income for the three months ended June 30, 2014 and 2013 was equivalent to net income for those time periods.

 

Revenue Recognition and Promotional Allowances

 

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. Contingent rental income is recognized once the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant. For facilities being jointly developed with the tenant, the Company retains control of the assets to be leased until operations commence and control is transferred to the tenant.

 

As of June 30, 2014, all but three of the Company’s properties were leased to a subsidiary of Penn under the Master Lease. The obligations under the Master Lease are guaranteed by Penn and by most Penn subsidiaries that occupy and operate the facilities leased under the Master Lease. A default by Penn or its subsidiaries with regard to any facility will cause a default with regard to the Master Lease. In January 2014, GLPI completed the asset acquisition of Casino Queen in East St. Louis, Illinois. GLPI subsequently leased the property back to Casino Queen on a “triple net” basis on terms similar to those in the Master Lease.

 

The rent structure under the Master Lease with Penn includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities, which is adjusted, subject to certain floors (i) every 5 years by an amount equal to 4% of the average change to net revenues of all facilities under the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month. In addition to rent, all properties under the Master Lease with Penn are required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

 

Additionally, in accordance with ASC 605, “Revenue Recognition,” the Company records revenue for the real estate taxes paid by its tenants on the leased properties under the Master Lease with an offsetting expense in real estate taxes within the consolidated statement of income as the Company has concluded it is the primary obligor under the Master Lease.

 

Gaming revenue generated by the TRS Properties mainly consists of video lottery gaming revenue, and to a lesser extent, table game and poker revenue. Video lottery gaming revenue is the aggregate net difference between gaming wins and losses with liabilities recognized for funds deposited by customers before gaming play occurs, for “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increases. Table game gaming revenue is the aggregate of table drop adjusted for the change in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Additionally, food and beverage revenue is recognized as services are performed.

 

The following table discloses the components of gaming revenue within the condensed consolidated statements of income for the three and six months ended June 30, 2014 and 2013:

 

10



Table of Contents

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

(in thousands)

 

Video lottery

 

$

33,651

 

$

37,697

 

$

67,032

 

$

75,049

 

Table game

 

5,350

 

5,562

 

10,290

 

9,010

 

Poker

 

448

 

1,040

 

882

 

1,320

 

Total gaming revenue, net of cash incentives

 

$

39,449

 

$

44,299

 

$

78,204

 

$

85,379

 

 

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

 

The retail value of food and beverage and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances. The amounts included in promotional allowances for the three and six months ended June 30, 2014 and 2013 are as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

(in thousands)

 

Food and beverage

 

$

1,484

 

$

1,588

 

$

2,845

 

$

3,105

 

Other

 

11

 

13

 

20

 

142

 

Total promotional allowances

 

$

1,495

 

$

1,601

 

$

2,865

 

$

3,247

 

 

The estimated cost of providing such complimentary services, which is primarily included in food, beverage, and other expense, for the three and six months ended June 30, 2014 and 2013 are as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

(in thousands)

 

Food and beverage

 

$

720

 

$

746

 

$

1,437

 

$

1,459

 

Other

 

4

 

6

 

7

 

75

 

Total cost of complimentary services

 

$

724

 

$

752

 

$

1,444

 

$

1,534

 

 

Gaming and Admission Taxes

 

For the TRS Properties, the Company is subject to gaming and admission taxes based on gross gaming revenues in the jurisdictions in which it operates. The Company primarily recognizes gaming tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where or in which wagering occurs. At Hollywood Casino Baton Rouge, the gaming admission tax is based on graduated tax rates. The Company records gaming and admission taxes at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods.  For the three and six months ended June 30, 2014, these expenses, which are primarily recorded within gaming expense in the condensed consolidated statements of income, totaled $17.9 million and $35.2 million, respectively, as compared to $19.6 million and $38.3 million for the three and six months ended June 30, 2013, respectively.

 

Earnings Per Share

 

The Company calculates earnings per share (“EPS”) in accordance with ASC 260, “Earnings Per Share.” Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted EPS reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. Basic and diluted EPS for the three and six months ended June 30, 2013 were retroactively restated for the number of GLPI basic and diluted shares outstanding immediately following the Spin-Off and to include the shares issued as part of the purging distribution dividend paid 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 (“the Purging Distribution”).

