The tests outlined above, as well as the resulting calculations, require subjective judgments, such as determining, at lease inception, the fair value of the underlying leased assets, the residual value of the assets at the end of the lease term, the likelihood a tenant will exercise all renewal options (in order to determine the lease term), the estimated remaining economic life of the leased assets, and an allocation of rental income received under our Master Leases to the incremental borrowing rate of the lessee and the interest rate implicit in the lease.underlying leased assets. A slight change in estimate or judgment can result in a materially different financial statement presentation.
We elected on our U.S. federal income tax return for our taxable year that began on January 1, 2014 to be treated as a REIT and we, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”. We intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to shareholders determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels, and diversity of stock ownership.
As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate income tax rates, and dividends paid to our
shareholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.
Real estate investments primarily represent land and buildings leased to the Company's tenants. Real estate investments that we received in connection with the Spin-Off were contributed to us at Penn's historical carrying amount. We record the acquisition of real estate at fair value, including acquisition and closing costs. The cost of properties developed by GLPI includeincludes costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful lives of the buildings and building improvements. Additionally, the amortizationIf we used a shorter or longer estimated useful life, it could have a material impact on our results of real estate assets subject to capital leases (for which GLPI is the lessee) is included within the depreciation line item of the Company's consolidated statements of income.operations.
We continually monitor events and circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized. The factors considered by the Company in performing these assessments include evaluating whether the tenant is current on their lease payments, the tenant’s rent coverage ratio, the financial stability of the tenant and its parent company, and any other relevant factors. When indicators of potential impairment suggest that the carrying value of a real estate investment may not be recoverable, we estimate the fair value of the investment by calculating the undiscounted future cash flows from the use and eventual disposition of the investment. This amount is compared to the asset's carrying value. If we determine the carrying amount is not recoverable, we would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.U.S. Generally Accepted Accounting Principles ("GAAP"). We group our real estate investments together by lease, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, we must make assumptions regarding future cash flows and other factors. Factors considered in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss.
The following are the most important factors and trends that contribute or may contribute to our operating performance:
Table of Contents
The consolidated results of operations for the years ended December 31, 2018, 20172020 and 20162019 are summarized below:
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | |
| (in thousands) | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total revenues | $ | 1,153,165 | | | $ | 1,153,473 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total operating expenses | 343,891 | | | 436,050 | | | |
Income from operations | 809,274 | | | 717,423 | | | |
Total other expenses | (299,686) | | | (321,778) | | | |
Income before income taxes | 509,588 | | | 395,645 | | | |
Income tax expense | 3,877 | | | 4,764 | | | |
Net income | $ | 505,711 | | | $ | 390,881 | | | |
|
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
| (in thousands) |
Revenues | |
| | |
| | |
Rental income | $ | 747,654 |
| | $ | 671,190 |
| | $ | 567,444 |
|
Income from direct financing lease | 81,119 |
| | 74,333 |
| | 48,917 |
|
Interest income from mortgaged real estate | 6,943 |
| | — |
| | — |
|
Real estate taxes paid by tenants | 87,466 |
| | 83,698 |
| | 67,843 |
|
Total income from real estate | 923,182 |
| | 829,221 |
| | 684,204 |
|
Gaming, food, beverage and other | 132,545 |
| | 142,086 |
| | 144,051 |
|
Total revenues | 1,055,727 |
| | 971,307 |
| | 828,255 |
|
Operating expenses | |
| | |
| | |
Gaming, food, beverage and other | 77,127 |
| | 80,487 |
| | 82,463 |
|
Real estate taxes | 88,757 |
| | 84,666 |
| | 69,448 |
|
Land rights and ground lease expense | 28,358 |
| | 24,005 |
| | 14,799 |
|
General and administrative | 71,128 |
| | 63,151 |
| | 71,368 |
|
Depreciation | 137,093 |
| | 113,480 |
| | 109,554 |
|
Goodwill impairment charges | 59,454 |
| | — |
| | — |
|
Total operating expenses | 461,917 |
| | 365,789 |
| | 347,632 |
|
Income from operations | $ | 593,810 |
| | $ | 605,518 |
| | $ | 480,623 |
|
In accordance with the SEC's recent amendments to modernize and simplify Regulation S-K, the Company has omitted the discussion comparing its operating results for the year ended December 31, 2019 to its operating results for the year ended December 31, 2018 from its Annual Report on Form 10-K for the year ended December 31, 2020. Readers are directed to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for these disclosures.
Certain information regarding our results of operations by segment for the years ended December 31, 2018, 20172020 and 20162019 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Income (Loss) from Operations |
| Year Ended December 31, | | Year Ended December 31, |
| 2020 | | 2019 | | | | 2020 | | 2019 | | |
| (in thousands) | | |
GLP Capital | $ | 1,050,166 | | | $ | 1,025,082 | | | | | $ | 792,467 | | | $ | 694,215 | | | |
TRS Segment | 102,999 | | | 128,391 | | | | | 16,807 | | | 23,208 | | | |
Total | $ | 1,153,165 | | | $ | 1,153,473 | | | | | $ | 809,274 | | | $ | 717,423 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Income from Operations |
Year Ended December 31, | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| (in thousands) |
GLP Capital | $ | 923,182 |
| | $ | 829,221 |
| | $ | 684,204 |
| | $ | 630,122 |
| | $ | 578,661 |
| | $ | 454,682 |
|
TRS Properties | 132,545 |
| | 142,086 |
| | 144,051 |
| | (36,312 | ) | | 26,857 |
| | 25,941 |
|
Total | $ | 1,055,727 |
| | $ | 971,307 |
| | $ | 828,255 |
| | $ | 593,810 |
| | $ | 605,518 |
| | $ | 480,623 |
|
Table of Contents
FFO, AFFO and Adjusted EBITDA
Funds From Operations ("FFO"), Adjusted Funds From Operations ("AFFO") and Adjusted EBITDA are non-GAAP financial measures used by the Company as performance measures for benchmarking against the Company’s peers and as internal measures of business operating performance, which is used as a bonus metric. The Company believes FFO, AFFO and Adjusted EBITDA provide a meaningful perspective of the underlying operating performance of the Company’s current business. This is especially true since these measures exclude real estate depreciation and we believe that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. In addition, in order for the Company to qualify as a REIT, it must distribute 90% of its REIT taxable income annually. The Company adjusts AFFO accordingly to provide our investors an estimate of the taxable income available for this distribution requirement.
FFO, is aAFFO and Adjusted EBITDA are non-GAAP financial measuremeasures that isare considered a supplemental measuremeasures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts defines FFO as net income (computed in accordance with GAAP), excluding (gains) or losses from sales of property and real estate depreciation. We define AFFO as FFO excluding stock based compensation expense, the amortization of debt issuance costs, amortization,bond premiums and original issuance discounts, other depreciation, amortization of land rights, straight-line rent adjustments, direct financing lease adjustments, losses on debt extinguishment, retirement costs and goodwillloan impairment charges, reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, taxes on income, depreciation, (gains) or losses from sales of property, stock based compensation expense, straight-line rent adjustments, direct financing lease adjustments, theamortization of debt issuance costs, bond premiums and original issuance discounts, amortization of land rights, losses on debt extinguishment, retirement costs and goodwillloan impairment charges.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. Because certain companies do not calculate FFO, AFFO and Adjusted EBITDA in the same way and certain other companies may not perform such calculation, those
measures as used by other companies may not be consistent with the way the Company calculates such measures and should not be considered as alternative measures of operating profit or net income. The Company’s presentation of these measures does not replace the presentation of the Company’s financial results in accordance with GAAP.
These non-GAAP financial measures: (i) do not represent cash flowflows from operations as defined by GAAP; (ii) should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating, investing and financing activities; and (iii) are not alternatives to cash flowflows as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund all of our cash needs, including to make cash distributions to our shareholders, to fund capital improvements, or to make interest payments on our indebtedness. Investors are also cautioned that FFO, AFFO and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures reported by other real estate companies, including REITs due to the fact that not all real estate companies use the same definitions. Our presentation of these measures does not replace the presentation of our financial results in accordance with GAAP.
The reconciliation of the Company’s net income per GAAP to FFO, AFFO, and Adjusted EBITDA for the years ended December 31, 2018, 20172020 and 20162019 is as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | |
| (in thousands) |
Net income | $ | 505,711 | | | $ | 390,881 | | | |
(Gains) losses from dispositions of property | (41,393) | | | 92 | | | |
Real estate depreciation | 220,069 | | | 230,716 | | | |
Funds from operations | $ | 684,387 | | | $ | 621,689 | | | |
Straight-line rent adjustments | 4,576 | | | 34,574 | | | |
| | | | | |
Other depreciation | 10,904 | | | 9,719 | | | |
Amortization of land rights | 12,022 | | | 18,536 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | 10,503 | | | 11,455 | | | |
Stock based compensation | 20,004 | | | 16,198 | | | |
Losses on debt extinguishment | 18,113 | | | 21,014 | | | |
| | | | | |
Loan impairment charges | — | | | 13,000 | | | |
| | | | | |
Capital maintenance expenditures | (3,130) | | | (3,017) | | | |
Adjusted funds from operations | $ | 757,379 | | | $ | 743,168 | | | |
Interest, net | 281,573 | | | 300,764 | | | |
Income tax expense | 3,877 | | | 4,764 | | | |
Capital maintenance expenditures | 3,130 | | | 3,017 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | (10,503) | | | (11,455) | | | |
Adjusted EBITDA | $ | 1,035,456 | | | $ | 1,040,258 | | | |
|
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
| (in thousands) |
Net income | $ | 339,516 |
| | $ | 380,598 |
| | $ | 289,305 |
|
Losses (gains) from dispositions of property | 309 |
| | 530 |
| | (455 | ) |
Real estate depreciation | 125,630 |
| | 100,576 |
| | 96,074 |
|
Funds from operations | $ | 465,455 |
| | $ | 481,704 |
| | $ | 384,924 |
|
Straight-line rent adjustments | 61,888 |
| | 65,971 |
| | 58,673 |
|
Direct financing lease adjustments | 38,459 |
| | 73,072 |
| | 48,533 |
|
Other depreciation | 11,463 |
| | 12,904 |
| | 13,480 |
|
Amortization of land rights | 11,272 |
| | 10,355 |
| | 6,163 |
|
Amortization of debt issuance costs (1) | 12,167 |
| | 13,026 |
| | 15,146 |
|
Stock based compensation | 11,152 |
| | 15,636 |
| | 18,312 |
|
Losses on debt extinguishment | 3,473 |
| | — |
| | — |
|
Retirement costs | 13,149 |
| | — |
| | — |
|
Goodwill impairment charges | 59,454 |
| | — |
| | — |
|
Capital maintenance expenditures | (4,284 | ) | | (3,178 | ) | | (3,111 | ) |
Adjusted funds from operations | $ | 683,648 |
| | $ | 669,490 |
| | $ | 542,120 |
|
Interest, net | 245,857 |
| | 215,133 |
| | 183,773 |
|
Income tax expense | 4,964 |
| | 9,787 |
| | 7,545 |
|
Capital maintenance expenditures | 4,284 |
| | 3,178 |
| | 3,111 |
|
Amortization of debt issuance costs (1) | (12,167 | ) | | (13,026 | ) | | (15,146 | ) |
Adjusted EBITDA | $ | 926,586 |
| | $ | 884,562 |
| | $ | 721,403 |
|
(1) Such amortization is a non-cash component included in interest, net.
The reconciliation of each segment’s net income per GAAP to FFO, AFFO, and Adjusted EBITDA for the years ended December 31, 2018, 20172020 and 20162019 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | GLP Capital | | TRS Properties |
Year Ended December 31, | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| | (in thousands) |
Net income | | $ | 390,341 |
| | $ | 372,832 |
| | $ | 280,295 |
| | $ | (50,825 | ) | | $ | 7,766 |
| | $ | 9,010 |
|
Losses (gains) from dispositions of property | | 76 |
| | — |
| | (471 | ) | | 233 |
| | 530 |
| | 16 |
|
Real estate depreciation | | 125,630 |
| | 100,576 |
| | 96,074 |
| | — |
| | — |
| | — |
|
Funds from operations | | $ | 516,047 |
| | $ | 473,408 |
| | $ | 375,898 |
| | $ | (50,592 | ) | | $ | 8,296 |
| | $ | 9,026 |
|
Straight-line rent adjustments | | 61,888 |
| | 65,971 |
| | 58,673 |
| | — |
| | — |
| | — |
|
Direct financing lease adjustments | | 38,459 |
| | 73,072 |
| | 48,533 |
| | — |
| | — |
| | — |
|
Other depreciation | | 2,066 |
| | 2,076 |
| | 2,097 |
| | 9,397 |
| | 10,828 |
| | 11,383 |
|
Amortization of land rights | | 11,272 |
| | 10,355 |
| | 6,163 |
| | — |
| | — |
| | — |
|
Debt issuance costs amortization (1) | | 12,167 |
| | 13,026 |
| | 15,146 |
| | — |
| | — |
| | — |
|
Stock based compensation | | 11,152 |
| | 15,636 |
| | 18,312 |
| | — |
| | — |
| | — |
|
Losses on debt extinguishment | | 3,473 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Retirement costs | | 13,149 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Goodwill impairment charges | | — |
| | — |
| | — |
| | 59,454 |
| | — |
| | — |
|
Capital maintenance expenditures | | (55 | ) | | — |
| | — |
| | (4,229 | ) | | (3,178 | ) | | (3,111 | ) |
Adjusted funds from operations | | $ | 669,618 |
| | $ | 653,544 |
| | $ | 524,822 |
| | $ | 14,030 |
| | $ | 15,946 |
| | $ | 17,298 |
|
Interest, net (2) | | 235,453 |
| | 204,730 |
| | 173,371 |
| | 10,404 |
| | 10,403 |
| | 10,402 |
|
Income tax expense | | 855 |
| | 1,099 |
| | 1,016 |
| | 4,109 |
| | 8,688 |
| | 6,529 |
|
Capital maintenance expenditures | | 55 |
| | — |
| | — |
| | 4,229 |
| | 3,178 |
| | 3,111 |
|
Debt issuance costs amortization (1) | | (12,167 | ) | | (13,026 | ) | | (15,146 | ) | | — |
| | — |
| | — |
|
Adjusted EBITDA | | $ | 893,814 |
| | $ | 846,347 |
| | $ | 684,063 |
| | $ | 32,772 |
| | $ | 38,215 |
| | $ | 37,340 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GLP Capital | | | | TRS Segment |
| | Year Ended December 31, | | Year Ended December 31, | | |
| | 2020 | | 2019 | | | | 2020 | | 2019 | | |
| | (in thousands) | | |
Net income (loss) | | $ | 508,060 | | | $ | 382,184 | | | | | $ | (2,349) | | | $ | 8,697 | | | |
(Gains) losses from dispositions of property | | (41,402) | | | 8 | | | | | 9 | | | 84 | | | |
Real estate depreciation | | 220,069 | | | 230,716 | | | | | — | | | — | | | |
Funds from operations | | $ | 686,727 | | | $ | 612,908 | | | | | $ | (2,340) | | | $ | 8,781 | | | |
Straight-line rent adjustments | | 4,576 | | | 34,574 | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Other depreciation | | 1,972 | | | 1,992 | | | | | 8,932 | | | 7,727 | | | |
Amortization of land rights | | 12,022 | | | 18,536 | | | | | — | | | — | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | 10,503 | | | 11,455 | | | | | — | | | — | | | |
Stock based compensation | | 20,004 | | | 16,198 | | | | | — | | | — | | | |
Losses on debt extinguishment | | 18,113 | | | 21,014 | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Loan impairment charges | | — | | | 13,000 | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Capital maintenance expenditures | | (186) | | | (22) | | | | | (2,944) | | | (2,995) | | | |
Adjusted funds from operations | | $ | 753,731 | | | $ | 729,655 | | | | | $ | 3,648 | | | $ | 13,513 | | | |
Interest, net (2) | | 265,597 | | | 290,360 | | | | | 15,976 | | | 10,404 | | | |
Income tax expense | | 697 | | | 657 | | | | | 3,180 | | | 4,107 | | | |
Capital maintenance expenditures | | 186 | | | 22 | | | | | 2,944 | | | 2,995 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | (10,503) | | | (11,455) | | | | | — | | | — | | | |
Adjusted EBITDA | | $ | 1,009,708 | | | $ | 1,009,239 | | | | | $ | 25,748 | | | $ | 31,019 | | | |
(1) Such amortization is a non-cash component included in interest, net.
| |
(2)(2) Interest expense, net for the GLP Capital segment is net of an intercompany interest elimination of $16.0 million and $10.4 million for the years ended December 31, 2020 and 2019. | Interest expense, net for the GLP Capital segment is net of an intercompany interest elimination of $10.4 million for the years ended December 31, 2018, 2017 and 2016. |
2018 Compared with 2017
Net income, FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $390.3$508.1 million, $516.0$686.7 million, $669.6$753.7 million and $893.8$1,009.7 million, respectively, for the year ended December 31, 2018.2020. This compared to net income, FFO, AFFO, and Adjusted EBITDA, for our GLP Capital segment of $372.8$382.2 million, $473.4$612.9 million, $653.5$729.7 million and $846.3$1,009.2 million, respectively, for the year ended December 31, 2017.2019. The increase in net income in our GLP Capital segment was primarily driven by a $94.0$73.2 million decrease in operating expenses from a gain on the disposition of property related to the Evansville swap transaction of $41.4 million in 2020, lower land right and ground lease expense due to the acceleration of these items for the Penn closure of its Resorts Casino Tunica property in 2019 and a $13.0 million loan impairment charge related to the Casino Queen Loan in 2019. The Company also had a $27.7 million decrease in other expenses, resulting from lower interest expense due to refinancing activities and lower debt extinguishment charges, along with a $25.1 million increase in income from real estate, partially offset by a $42.5 million increase in operating expenses and a $34.2 million increase in other expenses, net. estate.
The increase in income from real estate in our GLP Capital segment was primarily due to the Tropicana Transactions, the Penn-Pinnacle Merger and our entry into the Belterra Park Loan, as well as the performance of the Ohio properties, the impact of the rent escalators under the Penn and Pinnacle master leases, net percentagefavorable non-cash straight-line rent adjustments of $30.0 million on our Amended Pinnacle Master Lease, Boyd Master Lease and the partial recognition of income previously deferred under the PennAmended and Restated Caesars Master Lease in accordance with ASC 840. 842. We also experienced higher building base rents as the majority of our leases incurred escalators in 2019. This was partially offset by lower percentage rent resets that occurred on May 1, 2020 for the Amended Pinnacle Master Lease of $3.3 million and the Boyd Master Lease of $0.9 million due primarily to the impact of the casino closures from COVID-19, lower percentage rent of $4.0 million on the Penn Master Lease due to the temporary closure of Hollywood Casino Columbus and to a lesser extent, Hollywood Casino Toledo from mid-March 2020 to June 19, 2020 due to COVID-19, and lower percentage rent on the Meadows Lease as the variable rent reset occurred in October 2020 which decreased percentage rent by $0.5 million.
The increasedecrease in operating expenses in our GLP Capital segment was driven by an increase in depreciation expense resulting from the addition of the Tropicana and Plainridge Park real estate assets to our real estate portfolio, as well as the reclassification of the Pinnacle building assets to real estate investments on our balance sheet as a result of the Penn-Pinnacle Merger, which required the Amended Pinnacle Master Lease to be treated as an operating lease in its entirety. Also driving the increase in total operating expenses for the year ended December 31, 2018,2020 as compared to the prior year are accrued retirement costsperiod was primarily from a gain on the disposition of property related to the retirementEvansville swap transaction of $41.4 million along with lower depreciation expense and land right amortization expense in our former Chief Financial Officer. The increase in other expenses, net was driven by an increase in interestREIT segment of $24.1 million primarily from lower rent expense relatedon the Company's long term ground leases due to the debt refinancing in the second quarterimpact of 2018 and debt issuances in the third quarter of 2018, the proceeds of which were utilized for the October closings of both the Tropicana TransactionsCOVID-19 and the acquisitionacceleration of Plainridge Parkdepreciation and amortization in 2019 resulting from the fundingclosing of the Belterra Park Loan in connection with the Penn-Pinnacle Merger. In addition, the Company incurred losses on the extinguishmentPenn's Resorts Casino Tunica property. Additionally, there was a loan impairment charge of debt during the second quarter of 2018.
The changes described above also led to higher FFO$13.0 million for the year ended December 31, 2018, as compared2019 related to the Casino Queen Loan. These items were partially offset by charges of $6.3 million associated with severance and stock based compensation acceleration charges for the departure of our former chief financial officer.
The decrease in other expenses, net for the year ended December 31, 2017. 2020 compared to the prior year was driven by lower interest expense from our refinancing activities that occurred in the third quarter of 2019 and first quarter of 2020 and lower debt extinguishment charges compared to the prior year.
The increase in AFFOFFO for our GLP Capital segment was primarily driven by the changes described above, partially offset by lower stock based compensation, direct financing lease adjustments and straight-line rent adjustments, all of which are added back for purposes of calculating AFFO. Direct financing lease adjustments represent the portion of cash rent we received from tenants that was applied against our lease receivable and thus not recorded as revenue. These adjustments decreased due to the unwinding of the direct financing lease in October 2018, as the cash received is now recorded as rental income and no add-back to AFFO is necessary. The increase in Adjusted EBITDA for our GLP Capital segment was primarily driven by the increases in AFFO described above, as well as, a higher add-back for interest.
The net loss of $50.8 million for our TRS Properties segment for the year ended December 31, 2018, as compared2020 is due to net incomethe items described above, excluding gains from the disposition of $7.8 million forproperty and real estate depreciation. The increase in AFFO is due to the ended December 31, 2017 was primarily driven by a goodwillitems described above, excluding the impact of straight-line rent adjustments, loan impairment charge of $59.5 million at our Hollywood Casino Baton Rouge property. This charge was the result of general market deterioration in the Baton Rouge regioncharges and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect duringother items listed on the second quarterprevious table.
The net loss of 2018, both of which significantly impacted the Company's forecasted cash flows for this reporting unit. This charge also led to lower FFO$2.3 million for our TRS Properties segmentSegment for the year ended December 31, 2018,2020 as compared to the year ended December 31, 2017.
2017 Compared with 2016
Netnet income FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $372.8of $8.7 million $473.4 million, $653.5 million and $846.3 million, respectively, for the prior year ended December 31, 2017. This compared to net income, FFO, AFFO, and Adjusted EBITDA, for our GLP Capital segment of $280.3 million, $375.9 million, $524.8 million and $684.1 million, respectively, for the year ended December 31, 2016. The significant increase in net income in our GLP Capital segment was primarily driven by a $145.0 million increase in total revenues, partially offset by a $21.0 million increase in operating expenses and a $31.4 million increase in interest, net. The increase in total revenues in our GLP Capital segment was primarily due to the Pinnacle transaction, which increased rental income, income from the direct financing lease and revenue recorded for real estate taxes paid by our tenants and the Tunica and Meadows transactions, which increased both rental income and revenue recorded for real estate taxes paid by our tenants. The increase in operating expenses in our GLP Capital segment was driven by increases in real estate taxes, primarily as a result of the addition of the Pinnacle and Meadows properties to our real estate portfolio during 2016 and land right and ground rent lease expense,is primarily related to the land rights acquiredimpact of the mandated closures of our facilities during mid-March 2020 to May and June 2020 due to COVID-19 along with the Pinnacle and Tunica transactions, partially offset by a decline in general and administrative expenses. Thean increase in interest, net was driven by higher interestdepreciation expense related to the Company's additional borrowings incurred to finance the Pinnacle acquisition. The changes described above also led to higher FFO for the year ended December 31, 2017, as compared to the year ended December 31, 2016. The increase in AFFO for our GLP Capital segment was primarily driven by the changes described above, as well as, increases in adjustments for our direct financing lease, increased amortizationacquisition of land rights related to the acquired ground leases, increased straight-line rent adjustments related to our Meadows Lease and the addition of the Tunica Properties to the Penn Master Lease, partially offset by lower debt issuance costs amortization and stock based compensation, all of which are added back for purposes of calculating AFFO. Direct financing lease adjustments represent the portion of cash rent we receive from tenants that is applied against our lease receivable and thus not recorded as revenue and the amortization of land rights represents the non-cash amortization of the value assigned to the Company's acquired ground leases. These adjustments are added back to arrive at AFFO because they represent, in the case of the direct financing lease adjustments, cash we have received and recorded in taxable income and in the case of the amortization of land rights, non-cash charges which are non-deductible for tax purposes. Therefore, these adjustments help our investors better understand the components of our taxable income which must be distributed to our shareholders. The increase in Adjusted EBITDA for our GLP Capital segment was primarily driven by the increases in AFFO described above, as well as, a higher add-back for interest.Tropicana Las Vegas.
Net income and FFO for our TRS Properties segment decreased by $1.2 million and $0.7 million, respectively, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to declining revenues partially offset by decreased expenses. AFFO for our TRS Properties segment decreased by $1.4 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due the reasons described above, as well as, lower depreciation expense due to certain assets reaching full depreciation. Adjusted EBITDA for our TRS Properties segment increased by $0.9 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to the explanations described above, in addition to higher income taxes in the year ended December 31, 2017.
Revenues
Revenues for the years ended December 31, 2018, 20172020 and 20162019 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2020 | | 2019 | | Variance | | Variance |
Rental income | | $ | 1,031,036 | | | $ | 996,166 | | | $ | 34,870 | | | 3.5 | % |
| | | | | | | | |
Interest income from real estate loans | | 19,130 | | | 28,916 | | | (9,786) | | | (33.8) | % |
| | | | | | | | |
Total income from real estate | | 1,050,166 | | | 1,025,082 | | | 25,084 | | | 2.4 | % |
Gaming, food, beverage and other | | 102,999 | | | 128,391 | | | (25,392) | | | (19.8) | % |
Total revenues | | $ | 1,153,165 | | | $ | 1,153,473 | | | $ | (308) | | | — | % |
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percentage |
Year Ended December 31, | | 2018 | | 2017 | | Variance | | Variance |
Total income from real estate | | $ | 923,182 |
| | $ | 829,221 |
| | $ | 93,961 |
| | 11.3 | % |
Gaming, food, beverage and other | | 132,545 |
| | 142,086 |
| | (9,541 | ) | | (6.7 | )% |
Total revenues | | 1,055,727 |
| | 971,307 |
| | 84,420 |
| | 8.7 | % |
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percentage |
Year Ended December 31, | | 2017 | | 2016 | | Variance | | Variance |
Total income from real estate | | $ | 829,221 |
| | $ | 684,204 |
| | $ | 145,017 |
| | 21.2 | % |
Gaming, food, beverage and other | | 142,086 |
| | 144,051 |
| | (1,965 | ) | | (1.4 | )% |
Total revenues | | 971,307 |
| | 828,255 |
| | 143,052 |
| | 17.3 | % |
Total income from real estate
2018 Compared to 2017
For the years ended December 31, 20182020 and 2017,2019, total income from real estate was $923.2$1,050.2 million and $829.2$1,025.1 million, respectively, for our GLP Capital segment, which included $87.5 million and $83.7 million, respectively, of revenue for the real estate taxes paid by our tenants on the leased properties. During October 2018, we acquired the real estate assets of five casino properties from Tropicana and leased these assets to Eldorado under a new long-term triple-net master lease. We also acquired Plainridge Park from Penn and leased it to Penn under the Amended Pinnacle Master Lease.
segment. In accordance with ASC 606, the Company is required to present the real estate taxes paid by its tenants on the leased properties as revenue with an offsetting expense on its consolidated statement of operations, as the Company believes it is the primary obligor. Similarly,842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statementsstatement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.
Total income from real estate increased $94.0$25.1 million, or 11.3%2.4%, for the year ended December 31, 2018,2020, as compared to the year ended December 31, 2017,2019. As previously discussed, this was primarily due to the Tropicana Transactions, the Penn-Pinnacle Merger and our entry into the Belterra Park Loan, as well as the performance of the Ohio properties, the impact of the rent escalators under the Penn and Pinnacle master leases, net percentagefavorable non-cash straight line rent adjustments on our Amended Pinnacle Master Lease, Boyd Master Lease and the partial recognition of income previously deferred under the PennAmended and Restated Caesars Master Lease in accordance with ASC 840. Specifically,842. Additionally the properties undercurrent year was positively impacted by higher building base rents as the majority of our leases incurred escalators in 2019. This was partially offset by lower ground lease rents due to the impact of COVID-19, lower percentage rent from the Amended Pinnacle Master Lease and Boyd Master Lease which reset on May 1, 2020 and the Meadows Lease which reset on October 1, 2020. Finally, the year ended December 31, 2020 was negatively impacted by lower percentage rent on the Penn Master Lease contributed $18.2 milliondue to the increaseclosures of Hollywood Casino Columbus and to a lesser extent, Hollywood Casino Toledo.
The reason for the decline in interest income from real estate loans was due to the CZR loan and Belterra Park Loan both being satisfied in 2020 as the Company acquired the real estate subject to the Lumière Place Lease and the Belterra Park Lease. See Note 8 in the Notes to the Consolidated Financial Statements for further details.
