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

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to         
Commission file number:  001-36124 
Gaming and Leisure Properties, Inc.
(Exact name of registrant as specified in its charter) 
Pennsylvania
 
46-2116489
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
845 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip Code)
 
610-401-2900
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
(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 ¨ 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 April 22, 2016
Common Stock, par value $.01 per share
 
145,900,749
 



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Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, goals and objectives.
 
Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

the ability to receive, or delays in obtaining, the regulatory approvals required to own and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects;

the ultimate timing and outcome of our proposed acquisition of substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle");
    
the possibility that the proposed transaction with Pinnacle may not be completed or that completion may be unduly delayed and the results of integrating the assets to be acquired by us in the proposed transaction;

the effects of a transaction between our company and Pinnacle on each party, including the post-transaction impact on our financial condition, operating results, strategy and plans;

the ability to consummate our anticipated acquisition of the equity interests of PA Meadows, LLC, the owner of the Meadows Racetrack & Casino (the "Meadows"), including consummation of our announced transaction to sell the Meadows operating assets to Pinnacle and enter into a long-term lease with Pinnacle;

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 elected REIT status;

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

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

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

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

the degree and nature of our competition;

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

the access to debt and equity capital markets;

adverse changes in our credit rating;

fluctuating interest rates;

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the impact of global or regional economic conditions;

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

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

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

changes in accounting standards;

the impact of weather events or conditions, natural disasters, acts of terrorism and other international hostilities, war or political instability;

other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and

additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, 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, 2015. 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, 2015, in connection with considering any forward-looking statements that may be made by the Company generally. Except for the ongoing obligations of the Company to disclose material information under the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.


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GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
 
 
March 31,
2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
2,066,376

 
$
2,090,059

Property and equipment, used in operations, net
126,755

 
129,747

Cash and cash equivalents
61,561

 
41,875

Prepaid expenses
7,362

 
7,908

Other current assets
58,376

 
57,721

Goodwill
75,521

 
75,521

Other intangible assets
9,577

 
9,577

Debt issuance costs, net of accumulated amortization of $9,500 and $5,937 at March 31, 2016 and December 31, 2015, respectively

 
3,563

Loan receivable
27,813

 
29,350

Deferred tax assets, non-current
2,500

 
2,447

Other assets
388

 
387

Total assets
$
2,436,229

 
$
2,448,155

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
490

 
$
406

Accrued expenses
12,343

 
9,580

Accrued interest
42,848

 
17,623

Accrued salaries and wages
5,096

 
13,719

Gaming, property, and other taxes
25,351

 
24,702

Current maturities of long-term debt
104

 
102

Other current liabilities
18,390

 
17,687

Long-term debt, net of current maturities and unamortized debt issuance costs
2,468,881

 
2,510,239

Deferred rental revenue
121,335

 
107,379

Deferred tax liabilities, non-current
206

 
232

Total liabilities
2,695,044

 
2,701,669

 
 
 
 
Shareholders’ deficit
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2016 and December 31, 2015)

 

Common stock ($.01 par value, 500,000,000 shares authorized, 117,027,925 and 115,594,321 shares issued at March 31, 2016 and December 31, 2015, respectively)
1,170

 
1,156

Additional paid-in capital
962,826

 
935,220

Retained deficit
(1,222,811
)
 
(1,189,890
)
Total shareholders’ deficit
(258,815
)
 
(253,514
)
Total liabilities and shareholders’ deficit
$
2,436,229

 
$
2,448,155

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 
        
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
Revenues
 

 
 

Rental
$
100,215

 
$
97,548

Real estate taxes paid by tenants
11,827

 
13,350

Total rental revenue
112,042

 
110,898

Gaming
35,383

 
36,379

Food, beverage and other
2,776

 
2,815

Total revenues
150,201

 
150,092

Less promotional allowances
(1,381
)
 
(1,387
)
Net revenues
148,820

 
148,705

 
 
 
 
Operating expenses
 

 
 

Gaming
18,934

 
19,016

Food, beverage and other
2,053

 
2,184

Real estate taxes
12,207

 
13,755

General and administrative
20,906

 
21,539

Depreciation
27,083

 
27,411

Total operating expenses
81,183

 
83,905

Income from operations
67,637

 
64,800

 
 
 
 
Other income (expenses)
 

 
 

Interest expense
(33,401
)
 
(29,562
)
Interest income
517

 
595

Total other expenses
(32,884
)
 
(28,967
)
 
 
 
 
Income before income taxes
34,753

 
35,833

Income tax expense
2,004

 
2,702

Net income
$
32,749

 
$
33,131

 
 
 
 
Earnings per common share:
 

 
 

Basic earnings per common share
$
0.28

 
$
0.29

Diluted earnings per common share
$
0.27

 
$
0.28

 
 
 
 
Dividends paid per common share
$
0.56

 
$
0.55

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Deficit
(in thousands, except share data)
(unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Total
Shareholders’
Deficit
 
Shares
 
Amount
 
 
 
Balance, December 31, 2015
115,594,321

 
$
1,156

 
$
935,220

 
$
(1,189,890
)
 
$
(253,514
)
Stock option activity
1,331,805

 
13

 
24,519

 

 
24,532

Restricted stock activity
101,799

 
1

 
3,087

 

 
3,088

Dividends paid

 

 

 
(65,670
)
 
(65,670
)
Net income

 

 