 

11



Table of Contents

 

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

Determination of shares:

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

111,921

 

110,582

 

111,561

 

110,582

 

Assumed conversion of dilutive employee stock-based awards

 

5,579

 

4,703

 

5,922

 

4,703

 

Assumed conversion of restricted stock

 

157

 

318

 

261

 

318

 

Assumed conversion of performance-based restricted stock awards

 

74

 

 

40

 

 

Diluted weighted-average common shares outstanding

 

117,731

 

115,603

 

117,784

 

115,603

 

 

The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and six months ended June 30, 2014 and 2013:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands, expect per share data)

 

Calculation of basic EPS:

 

 

 

 

 

 

 

 

 

Net income

 

$

47,012

 

$

4,699

 

$

91,324

 

$

7,913

 

Less: Net income allocated to participating securities

 

(194

)

(18

)

(378

)

(30

)

Net income attributable to common shareholders

 

$

46,818

 

$

4,681

 

$

90,946

 

$

7,883

 

Weighted-average common shares outstanding

 

111,921

 

110,582

 

111,561

 

110,582

 

Basic EPS

 

$

0.42

 

$

0.04

 

$

0.82

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

Calculation of diluted EPS:

 

 

 

 

 

 

 

 

 

Net income

 

$

47,012

 

$

4,699

 

$

91,324

 

$

7,913

 

Diluted weighted-average common shares outstanding

 

117,731

 

115,603

 

117,784

 

115,603

 

Diluted EPS

 

$

0.40

 

$

0.04

 

$

0.78

 

$

0.07

 

 

Options to purchase 109,714 shares were outstanding during the three months ended June 30, 2014, but were not included in the computation of diluted EPS because of being antidilutive.  There were no outstanding options to purchase shares of common stock during the six months ended June 30, 2014 and three and six months ended June 30, 2013 that were not included in the computation of diluted EPS because of being antidilutive.

 

Stock-Based Compensation

 

The Company accounts for stock compensation under ASC 718, “Compensation - Stock Compensation,” which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value for stock options is estimated at the date of grant using the Black-Scholes option- pricing model.

 

Additionally, the cash-settled phantom stock units (“PSU”) entitle employees to receive cash based on the fair value of the Company’s common stock on the vesting date. These PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period in accordance with ASC 718-30, “Compensation-Stock Compensation, Awards Classified as Liabilities.”

 

In addition, the Company’s stock appreciation rights (“SAR”) are accounted for as liability awards since they will be settled in cash. The fair value of these awards is calculated during each reporting period and estimated using the Black-Scholes option pricing model.

 

In connection with the Spin-Off of GLPI, employee stock options and cash settled stock appreciation rights of Penn were converted through the issuance of GLPI employee stock options and GLPI cash settled stock appreciation rights and an adjustment to the exercise prices of their Penn awards. The number of options and cash settled stock appreciation rights, subject to and the exercise price of each converted award was adjusted to preserve the same intrinsic value of the awards that existed immediately prior to the Spin-Off.

 

Holders of outstanding restricted stock awards and cash settled phantom stock unit awards received an additional share of restricted stock or cash settled phantom stock unit awards in GLPI common stock at the Spin-Off so that the intrinsic value of these awards were equivalent to those that existed immediately prior to the Spin-Off.

 

12



Table of Contents

 

The adjusted options and SARs, as well as the restricted stock awards and PSUs, otherwise remain subject to their original terms, except that for purposes of the adjusted Penn awards (including in determining exercisability and the post-termination exercise period), continued service with GLPI following the distribution date shall be deemed continued service with Penn.  The unrecognized compensation relating to both Penn and GLPI’s stock options and restricted stock awards held by GLPI employees will be amortized to expense over the awards’ remaining vesting periods.

 

As of June 30, 2014, there was $5.0 million of total unrecognized compensation cost for stock options that will be recognized over the grants remaining weighted average vesting period of 1.27 years. For the three and six months ended June 30, 2014, the Company recognized $1.4 million and $2.8 million, respectively of compensation expense associated with these awards. In addition, the Company also recognized $3.2 million and $6.5 million of compensation expense for the three and six months ended June 30, 2014, relating to each of the first and second quarter $.52 per share dividends paid on vested employee stock options.