Details of the Company's income from real estate for the year ended December 31, 2018,2020 was as compared to the year ended December 31, 2017, resulting from the collectionfollows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2020 | Penn Master Lease | | Amended Pinnacle Master Lease | | Caesars Master Lease | | Lumiere Lease | Boyd Master Lease | | Belterra Lease | PENN - Meadows Lease | | Casino Queen Lease | | PENN Morgantown Lease | Total |
Building base rent | $ | 279,406 | | | $ | 227,201 | | | $ | 62,156 | | | $ | 5,828 | | $ | 75,643 | | | $ | 1,783 | | $ | 15,811 | | | $ | 9,101 | | | $ | — | | $ | 676,929 | |
Land base rent | 93,969 | | | 71,256 | | | 15,916 | | | — | | 11,785 | | | 1,263 | | — | | | — | | | 750 | | 194,939 | |
Percentage rent | 82,595 | | | 28,452 | | | 10,020 | | | — | | 10,308 | | | 1,211 | | 10,637 | | | 5,424 | | | — | | 148,647 | |
Total cash rental income (1) | $ | 455,970 | | | $ | 326,909 | | | $ | 88,092 | | | $ | 5,828 | | $ | 97,736 | | | $ | 4,257 | | $ | 26,448 | | | $ | 14,525 | | | $ | 750 | | $ | 1,020,515 | |
Straight-line rent adjustments | 8,926 | | | (10,555) | | | (2,980) | | | — | | (1,448) | | | (808) | | 2,289 | | | — | | | — | | (4,576) | |
Ground rent in revenue | 2,317 | | | 5,770 | | | 5,299 | | | — | | 1,519 | | | — | | | | — | | | — | | 14,905 | |
Other rental revenue | — | | | — | | | — | | | — | | — | | | — | | 192 | | | — | | | — | | 192 | |
Total rental income | $ | 467,213 | | | $ | 322,124 | | | $ | 90,411 | | | $ | 5,828 | | $ | 97,807 | | | $ | 3,449 | | $ | 28,929 | | | $ | 14,525 | | | $ | 750 | | $ | 1,031,036 | |
Interest income from mortgaged real estate | — | | | — | | | — | | | 16,976 | | — | | | 2,154 | | — | | | — | | | — | | 19,130 | |
Total income from real estate | $ | 467,213 | | | $ | 322,124 | | | $ | 90,411 | | | $ | 22,804 | | $ | 97,807 | | | $ | 5,603 | | $ | 28,929 | | | $ | 14,525 | | | $ | 750 | | $ | 1,050,166 | |
(1) Included in cash rental income were rent credits of a full year of rent from the Tunica Properties, the impact of the rent escalators, the performance at the Ohio properties and the partial recognition of income previously deferred in accordance with ASC 840, while the Meadows Lease contributed $3.1$337.5 million to the increase in income from real estate for the year ended December 31, 2018, as compared to the prior year. The properties under the Amended Pinnacle Master Lease and the Boyd Master Lease contributed an aggregate $40.9 million to the increase in income from real estate for the year ended December 31, 2018, as compared to the year ended December 31, 2017, primarily resulting from the impact of the rent escalators and the unwinding of the direct financing leasethat were recognized in connection with the Penn-Pinnacle Merger, resultingTropicana Las Vegas and Morgantown transactions with Penn. See Note 7 in all rent received under the Amended Pinnacle Master Lease recorded as rental income on the Company's consolidated statement of income. The Tropicana Transactions contributed $26.6 millionNotes to the increase in income from real estate, while the Belterra Park Loan contributed income of $1.4 million. Lastly, real estate taxes contributed $3.8 million to the increase in income from real estateConsolidated Financial Statements for the year ended December 31, 2018, as compared to the prior year period, primarily due to the addition of the new properties to our real estate portfolio.additional information.
2017 Compared to 2016
For the years ended December 31, 2017 and 2016, total income from real estate was $829.2 million and $684.2 million, respectively, for our GLP Capital segment, which included $83.7 million and $67.8 million, respectively, of revenue for the real estate taxes paid by our tenants on the leased properties. During April 2016, we acquired the real estate assets of Pinnacle and immediately leased these assets back to Pinnacle under a long-term triple-net master lease. Under ASC 840, the Pinnacle lease was bifurcated between an operating and direct financing lease, resulting in the recognition of rental revenue for the land portion of the lease and interest income from the direct financing lease, relating to the leased building assets. Additionally, during September 2016, we acquired the real estate assets of the Meadows and leased these assets to Pinnacle under a single property triple-net lease and during May 2017, we acquired the real estate assets of the Tunica Properties and leased these assets to Penn under the Penn Master Lease.
Total income from real estate increased $145.0 million or 21.2% for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a full year of rent for the portion of the rent received under the Pinnacle Master Lease recognized as rental income and as income from the direct financing lease, a full year of rent received under the Meadows Lease and from the addition of the Tunica Properties to the Penn Master Lease, as well as the impact of the Penn and Pinnacle rent escalators, improved results at our two Ohio properties with monthly variable rent and an increase in real estate taxes, primarily resulting from the addition of the Pinnacle properties to our real estate portfolio. Specifically, Pinnacle contributed $103.1 million of rental revenue and income from the direct financing lease to the increase in net revenues for the year ended December 31, 2017, as compared to the year ended December 31, 2016. The Penn properties contributed $14.5 million to the increase in net revenues for the year ended December 31, 2017, as compared to the year ended December 31, 2016, resulting from the addition of the Tunica Properties, the impact of the rent escalator and the performance at the Ohio properties, while the Meadows Lease contributed $11.4 million to the increase in net revenues for the year ended December 31, 2017, as compared to the prior year. Lastly, real estate taxes contributed $15.8 million to the increase in net revenues for the year ended December 31, 2017, as compared to the prior year period.
Gaming, food, beverage and other revenue
2018 Compared to 2017
Gaming, food, beverage and other revenue for our TRS Properties segment decreased by $9.5$25.4 million, or 6.7%19.8%, for the year ended December 31, 2018,2020, as compared to the year ended December 31, 2017,2019. These properties were closed in mid-March 2020 due to decreased gaming, food, beverage and other revenues of $10.1 million atCOVID-19. Hollywood Casino Baton Rouge partially offset by a $0.6 million increase in revenues at Hollywood Casino Perryville. The largest driver of the decrease resulted from general market deterioration in the Baton Rouge region and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect during the second quarter of 2018.
2017 Compared to 2016
Gaming, food, beverage and other revenue for our TRS Properties segment decreased by $2.8 million, or 1.9%, for the year ended December 31, 2017, as comparedreopened to the year ended December 31, 2016, due to decreased gaming, food, beveragepublic on May 18, 2020 and other revenues of $2.5 million and $0.3 million at Hollywood Casino Perryville and Hollywood Baton Rouge, respectively. The largest driver ofreopened on June 19, 2020 with various restrictions to limit capacity in accordance with regulatory requirements. Results since reopening have exceeded the decrease resulted fromcorresponding periods in the prior years as spend per visit has increased which has more than offset lower revenues at Hollywood Casino Perryville, related to the outsourcing of its food and beverage outlets to a third-party provider during the first quarter of 2017.visitation levels.
Operating Expenses
Operating expenses for the years ended December 31, 2018, 20172020 and 20162019 were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percentage |
Year Ended December 31, | | 2018 | | 2017 | | Variance | | Variance |
Gaming, food, beverage and other | | $ | 77,127 |
| | $ | 80,487 |
| | $ | (3,360 | ) | | (4.2 | )% |
Real estate taxes | | 88,757 |
| | 84,666 |
| | 4,091 |
| | 4.8 | % |
Land rights and ground lease expense | | 28,358 |
| | 24,005 |
| | 4,353 |
| | 18.1 | % |
General and administrative | | 71,128 |
| | 63,151 |
| | 7,977 |
| | 12.6 | % |
Depreciation | | 137,093 |
| | 113,480 |
| | 23,613 |
| | 20.8 | % |
Goodwill impairment charges | | 59,454 |
| | — |
| | 59,454 |
| | N/A |
|
Total operating expenses | | $ | 461,917 |
| | $ | 365,789 |
| | $ | 96,128 |
| | 26.3 | % |
| | | | | | | | | | | | | Year Ended December 31, | | | | Percentage |
| | | | | | | | Percentage | | 2020 | | 2019 | | Variance | | Variance |
Year Ended December 31, | | 2017 | | 2016 | | Variance | | Variance | |
Gaming, food, beverage and other | | $ | 80,487 |
| | $ | 82,463 |
| | $ | (1,976 | ) | | (2.4 | )% | Gaming, food, beverage and other | | $ | 56,698 | | | $ | 74,700 | | | $ | (18,002) | | | (24.1) | % |
Real estate taxes | | 84,666 |
| | 69,448 |
| | 15,218 |
| | 21.9 | % | |
| Land rights and ground lease expense | | 24,005 |
| | 14,799 |
| | 9,206 |
| | 62.2 | % | Land rights and ground lease expense | | 29,041 | | | 42,438 | | | (13,397) | | | (31.6) | % |
General and administrative | | 63,151 |
| | 71,368 |
| | (8,217 | ) | | (11.5 | )% | General and administrative | | 68,572 | | | 65,385 | | | 3,187 | | | 4.9 | % |
Gains (losses) from disposition of properties | | Gains (losses) from disposition of properties | | (41,393) | | | 92 | | | (41,485) | | | (45,092.4) | % |
Depreciation | | 113,480 |
| | 109,554 |
| | 3,926 |
| | 3.6 | % | Depreciation | | 230,973 | | | 240,435 | | | (9,462) | | | (3.9) | % |
Loan impairment charges | | Loan impairment charges | | — | | | 13,000 | | | (13,000) | | | N/A |
| Total operating expenses | | $ | 365,789 |
| | $ | 347,632 |
| | $ | 18,157 |
| | 5.2 | % | Total operating expenses | | $ | 343,891 | | | $ | 436,050 | | | $ | (92,159) | | | (21.1) | % |
Gaming, food, beverage and other expense
2018 Compared with 2017
Gaming, food, beverage and other expense for our TRS Properties segment decreased by approximately $3.4$18.0 million, or 4.2%24.1%, for the year ended December 31, 2018,2020, as compared to the year ended December 31, 2017, primarily resulting from lower gaming taxes due to lower revenues at Hollywood Baton Rouge.
2017 Compared with 2016
Gaming, food, beverage and other expense for our TRS Properties segment decreased by approximately $2.0 million, or 2.4%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to lower expenses resulting from the outsourcing of the operations of the food and beverage outlets at Hollywood Casino Perryville during the first quarter of 2017 and lower gaming taxes, resulting from lower revenues at both TRS Properties.
Real estate taxes
2018 Compared with 2017
Real estate taxes increased by $4.1 million, or 4.8%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017,2019, primarily due to the acquisitionimpact of the Tropicana properties and Plainridge Park during the year ended December 31, 2018. Although this amount is paid byCOVID-19, which temporarily forced our tenants, we are requiredTRS Properties to present this amount in both revenues and expense for financial reporting purposes under ASC 606.close as previously discussed.
2017 Compared with 2016
Real estate taxes increased by $15.2 million, or 21.9%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a full year of the real estate tax expense attributable to the acquired Pinnacle and Meadows properties.
Land rights and ground lease expense
2018 Compared with 2017
Land rights and ground lease expense includes the amortization of land rights and rent expense related to the Company's long-term ground leases. Land rights and ground lease expense increaseddecreased by $4.4$13.4 million, or 18.1%31.6%, for the year
ended December 31, 2018,2020, as compared to the year ended December 31, 2017,2019, primarily due to the acquisitionacceleration of rights to six long-term ground leases in connection with the Tropicana Acquisition. In connection with this acquisition, we acquired land rights to long-term leases which are recorded on our consolidated balance sheet as land right assets and amortized over the termamortization expense of the leases, including renewal options. We also record rent expense$6.3 million related to thesethe closure of Penn's Resorts Casino Tunica property in 2019 and lower ground leases with offsetting revenue recorded withinlease rents paid by our tenants in 2020 that are based on the consolidated statementsfacilities' revenues which declined due to the impact of income as we have concluded that as the lessee we are the primary obligor under the ground leases.COVID-19. We sublease these ground leases back to our tenants, who are responsible for payment directly to the applicable landlord. These amounts are required to be recorded in both revenue and expense within the consolidated statements of income as we have concluded that as the lessee the Company is the primary obligor under the ground leases.
2017 Compared with 2016
Land rights and ground lease expense increased by $9.2 million, or 62.2%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a full year of amortization of the land rights associated with
the Pinnacle acquisition, as well as a full year of ground rent related to these leases and the acquisition of the Tunica Properties in May of 2017.
General and administrative expense
General and administrative expenses include items such as compensation costs (including stock-based compensation awards), professional services and costs associated with development activities.
2018 Compared with 2017
General and administrative expenses increased by $8.0$3.2 million, or 12.6%4.9%, for the year ended December 31, 2018,2020, as compared to the year ended December 31, 2017, led2019. This is primarily by expenses forattributable to the retirementnegative impact from severance and stock acceleration charges of $6.3 million, related to the Chief Financial Officer,departure of our former chief financial officer which were partially offset by lower stock-based compensation chargespayroll costs primarily attributable to the temporary closures of our TRS Properties due to COVID-19 and lower bonus expense.
Gains and losses from dispositions of property
In connection with the Exchange Agreement with Caesars, whereby the Company acquired Waterloo and Bettendorf to replace Tropicana Evansville under the Amended and Restated Caesars Master Lease, the Company recorded a non-cash gain of $41.4 million in the current year.fourth quarter of 2020 which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment of $5.7 million.
2017 Compared with 2016Depreciation expense
General and administrative expensesDepreciation expense decreased by $8.2$9.5 million, or 11.5%3.9%, to $231.0 million for the year ended December 31, 2017,2020 as compared to the year ended December 31, 2016, led by lower stock-based compensation charges2019, primarily due to the closure of the Resorts Casino Tunica property in 2019 which resulted in the current year.acceleration of $10.3 million of depreciation expense to bring the net book value related to the building value of this property to zero.
Depreciation expenseLoan impairment charges
On March 17, 2017 the Company provided the Casino Queen Loan to CQ Holding Company, to partially finance its acquisition of Lady Luck Casino in Marquette, Iowa. During 2018, Compared with 2017the operating results of Casino Queen declined substantially and Casino Queen defaulted under its senior credit agreement and also the Casino Queen Loan. As a result, the operations of Casino Queen were put up for sale during the fourth quarter of 2018. At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place and full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.
Depreciation expense increased by $23.6During 2019, the operating results of Casino Queen continued to decline, the secured debt of Casino Queen was sold to a third-party casino operator at a discount and the Company no longer expected the Casino Queen Loan to be repaid. Therefore, the Company recorded an impairment charge of $13.0 million or 20.8%, to $137.1 millionthrough the Consolidated Statement of Income for the year ended December 31, 2018 as compared2019 to reflect the year ended December 31, 2017, primarily resulting from the additionwrite-off of the Tropicana and Plainridge Park real estate assets to our portfolio, as well as the reclassification of the Pinnacle building assets to real estate investments on our balance sheet as a result of the Penn-Pinnacle Merger, which required the Amended Pinnacle Master Lease to be treated as an operating lease in its entirety.Casino Queen Loan.
2017 Compared with 2016
Depreciation expense increased by $3.9 million, or 3.6%, to $113.5 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to a full year of depreciation expense on the Meadows assets, which were acquired in September of 2016.
Goodwill impairment charges
During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $59.5 million in connection with its operations at Hollywood Casino Baton Rouge. This charge was driven by general market deterioration in the Baton Rouge region and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect during the second quarter of 2018, both of which significantly impacted the Company's forecasted cash flows for this reporting unit. Subsequent to conducting its impairment tests on other long-lived assets, including the gaming license at Hollywood Casino Perryville, the Company performed Step 1 of the goodwill impairment test, which indicated a potential impairment. Step 1 of the goodwill impairment test involved the determination of the fair value of the Baton Rouge reporting unit and its comparison to the reporting unit's carrying amount. Using a discounted cash flow model, which relied on projected EBITDA to determine the reporting unit's future cash flows, the Company calculated a fair value that was less than the reporting unit's carrying value and proceeded to Step 2. In Step 2 of the goodwill impairment test, the Company performed a fair value allocation as if the reporting unit had been acquired in a business combination and assigned the fair value of the reporting unit calculated in Step 1 to all assets and liabilities of the reporting unit, including any unrecognized intangible assets. Any residual fair value was allocated to goodwill to arrive at the implied fair value of goodwill. After completing the Step 2 allocation, the Company determined the goodwill on its Baton Rouge reporting unit had an implied fair value of $16.1 million and recorded the impairment charge of $59.5 million during the fourth quarter of 2018.
Other income (expenses)
Other income (expenses) for the years ended December 31, 2018, 20172020 and 20162019 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2020 | | 2019 | | Variance | | Variance |
Interest expense | | $ | (282,142) | | | $ | (301,520) | | | $ | 19,378 | | | (6.4) | % |
Interest income | | 569 | | | 756 | | | (187) | | | (24.7) | % |
Losses on debt extinguishment | | (18,113) | | | (21,014) | | | 2,901 | | | (13.8) | % |
Total other expenses | | $ | (299,686) | | | $ | (321,778) | | | $ | 22,092 | | | (6.9) | % |
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percentage |
Year Ended December 31, | | 2018 | | 2017 | | Variance | | Variance |
Interest expense | | $ | (247,684 | ) | | $ | (217,068 | ) | | $ | (30,616 | ) | | (14.1 | )% |
Interest income | | 1,827 |
| | 1,935 |
| | (108 | ) | | (5.6 | )% |
Losses on debt extinguishment | | $ | (3,473 | ) | | $ | — |
| | $ | (3,473 | ) | | N/A |
|
Total other expenses | | $ | (249,330 | ) | | $ | (215,133 | ) | | $ | (34,197 | ) | | (15.9 | )% |
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percentage |
Year Ended December 31, | | 2017 | | 2016 | | Variance | | Variance |
Interest expense | | $ | (217,068 | ) | | $ | (185,896 | ) | | $ | (31,172 | ) | | (16.8 | )% |
Interest income | | 1,935 |
| | 2,123 |
| | (188 | ) | | (8.9 | )% |
Total other expenses | | $ | (215,133 | ) | | $ | (183,773 | ) | | $ | (31,360 | ) | | (17.1 | )% |
Table of Contents
Interest expense
2018 Compared with 2017
For the year ended December 31, 2018,2020, interest expense related to our fixed and variable rate borrowings was $247.7$282.1 million, as compared to $217.1$301.5 million in the year ended December 31, 2017.2019. Interest expense increaseddecreased primarily due to refinancing activities, such as the issuance of $850$400 million of 5.25%3.35% senior unsecured notes due 2025, $5002024 and $700 million of 5.75%4.000% senior unsecured notes due 2028 and $7502030 during the third quarter of 2019. These proceeds were utilized to repay higher cost unsecured borrowings with near term maturities. Interest expense also benefited from the first quarter 2020 redemption of $215.2 million of 5.30%4.875% senior unsecured notes that were due 2029, as well as, increasedin November 2020 and $400.0 million of 4.375% of senior unsecured notes that were due in April 2021, which were funded by borrowings under our revolving credit facility, partially offset by a decrease in interest expense related tofacility. Towards the terminationend of the first quarter of 2020, we fully drew down our revolving credit facility by borrowing just over $530 million to increase liquidity levels given the near term uncertainty associated with COVID-19. We subsequently repaid all of our outstanding advances on our revolving credit facility on June 25, 2020, with cash on hand and the net proceeds from our 4.00%, $500 million unsecured note issuance due in January 2031 and Term Loan A facility, partial repaymentA-2 borrowings. On August 18, 2020, we raised an additional $200 million of 4.00%, unsecured notes at a premium to par and used the proceeds to repay Term Loan A-1 facilityborrowings. Although these latter two transactions had a negative impact on interest expense they further increased the duration and the tender and callfixed rate nature of our debt profile.
Losses on debt extinguishment
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the Company's outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company's outstanding 4.375% senior unsecured notes due 2018 (as described below).in April 2021, resulting in the retirement of such senior notes. The additional borrowings were usedCompany recorded losses on the early extinguishment of debt related to finance the Tropicana Transactions, to purchase Plainridge Park and to fund the Belterra Park Loan.
2017 Compared with 2016
Forcurrent year retirements of $18.1 million for the year ended December 31, 2017, interest expense related2020 primarily for call premium charges and debt issuance write-offs.
On September 12, 2019, the Company completed a cash tender offer (the "2019 Tender Offer") to our fixed and variable rate borrowings was $217.1purchase its $1,000 million as compared to $185.9aggregate principal amount 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $782.6 million in aggregate principal of the year ended December 31, 2016. Interest expense primarily increased due to2020 Notes, or approximately 78% of its outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 102.337% of the unpaid principal amount plus accrued and unpaid interest expense relatedthrough the settlement date. Subsequent to the April 2016 issuanceearly tender deadline, an additional $2.2 million in aggregate principal of $400the 2020 Notes was tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of senior unsecured notes due 2021 and $975 million of senior unsecured notes due 2026 and borrowings of $825 million under the term loan A-1 facility. The additional borrowings were utilized to finance the Pinnacle acquisition.
Losses on debt extinguishment
On May 21, 2018, the Company entered into the second amendment to the Credit Facility, which increased the Company's revolving commitments, eliminated the Term Loan A facility, required the Company to repay a portion of the Term Loan A-1 facility and extended the maturity date of the revolving credit facility to May 21, 2023.2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the second amendment to the Credit Facility, of approximately $1.0 million for the proportional amount of unamortized debt issuance costs associated with the extinguished Term Loan A facility and related to the banks that are no longer participating in the Credit Facility.
Also on May 21, 2018, the Company completed a cash tender offer (the "Tender Offer") to purchase any and all of the outstanding $550 million aggregate principal of its 4.375% Senior Unsecured Notes due 2018 (the "2018 Notes"). The Company received tenders from the holders of approximately $393.5 million in aggregate principal of the 2018 Notes, or approximately 72% of its outstanding 2018 Notes in connection with the Tender Offer at a price of 100.396% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. The Company recorded a loss on the early extinguishment of debt, related to the2019 Tender Offer, of approximately $2.5$21.0 million, for the proportional amount of unamortized debt issuance costs associated with the tendered 2018 Notes and the difference between the reaquisitionreacquisition price of the tendered 20182020 Notes and their net carrying value. On August 16, 2018, the Company redeemed the remaining 2018 Notes for 100% of the principal amount and accrued and unpaid interest to, but not including, the redemption date.
Taxes
2018 Compared to 2017
Our income tax expense decreased $4.8$0.9 million for the year ended December 31, 20182020 as compared to the year ended December 31, 2017.2019. During the year ended December 31, 2018,2020, we had income tax expense of approximately $5.0$3.9 million, compared to income tax expense of $9.8$4.8 million during the year ended December 31, 2017.2019. Our income tax expense is primarily driven from the operations of the TRS Properties,Segment, which are taxed at the corporate rate. The decrease in our effective tax rate for the year ended December 31, 2018 is primarily due to the Tax Cuts and Jobs Act, which lowered the corporate tax rate to 21%, effective for tax years including or commencing January 1, 2018, as well as lower pre-tax income at our TRS Properties. Our effective tax rate (income taxes as a percentage of income before income taxes) was 1.4%0.8% and 2.5%1.2% for the years ended December 31, 20182020 and 2017,2019, respectively.
2017 Compared to 2016
Our income tax expense increased $2.2 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. During the year ended December 31, 2017, we had income tax expense of approximately $9.8 million, compared to income tax expense of $7.5 million during the year ended December 31, 2016. Income tax expense increased primarily due to adjustments at the TRS Properties related to the December 2017 Tax Cuts and Job Act. Our effective tax rate (income taxes as a percentage of income before income taxes) was 2.5% for both the years ended December 31, 2017 and 2016.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flow from operations, borrowings from banks, and proceeds from the issuance of debt and equity securities.
Net cash provided by operating activities was $654.4 million, $598.7$428.1 million and $514.4$750.3 million during the years ended December 31, 2018, 20172020 and 2016,2019, respectively. The increasedecrease in net cash provided by operating activities of $55.7$322.2 million for the year ended December 31, 20182020 as compared to the year ended December 31, 20172019 was primarily comprised of an increasedue to a decrease in cash receipts from customers/tenants and customers of $74.0$361.6 million, (excluding cash received from Pinnaclepartially offset by $21.9 million and classified as an investing activity prior to the Penn-Pinnacle Merger) and a decrease$13.4 million decreases in cash paid for taxes of $6.3 million, partially offset by increases in cash paid to employees of $4.4 millionoperating expenses and cash paid for interest, of $25.3 million.respectively. The increasedecrease in cash receipts collected from our customerstenants and tenantscustomers for the year ended December 31, 20182020 as compared to the corresponding period in the prior year ended December 31, 2017 was primarily due to the recognition of $337.5 million in non-cash rent recognized in connection with the Tropicana Transactions, the acquisition of Plainridge ParkLas Vegas and our entry into the Belterra Park Loan, all of which resulted in additional income from real estate, as well as the performance of the Ohio properties,Morgantown transactions and the impact of the rent escalators under the Penn and Pinnacle master leases and net percentage rent adjustments, partially offset by a decrease inCOVID-19, which forced our TRS Properties' revenues.Properties to temporarily close in mid-March 2020 until May and June of 2020. The decreasereason for the decline in cash paid for taxes wasoperating expenses is primarily dueattributable to the Tax Cuts and Jobs Act, which lowered the corporate tax rate to 21%, effective for tax years including or commencing January 1, 2018, as well as lower income attemporary closures of our TRS Properties. The increase in cash paid for interest was related to the Company's new borrowings which were used to fund the Tropicana Transactions, the acquisitionproperties.
Table of Plainridge Park and the Belterra Park Loan.Contents
The increase in net cash provided by operating activities for the year ended December 31, 2017 as compared to the year ended December 31, 2016 was primarily due to a full year of rent received under both the Pinnacle Master Lease and the Meadows Lease, as well as the additional rent received from Penn related to the new Tunica Properties, the performance of the Ohio properties and the impact of the rent escalators under both the Penn and Pinnacle master leases, partially offset by a decrease in our TRS Properties' net revenues. The increase in cash paid for interest was related to the Company's April 2016 acquisition of Pinnacle's real estate assets and the related borrowings.
Investing activities used net cash of $1,509.8$9.5 million and $2.8 million during the yearyears ended December 31, 2018, provided net cash of $0.7 million during the year ended December 31, 20172020 and used net cash of $3,218.6 million during the year ended December 31, 2016. Net cash used by investing activities during the year ended December 31, 2018 primarily consisted of cash payments of $1,243.5 million related to the acquisition of five Tropicana properties and Plainridge Park and $304 million of cash paid for the origination of mortgage loans to casino owner-operators, partially offset by $38.5 million of rental payments received from tenants and applied against the lease receivable we had on our balance sheet prior to the Penn-Pinnacle Merger. Net cash provided by investing activities during the year ended December 31, 2017 consisted of cash payments of $83.3 million primarily related to the acquisition of the Tunica Properties and capital maintenance expenditures of $3.2 million, partially offset by net cash received of $13.2 million from Casino Queen to retire their five-year term loan and borrow an additional $13.0 million under a new 5.5-year unsecured term loan at 15%, as well as rental payments received from tenants and applied against the lease receivable on our balance sheet of $73.1 million.2019, respectively. Net cash used in investing activities during the year ended
December 31, 20162020 primarily consisted of cash paymentscapital expenditures of $3.3 billion related to$3.1 million and $5.9 million for the acquisition of the Pinnacle and Meadows' real estate assets primarily relating to the Evansville swap transaction. Net cash used in investing activities during the year ended December 31, 2019 primarily consisted of capital expenditures of $3.0 million, partially offset by principal paymentsproceeds from sales of $3.2 million made by Casino Queen on their five-year term loan, as well as rental payments received from tenantsproperty and applied against the lease receivable on our balance sheetequipment of $48.5$0.2 million. In addition to the cash paid for the Pinnacle assets, we also issued approximately 56.0 million shares of our common stock as consideration for the Pinnacle real estate assets (non-cash investing activity).
Financing activities provided net cash of $852.1$63.2 million during the year ended December 31, 2018,2020 and used net cash of $606.9$746.4 million during the year ended December 31, 2017 and provided net cash of $2,698.9 million during the year ended December 31, 2016.2019. Net cash usedprovided by financing activities for the year ended December 31, 20182020 was driven by $2,076.4 million of proceeds from the issuance of long-term debt and $320.9 million of $2,593.4 million andnet proceeds from the issuance of common stock. During the year ended December 31, 2020, we issued approximately 9.2 million shares of our common stock option exercises, netin a primary equity offering and approximately 0.1 million shares of common stock through our ATM. This was partially offset by repayments of long-term debt of $2,060.9 million, dividend payments of $230.5 million, $15.7 million of premium and related costs paid on the tender of senior unsecured notes, taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $7.5$15.3 million partially offsetand financing costs of $11.6 million.