 
32,749

 
32,749

Balance, March 31, 2016
117,027,925

 
$
1,170

 
$
962,826

 
$
(1,222,811
)
 
$
(258,815
)
 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
Operating activities
 
 

 
 

Net income
 
$
32,749

 
$
33,131

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

 
 

Depreciation
 
27,083

 
27,411

Amortization of debt issuance costs
 
5,582

 
2,020

(Gains) losses on dispositions of property
 
(15
)
 
1

Deferred income taxes
 
(79
)
 
(386
)
Stock-based compensation
 
4,572

 
4,394

Straight-line rent adjustments
 
13,956

 
13,956

(Increase), decrease
 
 

 
 

Prepaid expenses and other current assets
 
3,849

 
838

Other assets
 
(1
)
 

Increase, (decrease)
 
 

 
 

Accounts payable
 
45

 
(1,345
)
Accrued expenses
 
(987
)
 
415

Accrued interest
 
25,225

 
24,903

Accrued salaries and wages
 
(8,623
)
 
(6,194
)
Gaming, property and other taxes
 
(201
)
 
(406
)
Income taxes
 

 
1,572

Other current and non-current liabilities
 
703

 
449

Net cash provided by operating activities
 
103,858

 
100,759

Investing activities
 
 

 
 

Capital project expenditures, net of reimbursements
 
(265
)
 
(5,640
)
Capital maintenance expenditures
 
(362
)
 
(951
)
Proceeds from sale of property and equipment
 
233

 
5

Principal payments on loan receivable
 
1,537

 
538

Other investing activities
 

 
(36
)
Net cash provided by (used in) investing activities
 
1,143

 
(6,084
)
Financing activities
 
 

 
 

Dividends paid
 
(65,670
)
 
(62,651
)
Proceeds from exercise of options
 
23,089

 
10,394

Financing costs
 
(709
)
 

Payments of long-term debt
 
(42,025
)
 
(33,024
)
Net cash used in financing activities
 
(85,315
)
 
(85,281
)
Net increase in cash and cash equivalents
 
19,686

 
9,394

Cash and cash equivalents at beginning of period
 
41,875

 
35,973

Cash and cash equivalents at end of period
 
$
61,561

 
$
45,367

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
 
1.              Business and Operations
 
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville, which are referred to as the "TRS Properties," and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on its United States ("U.S.") federal income tax return for its taxable year beginning on January 1, 2014 to be treated as a REIT and the Company, together with an indirectly wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets and leases back most of those assets to Penn for use by its subsidiaries, under a master lease, a triple-net operating lease with an initial term of 15 years with no purchase option, followed by four 5 year renewal options (exercisable by Penn) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc.
 
GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of March 31, 2016, GLPI’s portfolio consisted of 21 gaming and related facilities, including the TRS Properties, the real property associated with 18 gaming and related facilities operated by Penn and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 12 states.
GLPI expects to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms, including its July 2015 announcement of the proposed acquisition of substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") and its December 2015 announcement of the resolution of the previously disclosed litigation with The Meadows Racetrack and Casino (the "Meadows") and entry into an amended purchase agreement with Cannery Casino Resorts LLC, the owner of the Meadows. Furthermore, in March 2016, the Company announced it had entered into an agreement to sell the entities holding the Meadows gaming and racing licenses and operating assets to Pinnacle. GLPI will lease the Pinnacle and the Meadows real property assets to Pinnacle under separate triple-net leases. The Pinnacle transaction is expected to close during April 2016, while both transactions involving the Meadows are expected to close during the late third quarter of 2016. However, we cannot predict the actual dates on which the transactions will be completed because each transaction is subject to conditions beyond such parties' control.
On July 20, 2015, GLPI, Gold Merger Sub, LLC, a direct, wholly owned subsidiary of GLPI ("Merger Sub"), and Pinnacle entered into a merger agreement (as it may be amended from time to time, the "Merger Agreement") providing for the merger of Pinnacle with and into Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of GLPI (the "Merger"). Following the consummation of the Merger, GLPI will own all of Pinnacle’s real property assets, other than Pinnacle’s Belterra Park property and excess land at certain locations. In order to effect the acquisition of Pinnacle’s real property assets (other than the Belterra Park property and excess land at certain locations), prior to the Merger, Pinnacle will cause certain assets relating to its operating business to be transferred to, and liabilities relating thereto to be assumed by a newly formed wholly owned subsidiary of Pinnacle ("OpCo"). Immediately following the separation, Pinnacle will distribute to Pinnacle’s stockholders all of the issued and outstanding shares of common stock of OpCo owning Pinnacle’s operating assets and certain other specified assets. Then, upon satisfaction or waiver of the conditions to closing in the Merger Agreement on the closing date, Pinnacle will merge with and into Merger Sub, as described in more detail in the joint proxy statement/prospectus filed with a Registration Statement on Form S-4 (No. 333-206649) initially filed by GLPI with the Securities and Exchange Commission on December 23, 2015 and declared effective on February 16, 2016 (the "Joint Proxy Statement/Prospectus"). Merger Sub, as the surviving company in the Merger, will then own substantially all of Pinnacle’s real estate assets that were retained or transferred to Pinnacle in the separation and will lease those assets back to OpCo pursuant to a triple-net 35 year (including extension renewals) master lease agreement (the "Pinnacle Master Lease Agreement) substantially in the form attached as Exhibit B to the Merger Agreement. A wholly-owned subsidiary of OpCo would operate the leased gaming facilities as a tenant under the Pinnacle Master Lease Agreement.