 

As of June 30, 2014, there was $14.9 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants remaining weighted average vesting period of 2.75 years. For the three and six months ended June 30, 2014 and 2013, the Company recognized $0.9 million and $1.5 million, respectively of compensation expense associated with these awards.

 

The following table contains information on restricted stock award activity for the six months ended June 30, 2014.

 

 

 

Number of Award
Shares

 

 

 

 

 

Outstanding at December 31, 2013

 

419,067

 

E&P Purge

 

106,261

 

Granted

 

232,891

 

Released

 

(237,304

)

Canceled

 

(59,018

)

Outstanding at June 30, 2014

 

461,897

 

 

On April 25, 2014, the Company awarded market performance-based restricted stock awards with a three-year cliff vesting. The amount of restricted shares vested at the end of the three-year period will be determined based on the Company’s performance as measured against its peers.  More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three-year total shareholder return measured against the three-year return of the MSCI US REIT index.  The Company utilized a third party valuation firm to measure the fair value of the awards at grant date using the Monte Carlo model. As of June 30, 2014, there was $11.4 million of total unrecognized compensation cost, which will be recognized over the awards remaining weighted average vesting period of 2.82 years for performance-based restricted stock awards.  For the three and six months ended June 30, 2104, the Company recognized $0.7 million of compensation expense associated with these awards.

 

As of June 30, 2014, there was $7.1 million of total unrecognized compensation cost, which will be recognized over the awards remaining weighted average vesting period of 2.14 years, for Penn and GLPI PSUs held by GLPI employees that will be cash-settled by GLPI. For the three and six months ended June 30, 2014, the Company recognized $0.7 million and $1.1 million, respectively of compensation expense associated with these awards. In addition, the Company also recognized $0.1 million and $0.5 million for the three and six months ended June 30, 2014, respectively relating to the purging distribution dividend and the first and second quarter $.52 per share dividends paid on unvested PSUs.

 

As of June 30, 2014, there was $0.3 million of total unrecognized compensation cost, which will be recognized over the grants remaining weighted average vesting period of 1.39 years, for Penn and GLPI SARs held by GLPI employees that will be cash-settled by GLPI.

 

Upon the declaration of the Purging Distribution, GLPI options and GLPI SARs were adjusted in a manner that preserved both the pre-distribution intrinsic value of the options and SARs and the pre-distribution ratio of the stock price to exercise price that existed immediately before the Purging Distribution. Additionally, upon declaration of the Purging Distribution, holders of GLPI PSUs were credited with the special dividend, which will accrue and be paid, if applicable, on the vesting date of the related PSU. Holders of GLPI restricted stock were entitled to receive the special dividend with respect to such restricted stock on the same date or dates that the special dividend was payable on GLPI common stock to shareholders of GLPI generally.

 

13



Table of Contents

 

Segment Information

 

Consistent with how the Company’s Chief Operating Decision Maker reviews and assesses the Company’s financial performance, the Company has two reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its assets) (“GLP Capital”) and the TRS Properties. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Properties reportable segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge. See Note 10 for further information with respect to the Company’s segments.

 

4.              Acquisitions

 

In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois for $140.7 million, including transaction fees of $0.7 million.  Simultaneously with the acquisition, GLPI also provided Casino Queen with a $43 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. As of June 30, 2014, the balance of this loan was $36 million, due to principal and interest payments made.  GLPI leased the property back to Casino Queen on a “triple net” basis on terms similar to those in the Master Lease and will result in approximately $14 million in annual rent.  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.