Net cash used in financing activities for the year ended December 31, 2019 was driven by dividend payments of $550.4 million, repayments of long-term debt of $1,164.1$1,477.9 million, financing costsdividend payments of $32.4$589.1 million, and $1.9$18.9 million of premium and related costs paid on the tender of senior unsecured notes. During the year ended December 31, 2018, the Company issued $2,100.0 million par value of new senior unsecured notes, completed a tender and redemption of the $550 million aggregate principal senior unsecured notes maturing in 2018, repaid a portion of the Term Loan A-1 facility and extinguished the Term Loan A facility. Net cash used by financing activities for the year ended December 31, 2017 included dividend payments of $529.4 million and repayments of long-term debt of $335.1 million, partially offset by proceeds from the issuance of common stock under the ATM Program, net of issuance costs of $139.4 million, proceeds from stock option exercises, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of $18.2stock option exercises of $9.1 million and financing costs of $10.0 million, partially offset by $1,358.9 million of proceeds from the issuance of long-term debt of $100.0 million. Net cash provided by financing activities for the year ended December 31, 2016 included proceeds from the issuance of long-term debt of $2.6 billion, proceeds from the issuance of common stock, net of issuance costs of $870.8 million and proceeds from stock option exercises of $113.5 million, partially offset by dividend payments of $428.4 million and repayments of long-term debt and financing costs of $409.0 million.debt. During the year ended December 31, 2016, we2019, the Company issued approximately 28.8$1,100.0 million shares of our common stock in a primary equity offering and approximately 1.3 million shares of our common stock under the ATM Program, as well as issuing $1.375 billionpar value in new senior unsecured notes, and drawing down on the $825 million term loan A-1 facility. These new debt and equity instruments were utilized to finance the acquisition of the Pinnacle and Meadows' real estate assets. In addition to the shares issued in the primary equity offering and the ATM Offering, we also issued approximately 56.0 million sharescompleted a cash tender for a portion of our common stock as consideration for the Pinnacle real estate assets (non-cash financing activity).2020 Notes, partially repaid borrowings under our Term Loan A-1 and revolving credit facilities and launched a $600 million ATM Program.
Capital Expenditures
Capital expenditures are accounted for as either capital project or capital maintenance (replacement) expenditures. Capital project expenditures are for fixed asset additions that expand an existing facility or create a new facility. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. Capital maintenance expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.
During the years ended December 31, 2018, 20172020 and 20162019 we spent approximately $4.3 million, $3.2$3.1 million and $3.1$3.0 million respectively, for capital maintenance expenditures. The majority of the capital maintenance expenditures were for slot machines and slot machine equipment at our TRS Properties. Our tenants are responsible for capital maintenance expenditures at our leased properties.
Debt
Senior Unsecured Credit Facility
ThePrior to June 25, 2020, the Company's Credit Facility consistssenior unsecured credit facility (the "Credit Facility"), consisted of a $1,175 million revolving credit facility (the "Revolver") with a maturity date of May 21, 2023, and a $525$449 million Term Loan A-1 facility.facility with a maturity date of April 28, 2021.
The Company fully drew down on its Revolver in the first quarter of 2020 to increase its liquidity position and repay certain senior unsecured notes as described below. On May 21, 2018,June 25, 2020, the Company entered into the secondan amendment to the Credit Facility which increased(as amended, the Company's revolving commitments to an aggregate principal amount of $1,100 million, eliminated the Term Loan A facility, required the Company to repay a portion of the Term Loan A-1 facility and"Amended Credit Facility" which extended the maturity date of the revolving credit facility. On October 10, 2018, the Company entered into the third amendmentapproximately $224 million of outstanding Term Loan A-1 facility borrowings to the Credit Facility, which further increased the Company's revolving commitments to an aggregate principal amount of $1,175 million. The revolving credit facility matures on May 21, 2023, andwhich term loans are now classified as a new tranche of term loans (Term Loans A-2). Additionally, the Company borrowed incremental Term Loans A-2 totaling $200 million. Furthermore, on June 25, 2020, the Company also closed on an offering of $500 million of 4.00% unsecured senior notes due in January 2031 priced at a slight discount to par. The Company utilized the proceeds from these two financings along with cash on hand to repay all outstanding obligations under its Revolver. On August 18, 2020, the Company borrowed an additional $200 million of 4.00% unsecured senior notes due in January 2031 priced at a premium to par. The Company utilized the net proceeds from this additional borrowing to repay indebtedness under the Term Loan A-1 facility matures on April 28, 2021.facility.
The Company recorded a loss on the early extinguishment of debt, related to the second amendment to the Credit Facility, of approximately $1.0 million for the proportional amount of unamortized debt issuance costs associated with the extinguished Term Loan A facility and related to the banks that are no longer participating in the Credit Facility.
At December 31, 2018,2020, the Amended Credit Facility had a gross outstanding balance of $927 million.$424.0 million, consisting of the $424.0 million Term Loan A-2 facility. No amounts were outstanding under the Revolver. Additionally, at December 31, 2018,
2020, the Company was contingently obligated under letters of credit issued pursuant to the Amended Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $772.6$1,174.6 million of available borrowing capacity under the revolving credit facility as of December 31, 2018.Revolver.
The interest rates payable on the loans are, at the Company's option, equal to either a LIBOR rate or a base rate plus an applicable margin, which ranges from 1.0% to 2.0% per annum for LIBOR loans and 0.0% to 1.0% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Amended Credit Facility. At December 31, 2018,2020, the applicable margin was 1.50% for LIBOR loans and 0.50% for base rate loans. In addition, the Company is required to pay a commitment fee on the unused portion of the commitments under the revolving facilityRevolver at a rate that ranges from 0.15% to 0.35% per annum, depending on the credit ratings assigned to the Amended Credit Facility. At December 31, 2018,2020, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Amended Credit Facility prior to maturity on May 21, 2023 and may prepay all or any portion of the loans under the Amended Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any LIBOR breakage costs of the lenders. The Company's wholly owned subsidiary, GLP Capital is the primary obligor under the Amended Credit Facility, which is guaranteed by GLPI.
The Amended 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 Amended 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.REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Amended 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 Amended Credit Facility will enable the lenders under the Amended Credit Facility to accelerate the loans and terminate the commitments thereunder. At December 31, 2018,2020, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
At December 31, 2018,2020, the Company had an outstanding balance of $4,975$5,375.0 million of senior unsecured notes consisting(the "Senior Notes").
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the following:Company’s outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company’s outstanding 4.375% senior unsecured notes due in April 2021, incurring a loss on the early extinguishment of debt related to the redemption of $17.3 million, primarily for call premium charges and debt issuance write-offs.
On September 26, 2018,June 25, 2020, the Company issued $750$500 million of 5.30%4.00% senior unsecured notes maturing ondue January 15, 20292031 at an issue price equal to 99.985%98.827% of the principal amount and $350to repay indebtedness under its Revolver. On August 18, 2020 the Company issued an additional $200 million of 5.25%4.00% senior unsecured notes maturing on June 1, 2025due January 2031 at an issue price equal to 102.148%103.824% of the principal amount to repay Term Loan A-1 indebtedness, incurring a loss on the early extinguishment of debt of $0.8 million, related to debt issuance write-offs. These bond offerings have extended the maturities of our long-term debt.
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "New 2025"2024 Notes"). The New 2025 and $700 million of 4.00% Senior Unsecured Notes will become partmaturing on January 15, 2030 at an issue price equal to 99.751% of the same series as, and are expected to be fungible with, the Company's previously issued 5.25% senior notes due 2025, $500 million aggregate principal amount of which were originally issued on May 21, 2018 (the "Initial 2025"2030 Notes"). Interest on the notes maturing in 20252024 Notes is payable semi-annually on JuneMarch 1 and DecemberSeptember 1 of each year, commencing on DecemberMarch 1, 2018 and is deemed to accrue from May 21, 2018, the issuance date of the Initial 2025 Notes.2020. Interest on the notes maturing in 20292030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2019.2020. The net proceeds from the sale of the New 20252024 Notes and 2030 Notes were used to (i) finance the notes maturing in 2029, together with funds availableCompany's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below) (ii) repay outstanding borrowings under the Company's revolving credit facility were used in October 2018 to (i) finance GLPI’s acquisitionand (iii) repay a portion of the real property assets of Plainridge Park Casino from Penn and its issuance of a secured mortgage loan to Boyd in connection with Boyd’s acquisition ofoutstanding borrowings under the real property assets of Belterra Park Gaming & Entertainment Center, (ii) finance GLPI’s acquisition of substantially all the real property assets of five gaming facilities owned by Tropicana and its issuance of a mortgage loan to Eldorado in connection with Eldorado’s acquisition of substantially all the real property assets of Lumière Place, and (iii) pay the estimated transaction fees and expenses associated with the transactions.Company's Term Loan A-1 facility.
On May 21, 2018,September 12, 2019, the Company completed a cash tender offer (the "Tender"2019 Tender Offer") to purchase any and all of the outstanding $550its $1,000 million aggregate principal of its 4.375% senior unsecured notesamount 4.875% Senior Unsecured Notes due 2018.2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $393.5$782.6 million in aggregate principal of these notes,the 2020 Notes, or approximately 72%,78% of its
outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 100.396%102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes was tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $2.5$21.0 million, for the proportional amount of unamortized debt issuance costs associated with the tendered notes and the
difference between the reaquisitionreacquisition price of the tendered notes2020 Notes and their net carrying value. On August 16, 2018, the Company redeemed the remaining notes for 100% of the principal amount and accrued and unpaid interest to, but not including the redemption date.
Also on May 21, 2018, the Company issued $500 million of 5.25% senior unsecured notes maturing on June 1, 2025 and $500 million of 5.75% senior unsecured notes maturing on June 1, 2028. Interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2018. The net proceeds from the sale of these notes were used (i) to prepay and extinguish the outstanding borrowings under the Term Loan A facility under the Credit Facility and to repay a portion of the outstanding borrowings under the Term Loan A-1 facility, (ii) to finance the tender offer of the 2018 Notes, (iii) to redeem the remaining 2018 Notes and (iv) to pay fees and expenses to amend our Credit Facility, as described above.
On April 28, 2016, in connection with the acquisition of Pinnacle, the Company issued $400 million of 4.375% senior unsecured notes maturing on April 15, 2021 and $975 million of 5.375% senior unsecured notes maturing on April 15, 2026. Interest on these notes is payable semi-annually on April 15 and October 15 of each year. The net proceeds from the sale of these notes were used (i) to finance the repayment, redemption and/or discharge of certain Pinnacle debt obligations that the Company assumed in the Pinnacle Merger, (ii) to pay transaction-related fees and expenses related to the Pinnacle Merger and (iii) for general corporate purposes.
On October 30 and 31, 2013, the Company issued $2,050 million aggregate principal amount of senior unsecured notes: $550 million of 4.375% senior unsecured notes that matured in 2018; $1,000 million of 4.875% senior unsecured notes maturing on November 1, 2020; and $500 million of 5.375% senior unsecured notes maturing on November 1, 2023. Interest on these notes is payable semi-annually on May 1 and November 1 of each year. The net proceeds from the sale of these notes, together with borrowings under the Credit Facility were used (i) to make distributions directly and indirectly to Penn in partial exchange for the contributions of real property assets by Penn and CRC Holdings, Inc. to the Company in connection with the Spin-Off, (ii) to pay related fees and expenses, (iii) to partially repay amounts funded under the revolving credit facility and (iv) to fund future earnings and profits distributions and for working capital purposes.
The Company may redeem the senior unsecured notes, collectively, the "Notes"Senior Notes of any series at any time, and from time to time, at a redemption price of 100% of the principal amount of the Senior Notes redeemed, plus a "make-whole" redemption premium described in the indenture governing the Senior Notes, together with accrued and unpaid interest to, but not including, the redemption date, except that if Senior Notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the Senior Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the Senior Notes of a particular series, the Company will be required to give holders of the Senior Notes of such series the opportunity to sell their Senior Notes of such series at a price equal to 101% of the principal amount of the Senior Notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The Senior Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.
The Senior Notes were issued by GLP Capital, L.P. and GLP Financing II, Inc. (the "Issuers"), two wholly-owned subsidiaries of GLPI, and are guaranteed on a senior unsecured basis by GLPI. The guarantees of GLPI are full and unconditional. The Senior Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with all of the Issuers' senior indebtedness, including the Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements. See Note 19 to the consolidated financial statements for additional financial information on the parent guarantor and subsidiary issuers of the Notes.
The Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At December 31, 2018,2020, the Company was in compliance with all required financial covenants under theits Senior Notes.
CapitalFinance Lease Liability
The Company assumed the capitalfinance lease obligationobligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the capitalfinance lease on its consolidated balance sheet. The original term of the capitalfinance lease wasis 30 years and it will terminate in 2026.
| | | | | | | | | | | |
Summarized financial information for Subsidiary Issuers and Parent Guarantor |
| As of December 31, 2020 | | As of December 31, 2019 |
Real estate investments, net | $ | 2,720,767 | | | $ | 2,514,806 | |
Real estate loans | — | | | 246,000 | |
Right-of-use assets and land rights, net | 121,866 | | | 181,593 | |
Cash and cash equivalents | 480,066 | | | 4,281 | |
Long term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Accrued interest | 72,285 | | | 60,695 | |
Lease liabilities | 58,654 | | | 89,856 | |
Deferred rental revenue | 265,891 | | | 271,837 | |
| | | |
| For the year ended December 31, 2020 | | For the year ended December 31, 2019 |
Revenues | $ | 580,428 | | | $ | 575,451 | |
Income from operations | 446,708 | | | 384,170 | |
Interest expense | (282,142) | | | (301,520) | |
Net income | 146,323 | | | 61,734 | |
The financial information presented above is that of the subsidiary issuers and parent guarantor and the financial information of non-issuer subsidiaries has been excluded. The financial information of subsidiary issuers and the parent guarantor has been presented on a combined basis; however, the only asset on the parent guarantor balance sheet is its investment in subsidiaries which is not included in the presentation above in accordance with the disclosure requirements.
We had no off-balance sheet arrangements at December 31, 2020 and 2019.
Distribution Requirements
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code.
While the Company's Board of Directors declared a cash dividend of $0.70 for the first quarter of 2020, quarterly dividends of $0.60 per share on the Company's common stock were declared for both the second, third and fourth quarters. These dividends consisted of a combination of cash and shares of the Company's common stock. The cash component of the dividend (other than cash paid in lieu of fractional shares) did not exceed 20% in the aggregate, or $0.12 per share, with the balance, or $0.48 per share, payable in shares of the Company's common stock. This quarterly dividend level reflected the impact of the COVID-19 closures on the Company's business.
LIBOR Transition
The majority of our debt is at fixed rates and our exposure to variable interest rates is currently limited to our revolving credit facility and our Term Loan A-2. Both of these debt instruments are indexed to LIBOR which is expected to be phased out during late 2021 through mid-2023. The discontinuance of LIBOR would affect our interest expense and earnings. The borrowings under our Amended Credit Facility will be subject to the expected LIBOR transition. LIBOR is currently expected
to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”). We are currently monitoring the transition and cannot be certain whether SOFR will become the standard rate for our variable rate debt.
Outlook
Based on our current level of operations and anticipated earnings, we believe that cash generated from operations and cash on hand, together with amounts available under our senior unsecured credit facility,Amended Credit Facility, will be adequate to meet our anticipated debt service requirements, capital expenditures, working capital needs and dividend requirements. During 2020, we refinanced our near term debt obligations and as such have no significant obligations coming due until 2023 and we issued common shares in advance of the planned 2021 closing of the Bally's transaction. We also announced a project to move our Hollywood Casino Baton Rouge property landside in early 2022. On December 15, 2020, we announced that Penn had exercised its option to acquire the gaming operations at Hollywood Casino Perryville for $31.1 million and that we entered into an agreement to sell the gaming operations of Hollywood Casino Baton Rouge for $28.2 million to Casino Queen. The Company will retain ownership of the real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into the Casino Queen Master Lease. Rent under the Casino Queen Master Lease will be adjusted upon completion of the project to reflect a yield of 8.25% on the Company's project costs. Both transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
In addition, we expect the majority of our future growth to come from acquisitions of gaming and other properties to lease to third parties. If we consummate significant acquisitions in the future, our cash requirements may increase significantly and we would likely need to raise additional proceeds through a combination of either common equity (including under our ATM Program) and/or debt offerings. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See "Risk Factors-Risks Related to Our Capital Structure" of this Annual Report on Form 10-K for a discussion of the risk related to our capital structure.
Commitments and Contingencies
Contractual Cash Obligations
The following table presents our contractual obligations at December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due By Period |
| Total | | 2019 | | 2020 - 2021 | | 2022 - 2023 | | 2024 and After |
| (in thousands) |
Senior unsecured credit facility | |
| | |
| | |
| | |
| | |
|
Principal | $ | 927,000 |
| | $ | — |
| | $ | 525,000 |
| | $ | 402,000 |
| | $ | — |
|
Interest (1) | 131,495 |
| | 41,879 |
| | 65,977 |
| | 23,639 |
| | — |
|
4.875% senior unsecured notes due 2020 | |
| | |
| | |
| | |
| | |
|
Principal | 1,000,000 |
| | — |
| | 1,000,000 |
| | — |
| | — |
|
Interest | 97,500 |
| | 48,750 |
| | 48,750 |
| | — |
| | — |
|
4.375% senior unsecured notes due 2021 | | | | | | | | | |
Principal | 400,000 |
| | — |
| | 400,000 |
| | — |
| | — |
|
Interest | 43,750 |
| | 17,500 |
| | 26,250 |
| | — |
| | — |
|
5.375% senior unsecured notes due 2023 | |
| | |
| | |
| | |
| | |
|
Principal | 500,000 |
| | — |
| | — |
| | 500,000 |
| | — |
|
Interest | 134,375 |
| | 26,875 |
| | 53,750 |
| | 53,750 |
| | — |
|
5.25% senior unsecured notes due 2025 | | | | | | | | | |
Principal | 850,000 |
| | — |
| | — |
| | — |
| | 850,000 |
|
Interest | 290,063 |
| | 44,625 |
| | 89,250 |
| | 89,250 |
| | 66,938 |
|
5.375% senior unsecured notes due 2026 | | | | | | | | | |
Principal | 975,000 |
| | — |
| | — |
| | — |
| | 975,000 |
|
Interest | 393,048 |
| | 52,406 |
| | 104,813 |
| | 104,813 |
| | 131,016 |
|
5.75% senior unsecured notes due 2028 | | | | | | | | | |
Principal | 500,000 |
| | — |
| | — |
| | — |
| | 500,000 |
|
Interest | 273,125 |
| | 28,750 |
| | 57,500 |
| | 57,500 |
| | 129,375 |
|
5.30% senior unsecured notes due 2029 | | | | | | | | | |
Principal | 750,000 |
| | — |
| | — |
| | — |
| | 750,000 |
|
Interest | 409,535 |
| | 31,910 |
| | 79,500 |
| | 79,500 |
| | 218,625 |
|
Capital lease obligations | 1,112 |
| | 123 |
| | 264 |
| | 291 |
| | 434 |
|
Operating leases (2) | 616,886 |
| | 15,519 |
| | 30,201 |
| | 30,031 |
| | 541,135 |
|
Other liabilities reflected in the Company's consolidated balance sheets (3) | 542 |
| | 542 |
| | — |
| | — |
| | — |
|
Total | $ | 8,293,431 |
| | $ | 308,879 |
| | $ | 2,481,255 |
| | $ | 1,340,774 |
| | $ | 4,162,523 |
|
| |
(1)
| The interest rates associated with the variable rate components of our senior unsecured credit facility are estimated, reflected of forward LIBOR curves plus the spread over LIBOR of 150 basis points. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid. |
(2) The Company's contractual obligations related to operating leases includes the fixed payments due under those ground leases for which the Company subleases the land to our tenants who are responsible for payment directly to the
landlord, as we are considered the primary obligor under these leases.
(3) Primarily represents liabilities associated with reward programs at our TRS Properties that can be redeemed for free
play, merchandise or services.
Other Commercial Commitments
The following table presents our material commercial commitments as of December 31, 2018 for the following future periods:
|
| | | | | | | | | | | | | | | | |
| Total Amounts Committed | | 2019 | | 2020 - 2021 | | 2022 - 2023 | | 2024 and After |
| (in thousands) |
Letters of Credit (1) | $ | 395 |
| | $ | 395 |
| | — |
| | — |
| | — |
|
Total | $ | 395 |
| | $ | 395 |
| | — |
| | — |
| | — |
|
| |
(1)
| The available balance under the revolving credit portion of our senior unsecured credit facility is reduced by outstanding letters of credit. |
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2018 and 2017.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face market risk exposure in the form of interest rate risk. These market risks arise from our debt obligations. We have no international operations. Our exposure to foreign currency fluctuations is not significant to our financial condition or results of operations.
GLPI’s primary market risk exposure is interest rate risk with respect to its indebtedness of $5,903.1$5,799.9 million at December 31, 2018.2020. Furthermore, $4,975.0$5,375.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from two and one-half years to ten years. An increase in interest rates could make the financing of any acquisition by GLPI more costly, as well as increase the costs of its variable rate debt obligations. Rising interest rates could also limit GLPI’s ability to refinance its debt when it matures or cause GLPI to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. GLPI may manage, or hedge, interest rate risks related to its borrowings by means of interest rate swap agreements. GLPI also expects to manage its exposure to interest rate risk by maintaining a mix of fixed and variable rates for its indebtedness. However, the provisions of the Code applicable to REITs substantially limit GLPI’s ability to hedge its assets and liabilities.
The table below provides information at December 31, 20182020 about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing in each fiscal year and the related weighted-average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted-average interest rates for our variable rate debt are based on implied forward LIBOR rates at December 31, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25 12/31/25 | | Thereafter | | Total | | Fair Value at 12/31/2020 |
| (in thousands) |
Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 3,625,000 | | | $ | 5,375,000 | | | $ | 6,026,840 | |
Average interest rate | | | | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 4.88 | % | | | | |
| | | | | | | | | | | | | | | |
Variable rate | $ | — | | | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | | | | | 2.02 | % | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 01/01/19- 12/31/19 | | 1/01/20- 12/31/20 | | 1/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | Thereafter | | Total | | Fair Value at 12/31/2018 |
| (in thousands) |
Long-term debt: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fixed rate | $ | — |
| | $ | 1,000,000 |
| | $ | 400,000 |
| | $ | — |
| | $ | 500,000 |
| | $ | 3,075,000 |
| | $ | 4,975,000 |
| | $ | 4,958,455 |
|
Average interest rate |
|
| | 4.88% | | 4.38% | |
| | 5.38% | | 5.38% | | |
| | |
|
| | | | | | | | | | | | | | | |
Variable rate | $ | — |
| | $ | — |
| | $ | 525,000 |
| | $ | — |
| | $ | 402,000 |
| | $ | — |
| | $ | 927,000 |
| | $ | 909,308 |
|
Average interest rate (1) |
|
| |
| | 4.29% | |
|
| | 4.14% | | |
| | |
| | |
|
Table of Contents
(1) Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable-rate borrowing. For considerations surrounding the phase out of LIBOR refer to the Liquidity and Capital Resources discussion in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersShareholders and the Board of Directors of
Gaming and Leisure Properties, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gaming and Leisure Properties, Inc. and Subsidiaries (the "Company") as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, changes in shareholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2018,2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2019,19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Lease Classification - Lease Term - See Note 14 to the financial statements
Critical Audit Matter Description
The Company performs a lease classification test upon the entry into any new tenant lease or lease modification to determine if the Company will account for the lease as an operating, sales-type lease, or direct financing lease. The accounting guidance under ASC 842 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease. The lease classification tests and the resulting calculations require subjective judgments, such as determining the likelihood a tenant will exercise all renewal options, in order to determine the lease term. A slight change in estimate or judgment can result in a material difference in the financial statement presentation.
Given the significant judgments made by management to determine the expected lease term, we performed audit procedures to assess the reasonableness of such judgments, which required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the judgments surrounding the determination of lease term for any new or reassessed lease included the following, among others:
•We tested the effectiveness of the controls over management’s assessment of the likelihood a tenant would exercise all renewal options.
•We evaluated the significant judgments management made to determine the expected lease term by:
◦Evaluating the significance of the leased assets to the tenant’s operations by examining available information including tenant’s financial statements.
◦Evaluating the Company’s historical pattern of tenant lease modifications by examining both confirming and contradictory evidence.
◦Obtaining lease agreements to examine material lease provisions considered by management in their analysis.
/s/ DELOITTEDeloitte & TOUCHE LLPTouche
New York, New York
February 13, 201919, 2021
We have served as the Company's auditor since 2016.