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At the effective time of the Merger, each share of Pinnacle common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into 0.85 shares of a share of GLPI common stock, with cash paid in lieu of the issuance of fractional shares of GLPI common stock. The exchange ratio will not be adjusted to reflect changes in the price of GLPI common stock or the price of Pinnacle common stock occurring prior to the completion of the Merger. The obligations of GLPI and Pinnacle to effect the Merger are subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement. Substantially all of the conditions to closing the Merger, including each company's stockholders' approval and gaming regulatory approvals have been satisfied and the Company expects the Merger to close at the end of April 2016. Upon completion of the Merger, the current directors and officers of GLPI are expected to continue in their current positions, other than as may be publicly announced by GLPI in the normal course of business.
Approval by GLPI shareholders and Pinnacle stockholders was obtained at separate special meetings held on March 15, 2016. At the GLPI special meeting, GLPI shareholders voted on (i) a proposal to approve the issuance of GLPI common stock to Pinnacle stockholders in the Merger and (ii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of GLPI common stock to Pinnacle stockholders in the Merger. At the Pinnacle special meeting, Pinnacle stockholders voted on (i) a proposal to adopt the Merger Agreement, (ii) an advisory (non-binding) proposal to approve certain compensation that may be paid or become payable to the named executive officers of Pinnacle in connection with the Merger, and (iii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger and the other transactions contemplated by the Merger Agreement. The Joint Proxy Statement/Prospectus describes the foregoing proposals in more detail, as well as other matters contemplated in connection with the proposed Merger.
On March 25, 2016, the Company and Pinnacle entered into the First Amendment to the Merger Agreement which extended the closing date of the Merger to April 30, 2016. The Merger Agreement may be terminated, subject to certain exceptions, prior to the effective time of the Merger by either GLPI or Pinnacle under certain conditions, including if the Merger has not been consummated on or before April 30, 2016, subject to one two-month extension by GLPI, at the election of GLPI, if the only conditions not satisfied at such time related to regulatory and other government approvals.
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 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.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.
 
Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2015 financial information has been derived from the Company’s audited consolidated financial statements.

3.    New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope

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exception for certain entities. The Company adopted ASU 2015-02 on January 1, 2016 and it had no affect on the Company's financial statements.

Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). This ASU amends certain aspects of accounting for share-based payments to employees, including (i) requiring all income tax effects of share-based awards to be recognized in the income statement when the award vests or settles and eliminating APIC pools, (ii) permitting employers to withhold the share equivalent of an employee's maximum tax liability without triggering liability accounting and (iii) allowing companies to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company is evaluating the impact of adopting ASU 2016-09 on its financial statements, but does not believe the new guidance will have a significant impact on how it accounts for share-based payments.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). This ASU primarily provides new guidance for lessees on the accounting treatment of operating leases. Under the new guidance, lessees are required to recognize assets and liabilities arising from operating leases on the balance sheet. ASU 2016-02 also aligns lessor accounting with the revenue recognition guidance in Topic 606 of the Accounting Standards Codification. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and is required to be adopted on a modified retrospective basis, meaning the new leasing model will be applied to the earliest year presented in the financial statements and thereafter. The Company is evaluating the impact of adopting this new accounting standard on its financial statements, but does not expect adoption of the new guidance to have a significant impact on the accounting treatment of its triple-net leases, which are the primary source of revenue to the Company.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. ASU 2014-09 provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. At the April 1, 2015 FASB meeting, the board voted to defer the effective date for the new revenue recognition standard to annual reporting periods beginning after December 15, 2017. The pronouncement was originally effective for annual reporting periods beginning after December 15, 2016, and companies are permitted to elect the adoption of the standard as of the original effective date. When adopted, the new guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and internal revenue recognition policies.
 
4.              Summary of Significant Accounting Policies
 
Fair Value of Financial Instruments
 
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:
 
Cash and Cash Equivalents
 
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.

Deferred Compensation Plan Assets and Corresponding Liabilities

The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under Accounting Standards Code ("ASC") 820 "Fair Value Measurements and Disclosures." Deferred compensation plan assets are included within other current assets on the condensed consolidated balance sheets. Deferred compensation liabilities approximate the plan's assets and are included with current liabilities on the condensed consolidated balance sheets. The difference between the Company's deferred compensation plan assets and liabilities at both March 31, 2016 and December 31, 2015 is related to timing differences between the funding of assets held at the plan trustee and the actual contributions from eligible employees' compensation.


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Loan Receivable

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

Long-term Debt
 
The fair value of the senior unsecured notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820 "Fair Value Measurements and Disclosures."
 
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
March 31, 2016
 
December 31, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
61,561

 
$
61,561

 
$
41,875

 
$
41,875

Deferred compensation plan assets
14,964

 
14,964

 
14,833

 
14,833

Loan receivable
27,813

 
27,813

 
29,350

 
29,350

Financial liabilities:
 

 
 

 
 

 
 

Deferred compensation plan liabilities
15,446

 
15,446

 
14,866

 
14,866

Long-term debt
 

 
 

 
 

 
 

Senior unsecured credit facility
448,000

 
440,160

 
490,000

 
479,612

Senior notes
2,050,000

 
2,084,925

 
2,050,000

 
2,014,750

 
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 months ended March 31, 2016 and 2015, and comprehensive income for the three months ended March 31, 2016 and 2015 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. Additionally, percentage rent that is fixed and determinable at the lease inception date is recorded on a straight-line basis over the lease term, resulting in the recognition of deferred rental revenue on the Company’s condensed consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the lease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that is not fixed and determinable at lease inception is recognized only when the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.
 