 

In May 2014, the Company announced that it had entered into an agreement with Cannery Casino Resorts LLC (“CCR”) to acquire The Meadows Racetrack and Casino located in Washington, Pennsylvania, a suburb of Pittsburgh, Pennsylvania, for $465 million. The 180,000 square foot casino, which opened in 2007, contains 3,317 slot machines, 61 table games and 14 poker tables. In addition to the casino, the property includes 11 casual and fine dining restaurants, bars and lounges, a 24-lane bowling alley and a 5/8 mile racetrack with a 500-seat grandstand.  The Company is currently evaluating third party operators for the property, to whom the Company expects to sell the entities holding the licenses and operating assets, while retaining ownership of the land and buildings. The transaction is subject to and requires approval from the Pennsylvania Gaming Control Board (“PAGCB”) and the Pennsylvania Racing Commission (“PARC”).  The Company filed applications/petitions with the PAGCB and the PARC for approval to own and operate the facility in the event that all of the conditions to closing in the Company’s agreement with CCR are satisfied and an agreement with a third party operator cannot be reached on terms acceptable to the Company and/or the PAGCB or PARC do not approve such third party operator.  The transaction, which is expected to be accretive immediately upon closing, is expected to close in 2015.

 

5.              Real Estate Investments

 

Real estate investments, net, represents investments in 20 properties and is summarized as follows:

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(in thousands)

 

Land and improvements

 

$

453,297

 

$

382,581

 

Building and improvements

 

2,120,572

 

2,050,533

 

Construction in progress

 

135,047

 

61,677

 

Total real estate investments

 

2,708,916

 

2,494,791

 

Less accumulated depreciation

 

(530,303

)

(484,488

)

Real estate investments, net

 

$

2,178,613

 

$

2,010,303

 

 

Construction in progress primarily represents two development projects for which the Company is responsible for the real estate construction costs, namely Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course. On June 30, 2014, Penn announced that pending final regulatory approval, Hollywood Gaming at Dayton Raceway will open its doors to the public on August 28, 2014. Penn anticipates opening Hollywood Gaming at Mahoning Valley Race Course in mid-September 2014.  The increase in land and buildings and related improvements is primarily driven by the Company’s acquisition of the real estate of Casino Queen for $140.7 million in January 2014.

 

14



Table of Contents

 

6.              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:

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(in thousands)

 

 

 

 

 

 

 

Land and improvements

 

$

31,586

 

$

27,586

 

Building and improvements

 

116,290

 

115,888

 

Furniture, fixtures, and equipment

 

103,081

 

101,288

 

Construction in progress

 

367

 

203

 

Total property and equipment

 

251,324

 

244,965

 

Less accumulated depreciation

 

(112,314

)

(105,844

)

Property and equipment, net

 

$

139,010

 

$

139,121

 

 

7.              Long-term Debt

 

Long-term debt is as follows:

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(in thousands)

 

Senior unsecured credit facility

 

$

476,000

 

$

300,000

 

$550 million 4.375% senior unsecured notes due November 2018

 

550,000

 

550,000

 

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

 

1,000,000

 

1,000,000

 

$500 million 5.375% senior unsecured notes due November 2023

 

500,000

 

500,000

 

 

 

$

2,526,000

 

$

2,350,000

 

 

The following is a schedule of future minimum repayments of long-term debt as of June 30, 2014 (in thousands):

 

2014

 

$

 

2015

 

 

2016

 

 

2017

 

 

2018

 

1,026,000

 

Thereafter

 

1,500,000

 

Total minimum payments

 

$

2,526,000

 

 

The Company participates in a $1,000.0 million senior unsecured credit facility (the “Credit Facility”), consisting of a $700.0 million revolving credit facility and a $300.0 million Term Loan A facility. The Credit Facility matures on October 28, 2018. At June 30, 2014, the Credit Facility had a gross outstanding balance of $476.0 million, consisting of the $300 million Term Loan A facility and $176 million of borrowings under the revolving credit facility. As of June 30, 2014, $524.0 million remained available under the Credit Facility.

 

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. GLPI is required to maintain its status as a REIT on and after the effective date of its election to be treated as a REIT, which election GLPI intends to make on its U.S. federal income tax return for its 2014 fiscal year. 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

 

15



Table of Contents

 

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. Such events of default include the occurrence of a change of control and termination of the 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.

 

Each of the 4.375% Senior Unsecured Notes due 2018 (the “2018 Notes”); 4.875% Senior Unsecured Notes due 2020 (the “2020 Notes”); and 5.375% Senior Unsecured Notes due 2023 (the “2023 Notes,” and collectively with the 2018 Notes and 2020 Notes, the “Notes”) contains covenants limiting the Company’s ability to: incur additional debt and use their assets to secure debt; merge or consolidate with another company; and make certain amendments to the Master Lease. The Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.