Table of Contents
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Balance Sheets
(amounts in thousands, except share and per share data)
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2020 | | December 31, 2019 |
| | | | | | | |
Assets | | | | Assets | |
Real estate investments, net | $ | 7,331,460 |
| | $ | 3,662,045 |
| Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
Land rights, net | 673,207 |
| | 640,148 |
| |
Property and equipment, used in operations, net | 100,884 |
| | 108,293 |
| Property and equipment, used in operations, net | 80,618 | | | 94,080 | |
Mortgage loans receivable | 303,684 |
| | — |
| |
Investment in direct financing lease, net | — |
| | 2,637,639 |
| |
Assets held for sale | | Assets held for sale | 61,448 | | | 0 | |
Real estate of Tropicana Las Vegas, net | | Real estate of Tropicana Las Vegas, net | 304,831 | | | 0 | |
Real estate loans | | Real estate loans | 0 | | | 303,684 | |
Right-of-use assets and land rights, net | | Right-of-use assets and land rights, net | 769,197 | | | 838,734 | |
Cash and cash equivalents | 25,783 |
| | 29,054 |
| Cash and cash equivalents | 486,451 | | | 26,823 | |
Prepaid expenses | 30,967 |
| | 8,452 |
| Prepaid expenses | 2,098 | | | 4,228 | |
Goodwill | 16,067 |
| | 75,521 |
| Goodwill | 0 | | | 16,067 | |
Other intangible assets | 9,577 |
| | 9,577 |
| Other intangible assets | 0 | | | 9,577 | |
Loan receivable | 13,000 |
| | 13,000 |
| |
Deferred tax assets | 5,178 |
| | 4,478 |
| |
| Deferred tax assets, net | | Deferred tax assets, net | 5,690 | | | 6,056 | |
Other assets | 67,486 |
| | 58,675 |
| Other assets | 36,877 | | | 34,494 | |
Total assets | $ | 8,577,293 |
| | $ | 7,246,882 |
| Total assets | $ | 9,034,368 | | | $ | 8,434,298 | |
| | | | | | | |
Liabilities | | | | Liabilities | |
Accounts payable | $ | 2,511 |
| | $ | 715 |
| Accounts payable | $ | 375 | | | $ | 1,006 | |
Accrued expenses | 30,297 |
| | 7,913 |
| Accrued expenses | 398 | | | 6,239 | |
Accrued interest | 45,261 |
| | 33,241 |
| Accrued interest | 72,285 | | | 60,695 | |
Accrued salaries and wages | 17,010 |
| | 10,809 |
| Accrued salaries and wages | 5,849 | | | 13,821 | |
Gaming, property, and other taxes | 42,879 |
| | 35,399 |
| Gaming, property, and other taxes | 146 | | | 944 | |
| Lease liabilities | | Lease liabilities | 152,203 | | | 183,971 | |
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,853,497 |
| | 4,442,880 |
| Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Deferred rental revenue | 293,911 |
| | 232,023 |
| Deferred rental revenue | 333,061 | | | 328,485 | |
Deferred tax liabilities | 261 |
| | 244 |
| Deferred tax liabilities | 359 | | | 279 | |
Other liabilities | 26,059 |
| | 25,411 |
| Other liabilities | 39,985 | | | 26,651 | |
Total liabilities | 6,311,686 |
| | 4,788,635 |
| Total liabilities | 6,359,350 | | | 6,360,053 | |
| | | | | | | |
Commitments and Contingencies (Note 11) |
|
| |
|
| |
Commitments and Contingencies (Note 13) | | Commitments and Contingencies (Note 13) | 0 | | 0 |
| | | | |
Shareholders’ equity | | | | Shareholders’ equity | |
| | | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2018 and December 31, 2017) | — |
| | — |
| |
Common stock ($.01 par value, 500,000,000 shares authorized, 214,211,932 and 212,717,549 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively) | 2,142 |
| | 2,127 |
| |
Preferred stock ($.01 par value, 50,000,000 shares authorized, 0 shares issued or outstanding at December 31, 2020 and December 31, 2019) | | Preferred stock ($.01 par value, 50,000,000 shares authorized, 0 shares issued or outstanding at December 31, 2020 and December 31, 2019) | 0 | | | 0 | |
Common stock ($.01 par value, 500,000,000 shares authorized, 232,452,220 and 214,694,165 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively) | | Common stock ($.01 par value, 500,000,000 shares authorized, 232,452,220 and 214,694,165 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively) | 2,325 | | | 2,147 | |
Additional paid-in capital | 3,952,503 |
| | 3,933,829 |
| Additional paid-in capital | 4,284,789 | | | 3,959,383 | |
Accumulated deficit | (1,689,038 | ) | | (1,477,709 | ) | Accumulated deficit | (1,612,096) | | | (1,887,285) | |
Total shareholders’ equity | 2,265,607 |
| | 2,458,247 |
| Total shareholders’ equity | 2,675,018 | | | 2,074,245 | |
Total liabilities and shareholders’ equity | $ | 8,577,293 |
| | $ | 7,246,882 |
| Total liabilities and shareholders’ equity | $ | 9,034,368 | | | $ | 8,434,298 | |
See accompanying notesNotes to the consolidated financial statements.Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
| | | | | | |
Revenues | | | | | | |
Rental income | | $ | 1,031,036 | | | $ | 996,166 | | | $ | 747,654 | |
Income from direct financing lease | | 0 | | | 0 | | | 81,119 | |
Interest income from real estate loans | | 19,130 | | | 28,916 | | | 6,943 | |
Real estate taxes paid by tenants | | 0 | | | 0 | | | 87,466 | |
Total income from real estate | | 1,050,166 | | | 1,025,082 | | | 923,182 | |
Gaming, food, beverage and other | | 102,999 | | | 128,391 | | | 132,545 | |
Total revenues | | 1,153,165 | | | 1,153,473 | | | 1,055,727 | |
| | | | | | |
Operating expenses | | | | | | |
Gaming, food, beverage and other | | 56,698 | | | 74,700 | | | 77,127 | |
Real estate taxes | | 0 | | | 0 | | | 88,757 | |
Land rights and ground lease expense | | 29,041 | | | 42,438 | | | 28,358 | |
General and administrative | | 68,572 | | | 65,385 | | | 70,819 | |
(Gains) losses from dispositions of properties | | (41,393) | | | 92 | | | 309 | |
Depreciation | | 230,973 | | | 240,435 | | | 137,093 | |
Loan impairment charges | | 0 | | | 13,000 | | | 0 | |
Goodwill impairment charges | | 0 | | | 0 | | | 59,454 | |
Total operating expenses | | 343,891 | | | 436,050 | | | 461,917 | |
Income from operations | | 809,274 | | | 717,423 | | | 593,810 | |
| | | | | | |
Other income (expenses) | | | | | | |
Interest expense | | (282,142) | | | (301,520) | | | (247,684) | |
Interest income | | 569 | | | 756 | | | 1,827 | |
Losses on debt extinguishment | | (18,113) | | | (21,014) | | | (3,473) | |
Total other expenses | | (299,686) | | | (321,778) | | | (249,330) | |
| | | | | | |
Income before income taxes | | 509,588 | | | 395,645 | | | 344,480 | |
Income tax expense | | 3,877 | | | 4,764 | | | 4,964 | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
| | | | | | |
Earnings per common share: | | | | | | |
Basic earnings per common share | | $ | 2.31 | | | $ | 1.82 | | | $ | 1.59 | |
Diluted earnings per common share | | $ | 2.30 | | | $ | 1.81 | | | $ | 1.58 | |
|
| | | | | | | | | | | | |
Year ended December 31, | | 2018 | | 2017 | | 2016 |
| | | | | | |
Revenues | | |
| | |
| | |
Rental income | | $ | 747,654 |
| | $ | 671,190 |
| | $ | 567,444 |
|
Income from direct financing lease | | 81,119 |
| | 74,333 |
| | 48,917 |
|
Interest income from mortgaged real estate | | 6,943 |
| | — |
| | — |
|
Real estate taxes paid by tenants | | 87,466 |
| | 83,698 |
| | 67,843 |
|
Total income from real estate | | 923,182 |
| | 829,221 |
| | 684,204 |
|
Gaming, food, beverage and other | | 132,545 |
| | 142,086 |
| | 144,051 |
|
Total revenues | | 1,055,727 |
| | 971,307 |
| | 828,255 |
|
| | | | | | |
Operating expenses | | |
| | |
| | |
|
Gaming, food, beverage and other | | 77,127 |
| | 80,487 |
| | 82,463 |
|
Real estate taxes | | 88,757 |
| | 84,666 |
| | 69,448 |
|
Land rights and ground lease expense | | 28,358 |
| | 24,005 |
| | 14,799 |
|
General and administrative | | 71,128 |
| | 63,151 |
| | 71,368 |
|
Depreciation | | 137,093 |
| | 113,480 |
| | 109,554 |
|
Goodwill impairment charges | | 59,454 |
| | — |
| | — |
|
Total operating expenses | | 461,917 |
| | 365,789 |
| | 347,632 |
|
Income from operations | | 593,810 |
| | 605,518 |
| | 480,623 |
|
| | | | | | |
Other income (expenses) | | |
| | |
| | |
|
Interest expense | | (247,684 | ) | | (217,068 | ) | | (185,896 | ) |
Interest income | | 1,827 |
| | 1,935 |
| | 2,123 |
|
Losses on debt extinguishment | | (3,473 | ) | | — |
| | — |
|
Total other expenses | | (249,330 | ) | | (215,133 | ) | | (183,773 | ) |
| | | | | | |
Income before income taxes | | 344,480 |
| | 390,385 |
| | 296,850 |
|
Income tax expense | | 4,964 |
| | 9,787 |
| | 7,545 |
|
Net income | | $ | 339,516 |
| | $ | 380,598 |
| | $ | 289,305 |
|
| | | | | | |
Earnings per common share: | | |
| | |
| | |
Basic earnings per common share | | $ | 1.59 |
| | $ | 1.80 |
| | $ | 1.62 |
|
Diluted earnings per common share | | $ | 1.58 |
| | $ | 1.79 |
| | $ | 1.60 |
|
See accompanying notesNotes to the consolidated financial statements.Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
(in thousands, except share data)
| | | | | | | | | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity (Deficit) | | Shares | | Amount | |
| Shares | | Amount | | |
Balance, December 31, 2015 | 115,594,321 |
| | $ | 1,156 |
| | $ | 935,220 |
| | $ | (1,189,890 | ) | | $ | (253,514 | ) | |
Issuance of common stock | 86,074,167 |
| | 861 |
| | 2,693,939 |
| | — |
| | 2,694,800 |
| |
Stock option activity | 5,870,282 |
| | 59 |
| | 115,416 |
| | — |
| | 115,475 |
| |
Restricted stock activity | 138,057 |
| | 1 |
| | 16,154 |
| | — |
| | 16,155 |
| |
Dividends paid ($2.32 per common share) | — |
| | — |
| | — |
| | (428,352 | ) | | (428,352 | ) | |
Net income | — |
| | — |
| | — |
| | 289,305 |
| | 289,305 |
| |
Balance, December 31, 2016 | 207,676,827 |
| | 2,077 |
| | 3,760,729 |
| | (1,328,937 | ) | | 2,433,869 |
| |
Issuance of common stock | 3,864,872 |
| | 38 |
| | 139,376 |
| | — |
| | 139,414 |
| |
Stock option activity | 1,013,984 |
| | 10 |
| | 20,993 |
| | — |
| | 21,003 |
| |
Restricted stock activity | 161,866 |
| | 2 |
| | 12,731 |
| | — |
| | 12,733 |
| |
Dividends paid ($2.50 per common share) | — |
| | — |
| | — |
| | (529,370 | ) | | (529,370 | ) | |
Net income | — |
| | — |
| | — |
| | 380,598 |
| | 380,598 |
| |
Balance, December 31, 2017 | 212,717,549 |
| | 2,127 |
| | 3,933,829 |
| | (1,477,709 | ) | | 2,458,247 |
| Balance, December 31, 2017 | 212,717,549 | | | $ | 2,127 | | | $ | 3,933,829 | | | $ | (1,477,709) | | | $ | 2,458,247 | |
Stock option activity | 1,007,750 |
| | 10 |
| | 19,805 |
| | — |
| | 19,815 |
| Stock option activity | 1,007,750 | | | 10 | | | 19,805 | | | — | | | 19,815 | |
Restricted stock activity | 486,633 |
| | 5 |
| | (1,131 | ) | | — |
| | (1,126 | ) | Restricted stock activity | 486,633 | | | 5 | | | (1,131) | | | — | | | (1,126) | |
Dividends paid ($2.57 per common share) | — |
| | — |
| | — |
| | (550,435 | ) | | (550,435 | ) | Dividends paid ($2.57 per common share) | 0 | | | 0 | | | 0 | | | (550,435) | | | (550,435) | |
Adoption of new revenue standard | — |
| | — |
| | — |
| | (410 | ) | | (410 | ) | Adoption of new revenue standard | — | | | — | | | — | | | (410) | | | (410) | |
Net income | — |
| | — |
| | — |
| | 339,516 |
| | 339,516 |
| Net income | — | | | — | | | — | | | 339,516 | | | 339,516 | |
Balance, December 31, 2018 | 214,211,932 |
| | $ | 2,142 |
| | $ | 3,952,503 |
| | $ | (1,689,038 | ) | | $ | 2,265,607 |
| Balance, December 31, 2018 | 214,211,932 | | | 2,142 | | | 3,952,503 | | | (1,689,038) | | | 2,265,607 | |
ATM Program offering costs, net of issuance of common stock | | ATM Program offering costs, net of issuance of common stock | 1,500 | | | 0 | | | (255) | | | — | | | (255) | |
Stock option activity | | Stock option activity | 26,799 | | | 0 | | | 592 | | | — | | | 592 | |
Restricted stock activity | | Restricted stock activity | 453,934 | | | 5 | | | 6,543 | | | — | | | 6,548 | |
Dividends paid ($2.74 per common share) | | Dividends paid ($2.74 per common share) | — | | | — | | | — | | | (589,128) | | | (589,128) | |
Net income | | Net income | — | | | — | | | — | | | 390,881 | | | 390,881 | |
Balance, December 31, 2019 | | Balance, December 31, 2019 | 214,694,165 | | | 2,147 | | | 3,959,383 | | | (1,887,285) | | | 2,074,245 | |
Issuance of common stock, net of costs | | Issuance of common stock, net of costs | 9,207,971 | | | 92 | | | 320,781 | | | 320,873 | |
| Restricted stock activity | | Restricted stock activity | 528,285 | | | 5 | | | 4,706 | | | 4,711 | |
Dividends paid ($2.50 per common share) | | Dividends paid ($2.50 per common share) | 8,021,799 | | | 81 | | | (81) | | | (230,522) | | | (230,522) | |
Net income | | Net income | — | | | — | | | — | | | 505,711 | | | 505,711 | |
Balance, December 31, 2020 | | Balance, December 31, 2020 | 232,452,220 | | | $ | 2,325 | | | $ | 4,284,789 | | | $ | (1,612,096) | | | $ | 2,675,018 | |
See accompanying notesNotes to the consolidated financial statements.Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
Operating activities | | | | | | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 242,995 | | | 258,971 | | | 148,365 | |
Amortization of debt issuance costs, bond premiums and discounts | | 10,503 | | | 11,455 | | | 12,167 | |
(Gains) losses on dispositions of property | | (41,393) | | | 92 | | | 309 | |
Deferred income taxes | | 451 | | | (755) | | | (522) | |
Stock-based compensation | | 20,004 | | | 16,198 | | | 11,152 | |
Straight-line rent adjustments | | 4,576 | | | 34,574 | | | 61,888 | |
Deferred rent recognized | | (337,500) | | | 0 | | | 0 | |
Losses on debt extinguishment | | 18,113 | | | 21,014 | | | 3,473 | |
Loan and goodwill impairment charges | | 0 | | | 13,000 | | | 59,454 | |
(Increase) decrease, | | | | | | |
Prepaid expenses and other assets | | (6,628) | | | (6,070) | | | (673) | |
(Decrease), increase | | | | | | |
Accounts payable and accrued expenses | | (1,252) | | | (1,775) | | | 1,670 | |
Accrued interest | | 11,590 | | | 15,434 | | | 12,020 | |
Accrued salaries and wages | | (5,908) | | | (3,189) | | | 6,201 | |
Gaming, property and other taxes and other liabilities | | 6,815 | | | 472 | | | (587) | |
| | | | | | |
| | | | | | |
Net cash provided by operating activities | | 428,077 | | | 750,302 | | | 654,433 | |
Investing activities | | | | | | |
Capital project expenditures | | (474) | | | 0 | | | (20) | |
Capital maintenance expenditures | | (3,130) | | | (3,017) | | | (4,284) | |
Proceeds from sale of property and equipment | | 15 | | | 200 | | | 3,211 | |
| | | | | | |
| | | | | | |
Acquisition of real estate assets | | (5,898) | | | 0 | | | (1,243,466) | |
Originations of real estate loans | | 0 | | | 0 | | | (303,684) | |
Collections of principal payments on investment in direct financing lease | | 0 | | | 0 | | | 38,459 | |
Net cash used in investing activities | | (9,487) | | | (2,817) | | | (1,509,784) | |
Financing activities | | | | | | |
Dividends paid | | (230,522) | | | (589,128) | | | (550,435) | |
Taxes paid for shares withheld on restricted stock award vestings | | (15,293) | | | (9,058) | | | 7,537 | |
Proceeds from issuance of common stock, net | | 320,873 | | | (255) | | | 0 | |
Proceeds from issuance of long-term debt | | 2,076,383 | | | 1,358,853 | | | 2,593,405 | |
Financing costs | | (11,641) | | | (10,029) | | | (32,426) | |
Repayments of long-term debt | | (2,060,884) | | | (1,477,949) | | | (1,164,117) | |
Premium and related costs paid on tender of senior unsecured notes | | (15,747) | | | (18,879) | | | (1,884) | |
Net cash provided by (used in) financing activities | | 63,169 | | | (746,445) | | | 852,080 | |
Net increase (decrease) in cash and cash equivalents, including cash classified within assets held for sale | | 481,759 | | | 1,040 | | | (3,271) | |
Less decrease in cash classified within assets held for sale | | (22,131) | | | 0 | | | 0 | |
Net increase/decrease in cash and cash equivalents | | 459,628 | | | 1,040 | | | (3,271) | |
Cash and cash equivalents at beginning of period | | 26,823 | | | 25,783 | | | 29,054 | |
Cash and cash equivalents at end of period | | $ | 486,451 | | | $ | 26,823 | | | $ | 25,783 | |
|
| | | | | | | | | | | | |
Year ended December 31, | | 2018 | | 2017 | | 2016 |
Operating activities | | |
| | |
| | |
Net income | | $ | 339,516 |
| | $ | 380,598 |
| | $ | 289,305 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
Depreciation and amortization | | 148,365 |
| | 123,835 |
| | 115,717 |
|
Amortization of debt issuance costs, bond premiums and original issuance discounts | | 12,167 |
| | 13,026 |
| | 15,146 |
|
Losses (gains) on dispositions of property | | 309 |
| | 530 |
| | (455 | ) |
Deferred income taxes | | (522 | ) | | (561 | ) | | (1,535 | ) |
Stock-based compensation | | 11,152 |
| | 15,636 |
| | 18,312 |
|
Straight-line rent adjustments | | 61,888 |
| | 65,971 |
| | 58,673 |
|
Losses on debt extinguishment | | 3,473 |
| | — |
| | — |
|
Goodwill impairment charges | | 59,454 |
| | — |
| | — |
|
| | | | | | |
(Increase) decrease, | | |
| | |
| | |
Prepaid expenses and other assets | | (673 | ) | | (5,332 | ) | | 7,565 |
|
(Decrease), increase | | |
| | |
| | |
Accounts payable | | 1,796 |
| | (421 | ) | | 506 |
|
Accrued expenses | | (126 | ) | | 411 |
| | (4,672 | ) |
Accrued interest | | 12,020 |
| | (502 | ) | | 16,120 |
|
Accrued salaries and wages | | 6,201 |
| | 190 |
| | (3,100 | ) |
Gaming, property and other taxes | | (149 | ) | | (517 | ) | | 913 |
|
Other liabilities | | (438 | ) | | 5,847 |
| | 1,875 |
|
Net cash provided by operating activities | | 654,433 |
| | 598,711 |
| | 514,370 |
|
Investing activities | | |
| | |
| | |
Capital project expenditures | | (20 | ) | | (78 | ) | | (330 | ) |
Capital maintenance expenditures | | (4,284 | ) | | (3,178 | ) | | (3,111 | ) |
Proceeds from sale of property and equipment | | 3,211 |
| | 934 |
| | 1,134 |
|
Principal payments on loan receivable | | — |
| | 13,200 |
| | 3,150 |
|
Acquisition of real estate assets | | (1,243,466 | ) | | (83,252 | ) | | (3,267,992 | ) |
Originations of mortgage loans receivable | | (303,684 | ) | | — |
| | — |
|
Collections of principal payments on investment in direct financing lease | | 38,459 |
| | 73,072 |
| | 48,533 |
|
Net cash (used in) provided by investing activities | | (1,509,784 | ) | | 698 |
| | (3,218,616 | ) |
Financing activities | | |
| | |
| | |
Dividends paid | | (550,435 | ) | | (529,370 | ) | | (428,352 | ) |
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | 7,537 |
| | 18,157 |
| | 113,484 |
|
Proceeds from issuance of common stock, net of issuance costs | | — |
| | 139,414 |
| | 870,810 |
|
Proceeds from issuance of long-term debt | | 2,593,405 |
| | 100,000 |
| | 2,552,000 |
|
Financing costs | | (32,426 | ) | | — |
| | (31,911 | ) |
Repayments of long-term debt | | (1,164,117 | ) | | (335,112 | ) | | (377,104 | ) |
Premium and related costs paid on tender of senior unsecured notes | | (1,884 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | | 852,080 |
| | (606,911 | ) | | 2,698,927 |
|
Net decrease in cash and cash equivalents | | (3,271 | ) | | (7,502 | ) | | (5,319 | ) |
Cash and cash equivalents at beginning of period | | 29,054 |
| | 36,556 |
| | 41,875 |
|
Cash and cash equivalents at end of period | | $ | 25,783 |
| | $ | 29,054 |
| | $ | 36,556 |
|
See Note 18 20 to the Consolidated Financial Statements for supplemental cash flow information and noncash investing and financing activities.information.
Gaming and Leisure Properties, Inc.
Notes to the Consolidated Financial Statements
1.Business and Basis of Presentation
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(which are referred to as the "TRS Properties,"Properties") and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 505-60 - Spinoffs and Reverse Spinoffs ("("ASC 505").
The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with anits indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a TRS, which together with the TRS Properties and GLP Holdings, Inc. is the Company's TRS Segment (the "TRS Segment"). 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.
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 December 31, 2020, GLPI’s portfolio consisted of interests in 48 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars, the real property associated with 4 gaming and related facilities operated by Boyd and the real property associated with the Casino Queen Holding Company Inc. ("Casino Queen") in East St. Louis, Illinois. These facilities, including our corporate headquarters building, are geographically diversified across 16 states and contain approximately 24.3 million square feet. As of December 31, 2020, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease and Casino Queen Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease, a triple-net operating lease with an initialthe term of 15 years (expiringwhich expires October 31, 2028)2033, with no purchase option, followed by fourthree remaining 5-year renewal options (exercisable by Penn)the tenant) 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. Segment. GLPI leases the Casino Queen property in East St. Louis back to its operators on a triple-net basis on terms similar to those in the Penn Master Lease (the "Casino Queen Lease").
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease with an initialthe term of 10 years (expiringwhich expires on April 30, 2026)2031, with no purchase option, followed by fivefour remaining 5-year renewal options (exercisable by Pinnacle)the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s existing master leases.Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of
10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes, and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million. See Note 4 for further details surroundingmillion (the "Belterra Park Loan"). In May 2020, the original Pinnacle acquisitionCompany acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property.The Belterra Park Lease rent terms are consistent with the Boyd Master Lease.The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities which is adjusted, subject to certain floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
The Meadows Lease
The real estate assets of the Meadows are leased to Penn pursuant to the Meadows Lease. The Meadows Lease commenced on September 9, 2016 and has an initial term of 10 years, with no purchase option, and the subsequent acquisitionoption to renew for three successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of Pinnaclethe facility, which is reset every two years to an amount determined by Penn.multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to 2% annually thereafter.
GLPI’s primary business consists of acquiring, financing,Amended and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of December 31, 2018, GLPI’s portfolio consisted of interests in 46 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 6 gaming and related facilities operated by Eldorado (including one mortgaged facility), the real property associated with 4 gaming and related facilities operated by Boyd (including one mortgaged facility) and the real property associated with the Casino Queen in East St. Louis, Illinois. These facilities are geographically diversified across 16 states and contain approximately 23.5 million square feet. As of December 31, 2018, the Company's properties were 100% occupied.Restated Caesars Master Lease
GLPI expects to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms. In addition to the acquisition of Plainridge Park described above, onOn October 1, 2018, the
Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. (“Tropicana”("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement (the “Real"Real Estate Purchase Agreement”Agreement") dated April 15, 2018 between Tropicana and GLP Capital L.P. ("GLP Capital"), the operating partnership of GLPI, (“GLP Capital”), which was subsequently amended on October 1, 2018 (as amended, the “Amended"Amended Real Estate Purchase Agreement”Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the “GLP Assets”"GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars Entertainment Corporation (NASDAQ: CZR) ("Eldorado"Caesars")) acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, EldoradoCaesars and a wholly-owned subsidiary of Eldorado (the "Tropicana Merger Agreement")Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with a 15-yearan initial term of 15 years, with no purchase option, followed by four4 successive 5 -year5-year renewal periods (exercisable by Eldorado)the tenant) on the same terms and conditions (the “Eldorado"Caesars Master Lease”Lease"). Additionally,On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease year, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement with subsidiaries of Caesars in which Caesars transferred
to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. This resulted in a non-cash gain of $41.4 million which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment made.
Lumière Place Lease
On October 1, 2018 the Company madeentered into a mortgage loan to Eldorado in the amount of $246.0 millionagreement with Caesars in connection with Eldorado’sCaesars’s acquisition of Lumière Place (togetherCasino ("Lumière Place"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan. On September 29, 2020, the transaction closed and we entered into a new triple net lease with Caesars (the "Lumière Place Lease") the initial term of which expires on October 31, 2033, with 4 separate renewal options of five years each, exercisable at the tenants' option. The Lumière Place Lease's rent is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana AcquisitionLas Vegas Casino Hotel Resort ("Tropicana Las Vegas") from Penn in exchange for $307.5 million of rent credits to be applied against future rent obligations. This asset has been placed in our TRS Segment. See Note 7 for further details related to this transaction.
Morgantown Lease
On October 1, 2020, the "Tropicana Transactions"Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of Penn for an initial annual rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the Consumer Price Index ("the CPI") increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year subject to escalation provisions following the opening of the property (the "Morgantown Lease").
In the first quarter of 2020, it became clear that there was a global outbreak of a new strain of novel coronavirus COVID-19 ("COVID-19"). The global, domestic and local response to the COVID-19 outbreak continues to evolve. Responses to the COVID-19 outbreak have included mandates from federal, state, and/or local authorities that required temporary closures of or imposed limitations on the operations of non-essential businesses. All of the Company's tenants' casino operations, in addition to the Company's two TRS Properties, were closed in mid-March. Our properties began reopening at limited capacity in May and by early July nearly all had resumed operations at limited capacity. However, in the fourth quarter, increased spread of COVID-19 led some jurisdictions to impose temporary closures once again. As of the date of this filing, only one of our properties remains closed.
The consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAPU.S. Generally Accepted Accounting Principles ("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 may differ from those estimates.
2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). This ASU provides clarity about which changesCertain prior period amounts have been reclassified to conform to the termscurrent period presentation, specifically gains and losses from dispositions of properties were previously classified within General and administrative expenses and are now presented separately on the Consolidated Statements of Income.
2.Summary of Significant Accounting Policies
Real Estate Investments
Real estate investments primarily represent land and buildings leased to the Company's tenants. The Company records the acquisition of real estate assets at fair value, including acquisition and closing costs. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful lives of the buildings and building improvements which are generally between 10 to 31 years.
The Company continually monitors events and circumstances that could indicate that the carrying amount of its real estate investments may not be recoverable or conditionsrealized. The factors considered by the Company in performing these assessments include evaluating whether the tenant is current on its lease payments, the tenant’s rent coverage ratio, the financial stability of the tenant and its parent company, and any other relevant factors. When indicators of potential impairment suggest that the carrying value of a share-based payment award requirereal estate investment may not be recoverable, the application of modification accounting. Specifically, ASU 2017-09 clarifies that changes to the terms or conditions of an award should be accounted for as a modification unless all of the following are met: 1)Company estimates the fair value of the modified awardinvestment by calculating the undiscounted future cash flows from the use and eventual disposition of the investment. This amount is compared to the asset's carrying value. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. The Company groups its real estate investments together by lease, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss.
Property and Equipment Used in Operations
Property and equipment are stated at cost, less accumulated depreciation and represent assets used by the Company's TRS Properties and certain corporate assets. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
Depreciation of property and equipment is recorded using the straight-line method over the following estimated useful lives:
| | | | | | | | |
Land improvements | | 15 to 34 years |
Building and improvements | | 5 to 31 years |
Furniture, fixtures, and equipment | | 3 to 31 years |
Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term. The estimated useful lives are determined based on the nature of the assets as well as the Company's current operating strategy.
The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based upon the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the individual property level. In assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Real Estate Loans and Other Loans Receivable
The Company may periodically loan funds to casino owner-operators for the purchase of gaming related real estate and/or operations. Loans for the purchase of real estate assets of gaming-related properties are classified as real estate loans on the Company's consolidated balance sheets, while loans for an operator's general operations are classified as loans receivable on the Company's consolidated balance sheets. Loans receivable are recorded on the Company's consolidated balance sheets at carrying value which approximates fair value since collection of principal is reasonably assured. Interest income related to real estate loans is recorded as interest income from real estate loans within the Company's consolidated statements of income in the period earned, whereas interest income related to other loans receivable is recorded as non-operating interest income within the Company's consolidated statements of income in the period earned.
Prior to the adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), the Company evaluated loans for impairment when it was probable that it would not be able to collect all amounts due according to the contractual terms of the agreement. All amounts due under the contractual terms of the agreement means that both contractual interest payments and contractual principal payments will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 (as described in Note 3) did not result in the Company recording any allowances against its real estate loans for expected losses. The Company has no outstanding loans as of December 31, 2020. See Note 8 for further details.
Lease Assets and Lease Liabilities
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use assets and lease liabilities are recorded on the Company's consolidated balance sheet at the lease commencement date for operating leases in which the Company acts as lessee. Right-of-use assets represent the Company's rights to use underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases (in which the Company acts as lessee) cannot readily be determined, the Company utilizes its own estimated incremental borrowing rates to determine the present value of its lease payments. Consideration is given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics, including tenor, when determining the incremental borrowing rates of the Company's leases.
The Company includes options to extend a lease in its lease term when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases associated with its tenant occupied properties, the Company has included all available renewal options in the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components (as necessary) of its leases of all classes of underlying assets as a single lease component. Leases with a term of 12 months or less are not recorded on the Company's consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Right-of-use assets and land rights are monitored for potential impairment in much the same way as the Company's real estate assets, using the impairment model in ASC 360 - Property, Plant and Equipment. If the Company determines the carrying amount of a right-of-use asset or land right is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.
Cash and Cash Equivalents
The Company considers all cash balances and highly-liquid investments with original maturities of three months or less to be cash and cash equivalents.
Prepaid Expenses and Other Assets
Prepaid expenses consist of expenditures for goods or services before the goods are used or the services are received. These amounts are deferred and charged to operations as the benefits are realized and primarily consist of prepayments for insurance, property taxes and other contracts that will be expensed during the subsequent year. It also includes transaction costs that will be allocated to purchase price upon the closing of an asset acquisition. Other assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for further details on the deferred compensation plan).
Goodwill and Intangible Assets
The Company's goodwill and intangible assets are the result of the contribution of Hollywood Casino Baton Rouge and Hollywood Casino Perryville in connection with the Spin-Off. The Company's goodwill resides on the books of its Hollywood Casino Baton Rouge subsidiary, while the other intangible asset represents a gaming license on the books of its Hollywood Casino Perryville subsidiary. Both subsidiaries are members of the TRS Segment and are considered separate reporting units under ASC 350 - Intangibles - Goodwill and Other ("ASC 350"). Goodwill is tested at the reporting unit level, which is an operating segment or one level below an operating segment for which discrete financial information is available
Under ASC 350, the Company is required to test goodwill for impairment at least annually and whenever events or circumstances indicate that it is more likely than not that goodwill may be impaired. The Company has elected to perform its annual goodwill impairment test as of October 1 of each year. In accordance with ASC 350, the Company tests goodwill for impairment subsequent to testing its other long-lived assets for impairment.
In accordance with ASC 350, the Company considers its Hollywood Casino Perryville gaming license an indefinite-lived intangible asset that does not require amortization based on the Company's future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the original award immediately beforerecorded asset to its carrying amount. If the original award is modified, 2) the vesting conditionscarrying amount of the modifiedindefinite-life intangible asset exceeds its fair value, an impairment loss is recognized.
The Company calculates the fair value of its gaming license using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. As such the value of the license is a function of the following items:
•Projected revenues and operating cash flows;
•Theoretical construction costs and duration;
•Pre-opening expenses;
•Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license; and
•Remaining useful life of the license
The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results to determine the estimated fair value of the reporting unit and the indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions, which represent the Company's best estimates of the cash flows expected to result from the use of the assets. Changes in estimates, increases in the Company's cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company's estimates. If the Company's ongoing estimates of future cash flows are not met, the Company may have to record impairment charges in future accounting periods. The Company's estimates of cash flows are based on the current regulatory and economic climates, as well as recent operating information and budgets. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events.
Forecasted cash flows can be significantly impacted by the local economy in which the Company's subsidiaries operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions in which the Company operates can result in increased competition for the property. This generally has a negative effect on profitability once competitors become established, as a certain level of cannibalization occurs absent an overall
increase in customer visitations. Lastly, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.