As of March 31, 2016, all but one of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Penn Master Lease. The obligations under the Penn Master Lease are guaranteed by Penn and by most Penn subsidiaries that occupy and operate the facilities leased under the Penn Master Lease. A default by Penn or its subsidiaries with regard to any facility will cause a default with regard to the Penn 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 Penn Master Lease.
 
The rent structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities, which is adjusted, subject to certain floors (i) every five years by an amount equal to 4% of the average change in net revenues of all facilities under the Penn 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 Penn Master Lease are required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the

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leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

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

The Company determined, based on facts and circumstances prevailing at the time of each lease's inception, that neither Penn nor Casino Queen could effectively operate and run their respective business without the properties that are leased to it under the respective lease agreements with GLPI. Furthermore, at lease inception, all of Casino Queen's revenues and substantially all of Penn's revenues were generated from operations in connection with the leased properties. There are also various legal restrictions in the jurisdictions in which Penn and Casino Queen operate that limit the availability and location of gaming facilities, which makes relocation or replacement of the leased gaming facilities restrictive and potentially impracticable or unavailable. Moreover, under the terms of the Penn Master Lease, Penn must make its renewal election with respect to all of the leased property together; the tenant is not entitled to selectively renew certain of the leased property while not renewing other property. Accordingly, the Company concluded that failure by Penn or Casino Queen to renew the lease would impose a significant penalty on such tenant such that renewal of all lease renewal options appears at lease inception to be reasonably assured. Therefore, the Company concluded that the term of the leases with both Penn and Casino Queen is 35 years, equal to the initial 15 year term plus all four of the 5 year renewal options.
 
Additionally, in accordance with ASC 605, "Revenue Recognition," the Company records revenue for the real estate taxes paid by its tenants on the leased properties with an offsetting expense in real estate taxes within the condensed consolidated statement of income as the Company has concluded it is the primary obligor.
 
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 months ended March 31, 2016 and 2015:
        
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Video lottery
$
30,353

 
$
31,241

Table game
4,716

 
4,810

Poker
314

 
328

Total gaming revenue, net of cash incentives
$
35,383

 
$
36,379

 
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.





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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 months ended March 31, 2016 and 2015 are as follows: 
        
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Food and beverage
$
1,349

 
$
1,377

Other
32

 
10

Total promotional allowances
$
1,381

 
$
1,387

 
The estimated cost of providing such complimentary services, which is primarily included in food, beverage, and other expense, for the three months ended March 31, 2016 and 2015 are as follows: 
        
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Food and beverage
$
534

 
$
596

Other
14

 
3

Total cost of complimentary services
$
548

 
$
599

 
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 wagering occurs. At Hollywood Casino Baton Rouge, the gaming and admission tax is based on graduated tax rates. At Hollywood Casino Perryville, the gaming tax rate is flat. The Company records gaming and admission taxes at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming and admission tax rates change during the year, such changes are applied prospectively in the determination of gaming and admission tax expense in future interim periods.  For the three months ended March 31, 2016 and 2015, these expenses, which are primarily recorded within gaming expense in the condensed consolidated statements of income, totaled $14.7 million and $14.9 million, respectively.

Earnings Per Share
 
The Company calculates earnings per share ("EPS") in accordance with ASC 260, "Earnings Per Share." Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted EPS reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. In accordance with ASC 260 "Earnings per Share", the Company includes all performance-based restricted shares that would have vested based upon the Company’s performance at quarter-end in the calculation of diluted EPS. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.














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The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three months ended March 31, 2016 and 2015 (in thousands): 
        
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Determination of shares:
 

 
 

Weighted-average common shares outstanding
116,671

 
113,666

Assumed conversion of dilutive employee stock-based awards
1,821

 
4,232

Assumed conversion of restricted stock
122

 
219

Assumed conversion of performance-based restricted stock awards
203

 
382

Diluted weighted-average common shares outstanding
118,817

 
118,499

 
The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three months ended March 31, 2016 and 2015
        
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands, except per share data)
Calculation of basic EPS:
 

 
 

Net income
$
32,749

 
$
33,131

Less: Net income allocated to participating securities
(135
)
 
(151
)
Net income attributable to common shareholders
$
32,614

 
$
32,980

Weighted-average common shares outstanding
116,671

 
113,666

Basic EPS
$
0.28

 
$
0.29

 
 
 
 
Calculation of diluted EPS:
 

 
 

Net income
$
32,749

 
$
33,131

Diluted weighted-average common shares outstanding
118,817

 
118,499

Diluted EPS
$
0.27

 
$
0.28


 There were 257,321 and 15,529 outstanding options to purchase shares of common stock during the three months ended March 31, 2016 and 2015, respectively, that were not included in the computation of diluted EPS because of being antidilutive.

Stock-Based Compensation
 
The Company accounts for stock compensation under ASC 718, "Compensation - Stock Compensation," which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value for stock options is estimated at the date of grant using the Black-Scholes option-pricing model. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day of grant. The Company utilizes a third party valuation firm to measure the fair value of performance-based restricted stock awards at grant date using the Monte Carlo model.
 