 

At June 30, 2014, the Company was in compliance with all required covenants.

 

8.              Commitments and Contingencies

 

Litigation

 

Pursuant to a Separation and Distribution Agreement between Penn and GLPI, any liability arising from or relating to legal proceedings involving the businesses and operations of Penn’s real property holdings prior to the Spin-Off (other than any liability arising from or relating to legal proceedings where the dispute arises from the operation or ownership of the TRS Properties) will be retained by Penn and Penn will indemnify GLPI (and its subsidiaries, directors, officers, employees and agents and certain other related parties) against any losses it may incur arising from or relating to such legal proceedings.

 

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.

 

9.              Dividends

 

On February 18, 2014, GLPI made the Purging Distribution, which totaled $1.05 billion and was comprised of cash and GLPI common stock, to distribute the accumulated earnings and profits related 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. Shareholders were given the option to elect either an all-cash or all-stock dividend, subject to a total cash limitation of $210.0 million. Of the 88,691,827 shares of common stock outstanding on the record date, approximately 54.3% elected the cash distribution and approximately 45.7% elected a stock distribution or made no election. Shareholders electing cash received $4.358049 plus 0.195747 additional GLPI shares per common share held on the record date. Shareholders electing stock or not making an election received 0.309784 additional GLPI shares per common share held on the record date. Stock dividends were paid based on the volume weighted average price for the three trading days ended February 13, 2014 of $38.2162 per share. Approximately 22.0 million shares were issued in connection with this dividend payment.  In addition, cash distributions were made to GLPI and Penn employee restricted stock award holders in the amount of $1.0 million for the purging distribution.  GLPI and Penn have jointly requested a Pre-Filing Agreement from the Internal Revenue Service pursuant to Revenue Procedure 2009 -14 to confirm the appropriate allocation of Penn’s historical earnings and profits between GLPI and Penn.  The outcome of this request may affect the amount of the dividend required to be paid by GLPI to its shareholders prior to December 31, 2014.

 

Additionally, on February 18, 2014, the Company’s Board of Directors declared its first quarterly dividend of $0.52 per common share, which was paid on March 28, 2014, in the amount of $58.0 million, to shareholders of record on March 7, 2014. In addition, first quarter dividend payments were made to or accrued for GLPI restricted stock award holders and both GLPI and Penn unvested employee stock options in the amount of $1.0 million. On May 30, 2014, the Company’s Board of Directors declared a second quarter dividend of $0.52 per common share, which was paid on June 27, 2014, in the amount of $58.2 million, to shareholders of record on June 12, 2014. In addition, second quarter dividend payments were made to or accrued for GLPI restricted stock award holders and both GLPI and Penn unvested employee stock options in the amount of $1.0 million.

 

16



Table of Contents

 

10.       Segment Information

 

The following tables present certain information with respect to the Company’s segments. Intersegment revenues between the Company’s segments were not material in any of the periods presented below.

 

 

 

Three Months Ended June 30, 2014

 

Three Months Ended June 30, 2013

 

(in thousands)

 

GLP Capital

 

TRS Properties

 

Eliminations (2)

 

Total

 

GLP Capital (1)

 

TRS Properties

 

Eliminations (2)

 

Total

 

Net revenues

 

$

119,744

 

$

41,042

 

$

 

$

160,786

 

$

 

$

46,072

 

$

 

$

46,072

 

Income from operations

 

70,219

 

7,155

 

 

77,374

 

 

9,090

 

 

9,090

 

Interest, net

 

28,440

 

2,601

 

(2,601

)

28,440

 

 

(1

)

 

(1

)

Income before income taxes

 

44,380

 

4,554

 

 

48,934

 

 

7,710

 

 

7,710

 

Income tax provision

 

 

1,922

 

 

1,922

 

 

3,011

 

 

3,011

 

Net income

 

44,380

 

2,632

 

 

47,012

 

 

4,699

 

 

4,699

 

Depreciation

 

23,292

 

3,057

 

 

26,349

 

 

3,627

 

 

3,627

 

Capital project expenditures, net of reimbursements

 

31,502

 

 

 

31,502

 

 

476

 

 

476

 

Capital maintenance expenditures

 

 

597

 

 

597

 

 

848

 