Assumptions and estimates about future cash flow levels are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company's business strategy, which may reallocate capital and resources to different or new opportunities which management believes will enhance the Company's overall value but may be to the detriment of its existing operations.
The Company reclassified its goodwill and other intangible assets into Assets held for sale at December 31, 2020. See Note 6 for additional discussion.
Debt Issuance Costs and Bond Premiums and Discounts
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the contractual term of the underlying indebtedness. In accordance with ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, the Company records long-term debt net of unamortized debt issuance costs on its consolidated balance sheets. Similarly, the Company records long-term debt net of any unamortized bond premiums and original issuance discounts on its consolidated balance sheets. Any original issuance discounts or bond premiums are also amortized to interest expense over the contractual term of the underlying indebtedness.
Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Revenue Recognition
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured in accordance with ASC 842 - Leases. 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 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.
Additionally, in accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.
The Company may periodically loan funds to casino owner-operators for the purchase of gaming related real estate. Interest income related to real estate loans is recorded as revenue from real estate within the Company's consolidated statements of income in the period earned.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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 increase. 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. Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenues from Contracts with Customers. The Company also defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play until a later period when the points are redeemed or forfeited. Other revenues at the TRS Properties are derived from the properties' dining, retail and certain other ancillary activities and revenue for these activities is recognized as services are performed.
Stock-Based Compensation
The Company's Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
The Company accounts for stock compensation under ASC 718 - Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day prior to 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.
The unrecognized compensation cost relating to restricted stock awards and performance-based restricted stock awards is recognized as expense over the awards’ remaining vesting periods.
See Note 15 for further information related to stock-based compensation.
Income Taxes
The TRS Segment is able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS Segment are subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realizability of the deferred tax assets is evaluated by assessing the valuation allowance and by adjusting the amount of the allowance, if any, as necessary. The factors used to assess the likelihood of realization are the sameforecast of future taxable income.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not have any uncertain tax positions for the three years ended December 31, 2020.
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the vesting conditionscumulative amounts recorded in the consolidated balance sheets. If and when they occur, the Company will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of income. During the original award immediately beforeyears ended December 31, 2020, 2019 and 2018, the original award is modifiedCompany recognized 0 penalties and 3) the classificationinterest, net of the modified award as an equity instrument or a liability instrument is the same as the classificationdeferred income taxes.
Table of the original award immediately before the original award is modified. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017. Contents
The Company adopted ASU 2017-09elected on its U.S. federal income tax return for its taxable year that began on January 1, 20182014 to be treated as a REIT and doesthe Company, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”.
The Company continues to be organized and to operate in a manner that will permit the Company to qualify as a REIT. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to shareholders. As a REIT, the Company generally will not expect ASU 2017-09be subject to significantly impactfederal, state or local income tax on income that it distributes as dividends to its accountingshareholders, except in those jurisdictions that do not allow a deduction for share-based payment awards,such distributions. If the Company fails to qualify as changesa REIT in any taxable year, it will be subject to awards' termsU.S. federal, state and conditions subsequentlocal income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate income tax rates, and dividends paid to its shareholders would not be deductible by the Company in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect the Company's net income and net cash available for distribution to shareholders. Unless the Company was entitled to relief under certain Internal Revenue Code provisions, the Company also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
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. See Note 17 for further details on the Company's earnings per share calculations.
Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas. See Note 19 for further information with respect to the grant dateCompany’s segments.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are unusualengaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Additionally, concentrations of credit risk may arise when revenues of the Company are derived from a small number of tenants. As of December 31, 2020, substantially all of the Company's real estate properties were leased to Penn, Caesars and infrequentBoyd. During the year ended December 31, 2020, approximately 78%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases and real estate loans with Penn, Caesars and Boyd, respectively. Revenues from our tenants are reported in nature.the Company's GLP Capital, L.P. reportable segment. Penn, Caesars and Boyd are publicly traded companies that are subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and are required to file periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). Readers are directed to Penn, Caesars and Boyd's respective websites for further financial information on these companies. Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2020, the Company's portfolio of 48 properties is diversified by location across 16 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, real estate loans and other loans receivable. The Company's policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. At times, the Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
3. New Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
In January 2017,August 2018, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the Definition of a BusinessFASB Emerging Issues Task Force) ("ASU 2017-01"2018-15"). This ASU provides clarifyingclarifies that entities should follow the guidance on what constitutesfor capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a business acquisition versus an asset acquisition. Specifically, the new guidance lays out a screen to more easily determine if a setcloud computing arrangement. The Company's adoption of integrated assets and activities does in fact represent a business. Under the ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets do not represent a business. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017. The Company adopted ASU 2017-012018-15 on January 1, 2018 with no2020 did not have an impact to the Company's accounting treatment ofon its acquisitions.consolidated financial statements.
In AugustJune 2016, the FASB issued ASU No. 2016-15, Statement2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus of the FASB Emerging Issues Task Force ("Credit Losses on Financial Instruments ("ASU 2016-15"2016-13"). This ASU provides clarifying guidanceintroduces a new model for estimating credit losses for certain types of financial instruments, including mortgage, real estate and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on the presentation of certain cash receiptsloans and cash payments in the statement of cash flows.other financial instruments. ASU 2016-152016-13 is effective for annual reporting periodsfiscal years beginning after December 15, 2017.2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-15 on January 1, 2018, with no impact to its presentation of cash receipts and payments on its consolidated statements of cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). This new standard replaces all preceding U.S. GAAP guidance on this topic and eliminates all industry-specific guidance. ASU 2014-09 provides a unified five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective approach and recorded a cumulative adjustment to retained earnings of approximately $410,000 at the adoption date.
The majority of the Company's revenue recognition policies were not impacted by the new revenue standard, as leases (the source of the Company's majority of revenues) are excluded from ASU 2014-09. Only the accounting treatment for the customer loyalty programs at the TRS properties was impacted by the adoption of ASU 2014-09. See Note 12 for further details on the adoption impact of ASU 2014-09 at the TRS Properties.this pronouncement was immaterial.
Accounting Pronouncements Not Yet AdoptedFair Value of Financial Assets and Liabilities
In August 2018,Fair value is defined as the FASB issued ASU No. 2018-15, Intangiblesprice that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - GoodwillFair Value Measurements and OtherDisclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Revenue Recognition
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured in accordance with ASC 842 - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing ArrangementLeases. Additionally, percentage rent that is fixed and determinable at the lease inception date is recorded on a Service Contract (a consensusstraight-line basis over the lease term, resulting in the recognition of deferred rental revenue on the Company’s consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifieslease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that entities should followis not fixed and determinable at lease inception is recognized only when the guidancelessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.
Additionally, in accordance with ASC 842, the Company records revenue for capitalizing implementation costs incurredthe ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to develop or obtain internal-use softwareits tenants, who are responsible for payment directly to accountthe landlord.
The Company may periodically loan funds to casino owner-operators for implementation coststhe purchase of cloud computing arrangementsgaming related real estate. Interest income related to real estate loans is recorded as revenue from real estate within the Company's consolidated statements of income in the period earned.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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 increase. 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. Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenues from Contracts with Customers. The Company also defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play until a later period when the points are redeemed or forfeited. Other revenues at the TRS Properties are derived from the properties' dining, retail and certain other ancillary activities and revenue for these activities is recognized as services are performed.
Stock-Based Compensation
The Company's Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
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 contracts. ASU 2018-15 doesperiod following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day prior to 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.
The unrecognized compensation cost relating to restricted stock awards and performance-based restricted stock awards is recognized as expense over the awards’ remaining vesting periods.
See Note 15 for further information related to stock-based compensation.
Income Taxes
The TRS Segment is able to engage in activities resulting in income that would not changebe qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS Segment are subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realizability of the deferred tax assets is evaluated by assessing the valuation allowance and by adjusting the amount of the allowance, if any, as necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the service component ofminimum recognition threshold a cloud computing arrangement. ASU 2018-15tax position is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company doesdid not expecthave any uncertain tax positions for the adoptionthree years ended December 31, 2020.
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of ASU 2018-15interest and penalties charged to have a significant impactexpense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. If and when they occur, the Company will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of income. During the years ended December 31, 2020, 2019 and 2018, the Company recognized 0 penalties and interest, net of deferred income taxes.
The Company elected on its consolidated financial statements.U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and the Company, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - GoodwillThe Company continues to be organized and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This ASU simplifies an entity's goodwill impairment test by eliminating Step 2 from the test. The new guidance also amends the definition of impairment to a condition that exists when the carrying amount of goodwill exceeds its fair value. By eliminating Step 2 from the test, entities are no longer required to determine the implied fair value of goodwill by computing the fair value (at impairment testing date) of all assets and liabilitiesoperate in a manner similar to that required in conjunction with business combinations. Upon the adoption of ASU 2017-04, an impairment charge is simply recorded as the difference between carrying value and fair value, when carrying value exceeds fair value. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company expects the adoption of ASU 2017-04 to simplify the analysis required under the goodwill impairment test.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company does not expect the adoption of ASU 2016-13 to have a significant impact on its consolidated financial statements.
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. Generally speaking, ASU 2016-02 will more significantly impact the accounting for leases in which GLPI is the lessee by requiringpermit the Company to recordqualify as a rightREIT. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of use assetits annual REIT taxable income to shareholders. As a REIT, the Company generally will not be subject to federal, state or local income tax on income that it distributes as dividends to its shareholders, except in those jurisdictions that do not allow a deduction for such distributions. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal, state and lease liabilitylocal income tax, including any applicable alternative minimum tax, on its consolidated balance sheetstaxable income at regular corporate income tax rates, and dividends paid to its shareholders would not be deductible by the Company in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect the Company's net income and net cash available for these leases. distribution to shareholders. Unless the Company was entitled to relief under certain Internal Revenue Code provisions, the Company also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
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. See Note 17 for further details on the Company's accounting treatmentearnings per share calculations.
Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its triple-net tenant leases, which arereal estate assets) and the primary sourceTRS Segment. The GLP Capital reportable segment consists of revenues to the Company is not significantly impacted byleased real property and represents the adoptionmajority of ASU 2016-02, other than to eliminatethe Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate tax gross-up discussed below.
ASU 2016-02 is effectiveof Tropicana Las Vegas. See Note 19 for annual reporting periods beginning after December 15, 2018 and was originally required to be adopted on a modified retrospective basis, meaning the new leasing model would need to be appliedfurther information with respect to the earliest year presented in the financial statements and thereafter. However, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") which permits companies to apply the transition provisions of the lease accounting standard at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842):Narrow Scope Improvements for Lessors ("ASU 2018-20"). ASU 2018-20 clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor, are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02, the Company will no longer gross-up its financial statements for real estate taxes paid directly to third-parties by its tenants. The Company notes, however, that ground leases for which the tenant pays the landlord directly on the Company's behalf are still required to be grossed-up within its consolidated financial statements upon the adoption of ASU 2016-02 as these are not considered lessor
costs. On January 1, 2019, the Company prospectively adopted ASU 2016-02 using the new transition option available under ASU 2018-11 and recorded a right-of-use asset and related lease liability of approximately $180 million on its consolidated balance sheet to represent its future lease obligations.
3.Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all cash balances and highly-liquid investments with original maturities of three months or less to be cash and cash equivalents.Company’s segments.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Additionally, concentrations of credit risk may arise when revenues of the Company are derived from a small number of tenants. As of December 31, 2018,2020, substantially all of the Company's real estate properties were leased to Penn, EldoradoCaesars and Boyd. During the year ended December 31, 2018,2020, approximately 93%78%, 11% and 10% of the Company's collective income from real estate (excluding real estate taxes and ground leases paid by tenants) was derived from tenant leases with Penn and its acquiree Pinnacle, whereas approximately 3% and 2% of the Company's collective income from real estate (excluding real estate taxes and ground leases paid by tenants) was derived from tenant leases and mortgagereal estate loans with EldoradoPenn, Caesars and Boyd, respectively. Figures for Eldorado and Boyd represent partial years of revenue as both leases commenced in the fourth quarter of 2018. Revenues from our tenants are reported in the Company's GLP Capital, L.P. reportable segment. Penn, EldoradoCaesars and Boyd are publicly traded companies that are subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and are required to file periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). Readers are directed to Penn, EldoradoCaesars and Boyd's respective websites for further financial information on these companies. Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2018,2020, the Company's portfolio of 4648 properties is diversified by location across 16 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, mortgagereal estate loans receivable and other loans receivable.
The Company's policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. At times, the Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
Prepaid Expenses
3. New Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other Assets- Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. The Company's adoption of ASU 2018-15 on January 1, 2020 did not have an impact on its consolidated financial statements.
Prepaid expenses consist
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of expendituresCredit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new model for goods (other than inventories) or services before the goods are used or the services are received. These amounts are deferred and charged to operations as the benefits are realized and primarily consistestimating credit losses for certain types of prepayments for insurancefinancial instruments, including mortgage, real estate and other contracts that will be expensed duringloans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the subsequent year. It also includes property taxes that were paid in advance, as well as transaction costs that will be allocatedcurrent "incurred loss" method of recognizing credit losses, which is intended to purchase price uponimprove financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The impact of the closingadoption of an asset acquisition. Other assets consists primarily of accounts receivable, deposits, food and beverage inventory and deferred compensation plan assets (See Note 11 for further details on the deferred compensation plan).this pronouncement was immaterial.
Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Revenue Recognition
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured in accordance with ASC 842 - Leases. 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 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.
Additionally, in accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.
The Company may periodically loan funds to casino owner-operators for the purchase of gaming related real estate. Interest income related to real estate loans is recorded as revenue from real estate within the Company's consolidated statements of income in the period earned.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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 increase. 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. Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenues from Contracts with Customers. The Company also defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play until a later period when the points are redeemed or forfeited. Other revenues at the TRS Properties are derived from the properties' dining, retail and certain other ancillary activities and revenue for these activities is recognized as services are performed.
Stock-Based Compensation
The Company's Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
The Company accounts for stock compensation under ASC 718 - Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day prior to 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.
The unrecognized compensation cost relating to restricted stock awards and performance-based restricted stock awards is recognized as expense over the awards’ remaining vesting periods.
See Note 15 for further information related to stock-based compensation.
Income Taxes
The TRS Segment is able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS Segment are subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realizability of the deferred tax assets is evaluated by assessing the valuation allowance and by adjusting the amount of the allowance, if any, as necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not have any uncertain tax positions for the three years ended December 31, 2020.
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. If and when they occur, the Company will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of income. During the years ended December 31, 2020, 2019 and 2018, the Company recognized 0 penalties and interest, net of deferred income taxes.
The Company elected on its U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and the Company, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”.
The Company continues to be organized and to operate in a manner that will permit the Company to qualify as a REIT. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to shareholders. As a REIT, the Company generally will not be subject to federal, state or local income tax on income that it distributes as dividends to its shareholders, except in those jurisdictions that do not allow a deduction for such distributions. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal, state and local income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate income tax rates, and dividends paid to its shareholders would not be deductible by the Company in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect the Company's net income and net cash available for distribution to shareholders. Unless the Company was entitled to relief under certain Internal Revenue Code provisions, the Company also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
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. See Note 17 for further details on the Company's earnings per share calculations.
Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas. See Note 19 for further information with respect to the Company’s segments.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Additionally, concentrations of credit risk may arise when revenues of the Company are derived from a small number of tenants. As of December 31, 2020, substantially all of the Company's real estate properties were leased to Penn, Caesars and Boyd. During the year ended December 31, 2020, approximately 78%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases and real estate loans with Penn, Caesars and Boyd, respectively. Revenues from our tenants are reported in the Company's GLP Capital, L.P. reportable segment. Penn, Caesars and Boyd are publicly traded companies that are subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and are required to file periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). Readers are directed to Penn, Caesars and Boyd's respective websites for further financial information on these companies. Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2020, the Company's portfolio of 48 properties is diversified by location across 16 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, real estate loans and other loans receivable. The Company's policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. At times, the Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
3. New Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. The Company's adoption of ASU 2018-15 on January 1, 2020 did not have an impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage, real estate and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The impact of the adoption of this pronouncement was immaterial.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform ("ASU 2020-04"). Reference rates such as London Interbank Offered Rate ("LIBOR") are widely used in a broad range of financial instruments and other agreements. Regulators and market participants in various jurisdictions have undertaken efforts, generally referred to as "reference rate reform", to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. As a result of this reform initiative, certain widely used rates such as LIBOR are expected to be discontinued. ASU 2020-04 provides optional expedients for applying the guidance for contract modifications or other situations affected by reference rate reform, specifically addressing the accounting for modifications of contracts within the scope of ASC Topic 310 on receivables, ASC 470 on debt, and ASC 842 on leases and ASC subtopic 815-15 on embedded derivatives. Based on the limited amount of obligations and contracts the Company currently has that references LIBOR, the Company does not anticipate any material impact from this pronouncement on its Consolidated Financial Statements.
4.Real Estate Investments
Real estate investments, net, represent investments in 45 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 2,667,616 | | | $ | 2,552,285 | |
Building and improvements | 6,030,482 | | | 5,749,211 | |
| | | |
Total real estate investments | 8,698,098 | | | 8,301,496 | |
Less accumulated depreciation | (1,410,940) | | | (1,200,941) | |
Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
The increase in real estate investments is primarily due to the Company acquiring the real estate of Belterra Park in satisfaction of the Belterra Park Loan in May 2020 and the acquisition of the real estate of Lumière Place in satisfaction of the CZR loan in September 2020 for $57.7 million ($11.7 million of which was allocated to land and land improvements and $46.0 million to building and improvements) and $246.0 million ($26.9 million of which was allocated to land and land improvements and $219.1 million to building and improvements), respectively. Additionally, the Exchange Transaction described in Note 1 which closed in December 2020, resulted in an increase to real estate investments of $72.6 million (net increase to land and improvements of $46.4 million and building and improvements of $26.2 million). Finally, the Company acquired the land underlying Penn's development project in Morgantown, Pennsylvania for $30.0 million.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized at the TRS Properties as the real estate will be leased to third party operators subsequent to the completion of the sale transactions as discussed in Note 6.
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 30,540 | | | $ | 30,492 | |
Building and improvements | 117,333 | | | 116,904 | |
Furniture, fixtures, and equipment (1) | 28,767 | | | 118,766 | |
Construction in progress | 474 | | | 120 | |
Total property and equipment | 177,114 | | | 266,282 | |
Less accumulated depreciation (1) | (96,496) | | | (172,202) | |
Property and equipment, net | $ | 80,618 | | | $ | 94,080 | |
(1) The majority of the decline at December 31, 2020 compared to the prior year is related to the reclassification of certain amounts to Assets held for sale. See Note 6 for further details.
6. Assets Held for Sale
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million. The Company will retain ownership of all real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into a master lease with Casino Queen, which will include the Casino Queen property in East St. Louis that is currently leased by us to Casino Queen and the Hollywood Casino Baton Rouge facility (the "Casino Queen Master Lease"). The initial annual cash rent on the retained real estate will be approximately $21.4 million and the Casino Queen Master Lease will have an initial term of 15 years with 4 5 year renewal options exercisable by the tenant. Additionally, the Company will complete the current land side development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2021.
On December 11, 2020, Penn agreed to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million, with the closing of such purchase, subject to regulatory approvals, expected to occur during the second half of 2021. Upon closing, the Company will lease the real estate of the Perryville facility to Penn pursuant to a lease providing for initial annual rent on the retained real estate of $7.77 million, subject to escalation provisions.
The Company has classified the operating assets of the two properties above as Assets held for sale since we expect these transactions to close within 12 months and classified the respective liabilities within Other liabilities on the Consolidated Balance Sheet which is comprised of the following. (in thousands)
| | | | | |
Assets | |
Property and equipment, used in operations, net | $ | 8,780 | |
Right-of-use assets and land rights, net | $ | 263 | |
Cash and cash equivalents | $ | 22,131 | |
Prepaid expenses | $ | 2,473 | |
Goodwill | $ | 16,067 | |
Other intangible assets | $ | 9,577 | |
Other assets | $ | 2,157 | |
Total | $ | 61,448 | |
| |
Liabilities | |
Accounts payable | $ | 8 | |
Accrued expenses | $ | 3,387 | |
Accrued salaries and wages | $ | 2,064 | |
Gaming, property and other taxes | $ | 398 | |
Lease liabilities | $ | 262 | |
Other liabilities | $ | 710 | |
Total which is classified in Other Liabilities | $ | 6,829 | |
The assets held for sale reside in the Company's TRS Segment. See Note 19 for the pre-tax income of this segment for the years ended December 31, 2020, 2019 and 2018 which is comprised solely of the properties above with the exception of $2.7 million of depreciation expense associated with Tropicana Las Vegas for the year ended December 31, 2020.
7. Acquisitions
The Company accounts for its acquisitions of real estate assets as asset acquisitions under ASC 805 - Business Combinations. Under asset acquisition accounting, transaction costs incurred to acquire the purchased assets are also included as part of the asset cost.
Pending acquisitions
On October 27, 2020, the Company entered into a series of definitive agreements pursuant to which a subsidiary of Bally's Corporation (NYSE: BALY) (Bally's) will acquire 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company will reacquire the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company entered into a real estate purchase agreement with Bally's pursuant to which the Company will purchase the real estate assets of the Dover Downs Hotel & Casino, located in Dover, Delaware which is currently owned and operated by Bally's, for a cash purchase price of approximately $144.0 million. At the closing of the transactions, which are expected in mid-2021, subject to regulatory approvals, the Tropicana Evansville and Dover Downs Hotel and Casino facilities will be added to a new master lease between the Company and Bally's (the “Bally's Master Lease”). The Company anticipates that the Bally's Master Lease will have an initial term of 15 years, with no purchase option, followed by 4 five-year renewal options (exercisable by the tenant) on the same terms and conditions. Rent under the Bally's Master Lease will be $40.0 million annually and is subject to an annual escalator of up to 2% determined in relation to the annual increase in the CPI. The Company expects this transaction to close in mid-2021 following the completion of customary closing conditions and regulatory approvals. On November 6, 2020, the Company issued 9.2 million common shares at $36.25 per share to partially finance the funding required for this transaction.
Current year acquisitions
As previously discussed in Note 1, the impact of COVID-19 resulted in casino-wide closures by all of our tenants. As a result of COVID-19, on April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of rent credits, which were fully utilized in 2020 for rent due under the parties' existing leases.
An affiliate of Penn will continue to operate the casino and hotel business of the Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the earlier of two years (subject to three one-year extensions at the Company's option) or until the Tropicana Las Vegas is sold. The Company will conduct a sale process with respect to the Tropicana Las Vegas, with Penn receiving 75% of the net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the first 12 months following closing and 50% of net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the subsequent 12 months following closing. Penn will not be entitled to receive any net sale proceeds if the relevant sale agreement is signed at any time after 24 months from closing.
The Company recorded an initial land and building value of $226.2 million and $81.3 million, respectively. During the year ended December 31, 2020 depreciation expense of $2.7 million was recorded. Additionally, deferred rent of $307.5 million was recorded at the acquisition date, which has been fully recognized for the year ended December 31, 2020.
The Tropicana Las Vegas assets are summarized below.
| | | | | | | |
| December 31, 2020 | | |
| (in thousands) |
Land and improvements | $ | 226,160 | | | |
Building and improvements | 81,340 | | | |
Total real estate of Tropicana Las Vegas | 307,500 | | | |
Less accumulated depreciation | (2,669) | | | |
Real estate of Tropicana Las Vegas , net | $ | 304,831 | | | |
| | | |
| | | |
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020.The Company is leasing the land back to an affiliate of Penn pursuant to the Morgantown Lease for an initial annual rent of $3.0 million, subject to escalation provisions following the opening of the property.
On October 27, 2020, the Company entered into an Exchange Agreement with subsidiaries of Caesars that own, respectively, Waterloo and Bettendorf. Pursuant to the terms of the agreement, Caesars transferred to the Company the real estate assets of the Waterloo and Bettendorf properties in exchange for the transfer by the Company to Caesars of the real property assets of the Tropicana Evansville, plus a cash payment of $5.7 million.The exchange transaction closed on December 18, 2020, which resulted in the Waterloo and Bettendorf facilities being added to the Amended and Restated Caesars Master Lease and the rent increased by $0.5 million annually. The Company recorded a non-cash gain of $41.4 million in the fourth quarter of 2020 related to the transaction, which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment of $5.7 million. The following table summarizes the fair value of the assets acquired in the Exchange Agreement and the carrying value of the Tropicana Evansville assets that were transferred to Caesars. (in thousands):
| | | | | | | | | | | |
| Bettendorf | Waterloo | Total |
Land | $ | 29,636 | | $ | 64,262 | | $ | 93,898 | |
Building and improvements | 85,150 | | 77,958 | | 163,108 | |
Total real estate investments | $ | 114,786 | | $ | 142,220 | | $ | 257,006 | |
Less: Evansville Land and improvements | | | (47,439) | |
Less: Evansville Buildings and improvements, net | | | (136,858) | |
Less: Evansville Right of use assets and land rights, net | | | (55,456) | |
Add: Evansville, Operating Lease Liabilities | | | 29,795 | |
Prior Year Acquisitions
2018
On October 15, 2018, in conjunction with the Penn-Pinnacle Merger the Company acquired the real property assets of Plainridge Park from Penn for approximately $250.9 million. This property was added to the Amended Pinnacle Master Lease via the fourth amendment to the Pinnacle Master Lease and is leased to Penn which will continue to operate the property. The initial annual cash rent of $25.0 million for Plainridge Park will not be subject to rent escalators or adjustments.
Also in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd and to increase fixed rent under the lease by an additional $13.9 million annually. The Company entered into the Boyd Master Lease for these properties on terms similar to the Company’s existing master leases. As a result of the fourth amendment to the Pinnacle Master Lease, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety, the building assets of $2.6 billion previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet and all rent received under the Amended Pinnacle Master Lease is recorded as rental income on the Company's consolidated statement of income. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger.
On October 1, 2018, the Company acquired the real property assets of five casino properties from Tropicana and certain of its affiliates for approximately $992.5 million, pursuant to the Real Estate Purchase Agreement dated April 15, 2018 between Tropicana and GLP Capital, which was subsequently amended on October 1, 2018. Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge and the rights to six long-term ground leases for land on which the operations of the acquired Tropicana properties reside. Concurrent with the Tropicana Acquisition, Caesars acquired the operating assets of these properties from Tropicana pursuant to the Tropicana Merger Agreement and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 4 successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions. Initial annual rent under the Caesars Master Lease was $87.6 million and is subject to annual rent escalators and biennial percentage rent adjustments.
Purchase price allocations are primarily based on the fair values of assets acquired and liabilities assumed at the time of acquisition. The following table summarizes the purchase price allocation of the assets acquired in the Tropicana Acquisition (in thousands):
| | | | | |
Real estate investments, net | $ | 948,217 | |
Land rights, net | 44,331 | |
Total purchase price | $ | 992,548 | |
8. Receivables
Real Estate Loans
As discussed in Note 1, the Company historically had the CZR loan outstanding which was utilized by Caesars in connection with its acquisition of Lumière Place. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place real estate in satisfaction of the CZR loan, subject to the Lumière Place Lease, and closed this transaction on September 29, 2020.
On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of the Belterra Park Loan. The Belterra Park Loan's initial interest rate was equal to 11.11% and the loan matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to the Belterra Park Lease.
Other Loans Receivable
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois. GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The Casino Queen Lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for 4 successive 5-year periods.
Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, prepayable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan (the "Casino Queen Loan") to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance its acquisition of Lady Luck Casino in Marquette, Iowa. The Casino Queen Loan bears an interest rate of 15% and is prepayable at any time.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under its senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of events of default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI. However, the paid-in-kind interest due to the Company at December 31, 2018 was not expected to be collected, resulting in an impairment charge of $1.5 million during the fourth quarter of 2018. The Company did not recognize the paid-in-kind interest income due to the Company for the quarter ended December 31, 2018 and took a charge for the previously recognized paid-in-kind interest income through the Company’s consolidated statement of earnings as a reversal of the paid-in-kind interest income recognized earlier in the year.
During 2019, the operating results of Casino Queen continued to decline, the secured debt of Casino Queen was sold to a third-party casino operator at a discount and the Company no longer expected the loan to be repaid. Therefore, the Company recorded an impairment charge of $13.0 million through the Consolidated Statement of Income for the year ended December 31, 2019 to reflect the write-off of the Casino Queen Loan.
Casino Queen was closed in mid-March due to COVID-19 and Casino Queen was in payment default on their lease starting in April 2020. The Company entered into a deferred rental agreement with Casino Queen and received all delinquent rental payments in the fourth quarter of 2020.
9. Lease Assets and Lease Liabilities
Lease Assets
The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which are ground leases related to properties the Company leases to its tenants under triple-net operating leases. These ground leases may include fixed rent, as well as variable rent based upon an individual property’s performance or changes in an index such as the CPI and have maturity dates ranging from 2028 to 2108, when considering all renewal options. For certain of these ground leases, the Company’s tenants are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its consolidated balance sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
| | | | | | | | |
| December 31, 2020 | December 31, 2019 |
Right-of-use assets - operating leases (1) | $ | 151,339 | | $ | 184,063 | |
Land rights, net | 617,858 | | 654,671 | |
Right-of-use assets and land rights, net | $ | 769,197 | | $ | 838,734 | |
(1) In addition, there is $0.3 million of operating lease right-of-use assets included in assets held for sale.