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 connection with the Spin-Off, each outstanding option with respect to Penn common stock outstanding on the distribution date was converted into two awards, an adjusted Penn option and a GLPI option. The adjustment preserved the aggregate intrinsic value of the options. Additionally, in connection with the Spin-Off, holders of outstanding restricted stock

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and PSUs with respect to Penn common stock became entitled to an additional share of restricted stock or PSU with respect to GLPI common stock for each share of Penn restricted stock or PSU held.

The adjusted options, 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; and for purposes of the GLPI awards (including in determining exercisability and the post-termination exercise period), continued service with Penn following the distribution date shall be deemed continued service with GLPI.

The unrecognized compensation relating to both Penn and GLPI’s stock options, restricted stock awards, performance-based restricted stock awards and PSUs held by GLPI employees is amortized to expense over the awards’ remaining vesting periods.

As of March 31, 2016, there was no remaining unrecognized compensation cost for stock options. For the three months ended March 31, 2016 and 2015, the Company recognized $20 thousand and $0.7 million, respectively, of compensation expense associated with these awards. In addition, the Company also recognized $2.3 million and $2.9 million of compensation expense for the three months ended March 31, 2016 and 2015, respectively, relating to each of the first quarter $0.56 and $0.55, respectively, per share dividends paid on vested employee stock options.
 
As of March 31, 2016, there was $11.5 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants remaining weighted average vesting period of 1.85 years. For the three months ended March 31, 2016 and 2015, the Company recognized $1.8 million and $1.4 million, respectively, of compensation expense associated with these awards.

The following table contains information on restricted stock award activity for the three months ended March 31, 2016:
 
Number of Award
Shares
Outstanding at December 31, 2015
463,764

Granted
168,966

Released
(151,245
)
Canceled

Outstanding at March 31, 2016
481,485

 
Performance-based restricted stock awards have a three year cliff vesting with the amount of restricted shares vesting at the end of the three-year period determined based 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.  As of March 31, 2016, there was $17.9 million of total unrecognized compensation cost, which will be recognized over the performance-based restricted stock awards' remaining weighted average vesting period of 2.06 years.  For the three months ended March 31, 2016, and 2015, the Company recognized $2.7 million and $2.2 million, respectively, of compensation expense associated with these awards.

The following table contains information on performance-based restricted stock award activity for the three months ended March 31, 2016:
 
Number of  Performance-Based Award Shares
Outstanding at December 31, 2015
1,091,556

Granted
558,000

Released

Canceled

Outstanding at March 31, 2016
1,649,556


As of March 31, 2016, there was $1.1 million of total unrecognized compensation cost for Penn and GLPI PSUs held by GLPI employees that will be cash-settled by GLPI, which will be recognized over the awards remaining weighted average vesting period of 0.84 years. For the three months ended March 31, 2016 and 2015, the Company recognized $0.4 million and

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$1.8 million, respectively of compensation expense associated with these awards. In addition, the Company also recognized $18 thousand for the three months ended March 31, 2016, relating to the 2016 first quarter $0.56 per share dividend paid on unvested PSUs. For the three months ended March 31, 2015, the Company recognized $0.1 million relating to the 2015 first quarter $0.55 per share dividend paid on unvested PSUs.
 
Upon the declaration of the Purging Distribution, GLPI options were adjusted in a manner that preserved both the pre-distribution intrinsic value of the options 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.
 
5.              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 $43.0 million, five year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. Since March 31, 2015, Casino Queen has been obligated to make mandatory principal payments on the loan on the last day of each calendar year quarter equal to 1.25% of the original loan balance. As of March 31, 2016, these mandatory principal payments, as well as additional principal payments have reduced the balance of this loan to $27.8 million. The collectability of the remaining loan balance is reasonably assured, and as of March 31, 2016 the obligor has made all mandatory principal and interest payments in full and on time and paid down additional principal toward the loan balance. The loan balance is recorded at carrying value which approximates fair value. Interest income related to the loan is recorded in interest income within the Company's consolidated statement of income in the period earned. GLPI leased the property back to Casino Queen on a triple-net basis on terms similar to those in the Penn Master Lease, resulting in approximately $14.0 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.  

6.              Real Estate Investments
 
Real estate investments, net, represents investments in 19 rental properties and the corporate headquarters building and is summarized as follows:
 
 
March 31,
2016
 
December 31,
2015
 
(in thousands)
Land and improvements
$
453,739

 
$
453,739

Building and improvements
2,297,128

 
2,297,128

Construction in progress
7

 

Total real estate investments
2,750,874

 
2,750,867

Less accumulated depreciation
(684,498
)
 
(660,808
)
Real estate investments, net
$
2,066,376

 
$
2,090,059
















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7.              Property and Equipment Used in Operations
 
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized in the TRS Properties: 
 
March 31,
2016
 
December 31,
2015
 
(in thousands)
Land and improvements
$
31,187

 
$
31,187

Building and improvements
117,284

 
117,314

Furniture, fixtures, and equipment
112,553

 
112,227

Construction in progress
314

 
354

Total property and equipment
261,338

 
261,082

Less accumulated depreciation
(134,583
)
 
(131,335
)
Property and equipment, net
$
126,755

 
$
129,747


8.              Long-term Debt
 
Long-term debt is as follows: 
 