 

848

 

 

 

 

Six Months Ended June 30, 2014

 

Six Months Ended June 30, 2013

 

(in thousands)

 

GLP Capital

 

TRS Properties

 

Eliminations (2)

 

Total

 

GLP Capital (1)

 

TRS Properties

 

Eliminations (2)

 

Total

 

Net revenues

 

$

237,856

 

$

81,258

 

$

 

$

319,114

 

$

 

$

88,721

 

$

 

$

88,721

 

Income from operations

 

138,090

 

13,618

 

 

151,708

 

 

15,900

 

 

15,900

 

Interest, net

 

56,868

 

5,202

 

(5,202

)

56,868

 

 

(1

)

 

(1

)

Income before income taxes

 

86,424

 

8,416

 

 

94,840

 

 

13,240

 

 

13,240

 

Income tax provision

 

 

3,516

 

 

3,516

 

 

5,327

 

 

5,327

 

Net income

 

86,424

 

4,900

 

 

91,324

 

 

7,913

 

 

7,913

 

Depreciation

 

46,733

 

6,138

 

 

52,871

 

 

7,215

 

 

7,215

 

Capital project expenditures, net of reimbursements

 

55,504

 

 

 

55,504

 

 

554

 

 

554

 

Capital maintenance expenditures

 

 

1,468

 

 

1,468

 

 

1,744

 

 

1,744

 

 


(1)              GLP Capital operations commenced November 1, 2013 in connection with the Spin-Off.

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

 

11.       Pre-Spin Transactions with Penn

 

Before the Spin-Off, Hollywood Casino Baton Rouge and Hollywood Casino Perryville had a corporate overhead assessment with Penn, whereby Penn provided various management services in consideration of a management fee equal to 3% of net revenues. The Company incurred and paid management fees of $1.4 million and $2.7 million for the three and six months ended June 30, 2013, respectively. In connection with the completion of the Spin-Off, the management fee agreements between Penn and Hollywood Casino Baton Rouge and Hollywood Casino Perryville were terminated.

 

12.       Supplemental Disclosures of Cash Flow Information

 

Prior to the Spin-Off, the Company’s Hollywood Casino Baton Rouge and Hollywood Casino Perryville paid no federal income taxes directly to tax authorities and instead settled all intercompany balances with Penn. These settlements included, among other things, the share of federal income taxes allocated by Penn to Hollywood Casino Baton Rouge and Hollywood Casino Perryville. The amounts paid to Penn for Hollywood Casino Baton Rouge and Hollywood Casino Perryville’s allocated share of federal income taxes were $4.9 million and $6.7 million, respectively, for the three and six months ended June 30, 2013. Hollywood Casino Baton Rouge and Hollywood Casino Perryville made state income tax payments directly to the state authorities of $0.7 million for both the three and six months ended June 30, 2013.

 

Cash paid for income taxes was $10.8 million and $24.6 million for the three and six months ended June 30, 2014, respectively. This included a payment of $5.1 million directly to Penn for federal and state income tax liabilities incurred prior to the Spin-Off, which Penn will be responsible for when filing its 2013 tax returns.

 

Cash paid for interest was $52.5 million and $54.6 million for the three and six months ended June 30, 2014, respectively and no interest was paid for the three and six months ended June 30, 2013.

 

13.       Supplementary Condensed Consolidating Financial Information of Parent Guarantor and Subsidiary Issuers

 

GLPI guarantees the Notes issued by its subsidiaries, GLP Capital, L.P. and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. No subsidiaries of GLPI guarantee the Notes.

 

Summarized financial information as June 30, 2014 and December 31, 2013 and for the six months ended June 30, 2014 and 2013 for GLPI as the parent guarantor, for GLP Capital, L.P. and GLP Financing II, Inc. as the subsidiary issuers and the other subsidiary non-issuers is presented below.