As described in Note 8, on December 18, 2020, the Company and Caesars completed an Exchange Agreement in which the Company transferred to Caesars the real property assets of Tropicana Evansville. In connection with the exchange, the Company removed the land right and right of use asset related to the long-term ground lease at this property which totaled $24.8 million and $30.7 million, respectively, at the closing of the transaction along with the lease liability of $29.8 million it had recorded on its Consolidated Balance Sheet for this lease.
On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the long-term ground lease at this property and bringing the net book value of this land right to 0 at December 31, 2019. Subsequent to the property's closure, the Company entered into an agreement to terminate the long-term ground lease for the Resorts Casino Tunica property, which became effective in February 2020. In connection with the exercised termination option, the Company remeasured the lease liability and adjusted the right-of-use asset it had recorded on its consolidated balance sheet for this lease to align with the new termination date.
Land Rights
The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land rights | $ | 667,751 | | | $ | 694,077 | |
Less accumulated amortization | (49,893) | | | (39,406) | |
Land rights, net | $ | 617,858 | | | $ | 654,671 | |
As of December 31, 2020, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,372 | |
2022 | 11,372 | |
2023 | 11,372 | |
2024 | 11,372 | |
2025 | 11,372 | |
Thereafter | 560,998 | |
Total | $ | 617,858 | |
Lease Liabilities
At December 31, 2020, maturities of the Company's operating lease liabilities were as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,079 | |
2022 | 11,082 | |
2023 | 11,081 | |
2024 | 11,034 | |
2025 | 10,984 | |
Thereafter | 569,957 | |
Total lease payments | $ | 625,217 | |
Less: interest | (473,014) | |
Present value of lease liabilities (1) | $ | 152,203 | |
(1) In addition, there is $0.3 million of lease liabilities included in other liabilities related to liabilities held for sale.
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the Consolidated Balance Sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Operating lease cost | $ | 13,907 | | | $ | 15,482 | |
Variable lease cost (1) | 3,364 | | | 9,048 | |
Short-term lease cost | 625 | | | 1,060 | |
Amortization of land right assets | 12,022 | | | 18,536 | |
Total lease cost | $ | 29,918 | | | $ | 44,126 | |
(1)Variable lease costs for the year ended December 31, 2020 included a true up of the monthly rental payments paid by our tenants on certain ground leases that are based on estimated current year annual performance which were impacted by casino closures due to COVID-19. As discussed previously, under ASC 842, the Company is required to gross up its financial statements by recording both expense and revenue (recorded within rental income on the Consolidated Statements of Income) for these payments since the Company is considered the primary obligor.
Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the consolidated statements of income. The Company's short-term lease costs as well as a small portion of operating lease costs are recorded in both gaming, food, beverage and other expense and general and administrative expense in the consolidated statements of income. Amortization expense related to the land right intangibles totaled $11.3 million for the year ended December 31, 2018. Other lease costs totaled $18.9 million for the year ended December 31, 2018.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| December 31, 2020 |
Weighted average remaining lease term - operating leases | 56.41 years |
Weighted average discount rate - operating leases | 6.7% |
In addition, the weighted average remaining lease term and the weighted average discount rate for those operating leases included in assets held for sale and other liabilities is 1.79 years and 4.0%, respectively.
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases (1) (2) | $ | 1,600 | | | $ | 2,226 | |
| | | |
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases (2) | $ | 95 | | | $ | 293 | |
(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.
(2) In addition, there is $0.2 million and $0.3 million related to assets held for sale and other liabilities for operating cash flows from cash paid for amounts included in the measurement of lease liabilities and right-of-use assets obtained for new lease obligations, respectively for the year ended December 31, 2020.
10. Goodwill and Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The only goodwill of the Company is recorded on the books of Hollywood Casino Baton Rouge, in connection with Penn's purchase of this entity prior to the Spin-Off. The original assets and liabilities of GLPI, including goodwill and intangible assets were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of ASC 505. There is no goodwill recorded on the Company's GLP Capital segment, which holds the Company's REIT operations.
During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $59.5 million in connection with its operations at Hollywood Casino Baton Rouge. This charge was driven by general market deterioration in the Baton Rouge region and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect during the second quarter of 2018, both of which significantly impacted the Company's forecasted cash flows for this reporting unit. Subsequent to conducting its impairment tests on other long-lived assets, the Company performed Step 1 of the goodwill impairment test, which indicated a potential impairment. Step 1 of the goodwill impairment test involved the determination of the fair value of the Baton Rouge reporting unit and its comparison to the reporting unit's carrying amount. Using a discounted cash flow model, which relied on projected EBITDA to determine the reporting unit's future cash flows, the Company calculated a fair value that was less than the reporting unit's carrying value and proceeded to Step 2. In Step 2 of the goodwill impairment test, the Company performed a fair value allocation as if the reporting unit had been acquired in a business combination and assigned the fair value of the reporting unit calculated in Step 1 to all assets and liabilities of the reporting unit, including any unrecognized intangible assets. Any residual fair value was allocated to goodwill to arrive at the implied fair value of goodwill. After completing the Step 2 allocation, the Company determined the goodwill on its Baton Rouge reporting unit had an implied fair value of $16.1 million and recorded the impairment charge of $59.5 million during the fourth quarter of 2018. There have been no changes in the carrying value of goodwill of $16.1 million for the years ended December 31, 2020 and 2019. As described in Note 6, the Company's goodwill balance at December 31, 2020 has been reclassified to Assets held for sale.
In accordance with ASC 350, the Company considers its gaming license at the Hollywood Casino Perryville property an indefinite-lived intangible asset that does not require amortization based on future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized. Hollywood Casino Perryville's gaming license will expire in September 2025, fifteen years from the casino's opening date. The Company expects to expense any costs related to the gaming license renewal as incurred. The Company conducts its annual impairment assessment of the gaming license on October 1st using the Greenfield Method which estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. This method also assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. Based upon these assumptions and the Company's current forecasted cash flows for this reporting unit, the gaming license was not impaired. At both December 31, 2020 and 2019, the gaming license had a carrying value of $9.6 million. As described in Note 6, the Company's other intangible assets balance at December 31, 2020 has been reclassified to Assets held for sale.
11. Fair Value of Financial Assets and Liabilities
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Deferred Compensation Plan Assets
The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the consolidated balance sheets.
Real Estate Loans Receivable
The fair value of the mortgagereal estate loans receivable approximates the carrying value of the Company's mortgagereal estate loans, receivable, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the loan receivablereal estate loans 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 isSenior Notes are estimated based on quoted prices in active markets and as such is aare Level 1 measurementmeasurements as defined under ASC 820. The fair value of the obligations in our Amended Credit Facility is based on indicative pricing from market information (Level 2 inputs).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents (1) | $ | 486,451 | | | $ | 486,451 | | | $ | 26,823 | | | $ | 26,823 | |
Deferred compensation plan assets | 35,514 | | | 35,514 | | | 28,855 | | | 28,855 | |
Real estate loans | 0 | | | 0 | | | 303,684 | | | 303,684 | |
Financial liabilities: | | | | | | | |
Long-term debt: | | | | | | | |
Senior unsecured credit facility | 424,019 | | | 424,019 | | | 495,000 | | | 493,533 | |
Senior unsecured notes | 5,375,000 | | | 6,026,840 | | | 5,290,174 | | | 5,707,996 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | 25,783 |
| | $ | 25,783 |
| | $ | 29,054 |
| | $ | 29,054 |
|
Deferred compensation plan assets | 22,709 |
| | 22,709 |
| | 22,617 |
| | 22,617 |
|
Mortgage loans receivable | 303,684 |
| | 303,684 |
| | — |
| | — |
|
Financial liabilities: | |
| | |
| | |
| | |
|
Long-term debt: | |
| | |
| | |
| | |
|
Senior unsecured credit facility | 927,000 |
| | 909,308 |
| | 1,055,000 |
| | 1,045,600 |
|
Senior unsecured notes | 4,975,000 |
| | 4,958,455 |
| | 3,425,000 |
| | 3,574,688 |
|
(1) In addition, there is $22.1 million in cash and cash equivalents in assets held for sale.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets andThere were no liabilities are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis during the yearyears ended December 31, 2018 are categorized in the table below based upon the lowest level of significant input to the valuation.2020 and 2019. There were no assets measured at fair value on a nonrecurring basis during the year ended December 31, 2017 or liabilities2020; however, assets measured at fair value on a nonrecurring basis during the years ended December 31, 2018 and 2017.
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total Impairment Charges Recorded during the Year Ended December 31, 2018 |
| (in thousands) |
Assets: | | | | | | | |
Goodwill | $ | — |
| | $ | — |
| | $ | 16,067 |
| | $ | 59,454 |
|
Loan receivable | — |
| | — |
| | 13,000 |
| | 1,500 |
|
Total assets measured at fair value on a nonrecurring basis | $ | — |
| | $ | — |
| | $ | 29,067 |
| | $ | 60,954 |
|
Goodwill
During the year ended December 31,
2018, the Company recorded goodwill impairment charges of $59.5 million on its Baton Rouge reporting unit, resulting from a significant reduction in the long-term earnings forecast of this property. The Company utilized the income approach to measure the fair value of goodwill, which involves a number of key assumptions, such as cash flow forecasts and discount rates. See Note 9 for additional information regarding the calculation of the impairment charge.2019 are described below.
Loan ReceivableRevenue Recognition
During the fourth quarter of 2018, the Company recorded an impairment charge of $1.5 million related to the paid-in-kind interest income on its loan receivable with Casino Queen. The Company determined, based upon factsrecognizes rental revenue from tenants, including rental abatements, lease incentives and circumstances existingcontractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured in accordance with ASC 842 - Leases. Additionally, percentage rent that is fixed and determinable at December 31, 2018, that the paid-in-kind interest due tolease inception date is recorded on a straight-line basis over the Company at December 31, 2018 is not expected to be collected. Therefore,lease term, resulting in the Company did not recognize the paid-in-kind interest income due to the Company for the quarter ended December 31, 2018 and took a charge for the previously recognized paid-in-kind interest income throughrecognition of deferred rental revenue on the Company’s consolidated statement of earnings asbalance sheets. Deferred rental revenue is amortized to rental revenue on a reversalstraight-line basis over the remainder of the paid-in-kind interestlease 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 earlier inonly when the year. See Note 8 for further details surroundinglessee achieves the Casino Queen loan.
Real Estate Investments
Real estate investments primarily represent land and buildings leasedspecified target. Recognition of rental income commences when control of the facility has been transferred to the Company's tenants. The Company records the acquisition of real estate assets at fair value, including acquisition and closing costs. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful lives of the buildings and building improvements which are generally between 10 to 31 years.tenant.
The Company continually monitors events and circumstances that could indicate that the carrying amount of its real estate investments may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of a real estate investment may not be recoverable, the Company estimates the fair value of the investment by calculating the undiscounted future cash flows from the use and eventual disposition of the investment. This amount is compared to the asset's carrying value. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated
Additionally, in accordance with GAAP. The Company groups its real estate investments together by lease, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value,ASC 842, the Company must make assumptions regarding future cash flows and other factors. The factors considered byrecords revenue for the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss.
Land Rights
Land rights represent the Company's rights to land subject to long-term ground leases. The Company records land rights at the acquisition date fair value of the long-term rights purchased from sellers. Essentially, land rights represent the below market value of the related ground leases. Land rights are amortized over the individual lease term of each ground lease including all renewal options. Amortizationrent paid by its tenants with an offsetting expense related to the land rights is recorded withinin land rights and ground lease expense inwithin the Company's consolidated statementsstatement of income. Land rights are monitored for potential impairment in much the same wayincome as the Company's real estate assets. IfCompany has concluded that as the lessee it is the primary obligor under the ground leases. The Company determines the carrying amount of a land right is not recoverable, it would recognize an impairment charge equivalentsubleases these ground leases back to its tenants, who are responsible for payment directly to the amount required to reduce the carrying valuelandlord.
Table of the asset to its estimated fair value, calculated in accordance with GAAP.Contents
Property and Equipment Used in Operations
Property and equipment are stated at cost, less accumulated depreciation and represent assets used by the Company's TRS operations and certain corporate assets. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
Depreciation of property and equipment is recorded using the straight-line method over the following estimated useful lives:
|
| | |
Land improvements | | 15 years |
Building and improvements | | 5 to 31 years |
Furniture, fixtures, and equipment | | 3 to 31 years |
Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term. The estimated useful lives are determined based on the nature of the assets as well as the Company's current operating strategy.
The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based upon the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the individual property level. In assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Mortgage Loans Receivable
The Company may periodically loan funds to casino owner-operators via secured mortgage loans for the purchase of gaming related properties. Mortgage loans are recorded on the Company's consolidated balance sheets at carrying value which approximates fair value. If the collectability of an outstanding mortgage balance is not reasonably assured, the Company will assess the loan's carrying value for potential impairment. If it is determined the loan is in fact impaired it will be written down or off completely. At December 31, 2018, the Company does not have any allowances recorded against its mortgage loans receivable as the collection of the remaining principal and interest payments is reasonable assured.real estate. Interest income related to mortgagereal estate loans receivable is recorded as revenue from mortgaged real estate within the Company's consolidated statements of income in the period earned.
InvestmentsGaming revenue generated by the TRS Properties mainly consists of revenue from slot machines and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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 Direct Financing Leases
As discussed in Note 8, priorthe customers’ possession, and for accruals related to the Penn-Pinnacle Merger, the Pinnacle Master Lease was bifurcated between an operating lease andanticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a direct financing lease, with the land assets qualifying for operating lease treatment and the building assets triggering direct financing lease treatment. This net investment in direct financing lease was unwound in conjunction with the Penn-Pinnacle Merger, via the fourth amendment to the Pinnacle Master. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840 - Leases ("ASC 840"). Therefore, subsequent to the Penn-Pinnacle Merger, the Pinnacle Master Lease is treated as an operating lease in its entirety and the building assets previously recorded as an investment in direct financing leaseprogressive rate based on the Company's consolidated balance sheet were recordednumber of coins played, are charged to revenue as real estate assets on the Company's consolidated balance sheet. At December 31, 2017,amount of the Company's investmentjackpots increase. Table game gaming revenue is the aggregate of table drop adjusted for the change in direct financing lease representedaggregate table chip inventory. Table drop is the buildingtotal dollar amount of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenues from Contracts with Customers. The Company also defers a portion of the real estate assets acquiredrevenue received from customers (who participate in the original Pinnacle transaction.
Goodwill andpoints-based loyalty programs) at the time of play until a later period when the points are redeemed or forfeited. Other Intangible Assets
The Company's goodwill and intangible assets are the result of the contribution of Hollywood Casino Baton Rouge and Hollywood Casino Perryville in connection with the Spin-Off. The Company's goodwill resides on the books of its Hollywood Casino Baton Rouge subsidiary, while the other intangible asset represents a gaming license on the books of its Hollywood Casino Perryville subsidiary. Both subsidiaries are members ofrevenues at the TRS Properties segmentare derived from the properties' dining, retail and certain other ancillary activities and revenue for these activities is recognized as services are considered separate reporting unitsperformed.
Stock-Based Compensation
The Company's Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
The Company accounts for stock compensation under ASC 350718 - IntangiblesCompensation - Goodwill and Other ("ASC 350"). Goodwill is tested at the reporting
unit level,Stock Compensation, which is an operating segment or one level below an operating segment for which discrete financial information is available
Under ASC 350,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 requiredrecognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to test goodwill for impairment at least annually and whenever events or circumstances indicate that it is more likely than not that goodwill may be impaired.the closing stock price on the day prior to grant. The Company has electedutilizes a third-party valuation firm to perform its annual goodwill impairment test as of October 1 of each year. In accordance with ASC 350, the Company tests goodwill for impairment subsequent to testing its other long-lived assets for impairment.
ASC 350 prescribes a two-step goodwill impairment test, the first step which involves the determination ofmeasure the fair value of each reporting unit and its comparison toperformance-based restricted stock awards at grant date using the carrying amount. In order to determine the fair value of the Baton Rouge reporting unit, the Company utilizes a discounted cash flow model, which relies on projected EBITDA to determine the reporting unit's future cash flows. If the carrying amount exceeds the fair value in step 1, then step 2 of the impairment test is performed to determine the implied fair value of goodwill. If the implied fair value of goodwill is less than the goodwill allocated to the reporting unit, an impairment loss is recognized.Monte Carlo model.
In accordance with ASC 350, the Company considers its Hollywood Casino Perryville gaming license an indefinite-lived intangible asset that does not require amortization based on the Company's future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized. Hollywood Casino Perryville's gaming license will expire in September 2025, fifteen years from the casino's opening date. The Company expects to expense any costs related to the gaming license renewal as incurred.
The Company calculates the fair value of its gaming license using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license assuming the Company built a casino with similar utilityunrecognized compensation cost relating to that of the existing facility. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. As such the value of the licenserestricted stock awards and performance-based restricted stock awards is a function of the following items:
Projected revenues and operating cash flows;
Theoretical construction costs and duration;
Pre-opening expenses;
Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license; and
Remaining useful life of the license
The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results to determine the estimated fair value of the reporting unit and the indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions, which represent the Company's best estimates of the cash flows expected to result from the use of the assets. Changes in estimates, increases in the Company's cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company's estimates. If the Company's ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future accounting periods. The Company's estimates of cash flows are based on the current regulatory and economic climates,recognized as well as recent operating information and budgets. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events.
Forecasted cash flows can be significantly impacted by the local economy in which the Company's subsidiaries operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions in which the Company operates can result in increased competition for the property. This generally has a negative effect on profitability once competitors become established, as a certain level of cannibalization occurs absent an overall increase in customer visitations. Lastly, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.
Assumptions and estimates about future cash flow levels are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company's business strategy, which may reallocate capital and
resources to different or new opportunities which management believes will enhance the Company's overall value but may be to the detriment of its existing operations. For further information on the Company's evaluation of its goodwill and gaming license for impairment during the year ended December 31, 2018, see Note 9.
Debt Issuance Costs
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the contractual term of the underlying indebtedness. In accordance with ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, the Company records long-term debt net of unamortized debt issuance costs on its consolidated balance sheets. Similarly, the Company records long-term debt net of any unamortized bond premiums and original issuance discounts on its consolidated balance sheets.awards’ remaining vesting periods.
Loans Receivable
The Company may periodically loan fundsSee Note 15 for further information related to tenants. Loans are made at prevailing market interest rates and recorded on the Company's consolidated balance sheets at carrying value which approximates fair value. If the collectability of an outstanding loan balance is not reasonably assured, the Company will assess the loan's carrying value for potential impairment. If it is determined the loan is in fact impaired it will be written down or off completely.stock-based compensation.
Income Taxes
The TRS Properties areSegment is able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS PropertiesSegment are subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realizability of the deferred tax assets is evaluated by assessing the valuation allowance and by adjusting the amount of the allowance, if any, as necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not have any uncertain tax positions for the three years ended December 31, 2018.2020.
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. If and when they occur, the Company will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of income. During the years ended December 31, 20182020, 2019 and 2017,2018, the Company recognized no0 penalties and interest, net of deferred income taxes and during the year ended December 31, 2016, the Company recognized $1 thousandtaxes.
Table of penalties and interest, net of deferred income taxes.Contents
The Company elected on its U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and the Company, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”.
The Company continues to be organized and to operate in a manner that will permit the Company to qualify as a REIT. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to shareholders. As a REIT, the Company generally will not be subject to federal, state or local income tax on income that it distributes as dividends to its shareholders, except in those jurisdictions that do not allow a deduction for such distributions. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal, state and local income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate income tax rates, and dividends paid to its shareholders would not be deductible by the Company in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect the Company's net income and net cash available for distribution to shareholders. Unless the Company was entitled to relief under certain Internal Revenue Code provisions, the Company also would be disqualified from re-electing to be taxed as a REIT for the 4four taxable years following the year in which it failed to qualify to be taxed as a REIT.
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. See Note 17 for further details on the Company's earnings per share calculations.
Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas. See Note 19 for further information with respect to the Company’s segments.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Additionally, concentrations of credit risk may arise when revenues of the Company are derived from a small number of tenants. As of December 31, 2020, substantially all of the Company's real estate properties were leased to Penn, Caesars and Boyd. During the year ended December 31, 2020, approximately 78%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases and real estate loans with Penn, Caesars and Boyd, respectively. Revenues from our tenants are reported in the Company's GLP Capital, L.P. reportable segment. Penn, Caesars and Boyd are publicly traded companies that are subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and are required to file periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). Readers are directed to Penn, Caesars and Boyd's respective websites for further financial information on these companies. Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2020, the Company's portfolio of 48 properties is diversified by location across 16 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, real estate loans and other loans receivable. The Company's policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. At times, the Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
3. New Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. The Company's adoption of ASU 2018-15 on January 1, 2020 did not have an impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage, real estate and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The impact of the adoption of this pronouncement was immaterial.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform ("ASU 2020-04"). Reference rates such as London Interbank Offered Rate ("LIBOR") are widely used in a broad range of financial instruments and other agreements. Regulators and market participants in various jurisdictions have undertaken efforts, generally referred to as "reference rate reform", to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. As a result of this reform initiative, certain widely used rates such as LIBOR are expected to be discontinued. ASU 2020-04 provides optional expedients for applying the guidance for contract modifications or other situations affected by reference rate reform, specifically addressing the accounting for modifications of contracts within the scope of ASC Topic 310 on receivables, ASC 470 on debt, and ASC 842 on leases and ASC subtopic 815-15 on embedded derivatives. Based on the limited amount of obligations and contracts the Company currently has that references LIBOR, the Company does not anticipate any material impact from this pronouncement on its Consolidated Financial Statements.
4.Real Estate Investments
Real estate investments, net, represent investments in 45 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 2,667,616 | | | $ | 2,552,285 | |
Building and improvements | 6,030,482 | | | 5,749,211 | |
| | | |
Total real estate investments | 8,698,098 | | | 8,301,496 | |
Less accumulated depreciation | (1,410,940) | | | (1,200,941) | |
Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
The increase in real estate investments is primarily due to the Company acquiring the real estate of Belterra Park in satisfaction of the Belterra Park Loan in May 2020 and the acquisition of the real estate of Lumière Place in satisfaction of the CZR loan in September 2020 for $57.7 million ($11.7 million of which was allocated to land and land improvements and $46.0 million to building and improvements) and $246.0 million ($26.9 million of which was allocated to land and land improvements and $219.1 million to building and improvements), respectively. Additionally, the Exchange Transaction described in Note 1 which closed in December 2020, resulted in an increase to real estate investments of $72.6 million (net increase to land and improvements of $46.4 million and building and improvements of $26.2 million). Finally, the Company acquired the land underlying Penn's development project in Morgantown, Pennsylvania for $30.0 million.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized at the TRS Properties as the real estate will be leased to third party operators subsequent to the completion of the sale transactions as discussed in Note 6.
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 30,540 | | | $ | 30,492 | |
Building and improvements | 117,333 | | | 116,904 | |
Furniture, fixtures, and equipment (1) | 28,767 | | | 118,766 | |
Construction in progress | 474 | | | 120 | |
Total property and equipment | 177,114 | | | 266,282 | |
Less accumulated depreciation (1) | (96,496) | | | (172,202) | |
Property and equipment, net | $ | 80,618 | | | $ | 94,080 | |
(1) The majority of the decline at December 31, 2020 compared to the prior year is related to the reclassification of certain amounts to Assets held for sale. See Note 6 for further details.
6. Assets Held for Sale
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million. The Company will retain ownership of all real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into a master lease with Casino Queen, which will include the Casino Queen property in East St. Louis that is currently leased by us to Casino Queen and the Hollywood Casino Baton Rouge facility (the "Casino Queen Master Lease"). The initial annual cash rent on the retained real estate will be approximately $21.4 million and the Casino Queen Master Lease will have an initial term of 15 years with 4 5 year renewal options exercisable by the tenant. Additionally, the Company will complete the current land side development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2021.
On December 11, 2020, Penn agreed to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million, with the closing of such purchase, subject to regulatory approvals, expected to occur during the second half of 2021. Upon closing, the Company will lease the real estate of the Perryville facility to Penn pursuant to a lease providing for initial annual rent on the retained real estate of $7.77 million, subject to escalation provisions.
The Company has classified the operating assets of the two properties above as Assets held for sale since we expect these transactions to close within 12 months and classified the respective liabilities within Other liabilities on the Consolidated Balance Sheet which is comprised of the following. (in thousands)
| | | | | |
Assets | |
Property and equipment, used in operations, net | $ | 8,780 | |
Right-of-use assets and land rights, net | $ | 263 | |
Cash and cash equivalents | $ | 22,131 | |
Prepaid expenses | $ | 2,473 | |
Goodwill | $ | 16,067 | |
Other intangible assets | $ | 9,577 | |
Other assets | $ | 2,157 | |
Total | $ | 61,448 | |
| |
Liabilities | |
Accounts payable | $ | 8 | |
Accrued expenses | $ | 3,387 | |
Accrued salaries and wages | $ | 2,064 | |
Gaming, property and other taxes | $ | 398 | |
Lease liabilities | $ | 262 | |
Other liabilities | $ | 710 | |
Total which is classified in Other Liabilities | $ | 6,829 | |
The assets held for sale reside in the Company's TRS Segment. See Note 19 for the pre-tax income of this segment for the years ended December 31, 2020, 2019 and 2018 which is comprised solely of the properties above with the exception of $2.7 million of depreciation expense associated with Tropicana Las Vegas for the year ended December 31, 2020.
7. Acquisitions
The Company accounts for its acquisitions of real estate assets as asset acquisitions under ASC 805 - Business Combinations. Under asset acquisition accounting, transaction costs incurred to acquire the purchased assets are also included as part of the asset cost.
Pending acquisitions
On October 27, 2020, the Company entered into a series of definitive agreements pursuant to which a subsidiary of Bally's Corporation (NYSE: BALY) (Bally's) will acquire 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company will reacquire the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company entered into a real estate purchase agreement with Bally's pursuant to which the Company will purchase the real estate assets of the Dover Downs Hotel & Casino, located in Dover, Delaware which is currently owned and operated by Bally's, for a cash purchase price of approximately $144.0 million. At the closing of the transactions, which are expected in mid-2021, subject to regulatory approvals, the Tropicana Evansville and Dover Downs Hotel and Casino facilities will be added to a new master lease between the Company and Bally's (the “Bally's Master Lease”). The Company anticipates that the Bally's Master Lease will have an initial term of 15 years, with no purchase option, followed by 4 five-year renewal options (exercisable by the tenant) on the same terms and conditions. Rent under the Bally's Master Lease will be $40.0 million annually and is subject to an annual escalator of up to 2% determined in relation to the annual increase in the CPI. The Company expects this transaction to close in mid-2021 following the completion of customary closing conditions and regulatory approvals. On November 6, 2020, the Company issued 9.2 million common shares at $36.25 per share to partially finance the funding required for this transaction.
Current year acquisitions
As previously discussed in Note 1, the impact of COVID-19 resulted in casino-wide closures by all of our tenants. As a result of COVID-19, on April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of rent credits, which were fully utilized in 2020 for rent due under the parties' existing leases.
An affiliate of Penn will continue to operate the casino and hotel business of the Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the earlier of two years (subject to three one-year extensions at the Company's option) or until the Tropicana Las Vegas is sold. The Company will conduct a sale process with respect to the Tropicana Las Vegas, with Penn receiving 75% of the net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the first 12 months following closing and 50% of net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the subsequent 12 months following closing. Penn will not be entitled to receive any net sale proceeds if the relevant sale agreement is signed at any time after 24 months from closing.
The Company recorded an initial land and building value of $226.2 million and $81.3 million, respectively. During the year ended December 31, 2020 depreciation expense of $2.7 million was recorded. Additionally, deferred rent of $307.5 million was recorded at the acquisition date, which has been fully recognized for the year ended December 31, 2020.
The Tropicana Las Vegas assets are summarized below.
| | | | | | | |
| December 31, 2020 | | |
| (in thousands) |
Land and improvements | $ | 226,160 | | | |
Building and improvements | 81,340 | | | |
Total real estate of Tropicana Las Vegas | 307,500 | | | |
Less accumulated depreciation | (2,669) | | | |
Real estate of Tropicana Las Vegas , net | $ | 304,831 | | | |
| | | |
| | | |
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020.The Company is leasing the land back to an affiliate of Penn pursuant to the Morgantown Lease for an initial annual rent of $3.0 million, subject to escalation provisions following the opening of the property.