March 31,
2016
 
December 31,
2015
 
(in thousands)
Senior unsecured credit facility
$
448,000

 
$
490,000

$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

Capital lease
1,365

 
1,389

Total long-term debt
2,499,365

 
2,541,389

Less: unamortized debt issuance costs
(30,380
)
 
(31,048
)
Total long-term debt, net of unamortized debt issuance costs
2,468,985

 
2,510,341

Less current maturities of long-term debt
(104
)
 
(102
)
Long-term debt, net of current maturities
$
2,468,881

 
$
2,510,239

 
The following is a schedule of future minimum repayments of long-term debt as of March 31, 2016 (in thousands): 
Within one year
$
104

2-3 years
998,223

4-5 years
1,000,245

Over 5 years
500,793

Total minimum payments
$
2,499,365

 
Senior Unsecured Credit Facility

The Company has a one billion dollar 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. On July 31, 2015, in connection with the announced Pinnacle acquisition, the Company entered into the first amendment to the Credit Facility, which permits the Company to borrow an additional $825 million under a Term Loan A-1 facility. At March 31, 2016, the Company had no borrowings outstanding under the Term Loan A-1 facility. The Credit Facility matures on October 28, 2018.

At March 31, 2016, the Credit Facility had a gross outstanding balance of $448.0 million, consisting of the $300.0 million Term Loan A facility and $148.0 million of borrowings under the revolving credit facility. Additionally, at March 31, 2016, the Company was contingently obligated under letters of credit issued pursuant to the senior unsecured credit facility with face amounts aggregating approximately $0.9 million, resulting in $551.1 million of available borrowing capacity under the revolving credit facility as of March 31, 2016.


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The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT on and after the effective date of its election to be treated as a REIT, which the Company elected on its 2014 U.S. federal income tax return. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At March 31, 2016, the Company was in compliance with all required covenants under the Credit Facility.

Senior Unsecured Notes
 
Each of the 4.375% Senior Unsecured Notes due 2018 (the "2018 Notes"); 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"); 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 its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
 
At March 31, 2016, the Company was in compliance with all required covenants under the Notes.

Capital Lease

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

Bridge Facility
Also in connection with the announced Pinnacle transaction, the Company entered into an amended and restated commitment letter dated July 31, 2015 (the "GLPI Commitment Letter") with JPMorgan Chase Bank, N.A., Bank of America, N.A., Fifth Third Bank, Manufacturers and Traders Trust Company, Wells Fargo Bank, National Association, UBS AG, Stamford Branch, Credit Agricole Corporate and Investment Bank, Suntrust Bank, Nomura Securities International, Inc., Citizens Bank, National Association, Barclays and certain of their affiliates (collectively, the "GLPI Commitment Parties") to provide debt financing in connection with the transaction. Pursuant to the GLPI Commitment Letter, the GLPI Commitment Parties have committed to provide a $1.875 billion senior unsecured 364 - day term loan bridge facility (the "GLPI Bridge Facility"). Subsequent to March 31, 2016, through a combination of debt and equity offerings, the Company raised the proceeds, which together with an incremental term loan under the Company's Credit Facility, are necessary to finance the Pinnacle transaction and as such the Company does not intend to utilize the Bridge Facility to finance the Merger. See Note 15 for further information on the Company's respective debt and equity offerings.

9.              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. There can be no assurance that Penn will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Penn any amounts for which we are liable, we may be temporarily required to bear those losses.


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Table of Contents

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. 

10.              Dividends

The following table lists the dividends declared and paid by the Company during the three months ended March 31, 2016 and 2015:
Declaration Date
 
Shareholder Record Date
 
Securities Class
 
Dividend Per Share
 
Period Covered
 
Distribution Date
 
Dividend Amount
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
2016
 
 
 
 
 
 
 
 
 
 
 
 
January 29, 2016
 
February 22, 2016
 
Common Stock
 
$
0.56

 
First Quarter 2016
 
March 25, 2016
 
$
65,345

 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
February 3, 2015
 
March 10, 2015
 
Common Stock
 
$
0.545

 
First Quarter 2015
 
March 27, 2015
 
$
62,072


In addition for the three months ended March 31, 2016 and 2015, dividend payments were made to or accrued for GLPI restricted stock award holders and for both GLPI and Penn unvested employee stock options in the amount of $0.3 million and $0.6 million, respectively.

11.       Segment Information

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

The following tables present certain information with respect to the Company’s segments.
 
 
 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
(in thousands)
 
GLP Capital
 
TRS Properties
 
Eliminations (1)
 
Total
 
GLP Capital 
 
TRS Properties
 
Eliminations (1)
 
Total
Net revenues
 
$
112,042

 
$
36,778

 
$

 
$
148,820

 
$
110,898

 
$
37,807

 
$

 
$
148,705

Income from operations
 
60,770

 
6,867

 

 
67,637

 
57,600

 
7,200

 

 
64,800

Interest, net
 
32,884

 
2,601

 
(2,601
)
 
32,884

 
28,968

 
2,600

 
(2,601
)
 
28,967

Income before income taxes
 
30,487

 
4,266

 

 
34,753

 
31,233

 
4,600

 

 
35,833

Income tax expense
 
386

 
1,618

 

 
2,004

 
810

 
1,892

 

 
2,702

Net income
 
30,101

 
2,648

 

 
32,749

 
30,423

 
2,708

 

 
33,131

Depreciation
 
24,212

 
2,871

 