 

17



Table of Contents

 

At June 30, 2014
Condensed Consolidating Balance Sheet

 

Parent 
Guarantor

 

Subsidiary 
Issuers

 

Other 
Subsidiary 
Non-Issuers

 

Eliminations

 

Consolidated

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Real estate investments, net

 

$

 

$

2,039,279

 

$

139,334

 

$

 

$

2,178,613

 

Property and equipment, used in operations, net

 

26,133

 

 

112,877

 

 

139,010

 

Cash and cash equivalents

 

7,078

 

5,178

 

29,423

 

 

41,679

 

Prepaid expenses

 

622

 

875

 

2,062

 

1,220

 

4,779

 

Deferred income taxes

 

 

 

1,933

 

 

1,933

 

Other current assets

 

1,004

 

33,081

 

3,002

 

 

37,087

 

Goodwill

 

 

 

75,521

 

 

75,521

 

Other intangible assets

 

 

 

9,577

 

 

9,577

 

Debt issuance costs, net of accumulated amortization of $5,288 at June 30, 2014

 

 

43,165

 

 

 

43,165

 

Loan receivable

 

 

 

36,000

 

 

36,000

 

Intercompany loan receivable

 

 

193,595

 

 

 

(193,595

)

 

Intercompany transactions and investment in subsidiaries

 

(76,506

)

201,559

 

134,181

 

(259,234

)

 

Other assets

 

14,178

 

 

135

 

 

14,313

 

Total assets

 

$

(27,491

)

$

2,516,732

 

$

544,045

 

$

(451,609

)

$

2,581,677

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

28,326

 

$

20,583

 

$

165

 

$

 

49,074

 

Accrued expenses

 

817

 

881

 

5,725

 

 

7,423

 

Accrued interest

 

 

17,490

 

 

 

17,490

 

Accrued salaries and wages

 

8,011

 

 

2,430

 

 

10,441

 

Gaming, property, and other taxes

 

191

 

23,794

 

2,774

 

 

26,759

 

Income taxes

 

(5,915

)

4,943

 

(248

)

1,220

 

 

Other current liabilities

 

13,999

 

 

1,345

 

 

15,344

 

Long-term debt

 

 

2,526,000

 

 

 

2,526,000

 

Intercompany loan payable

 

 

 

193,595

 

(193,595

)

 

Deferred income taxes

 

 

 

2,068

 

 

2,068

 

Total liabilities

 

45,429

 

2,593,691

 

207,854

 

(192,375

)

2,654,599

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.01 par value, 550,000,000 shares authorized, 112,274,380 shares issued at June 30, 2014

 

1,123

 

 

 

 

1,123

 

Additional paid-in capital

 

869,861

 

72,270

 

226,981

 

(299,251

)

869,861

 

Retained (deficit) earnings

 

(943,904

)

(149,229

)

109,210

 

40,017

 

(943,906

)

Total shareholders’ (deficit) equity

 

(72,920

)

(76,959

)

336,191

 

(259,234

)

(72,922

)

Total liabilities and shareholders’ (deficit) equity

 

$

(27,491

)

$

2,516,732

 

$

544,045

 

$

(451,609

)

$

2,581,677

 

 

18



Table of Contents

 

Six months ended June 30, 2014
Condensed Consolidating Statement of Operations

 

Parent 
Guarantor

 

Subsidiary 
Issuers

 

Other 
Subsidiary 
Non-Issuers

 

Eliminations

 

Consolidated

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

 

$

207,240

 

$

6,172

 

$

 

$

213,412

 

Real estate taxes paid by tenants

 

 

23,528

 

916

 

 

24,444

 

Total rental revenue

 

 

230,768

 

7,088

 

 

237,856

 

Gaming

 

 

 

78,204

 

 

78,204

 

Food, beverage and other

 

 

 

5,919

 

 

5,919

 

Total revenues

 

 

230,768

 

91,211

 

 

321,979

 

Less promotional allowances

 

 

 

(2,865

)

 

(2,865

)

Net revenues

 

 

230,768

 

88,346

 

 

319,114

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

 

43,729

 

 

43,729

 

Food, beverage and other

 

 

 

5,055

 

 

5,055

 

Real estate taxes

 

 

23,528

 

1,751

 

 

25,279

 

General and administrative

 

27,145

 

1,442

 

11,885

 

 

40,472

 

Depreciation

 

901

 

44,437

 

7,533

 

 

52,871

 

Total operating expenses

 

28,046

 

69,407

 

69,953

 

 

167,406

 

Income from operations

 

(28,046

)

161,361

 

18,393

 

 

151,708

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(58,082

)