On October 27, 2020, the Company entered into an Exchange Agreement with subsidiaries of Caesars that own, respectively, Waterloo and Bettendorf. Pursuant to the terms of the agreement, Caesars transferred to the Company the real estate assets of the Waterloo and Bettendorf properties in exchange for the transfer by the Company to Caesars of the real property assets of the Tropicana Evansville, plus a cash payment of $5.7 million.The exchange transaction closed on December 18, 2020, which resulted in the Waterloo and Bettendorf facilities being added to the Amended and Restated Caesars Master Lease and the rent increased by $0.5 million annually. The Company recorded a non-cash gain of $41.4 million in the fourth quarter of 2020 related to the transaction, which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment of $5.7 million. The following table summarizes the fair value of the assets acquired in the Exchange Agreement and the carrying value of the Tropicana Evansville assets that were transferred to Caesars. (in thousands):
| | | | | | | | | | | |
| Bettendorf | Waterloo | Total |
Land | $ | 29,636 | | $ | 64,262 | | $ | 93,898 | |
Building and improvements | 85,150 | | 77,958 | | 163,108 | |
Total real estate investments | $ | 114,786 | | $ | 142,220 | | $ | 257,006 | |
Less: Evansville Land and improvements | | | (47,439) | |
Less: Evansville Buildings and improvements, net | | | (136,858) | |
Less: Evansville Right of use assets and land rights, net | | | (55,456) | |
Add: Evansville, Operating Lease Liabilities | | | 29,795 | |
Prior Year Acquisitions
2018
On October 15, 2018, in conjunction with the Penn-Pinnacle Merger the Company acquired the real property assets of Plainridge Park from Penn for approximately $250.9 million. This property was added to the Amended Pinnacle Master Lease via the fourth amendment to the Pinnacle Master Lease and is leased to Penn which will continue to operate the property. The initial annual cash rent of $25.0 million for Plainridge Park will not be subject to rent escalators or adjustments.
Also in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd and to increase fixed rent under the lease by an additional $13.9 million annually. The Company entered into the Boyd Master Lease for these properties on terms similar to the Company’s existing master leases. As a result of the fourth amendment to the Pinnacle Master Lease, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety, the building assets of $2.6 billion previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet and all rent received under the Amended Pinnacle Master Lease is recorded as rental income on the Company's consolidated statement of income. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger.
On October 1, 2018, the Company acquired the real property assets of five casino properties from Tropicana and certain of its affiliates for approximately $992.5 million, pursuant to the Real Estate Purchase Agreement dated April 15, 2018 between Tropicana and GLP Capital, which was subsequently amended on October 1, 2018. Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge and the rights to six long-term ground leases for land on which the operations of the acquired Tropicana properties reside. Concurrent with the Tropicana Acquisition, Caesars acquired the operating assets of these properties from Tropicana pursuant to the Tropicana Merger Agreement and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 4 successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions. Initial annual rent under the Caesars Master Lease was $87.6 million and is subject to annual rent escalators and biennial percentage rent adjustments.
Purchase price allocations are primarily based on the fair values of assets acquired and liabilities assumed at the time of acquisition. The following table summarizes the purchase price allocation of the assets acquired in the Tropicana Acquisition (in thousands):
| | | | | |
Real estate investments, net | $ | 948,217 | |
Land rights, net | 44,331 | |
Total purchase price | $ | 992,548 | |
8. Receivables
Real Estate Loans
As discussed in Note 1, the Company historically had the CZR loan outstanding which was utilized by Caesars in connection with its acquisition of Lumière Place. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place real estate in satisfaction of the CZR loan, subject to the Lumière Place Lease, and closed this transaction on September 29, 2020.
On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of the Belterra Park Loan. The Belterra Park Loan's initial interest rate was equal to 11.11% and the loan matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to the Belterra Park Lease.
Other Loans Receivable
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois. GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The Casino Queen Lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for 4 successive 5-year periods.
Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, prepayable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan (the "Casino Queen Loan") to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance its acquisition of Lady Luck Casino in Marquette, Iowa. The Casino Queen Loan bears an interest rate of 15% and is prepayable at any time.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under its senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of events of default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI. However, the paid-in-kind interest due to the Company at December 31, 2018 was not expected to be collected, resulting in an impairment charge of $1.5 million during the fourth quarter of 2018. The Company did not recognize the paid-in-kind interest income due to the Company for the quarter ended December 31, 2018 and took a charge for the previously recognized paid-in-kind interest income through the Company’s consolidated statement of earnings as a reversal of the paid-in-kind interest income recognized earlier in the year.
During 2019, the operating results of Casino Queen continued to decline, the secured debt of Casino Queen was sold to a third-party casino operator at a discount and the Company no longer expected the loan to be repaid. Therefore, the Company recorded an impairment charge of $13.0 million through the Consolidated Statement of Income for the year ended December 31, 2019 to reflect the write-off of the Casino Queen Loan.
Casino Queen was closed in mid-March due to COVID-19 and Casino Queen was in payment default on their lease starting in April 2020. The Company entered into a deferred rental agreement with Casino Queen and received all delinquent rental payments in the fourth quarter of 2020.
9. Lease Assets and Lease Liabilities
Lease Assets
The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which are ground leases related to properties the Company leases to its tenants under triple-net operating leases. These ground leases may include fixed rent, as well as variable rent based upon an individual property’s performance or changes in an index such as the CPI and have maturity dates ranging from 2028 to 2108, when considering all renewal options. For certain of these ground leases, the Company’s tenants are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its consolidated balance sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
| | | | | | | | |
| December 31, 2020 | December 31, 2019 |
Right-of-use assets - operating leases (1) | $ | 151,339 | | $ | 184,063 | |
Land rights, net | 617,858 | | 654,671 | |
Right-of-use assets and land rights, net | $ | 769,197 | | $ | 838,734 | |
(1) In addition, there is $0.3 million of operating lease right-of-use assets included in assets held for sale.
As described in Note 8, on December 18, 2020, the Company and Caesars completed an Exchange Agreement in which the Company transferred to Caesars the real property assets of Tropicana Evansville. In connection with the exchange, the Company removed the land right and right of use asset related to the long-term ground lease at this property which totaled $24.8 million and $30.7 million, respectively, at the closing of the transaction along with the lease liability of $29.8 million it had recorded on its Consolidated Balance Sheet for this lease.
On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the long-term ground lease at this property and bringing the net book value of this land right to 0 at December 31, 2019. Subsequent to the property's closure, the Company entered into an agreement to terminate the long-term ground lease for the Resorts Casino Tunica property, which became effective in February 2020. In connection with the exercised termination option, the Company remeasured the lease liability and adjusted the right-of-use asset it had recorded on its consolidated balance sheet for this lease to align with the new termination date.
Land Rights
The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land rights | $ | 667,751 | | | $ | 694,077 | |
Less accumulated amortization | (49,893) | | | (39,406) | |
Land rights, net | $ | 617,858 | | | $ | 654,671 | |
As of December 31, 2020, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,372 | |
2022 | 11,372 | |
2023 | 11,372 | |
2024 | 11,372 | |
2025 | 11,372 | |
Thereafter | 560,998 | |
Total | $ | 617,858 | |
Lease Liabilities
At December 31, 2020, maturities of the Company's operating lease liabilities were as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,079 | |
2022 | 11,082 | |
2023 | 11,081 | |
2024 | 11,034 | |
2025 | 10,984 | |
Thereafter | 569,957 | |
Total lease payments | $ | 625,217 | |
Less: interest | (473,014) | |
Present value of lease liabilities (1) | $ | 152,203 | |
(1) In addition, there is $0.3 million of lease liabilities included in other liabilities related to liabilities held for sale.
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the Consolidated Balance Sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Operating lease cost | $ | 13,907 | | | $ | 15,482 | |
Variable lease cost (1) | 3,364 | | | 9,048 | |
Short-term lease cost | 625 | | | 1,060 | |
Amortization of land right assets | 12,022 | | | 18,536 | |
Total lease cost | $ | 29,918 | | | $ | 44,126 | |
(1)Variable lease costs for the year ended December 31, 2020 included a true up of the monthly rental payments paid by our tenants on certain ground leases that are based on estimated current year annual performance which were impacted by casino closures due to COVID-19. As discussed previously, under ASC 842, the Company is required to gross up its financial statements by recording both expense and revenue (recorded within rental income on the Consolidated Statements of Income) for these payments since the Company is considered the primary obligor.
Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the consolidated statements of income. The Company's short-term lease costs as well as a small portion of operating lease costs are recorded in both gaming, food, beverage and other expense and general and administrative expense in the consolidated statements of income. Amortization expense related to the land right intangibles totaled $11.3 million for the year ended December 31, 2018. Other lease costs totaled $18.9 million for the year ended December 31, 2018.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| December 31, 2020 |
Weighted average remaining lease term - operating leases | 56.41 years |
Weighted average discount rate - operating leases | 6.7% |
In addition, the weighted average remaining lease term and the weighted average discount rate for those operating leases included in assets held for sale and other liabilities is 1.79 years and 4.0%, respectively.
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases (1) (2) | $ | 1,600 | | | $ | 2,226 | |
| | | |
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases (2) | $ | 95 | | | $ | 293 | |
(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.
(2) In addition, there is $0.2 million and $0.3 million related to assets held for sale and other liabilities for operating cash flows from cash paid for amounts included in the measurement of lease liabilities and right-of-use assets obtained for new lease obligations, respectively for the year ended December 31, 2020.
10. Goodwill and Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The only goodwill of the Company is recorded on the books of Hollywood Casino Baton Rouge, in connection with Penn's purchase of this entity prior to the Spin-Off. The original assets and liabilities of GLPI, including goodwill and intangible assets were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of ASC 505. There is no goodwill recorded on the Company's GLP Capital segment, which holds the Company's REIT operations.
During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $59.5 million in connection with its operations at Hollywood Casino Baton Rouge. This charge was driven by general market deterioration in the Baton Rouge region and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect during the second quarter of 2018, both of which significantly impacted the Company's forecasted cash flows for this reporting unit. Subsequent to conducting its impairment tests on other long-lived assets, the Company performed Step 1 of the goodwill impairment test, which indicated a potential impairment. Step 1 of the goodwill impairment test involved the determination of the fair value of the Baton Rouge reporting unit and its comparison to the reporting unit's carrying amount. Using a discounted cash flow model, which relied on projected EBITDA to determine the reporting unit's future cash flows, the Company calculated a fair value that was less than the reporting unit's carrying value and proceeded to Step 2. In Step 2 of the goodwill impairment test, the Company performed a fair value allocation as if the reporting unit had been acquired in a business combination and assigned the fair value of the reporting unit calculated in Step 1 to all assets and liabilities of the reporting unit, including any unrecognized intangible assets. Any residual fair value was allocated to goodwill to arrive at the implied fair value of goodwill. After completing the Step 2 allocation, the Company determined the goodwill on its Baton Rouge reporting unit had an implied fair value of $16.1 million and recorded the impairment charge of $59.5 million during the fourth quarter of 2018. There have been no changes in the carrying value of goodwill of $16.1 million for the years ended December 31, 2020 and 2019. As described in Note 6, the Company's goodwill balance at December 31, 2020 has been reclassified to Assets held for sale.
In accordance with ASC 350, the Company considers its gaming license at the Hollywood Casino Perryville property an indefinite-lived intangible asset that does not require amortization based on future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized. Hollywood Casino Perryville's gaming license will expire in September 2025, fifteen years from the casino's opening date. The Company expects to expense any costs related to the gaming license renewal as incurred. The Company conducts its annual impairment assessment of the gaming license on October 1st using the Greenfield Method which estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. This method also assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. Based upon these assumptions and the Company's current forecasted cash flows for this reporting unit, the gaming license was not impaired. At both December 31, 2020 and 2019, the gaming license had a carrying value of $9.6 million. As described in Note 6, the Company's other intangible assets balance at December 31, 2020 has been reclassified to Assets held for sale.
11. Fair Value of Financial Assets and Liabilities
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Deferred Compensation Plan Assets
The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the consolidated balance sheets.
Real Estate Loans
The fair value of the real estate loans approximates the carrying value of the Company's real estate loans, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the real estate loans is considered a Level 3 measurement as defined under ASC 820.
Long-term Debt
The fair value of the Senior Notes are estimated based on quoted prices in active markets and as such are Level 1 measurements as defined under ASC 820. The fair value of the obligations in our Amended Credit Facility is based on indicative pricing from market information (Level 2 inputs).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents (1) | $ | 486,451 | | | $ | 486,451 | | | $ | 26,823 | | | $ | 26,823 | |
Deferred compensation plan assets | 35,514 | | | 35,514 | | | 28,855 | | | 28,855 | |
Real estate loans | 0 | | | 0 | | | 303,684 | | | 303,684 | |
Financial liabilities: | | | | | | | |
Long-term debt: | | | | | | | |
Senior unsecured credit facility | 424,019 | | | 424,019 | | | 495,000 | | | 493,533 | |
Senior unsecured notes | 5,375,000 | | | 6,026,840 | | | 5,290,174 | | | 5,707,996 | |
(1) In addition, there is $22.1 million in cash and cash equivalents in assets held for sale.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
There were no liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2020 and 2019. There were no assets measured at fair value on a nonrecurring basis during the year ended December 31, 2020; however, assets measured at fair value on a nonrecurring basis during the year ended December 31, 2019 are described below. Revenue RecognitionSenior Unsecured Notes
At December 31, 2020, the Company had an outstanding balance of $5,375.0 million of senior unsecured notes (the "Senior Notes").
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the Company’s outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company’s outstanding 4.375% senior unsecured notes due in April 2021, incurring a loss on the early extinguishment of debt related to the redemption of $17.3 million, primarily for call premium charges and debt issuance write-offs.
On June 25, 2020, the Company issued $500 million of 4.00% senior unsecured notes due January 2031 at an issue price equal to 98.827% of the principal amount to repay indebtedness under its Revolver. On August 18, 2020 the Company issued an additional $200 million of 4.00% senior unsecured notes due January 2031 at an issue price equal to 103.824% of the principal amount to repay Term Loan A-1 indebtedness, incurring a loss on the early extinguishment of debt of $0.8 million, related to debt issuance write-offs. These bond offerings have extended the maturities of our long-term debt.
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "2024 Notes") and $700 million of 4.00% Senior Unsecured Notes maturing on January 15, 2030 at an issue price equal to 99.751% of the principal amount (the "2030 Notes"). Interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2020. Interest on the 2030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2020. The net proceeds from the sale of the 2024 Notes and 2030 Notes were used to (i) finance the Company's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below) (ii) repay outstanding borrowings under the Company's revolving credit facility and (iii) repay a portion of the outstanding borrowings under the Company's Term Loan A-1 facility.
On September 12, 2019, the Company completed a cash tender offer (the "2019 Tender Offer") to purchase its $1,000 million aggregate principal amount 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $782.6 million in aggregate principal of the 2020 Notes, or approximately 78% of its
outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes was tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $21.0 million, for the difference between the reacquisition price of the tendered 2020 Notes and their net carrying value.
The Company recognizes rental revenuemay redeem the Senior Notes of any series at any time, and from tenants,time to time, at a redemption price of 100% of the principal amount of the Senior Notes redeemed, plus a "make-whole" redemption premium described in the indenture governing the Senior Notes, together with accrued and unpaid interest to, but not including, rental abatements, lease incentivesthe redemption date, except that if Senior Notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the Senior Notes redeemed, together with accrued and contractually fixed increases attributableunpaid interest to, operating leases,but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the Senior Notes of a particular series, the Company will be required to give holders of the Senior Notes of such series the opportunity to sell their Senior Notes of such series at a price equal to 101% of the principal amount of the Senior Notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The Senior Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.
The Senior Notes were issued by GLP Capital, L.P. and GLP Financing II, Inc. (the "Issuers"), two wholly-owned subsidiaries of GLPI, and are guaranteed on a straight-linesenior unsecured basis overby GLPI. The guarantees of GLPI are full and unconditional. The Senior Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with all of the Issuers' senior indebtedness, including the Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements.
The Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At December 31, 2020, the Company was in compliance with all required financial covenants under its Senior Notes.
Finance Lease Liability
The Company assumed the finance lease obligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the finance lease on its consolidated balance sheet. The original term of the related leases when collectabilityfinance lease is reasonably assured. Additionally, percentage rent30 years and it will terminate in 2026.
| | | | | | | | | | | |
Summarized financial information for Subsidiary Issuers and Parent Guarantor |
| As of December 31, 2020 | | As of December 31, 2019 |
Real estate investments, net | $ | 2,720,767 | | | $ | 2,514,806 | |
Real estate loans | — | | | 246,000 | |
Right-of-use assets and land rights, net | 121,866 | | | 181,593 | |
Cash and cash equivalents | 480,066 | | | 4,281 | |
Long term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Accrued interest | 72,285 | | | 60,695 | |
Lease liabilities | 58,654 | | | 89,856 | |
Deferred rental revenue | 265,891 | | | 271,837 | |
| | | |
| For the year ended December 31, 2020 | | For the year ended December 31, 2019 |
Revenues | $ | 580,428 | | | $ | 575,451 | |
Income from operations | 446,708 | | | 384,170 | |
Interest expense | (282,142) | | | (301,520) | |
Net income | 146,323 | | | 61,734 | |
The financial information presented above is that is fixedof the subsidiary issuers and determinable atparent guarantor and the lease inception date is recordedfinancial information of non-issuer subsidiaries has been excluded. The financial information of subsidiary issuers and the parent guarantor has been presented on a straight-line basis overcombined basis; however, the lease term, resultingonly asset on the parent guarantor balance sheet is its investment in subsidiaries which is not included in the recognition of deferred rental revenue on the Company’s consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the lease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that is not fixed and determinable at lease inception is recognized only when the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.
The Company recognizes income from tenants subject to direct financing leases ratably over the lease term using the effective interest rate method which produces a constant periodic rate of return on the net investment in the leased property. At lease inception, the Company records an asset which represents the Company's net investment in the direct financing lease. This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, less unearned income. Over the lease term, the investment in the direct financing lease is reduced and income is recognized for the building portion of rent. Furthermore, as the net investment in direct financing lease includes only future minimum lease payments, percentage rent that is not fixed and determinable at the lease inception is excluded from the determination of the rent attributable to the leased assets and will therefore be recorded as income from the direct financing lease in the period earned. In conjunction with the Penn-Pinnacle Merger on October 15, 2108, the Company's only direct financing lease was unwound and the master lease it was associated with qualified for operating lease treatment in its entirety. For further details refer to Note 8.
Additionally,presentation above in accordance with ASC 606 - Revenuethe disclosure requirements.
We had no off-balance sheet arrangements at December 31, 2020 and 2019.
Distribution Requirements
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code.
While the Company's Board of Directors declared a cash dividend of $0.70 for the first quarter of 2020, quarterly dividends of $0.60 per share on the Company's common stock were declared for both the second, third and fourth quarters. These dividends consisted of a combination of cash and shares of the Company's common stock. The cash component of the dividend (other than cash paid in lieu of fractional shares) did not exceed 20% in the aggregate, or $0.12 per share, with the balance, or $0.48 per share, payable in shares of the Company's common stock. This quarterly dividend level reflected the impact of the COVID-19 closures on the Company's business.
LIBOR Transition
The majority of our debt is at fixed rates and our exposure to variable interest rates is currently limited to our revolving credit facility and our Term Loan A-2. Both of these debt instruments are indexed to LIBOR which is expected to be phased out during late 2021 through mid-2023. The discontinuance of LIBOR would affect our interest expense and earnings. The borrowings under our Amended Credit Facility will be subject to the expected LIBOR transition. LIBOR is currently expected
to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”). We are currently monitoring the transition and cannot be certain whether SOFR will become the standard rate for our variable rate debt.
Outlook
Based on our current level of operations and anticipated earnings, we believe that cash generated from Contractsoperations and cash on hand, together with Customers ("ASC 606"),amounts available under our Amended Credit Facility, will be adequate to meet our anticipated debt service requirements, capital expenditures, working capital needs and dividend requirements. During 2020, we refinanced our near term debt obligations and as such have no significant obligations coming due until 2023 and we issued common shares in advance of the planned 2021 closing of the Bally's transaction. We also announced a project to move our Hollywood Casino Baton Rouge property landside in early 2022. On December 15, 2020, we announced that Penn had exercised its option to acquire the gaming operations at Hollywood Casino Perryville for $31.1 million and that we entered into an agreement to sell the gaming operations of Hollywood Casino Baton Rouge for $28.2 million to Casino Queen. The Company records revenue forwill retain ownership of the real estate taxes paid by its tenantsassets at Hollywood Casino Baton Rouge and will simultaneously enter into the Casino Queen Master Lease. Rent under the Casino Queen Master Lease will be adjusted upon completion of the project to reflect a yield of 8.25% on the leasedCompany's project costs. Both transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
In addition, we expect the majority of our future growth to come from acquisitions of gaming and other properties to lease to third parties. If we consummate significant acquisitions in the future, our cash requirements may increase significantly and we would likely need to raise additional proceeds through a combination of either common equity (including under our ATM Program) and/or debt offerings. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See "Risk Factors-Risks Related to Our Capital Structure" of this Annual Report on Form 10-K for a discussion of the risk related to our capital structure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face market risk exposure in the form of interest rate risk. These market risks arise from our debt obligations. We have no international operations. Our exposure to foreign currency fluctuations is not significant to our financial condition or results of operations.
GLPI’s primary market risk exposure is interest rate risk with an offsettingrespect to its indebtedness of $5,799.9 million at December 31, 2020. Furthermore, $5,375.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from two and one-half years to ten years. An increase in interest rates could make the financing of any acquisition by GLPI more costly, as well as increase the costs of its variable rate debt obligations. Rising interest rates could also limit GLPI’s ability to refinance its debt when it matures or cause GLPI to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. GLPI may manage, or hedge, interest rate risks related to its borrowings by means of interest rate swap agreements. GLPI also expects to manage its exposure to interest rate risk by maintaining a mix of fixed and variable rates for its indebtedness. However, the provisions of the Code applicable to REITs substantially limit GLPI’s ability to hedge its assets and liabilities.
The table below provides information at December 31, 2020 about our financial instruments that are sensitive to changes in real estate taxes withininterest rates. For debt obligations, the table presents notional amounts maturing in each fiscal year and the related weighted-average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted-average interest rates for our variable rate debt are based on implied forward LIBOR rates at December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25 12/31/25 | | Thereafter | | Total | | Fair Value at 12/31/2020 |
| (in thousands) |
Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 3,625,000 | | | $ | 5,375,000 | | | $ | 6,026,840 | |
Average interest rate | | | | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 4.88 | % | | | | |
| | | | | | | | | | | | | | | |
Variable rate | $ | — | | | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | | | | | 2.02 | % | | | | | | | | | | |
(1) Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable-rate borrowing. For considerations surrounding the phase out of LIBOR refer to the Liquidity and Capital Resources discussion in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Gaming and Leisure Properties, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated statementbalance sheets of incomeGaming and Leisure Properties, Inc. and Subsidiaries (the "Company") as of December 31, 2020 and 2019, the Company has concluded it is the primary obligor. Similarly, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within therelated consolidated statements of income, changes in shareholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company has concluded that as of December 31, 2020 and 2019, and the lessee itresults of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the primary obligor underCompany's financial statements based on our audits. We are a public accounting firm registered with the ground leases. The Company subleases these ground leases backPCAOB and are required to its tenants, who are responsible for payment directlybe independent with respect to the landlord.Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Lease Classification - Lease Term - See Note 14 to the financial statements
Critical Audit Matter Description
The Company may periodically loan fundsperforms a lease classification test upon the entry into any new tenant lease or lease modification to casino owner-operators via secured mortgage loansdetermine if the Company will account for the purchaselease as an operating, sales-type lease, or direct financing lease. The accounting guidance under ASC 842 is complex and requires the use of gaming related properties. Interest income relatedjudgments and assumptions by management to mortgage loans receivable is recordeddetermine the proper accounting treatment of a lease. The lease classification tests and the resulting calculations require subjective judgments, such as revenue from mortgaged real estate withindetermining the Company's consolidated statements of incomelikelihood a tenant will exercise all renewal options, in order to determine the lease term. A slight change in estimate or judgment can result in a material difference in the period earned.financial statement presentation.
Gaming revenue generated
Given the significant judgments made by management to determine the TRS Properties mainly consistsexpected lease term, we performed audit procedures to assess the reasonableness of revenue from slot machines and tosuch judgments, which required a lesser extent, table game and poker revenue. Gaming revenue from slot machines ishigh degree of auditor judgment.
How 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" couponsCritical Audit Matter Was Addressed in the customers’ possession, and for accrualsAudit
Our audit procedures related to the anticipated payoutjudgments surrounding the determination of progressive jackpots. Progressive slot machines, which contain base jackpots that increase atlease term for any new or reassessed lease included the following, among others:
•We tested the effectiveness of the controls over management’s assessment of the likelihood a progressive rate based ontenant would exercise all renewal options.
•We evaluated the numbersignificant judgments management made to determine the expected lease term by:
◦Evaluating the significance of coins played, are chargedthe leased assets to revenuethe tenant’s operations by examining available information including tenant’s financial statements.
◦Evaluating the Company’s historical pattern of tenant lease modifications by examining both confirming and contradictory evidence.
◦Obtaining lease agreements to examine material lease provisions considered by management in their analysis.