 
27,083

 
24,393

 
3,018

 

 
27,411

Capital project expenditures, net of reimbursements
 
164

 
101

 

 
265

 
609

 
5,031

 

 
5,640

Capital maintenance expenditures
 

 
362

 

 
362

 

 
951

 

 
951

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







19

Table of Contents

12.       Supplemental Disclosures of Cash Flow Information

Supplemental disclosures of cash flow information is as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
Cash paid for income taxes, net of refunds received
$
234

 
$

Cash paid for interest
2,569

 
2,615


13.       Related Party Transactions

During the year ended December 31, 2014, the Company entered into an Agreement of Sale (the "Sale Agreement") with Wyomissing Professional Center Inc. ("WPC") and acquired certain land in an office complex known as The Wyomissing Professional Center Campus, located in Wyomissing, Pennsylvania for its corporate headquarters building. Also in connection with completion of construction of its corporate headquarters building, the Company entered into an agreement (the "Construction Management Agreement") with CB Consulting Group LLC (the "Construction Manager") during the year ended December 31, 2014. Construction of the Company's corporate headquarters building was completed in October 2015 and the Company did not incur additional expenses related to the building with WPC or the Construction Manager subsequent to 2015.

The Company paid $39,000 to WPC during the three months ended March 31, 2015 in connection with construction costs WPC paid on the Company's behalf. Pursuant to the Construction Management Agreement, the Construction Manager, among other things, provided certain construction management services to the Company in exchange for three percent (3%) of the total cost of work to complete the building construction project and certain additional costs for added services. During the three months ended March 31, 2015, the Company made no payments to the Construction Manager.

Upon completion of the building in October 2015, the Company became responsible for the payment of monthly common area maintenance fees to the Wyomissing Professional Center Owners' Association ("WPCOA"). During the three months ended March 31, 2016, the Company paid approximately $5,500 to the WPCOA.

Peter M. Carlino, the Company’s Chairman of the Board of Directors and Chief Executive Officer, is also the sole owner of WPC and associated with the WPCOA. In addition, Mr. Carlino’s son owns a material interest in the Construction Manager.

14.       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 of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 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.
 

20

Table of Contents

At March 31, 2016
Condensed Consolidating Balance Sheet
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
1,932,368

 
$
134,008

 
$

 
$
2,066,376

Property and equipment, used in operations, net
 

 
24,129

 
102,626

 

 
126,755

Cash and cash equivalents
 

 
23,592

 
37,969

 

 
61,561

Prepaid expenses
 

 
5,679

 
1,023

 
660

 
7,362

Other current assets
 

 
55,059

 
3,317

 

 
58,376

Goodwill
 

 

 
75,521

 

 
75,521

Other intangible assets
 

 

 
9,577

 

 
9,577

Debt issuance costs, net of accumulated amortization of $9,500 at March 31, 2016
 

 

 

 

 

Loan receivable
 

 

 
27,813

 

 
27,813

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
(258,814
)
 
190,496

 
(55,975
)
 
124,293

 

Deferred tax assets, non-current
 

 

 
2,500

 

 
2,500

Other assets
 

 
256

 
132

 

 
388

Total assets
 
$
(258,814
)
 
$
2,425,174

 
$
338,511

 
$
(68,642
)
 
$
2,436,229

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
349

 
$
141

 
$

 
$
490

Accrued expenses
 

 
7,684

 
4,659

 

 
12,343

Accrued interest
 

 
42,848

 

 

 
42,848

Accrued salaries and wages
 

 
3,415

 
1,681

 

 
5,096

Gaming, property, and other taxes
 

 
22,246

 
3,105

 

 
25,351

Income taxes
 

 
112

 
(772
)
 
660

 

Current maturities of long-term debt
 

 
104

 

 

 
104

Other current liabilities
 

 
17,014

 
1,376

 

 
18,390

Long-term debt, net of current maturities and unamortized debt issuance costs
 

 
2,468,881

 

 

 
2,468,881

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred rental revenue
 

 
121,335

 

 

 
121,335

Deferred tax liabilities, non-current
 

 

 
206

 

 
206

Total liabilities
 

 
2,683,988

 
203,991

 
(192,935
)
 
2,695,044

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ (deficit) equity
 
 

 
 

 
 

 
 

 
 

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2016)
 

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 117,027,925 shares issued at March 31, 2016)
 
1,170

 
1,170

 
1,170

 
(2,340
)
 
1,170

Additional paid-in capital
 
962,826

 
962,828

 
1,105,718

 
(2,068,546
)
 
962,826

Retained (deficit) earnings
 
(1,222,810
)
 
(1,222,812
)
 
(972,368
)
 
2,195,179

 
(1,222,811
)
Total shareholders’ (deficit) equity
 
(258,814
)
 
(258,814
)
 
134,520

 
124,293

 
(258,815
)
Total liabilities and shareholders’ (deficit) equity
 
$
(258,814
)
 
$
2,425,174

 
$
338,511

 
$
(68,642
)
 
$
2,436,229


21

Table of Contents

Three months ended March 31, 2016
Condensed Consolidating Statement of Operations
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental
 
$

 
$
96,672

 
$
3,543

 
$

 
$
100,215

Real estate taxes paid by tenants
 

 
11,315

 
512

 

 
11,827

Total rental revenue
 

 
107,987

 
4,055

 

 
112,042

Gaming
 

 