 

 

(58,082

)

Interest income

 

 

 

1,214

 

 

1,214

 

Management fee

 

 

 

 

 

 

Intercompany dividends and interest

 

357,979

 

19,087

 

362,189

 

(739,255

)

 

Other

 

 

 

 

 

 

Total other expenses

 

357,979

 

(38,995

)

363,403

 

(739,255

)

(56,868

)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

329,933

 

122,366

 

381,796

 

(739,255

)

94,840

 

Income tax provision

 

 

 

3,516

 

 

3,516

 

Net income

 

$

329,933

 

$

122,366

 

$

378,280

 

$

(739,255

)

$

91,324

 

 

19



Table of Contents

 

Six months ended June 30, 2014
Condensed Consolidating Statement of Cash Flows

 

Parent
Guarantor

 

Subsidiary
Issuers

 

Other
Subsidiary
Non-Issuers

 

Eliminations

 

Consolidated

 

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

329,933

 

$

122,366

 

$

(360,975

)

$

 

$

91,324

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

901

 

44,437

 

7,533

 

 

52,871

 

Amortization of debt issuance costs

 

 

4,018

 

 

 

4,018

 

Losses (Gains) on sales of property

 

 

 

159

 

 

159

 

Deferred income taxes

 

 

 

(1,919

)

 

(1,919

)

Charge for stock-based compensation

 

5,087

 

 

 

 

5,087

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) decrease,

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

318

 

(16,415

)

(2,419

)

1,220

 

(17,296

)

Other assets

 

(1,288

)

 

(21

)

 

(1,309

)

Intercompany

 

(2,711

)

(867

)

3,578

 

 

 

Increase (decrease),

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

7,320

 

1,089

 

(226

)

 

8,183

 

Accrued expenses

 

(7,641

)

880

 

401

 

 

(6,360

)

Accrued interest

 

 

(565

)

 

 

(565

)

Accrued salaries and wages

 

880

 

 

(776

)

 

104

 

Gaming, pari-mutuel, property and other taxes

 

50

 

6,252

 

1,668

 

 

7,970

 

Income taxes

 

(1,442

)

(7,365

)

(8,449

)

(1,220

)

(18,476

)

Other current and noncurrent liabilities

 

1,216

 

 

1,214

 

 

2,430

 

Net cash provided by (used in) operating activities

 

332,623

 

153,830

 

(360,232

)

 

126,221

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital project expenditures, net of reimbursements

 

(1,586

)

(53,918

)

 

 

(55,504

)

Capital maintenance expenditures

 

 

 

(1,468

)

 

(1,468

)

Proceeds from sale of property and equipment

 

 

 

6

 

 

6

 

Funding of loan receivable

 

 

 

(43,000

)

 

(43,000

)

Principal payments on loan receivable

 

 

 

7,000

 

 

7,000

 

Acquisition of real estate

 

 

 

 

 

(140,730

)

 

 

(140,730

)

Net cash used in investing activities

 

(1,586

)

(53,918

)

(178,192

)

 

(233,696

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

(329,224

)

 

 

 

(329,224

)

Proceeds from exercise of options

 

17,463

 

 

 

 

17,463

 

Proceeds from issuance of long-term debt

 

 

208,000

 

 

 

208,000

 

Financing costs

 

 

(306

)

 

 

(306

)

Payments of long-term debt

 

 

(32,000

)

 

 

(32,000

)

Intercompany financing

 

(54,999

)

(491,524

)

546,523

 

 

 

Net cash (used in) provided by financing activities

 

(366,760

)

(315,830

)

546,523

 

 

(136,067

)

Net increase in cash and cash equivalents

 

(35,723

)

(215,918

)

8,099

 

 

(243,542

)

Cash and cash equivalents at beginning of year

 

42,801

 

221,095

 

21,325

 

 

285,221

 

Cash and cash equivalents at end of year

 

$

7,078

 

$

5,178

 

$

29,423

 

$

 

$

41,679

 

 

20



Table of Contents

 

At December 31, 2013
Condensed Consolidating Balance Sheet

 

Parent
Guarantor

 

Subsidiary
Issuers

 

Other
Subsidiary
Non-Issuers

 

Eliminations

 

Consolidated