 
35,383

 

 
35,383

Food, beverage and other
 

 

 
2,776

 

 
2,776

Total revenues
 

 
107,987

 
42,214

 

 
150,201

Less promotional allowances
 

 

 
(1,381
)
 

 
(1,381
)
Net revenues
 

 
107,987

 
40,833

 

 
148,820

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming
 

 

 
18,934

 

 
18,934

Food, beverage and other
 

 

 
2,053

 

 
2,053

Real estate taxes
 

 
11,320

 
887

 

 
12,207

General and administrative
 

 
15,228

 
5,678

 

 
20,906

Depreciation
 

 
23,451

 
3,632

 

 
27,083

Total operating expenses
 

 
49,999

 
31,184

 

 
81,183

Income from operations
 

 
57,988

 
9,649

 

 
67,637

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 

Interest expense
 

 
(33,401
)
 

 

 
(33,401
)
Interest income
 

 

 
517

 

 
517

Intercompany dividends and interest
 

 
9,744

 
5,399

 
(15,143
)
 

Total other income (expenses)
 

 
(23,657
)
 
5,916

 
(15,143
)
 
(32,884
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
34,331

 
15,565

 
(15,143
)
 
34,753

Income tax expense
 

 
386

 
1,618

 

 
2,004

Net income (loss)
 
$

 
$
33,945

 
$
13,947

 
$
(15,143
)
 
$
32,749


22

Table of Contents

Three months ended March 31, 2016
Condensed Consolidating Statement of Cash Flows
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating activities
 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
$

 
$
33,945

 
$
13,947

 
$
(15,143
)
 
$
32,749

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

 
 

 
 

 
 

 
 

Depreciation
 

 
23,451

 
3,632

 

 
27,083

Amortization of debt issuance costs
 

 
5,582

 

 

 
5,582

Gains on dispositions of property
 

 

 
(15
)
 

 
(15
)
Deferred income taxes
 

 

 
(79
)
 

 
(79
)
Stock-based compensation
 

 
4,572

 

 

 
4,572

Straight-line rent adjustments
 

 
13,956

 

 

 
13,956

(Increase) decrease,
 
 

 
 

 
 

 
 

 
 
Prepaid expenses and other current assets
 

 
1,313

 
274

 
2,262

 
3,849

Other assets
 

 

 
(1
)
 

 
(1
)
Intercompany
 

 
(579
)
 
579

 

 

Increase (decrease),
 
 

 
 

 
 

 
 

 
 
Accounts payable
 

 
181

 
(136
)
 

 
45

Accrued expenses
 

 
(803
)
 
(184
)
 

 
(987
)
Accrued interest
 

 
25,225

 

 

 
25,225

Accrued salaries and wages
 

 
(7,313
)
 
(1,310
)
 

 
(8,623
)
Gaming, property and other taxes
 

 
(40
)
 
(161
)
 

 
(201
)
Income taxes
 

 
152

 
2,110

 
(2,262
)
 

Other current and non-current liabilities
 

 
713

 
(10
)
 

 
703

Net cash provided by (used in) operating activities
 

 
100,355

 
18,646

 
(15,143
)
 
103,858

Investing activities
 
 

 
 

 
 

 
 

 
 

Capital project expenditures, net of reimbursements
 

 
(164
)
 
(101
)
 

 
(265
)
Capital maintenance expenditures
 

 

 
(362
)
 

 
(362
)
Proceeds from sale of property and equipment
 

 

 
233

 

 
233

Principal payments on loan receivable
 

 

 
1,537

 

 
1,537

Net cash (used in) provided by investing activities
 

 
(164
)
 
1,307

 

 
1,143

Financing activities
 
 

 
 

 
 

 
 

 
 

Dividends paid
 
(65,670
)
 

 

 

 
(65,670
)
Proceeds from exercise of options
 
23,089

 

 

 

 
23,089

Financing costs
 

 
(709
)
 

 

 
(709
)
Payments of long-term debt
 

 
(42,025
)
 

 

 
(42,025
)
Intercompany financing
 
42,581

 
(42,581
)
 
(15,143
)
 
15,143

 

Net cash (used in) provided by financing activities
 

 
(85,315
)
 
(15,143
)
 
15,143

 
(85,315
)
Net increase in cash and cash equivalents
 

 
14,876

 
4,810

 

 
19,686

Cash and cash equivalents at beginning of period
 

 
8,716

 
33,159

 

 
41,875

Cash and cash equivalents at end of period
 
$

 
$
23,592

 
$
37,969

 
$

 
$
61,561


23

Table of Contents

At December 31, 2015 Condensed Consolidating Balance Sheet
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
1,955,290

 
$
134,769

 
$

 
$
2,090,059

Property and equipment, used in operations, net
 

 
24,494

 
105,253

 

 
129,747

Cash and cash equivalents
 

 
8,716

 
33,159

 

 
41,875

Prepaid expenses
 

 
3,768

 
1,218

 
2,922

 
7,908

Other current assets
 

 
54,838

 
2,883

 

 
57,721

Goodwill
 

 

 
75,521

 

 
75,521

Other intangible assets
 

 

 
9,577

 

 
9,577

Debt issuance costs, net of accumulated amortization of $5,937 at December 31, 2015
 

 
3,563

 

 

 
3,563

Loan receivable
 

 

 
29,350

 

 
29,350

Intercompany loan receivable