/s/ Deloitte & Touche
New York, New York
February 19, 2021
We have served as the amountCompany's auditor since 2016.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | |
Assets | | | |
Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
Property and equipment, used in operations, net | 80,618 | | | 94,080 | |
Assets held for sale | 61,448 | | | 0 | |
Real estate of Tropicana Las Vegas, net | 304,831 | | | 0 | |
Real estate loans | 0 | | | 303,684 | |
Right-of-use assets and land rights, net | 769,197 | | | 838,734 | |
Cash and cash equivalents | 486,451 | | | 26,823 | |
Prepaid expenses | 2,098 | | | 4,228 | |
Goodwill | 0 | | | 16,067 | |
Other intangible assets | 0 | | | 9,577 | |
| | | |
Deferred tax assets, net | 5,690 | | | 6,056 | |
Other assets | 36,877 | | | 34,494 | |
Total assets | $ | 9,034,368 | | | $ | 8,434,298 | |
| | | |
Liabilities | | | |
Accounts payable | $ | 375 | | | $ | 1,006 | |
Accrued expenses | 398 | | | 6,239 | |
Accrued interest | 72,285 | | | 60,695 | |
Accrued salaries and wages | 5,849 | | | 13,821 | |
Gaming, property, and other taxes | 146 | | | 944 | |
| | | |
Lease liabilities | 152,203 | | | 183,971 | |
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Deferred rental revenue | 333,061 | | | 328,485 | |
Deferred tax liabilities | 359 | | | 279 | |
Other liabilities | 39,985 | | | 26,651 | |
Total liabilities | 6,359,350 | | | 6,360,053 | |
| | | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
| | | |
Shareholders’ equity | | | |
| | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, 0 shares issued or outstanding at December 31, 2020 and December 31, 2019) | 0 | | | 0 | |
Common stock ($.01 par value, 500,000,000 shares authorized, 232,452,220 and 214,694,165 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively) | 2,325 | | | 2,147 | |
Additional paid-in capital | 4,284,789 | | | 3,959,383 | |
Accumulated deficit | (1,612,096) | | | (1,887,285) | |
Total shareholders’ equity | 2,675,018 | | | 2,074,245 | |
Total liabilities and shareholders’ equity | $ | 9,034,368 | | | $ | 8,434,298 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
| | | | | | |
Revenues | | | | | | |
Rental income | | $ | 1,031,036 | | | $ | 996,166 | | | $ | 747,654 | |
Income from direct financing lease | | 0 | | | 0 | | | 81,119 | |
Interest income from real estate loans | | 19,130 | | | 28,916 | | | 6,943 | |
Real estate taxes paid by tenants | | 0 | | | 0 | | | 87,466 | |
Total income from real estate | | 1,050,166 | | | 1,025,082 | | | 923,182 | |
Gaming, food, beverage and other | | 102,999 | | | 128,391 | | | 132,545 | |
Total revenues | | 1,153,165 | | | 1,153,473 | | | 1,055,727 | |
| | | | | | |
Operating expenses | | | | | | |
Gaming, food, beverage and other | | 56,698 | | | 74,700 | | | 77,127 | |
Real estate taxes | | 0 | | | 0 | | | 88,757 | |
Land rights and ground lease expense | | 29,041 | | | 42,438 | | | 28,358 | |
General and administrative | | 68,572 | | | 65,385 | | | 70,819 | |
(Gains) losses from dispositions of properties | | (41,393) | | | 92 | | | 309 | |
Depreciation | | 230,973 | | | 240,435 | | | 137,093 | |
Loan impairment charges | | 0 | | | 13,000 | | | 0 | |
Goodwill impairment charges | | 0 | | | 0 | | | 59,454 | |
Total operating expenses | | 343,891 | | | 436,050 | | | 461,917 | |
Income from operations | | 809,274 | | | 717,423 | | | 593,810 | |
| | | | | | |
Other income (expenses) | | | | | | |
Interest expense | | (282,142) | | | (301,520) | | | (247,684) | |
Interest income | | 569 | | | 756 | | | 1,827 | |
Losses on debt extinguishment | | (18,113) | | | (21,014) | | | (3,473) | |
Total other expenses | | (299,686) | | | (321,778) | | | (249,330) | |
| | | | | | |
Income before income taxes | | 509,588 | | | 395,645 | | | 344,480 | |
Income tax expense | | 3,877 | | | 4,764 | | | 4,964 | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
| | | | | | |
Earnings per common share: | | | | | | |
Basic earnings per common share | | $ | 2.31 | | | $ | 1.82 | | | $ | 1.59 | |
Diluted earnings per common share | | $ | 2.30 | | | $ | 1.81 | | | $ | 1.58 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance, December 31, 2017 | 212,717,549 | | | $ | 2,127 | | | $ | 3,933,829 | | | $ | (1,477,709) | | | $ | 2,458,247 | |
Stock option activity | 1,007,750 | | | 10 | | | 19,805 | | | — | | | 19,815 | |
Restricted stock activity | 486,633 | | | 5 | | | (1,131) | | | — | | | (1,126) | |
Dividends paid ($2.57 per common share) | 0 | | | 0 | | | 0 | | | (550,435) | | | (550,435) | |
Adoption of new revenue standard | — | | | — | | | — | | | (410) | | | (410) | |
Net income | — | | | — | | | — | | | 339,516 | | | 339,516 | |
Balance, December 31, 2018 | 214,211,932 | | | 2,142 | | | 3,952,503 | | | (1,689,038) | | | 2,265,607 | |
ATM Program offering costs, net of issuance of common stock | 1,500 | | | 0 | | | (255) | | | — | | | (255) | |
Stock option activity | 26,799 | | | 0 | | | 592 | | | — | | | 592 | |
Restricted stock activity | 453,934 | | | 5 | | | 6,543 | | | — | | | 6,548 | |
Dividends paid ($2.74 per common share) | — | | | — | | | — | | | (589,128) | | | (589,128) | |
Net income | — | | | — | | | — | | | 390,881 | | | 390,881 | |
Balance, December 31, 2019 | 214,694,165 | | | 2,147 | | | 3,959,383 | | | (1,887,285) | | | 2,074,245 | |
Issuance of common stock, net of costs | 9,207,971 | | | 92 | | | 320,781 | | | | | 320,873 | |
| | | | | | | | | |
Restricted stock activity | 528,285 | | | 5 | | | 4,706 | | | | | 4,711 | |
Dividends paid ($2.50 per common share) | 8,021,799 | | | 81 | | | (81) | | | (230,522) | | | (230,522) | |
Net income | — | | | — | | | — | | | 505,711 | | | 505,711 | |
Balance, December 31, 2020 | 232,452,220 | | | $ | 2,325 | | | $ | 4,284,789 | | | $ | (1,612,096) | | | $ | 2,675,018 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
Operating activities | | | | | | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 242,995 | | | 258,971 | | | 148,365 | |
Amortization of debt issuance costs, bond premiums and discounts | | 10,503 | | | 11,455 | | | 12,167 | |
(Gains) losses on dispositions of property | | (41,393) | | | 92 | | | 309 | |
Deferred income taxes | | 451 | | | (755) | | | (522) | |
Stock-based compensation | | 20,004 | | | 16,198 | | | 11,152 | |
Straight-line rent adjustments | | 4,576 | | | 34,574 | | | 61,888 | |
Deferred rent recognized | | (337,500) | | | 0 | | | 0 | |
Losses on debt extinguishment | | 18,113 | | | 21,014 | | | 3,473 | |
Loan and goodwill impairment charges | | 0 | | | 13,000 | | | 59,454 | |
(Increase) decrease, | | | | | | |
Prepaid expenses and other assets | | (6,628) | | | (6,070) | | | (673) | |
(Decrease), increase | | | | | | |
Accounts payable and accrued expenses | | (1,252) | | | (1,775) | | | 1,670 | |
Accrued interest | | 11,590 | | | 15,434 | | | 12,020 | |
Accrued salaries and wages | | (5,908) | | | (3,189) | | | 6,201 | |
Gaming, property and other taxes and other liabilities | | 6,815 | | | 472 | | | (587) | |
| | | | | | |
| | | | | | |
Net cash provided by operating activities | | 428,077 | | | 750,302 | | | 654,433 | |
Investing activities | | | | | | |
Capital project expenditures | | (474) | | | 0 | | | (20) | |
Capital maintenance expenditures | | (3,130) | | | (3,017) | | | (4,284) | |
Proceeds from sale of property and equipment | | 15 | | | 200 | | | 3,211 | |
| | | | | | |
| | | | | | |
Acquisition of real estate assets | | (5,898) | | | 0 | | | (1,243,466) | |
Originations of real estate loans | | 0 | | | 0 | | | (303,684) | |
Collections of principal payments on investment in direct financing lease | | 0 | | | 0 | | | 38,459 | |
Net cash used in investing activities | | (9,487) | | | (2,817) | | | (1,509,784) | |
Financing activities | | | | | | |
Dividends paid | | (230,522) | | | (589,128) | | | (550,435) | |
Taxes paid for shares withheld on restricted stock award vestings | | (15,293) | | | (9,058) | | | 7,537 | |
Proceeds from issuance of common stock, net | | 320,873 | | | (255) | | | 0 | |
Proceeds from issuance of long-term debt | | 2,076,383 | | | 1,358,853 | | | 2,593,405 | |
Financing costs | | (11,641) | | | (10,029) | | | (32,426) | |
Repayments of long-term debt | | (2,060,884) | | | (1,477,949) | | | (1,164,117) | |
Premium and related costs paid on tender of senior unsecured notes | | (15,747) | | | (18,879) | | | (1,884) | |
Net cash provided by (used in) financing activities | | 63,169 | | | (746,445) | | | 852,080 | |
Net increase (decrease) in cash and cash equivalents, including cash classified within assets held for sale | | 481,759 | | | 1,040 | | | (3,271) | |
Less decrease in cash classified within assets held for sale | | (22,131) | | | 0 | | | 0 | |
Net increase/decrease in cash and cash equivalents | | 459,628 | | | 1,040 | | | (3,271) | |
Cash and cash equivalents at beginning of period | | 26,823 | | | 25,783 | | | 29,054 | |
Cash and cash equivalents at end of period | | $ | 486,451 | | | $ | 26,823 | | | $ | 25,783 | |
See Note 20 to the Consolidated Financial Statements for supplemental cash flow information.
Gaming and Leisure Properties, Inc.
Notes to the Consolidated Financial Statements
1.Business and Basis of Presentation
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 jackpots increase. Table game gaming revenue isassets and liabilities associated with Penn’s real property interests and real estate development business, as well as the aggregateassets and liabilities of table drop adjusted forHollywood Casino Baton Rouge and Hollywood Casino Perryville (which are referred to as the change"TRS Properties") and then spun-off GLPI to holders of Penn's common and preferred stock in aggregate table chip inventory. Table drop is the total dollar amounta tax-free distribution (the "Spin-Off"). The assets and liabilities of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Additionally, food and beverage revenue is recognized as services are performed.
Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606. The Company also defers a portion of the revenue received from customers (who participate in the points based loyalty programs)GLPI were recorded at their respective historical carrying values at the time of playthe Spin-Off in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 505-60 - Spinoffs and attributedReverse Spinoffs ("ASC 505").
The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the awarded points until a later period when the points are redeemed or forfeited. See Note 12 for a summaryfirst day of the changesfirst taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to the recognition of revenue attreat Tropicana LV, LLC as a TRS, which together with the TRS Properties relatedand GLP Holdings, Inc. is the Company's TRS Segment (the "TRS Segment"). 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 adoptionconsummation of ASU 2014-09 on January 1, 2018.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.
Gaming Taxes
ForGLPI’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 December 31, 2020, GLPI’s portfolio consisted of interests in 48 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars, the real property associated with 4 gaming and related facilities operated by Boyd and the real property associated with the Casino Queen Holding Company is subjectInc. ("Casino Queen") in East St. Louis, Illinois. These facilities, including our corporate headquarters building, are geographically diversified across 16 states and contain approximately 24.3 million square feet. As of December 31, 2020, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming taxes based on gross gaming revenues in the jurisdictions in which it operates. The Company recognizes gaming tax expense based on the statutorily required percentage of revenue that is required to be paid to stateoperators under prudent terms.
Penn Master Lease and local jurisdictions in the states where wagering occurs. The Company records gaming 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 years endedCasino Queen Lease
December 31, 2018, these expenses, which are recorded within gaming, food, beverage and other expense in the consolidated statements of income, totaled $56.0 million, $57.4 million and $57.7 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.
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 years ended December 31, 2018, 2017 and 2016:
|
| | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| (in thousands) |
Determination of shares: | |
| | |
| | |
Weighted-average common shares outstanding | 213,720 |
| | 210,705 |
| | 178,594 |
|
Assumed conversion of dilutive employee stock-based awards | 206 |
| | 644 |
| | 1,699 |
|
Assumed conversion of restricted stock awards | 80 |
| | 155 |
| | 171 |
|
Assumed conversion of performance-based restricted stock awards | 773 |
| | 1,248 |
| | 158 |
|
Diluted weighted-average common shares outstanding | 214,779 |
| | 212,752 |
| | 180,622 |
|
The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2018, 2017 and 2016:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| (in thousands, except per share amounts) |
Calculation of basic EPS: | |
| | |
| | |
Net income | $ | 339,516 |
| | $ | 380,598 |
| | $ | 289,305 |
|
Less: Net income allocated to participating securities | (475 | ) | | (622 | ) | | (668 | ) |
Net income attributable to common shareholders | $ | 339,041 |
| | $ | 379,976 |
| | $ | 288,637 |
|
Weighted-average common shares outstanding | 213,720 |
| | 210,705 |
| | 178,594 |
|
Basic EPS | $ | 1.59 |
| | $ | 1.80 |
| | $ | 1.62 |
|
| | | | | |
Calculation of diluted EPS: | |
| | |
| | |
Net income | $ | 339,516 |
| | $ | 380,598 |
| | $ | 289,305 |
|
Diluted weighted-average common shares outstanding | 214,779 |
| | 212,752 |
| | 180,622 |
|
Diluted EPS | $ | 1.58 |
| | $ | 1.79 |
| | $ | 1.60 |
|
There were 13,335 outstanding equity based awards during the year ended December 31, 2018 and 3,483 and 23,954 outstanding equity based awards during the years ended December 31, 2017 and 2016, respectively, that were not included in the computation of diluted EPS because they were antidilutive.
Stock-Based Compensation
The Company's Amended and Restated 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
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 valueAs a result of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day of
grant. The Company utilizes a third-party valuation firm to measure the fair value of performance-based restricted stock awards at grant date using the Monte Carlo model.
The unrecognized compensation cost relating to restricted stock awards and performance-based restricted stock awards will be amortized to expense over the awards’ remaining vesting periods.
See Note 15 for further information related to stock-based compensation.
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 whichSpin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its real estate assets) ("GLP Capital"subsidiaries, under a unitary master lease, a triple-net operating lease the term of which expires October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties. The GLP Capital reportable segment consistsSegment. GLPI leases the Casino Queen property in East St. Louis back to its operators on a triple-net basis on terms similar to those in the Penn Master Lease (the "Casino Queen Lease").
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all 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 16 for further information with respect to the Company’s segments.
Statements of Cash Flows
The Company has presented the consolidated statements of cash flows using the indirect method, which involves the reconciliation of net income to net cash flow from operating activities.
4.Acquisitions
The Company accounts for its acquisitions of real estate assets as asset acquisitionsof Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under ASC 805 - Business Combinationsa unitary triple-net lease the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). Under asset acquisition accounting, transaction costs incurred to acquire the purchased assets are also included as part of the asset cost.
Current Year Acquisitions
On October 15, 2018, in conjunctionthe Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company acquired the real property assets of Plainridge Park Casino from Penn for approximately $250.9 million. This property was added to the Amended Pinnacle Master Lease via the fourth amendment toamended the Pinnacle Master Lease and is leased to Penn who will continue to operate the property. The initial annual cash rent of $25.0 million for Plainridge Park will not be subject to rent escalators or adjustments.
Also in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and to increase fixed rent under the lease by an additional $13.9 million annually. The Company entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s existing master leases. As a resultAmended Pinnacle Master Lease. The Boyd Master Lease has an initial term of
10 years (from the fourth amendment tooriginal April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company reassessedalso purchased the lease's classificationreal estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequenttaxes, and added this property to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety, the building assets of $2.6 billion previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet and all rent received under the Amended Pinnacle Master Lease is recorded as rental income on the Company's consolidated statement of income.Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property.The Belterra Park Lease rent terms are consistent with the Boyd Master Lease.The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities which is adjusted, subject to certain floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
The Meadows Lease
The real estate assets of the Meadows are leased to Penn pursuant to the Meadows Lease. The Meadows Lease commenced on September 9, 2016 and has an initial term of 10 years, with no purchase option, and the option to renew for three successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to an amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to 2% annually thereafter.
Amended and Restated Caesars Master Lease
On October 1, 2018, the Company acquired theclosed its previously announced transaction to acquire certain real property assets of five casino properties from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates for approximately $992.5 million, pursuant to the Reala Purchase and Sale Agreement (the "Real Estate Purchase AgreementAgreement") dated April 15, 2018 between Tropicana and GLP Capital L.P. ("GLP Capital"), the operating partnership of GLPI, which was subsequently amended on October 1, 2018.2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and the rights to six long-term ground leases for land on which the operations of the acquired Tropicana properties reside.taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars Entertainment Corporation (NASDAQ: CZR) ("Caesars")) acquired the operating assets of these properties from Tropicana pursuant to thean Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, Merger AgreementGLP Capital, Caesars and a wholly-owned subsidiary of Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with a 15-yearan initial term of 15 years, with no purchase option, followed by four4 successive 5-year renewal periods (exercisable by Eldorado)the tenant) on the same terms and conditions. Initialconditions (the "Caesars Master Lease"). On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease year, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the EldoradoAmended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is $87.6 million.
Purchase price allocations are primarily based onat least equal to the fair valuesvalue of assets acquiredTropicana Evansville or Tropicana Greenville, as applicable (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and liabilities assumed atsever it from the timeAmended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of acquisition.certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The following table summarizes the purchase price allocationeffectiveness of the assets acquired inAmended and Restated Caesars Master Lease was subject to the Tropicana Acquisition (in thousands):
|
| | | |
Real estate investments, net | $ | 948,217 |
|
Land rights, net | 44,331 |
|
Total purchase price | $ | 992,548 |
|
Prior Year Acquisitions
2017
review of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On May 1, 2017,December 18, 2020, the Company acquiredand Caesars completed an Exchange Agreement with subsidiaries of Caesars in which Caesars transferred
to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Bally'sTropicana Evansville, plus a cash payment of $5.7 million. This resulted in a non-cash gain of $41.4 million which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment made.
Lumière Place Lease
On October 1, 2018 the Company entered into a loan agreement with Caesars in connection with Caesars’s acquisition of Lumière Place Casino Tunica (subsequently re-branded as("Lumière Place"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1,st Jackpot Casino) 2019 and Resorts(ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan. On September 29, 2020, the transaction closed and we entered into a new triple net lease with Caesars (the "Lumière Place Lease") the initial term of which expires on October 31, 2033, with 4 separate renewal options of five years each, exercisable at the tenants' option. The Lumière Place Lease's rent is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas Casino Tunica (the "Tunica Properties"Hotel Resort ("Tropicana Las Vegas") from Penn in exchange for $82.9 million.$307.5 million of rent credits to be applied against future rent obligations. This asset has been placed in our TRS Segment. See Note 7 for further details related to this transaction.
Morgantown Lease
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company acquired both Bally's Casino Tunicais leasing the land back to an affiliate of Penn for an initial annual rent of $3.0 million, provided, however, that (i) on the opening date and Resorts Casino Tunica,on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the Consumer Price Index ("the CPI") increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year subject to escalation provisions following the opening of the property (the "Morgantown Lease").
In the first quarter of 2020, it became clear that there was a global outbreak of a new strain of novel coronavirus COVID-19 ("COVID-19"). The global, domestic and local response to the COVID-19 outbreak continues to evolve. Responses to the COVID-19 outbreak have included mandates from federal, state, and/or local authorities that required temporary closures of or imposed limitations on the operations of non-essential businesses. All of the Company's tenants' casino operations, in addition to the Company's two TRS Properties, were closed in mid-March. Our properties began reopening at limited capacity in May and by early July nearly all had resumed operations at limited capacity. However, in the fourth quarter, increased spread of COVID-19 led some jurisdictions to impose temporary closures once again. As of the date of this filing, only one of our properties remains closed.
The consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("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 may differ from those estimates. Certain prior period amounts have been reclassified to conform to the current period presentation, specifically gains and losses from dispositions of properties were previously classified within General and administrative expenses and are now presented separately on the Consolidated Statements of Income.
2.Summary of Significant Accounting Policies
Real Estate Investments
Real estate investments primarily represent land and buildings leased to the Company's tenants. The Company records the acquisition of real estate assets at fair value, including acquisition and closing costs. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful lives of the buildings and building improvements which are generally between 10 to 31 years.
The Company continually monitors events and circumstances that could indicate that the carrying amount of its real estate investments may not be recoverable or realized. The factors considered by the Company in performing these assessments include evaluating whether the tenant is current on its lease payments, the tenant’s rent coverage ratio, the financial stability of the tenant and its parent company, and any other relevant factors. When indicators of potential impairment suggest that the carrying value of a real estate investment may not be recoverable, the Company estimates the fair value of the investment by calculating the undiscounted future cash flows from the use and eventual disposition of the investment. This amount is compared to the asset's carrying value. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. The Company groups its real estate investments together by lease, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the Resorts Hoteleffect of obsolescence, demand, competition and landother factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss.
Property and Equipment Used in Operations
Property and equipment are stated at Bally's Casino Tunica. Land rights to three long-term ground leases relatedcost, less accumulated depreciation and represent assets used by the Company's TRS Properties and certain corporate assets. Maintenance and repairs that neither add materially to the Tunica Properties were also acquiredvalue of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the transaction. Penn purchaseddetermination of income.
Depreciation of property and equipment is recorded using the operating assetsstraight-line method over the following estimated useful lives:
| | | | | | | | |
Land improvements | | 15 to 34 years |
Building and improvements | | 5 to 31 years |
Furniture, fixtures, and equipment | | 3 to 31 years |
Leasehold improvements are depreciated over the shorter of the Tunica Properties directlyestimated useful life of the improvement or the related lease term. The estimated useful lives are determined based on the nature of the assets as well as the Company's current operating strategy.
The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based upon the estimated undiscounted future cash flows expected to result from the seller, operates both propertiesits use and leases the real property assets fromeventual disposition. If the Company underdetermines the Penn Master Lease.
2016
On September 9, 2016,carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the individual property level. In assessing the recoverability of the carrying value of property and equipment, the Company acquiredmust make assumptions regarding future cash flows and other factors. The factors considered by the real property assetsCompany in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the Meadows Racetrackrelated assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Real Estate Loans and Casino (the "Meadows") from Cannery Casino Resorts ("CCR")Other Loans Receivable
The Company may periodically loan funds to casino owner-operators for approximately $323.3 million. Concurrent with the Company's purchase of the Meadows'gaming related real estate assets, Pinnacle purchasedand/or operations. Loans for the entities holding the Meadows' gaming and racing licenses and operating assets from CCR. GLPI leases the Meadows' real property assets to Penn (following the Penn-Pinnacle Merger) under a triple-net lease with an initial termpurchase of 10 years with no purchase option and the option to renew for three successive 5-year terms and one 4-year term, at Penn's option (the "Meadows Lease").
On April 28, 2016, the Company acquired substantially all of the real estate assets of Pinnacle, adding 14gaming-related properties are classified as real estate loans on the Company's consolidated balance sheets, while loans for an operator's general operations are classified as loans receivable on the Company's consolidated balance sheets. Loans receivable are recorded on the Company's consolidated balance sheets at carrying value which approximates fair value since collection of principal is reasonably assured. Interest income related to real estate loans is recorded as interest income from real estate loans within the Company's consolidated statements of income in the period earned, whereas interest income related to other loans receivable is recorded as non-operating interest income within the Company's consolidated statements of income in the period earned.
Prior to the adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), the Company evaluated loans for impairment when it was probable that it would not be able to collect all amounts due according to the contractual terms of the agreement. All amounts due under the contractual terms of the agreement means that both contractual interest payments and contractual principal payments will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 (as described in Note 3) did not result in the Company recording any allowances against its real estate portfolio.loans for expected losses. The acquisitionCompany has no outstanding loans as of Pinnacle's real estate assets wasDecember 31, 2020. See Note 8 for further details.
Lease Assets and Lease Liabilities
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the final stepright to control the use of identified property, plant, or equipment for a period of time in a series of transactions contemplated by the July 20, 2015 merger agreement between GLPI, Gold Merger Sub, LLC, a wholly owned subsidiary of GLPI ("Merger Sub"), and Pinnacle providingexchange for the merger of Pinnacle with and into Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of GLPI (the "Pinnacle Merger"). Following the Pinnacle Merger, GLPI contributed all of the equity interests of Gold Merger Sub to GLP Capital, L.P., a Pennsylvania limited partnership and a wholly owned subsidiary of GLPI ("GLP Capital"). Approval of the Pinnacle Merger by GLPI shareholders and Pinnacle stockholders was obtained at separate special meetings held on March 15, 2016.
In order to effect the acquisition of the majority of Pinnacle’s real property assets, prior to the Pinnacle Merger, Pinnacle caused 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 of its real propertyconsideration. Right-of-use assets and gaming and other operating assets, Pinnacle distributed to its stockholders all oflease liabilities are recorded on the issued and outstanding shares of common stock of OpCo. As described above, on April 28, 2016, Pinnacle merged 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 SEC on December 23, 2015 and declared effective on February 16, 2016 (the "Joint Proxy Statement/Prospectus"), completing the Pinnacle Merger. Merger Sub, as the surviving company in the Pinnacle Merger, owns substantially all of Pinnacle’s real estate assets that were retained or transferred to Pinnacle in the separation and originally leased those assets back to Pinnacle pursuant to the Pinnacle Master Lease. Subsequent to the Penn-Pinnacle Merger, a wholly-owned subsidiary of Penn operates the leased gaming facilities as a tenant under the Amended Pinnacle Master Lease Agreement.
At the effective time of the Pinnacle Merger, each share of Pinnacle common stock issued and outstanding immediately prior to the effective time of the Pinnacle Merger was converted into 0.85 of a share of GLPI common stock, with cash paid in lieu of the issuance of fractional shares of GLPI common stock. Shares of GLPI common stock were also issued to satisfy GLPI's portion of the outstanding Pinnacle employee equity and cash-based incentive awards outstandingCompany's consolidated balance sheet at the closing date. Approximately 56.0 million shares of GLPI common stock were issued as considerationlease commencement date for operating leases in the Pinnacle Merger. Additionally, GLPI repaid $2.7 billion of Pinnacle's debt and paid $226.8 million of Pinnacle's transaction expenses related to
the Pinnacle Merger. Inclusive of $28.3 million of the Company's own transaction expenses, the purchase price of the Pinnacle real estate assets was $4.8 billion.
The following tables summarize the consideration transferred in the Pinnacle Merger and the purchase price allocation to the assets acquired in the Pinnacle Merger (in thousands):
|
| | | |
Consideration | |
Cash | $ | 2,955,090 |
|
GLPI common stock | 1,823,991 |
|
Fair value of total consideration transferred | $ | 4,779,081 |
|
|
| | | |
Real estate investments, net | $ | 1,422,547 |
|
Land rights, net | 596,920 |
|
Investment in direct financing lease, net | 2,759,244 |
|
Prepaid expenses | 111 |
|
Other assets | 259 |
|
Total purchase price | $ | 4,779,081 |
|
As detailed above,which the Company paid $3.0 billion in cash for the acquired Pinnacle real estate assets. In addition,acts as part of the consideration paid for the Pinnacle real estatelessee. Right-of-use assets acquired in the Pinnacle Merger, the Company issued shares of its common stock to Pinnacle stockholders and to Pinnacle to satisfy the Company's portion of Pinnacle's employee equity and cash-based incentive awards. The dollar value of the issued shares was $1.8 billion and is considered purchase price.
The real estate investments, net represent the land purchased from Pinnacle, while the land rights, net represent the Company's rights to land subjectuse underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases (in which the Company acts as lessee) cannot readily be determined, the Company utilizes its own estimated incremental borrowing rates to long-term grounddetermine the present value of its lease payments. Consideration is given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics, including tenor, when determining the incremental borrowing rates of the Company's leases.
The Company acquiredincludes options to extend a lease in its lease term when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases at several of the Pinnacleassociated with its tenant occupied properties, and immediately subleased the land back to Pinnacle. The investment in direct financing lease, net represented the Company's investment in the buildings and building improvements purchased from Pinnacle at the time of the original Pinnacle transaction. As detailed in Note 8, the Pinnacle Master Lease was originally bifurcated between an operating lease and direct financing lease. The accounting treatment for the buildings purchased under a direct financing lease required the Company to record its initial investmenthas included all available renewal options in the buildings as a receivable on its consolidated balance sheet, which was subsequently reduced over the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components (as necessary) of its estimated residual value. In conjunctionleases of all classes of underlying assets as a single lease component. Leases with the Penn-Pinnacle Merger, the direct financing lease was unwound and the Pinnacle Master Lease qualified for operating lease treatment in its entirety. For further details refer to Note 8. The purchase price allocated to prepaid expenses and other assets represents the current and long-term portionsa term of a director and officer liability insurance policy purchased from Pinnacle.
5.Real Estate Investments
Real estate investments, net, represent investments in 42 rental properties and the corporate headquarters building and is summarized as follows:
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| (in thousands) |
Land and improvements | $ | 2,552,475 |
| | $ | 2,057,928 |
|
Building and improvements | 5,762,071 |
| | 2,461,573 |
|
Total real estate investments | 8,314,546 |
| | 4,519,501 |
|
Less accumulated depreciation | (983,086 | ) | | (857,456 | ) |
Real estate investments, net | $ | 7,331,460 |
| | $ | 3,662,045 |
|
The increase in real estate investments was driven by the Penn-Pinnacle Merger, which resulted in the reclassification of the building assets under the Pinnacle Master Lease that were previously classified as an investment in direct financing lease12 months or less are not recorded on the Company's consolidated balance sheet to real estate investments and to a lesser extent the Tropicana Acquisition and the purchase of Plainridge Park. For further information on the Company's acquisitions see Note 4.
6. Land Rights
sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
TheRight-of-use assets and land rights are amortized over the individual lease term of each ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consists of the following:
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| (in thousands) |
Land rights | $ | 700,997 |
| | $ | 656,666 |
|
Less accumulated amortization | (27,790 | ) | | (16,518 | ) |
Land rights, net | $ | 673,207 |
| | $ | 640,148 |
|
Amortization expense related to the ground leases is recorded within land rights and ground lease expensemonitored for potential impairment in the consolidated statements of income and totaled $11.3 million, $10.4 million and $6.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
As of December 31, 2018, estimated future amortization expense related to the Company’s ground leases by fiscal year is as follows (in thousands):
|
| | | |
Year ending December 31, | |
2019 | $ | 12,359 |
|
2020 | 12,359 |
|
2021 | 12,359 |
|
2022 | 12,359 |
|
2023 | 12,359 |
|
Thereafter | 611,412 |
|
Total | $ | 673,207 |
|
Details of the Company's significant ground leases are as follows: The Company leases land at the Belterra Casino Resort under two ground leases, each with an initial term of 5 years and nine automatic renewals of 5 years each. The renewal options extend the leases through 2049 and are not terminable by the Company. The first ground lease includes a base portion which is adjusted at each renewal based upon the CPI and a variable portion which is adjusted annually based upon 1.5% of gross gaming wins in excess of $100 million. The second ground lease has a fixed rent provision only.
The Company leases land at the Ameristar East Chicago property under a ground lease with an initial term of 30 years and two optional renewals of 30 years each. The lease extends through 2086 with all renewals. Rent under the lease is adjusted every 3 years based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company leases land at the River City Hotel and Casino under a ground lease with a term of 99 years that extends through 2108. The lease includes a base portion which is fixed and a variable portion which is adjusted annually based upon 2.5% of the annual gross receipts of the property less fixed rent payments made inmuch the same year.
The Company leases land atway as the L'Auberge Lakes Charles property under a ground lease with an initial term of 10 years and six optional renewals of 10 years each. The lease extends through 2075 with all renewals. Rent under the lease is adjusted annually based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company leases land at the Resorts Casino Tunica property under a ground lease with an initial term of 3 years and nine optional renewals of 5 years each. The lease extends through 2042 with all renewals. The lease has an annual fixed rent provision and does not include a variable rent provision tied to the property's performance.
The Company leases land at the 1st Jackpot Casino under two ground leases. The first ground lease has an initial term of 6 years and nine optional renewals of 6 years each. The lease extends through 2054 with all renewals. Rent under this lease is adjusted annually based upon the CPI and does not include a variable rent provision tied to the property's performance. The second ground lease has an initial term of 10 years with ten optional renewals of 5 years each. The lease extends through 2055 with all renewals. The lease has an annual fixed rent provision and a variable portion which is adjusted annually based upon net gaming revenues of up to 4%, dependent on the property's operating results.
The Company leases land at the Belle of Baton Rouge property under two ground leases. The first ground lease has an initial term of 5 years and two automatic renewals of 5 years each. The lease extends through 2028 with the automatic renewals. Rent under this lease increases by 3% every 2 years and does not include a variable portion tied to the property's performance. The second ground lease has an initial term of 17 years, followed by one automatic 3-year renewal and eight optional renewals of 10 years each. The lease extends through 2083 with all renewals. Rent under this lease is adjusted every 5 years based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company leases land at the Tropicana Evansville Casino under a ground lease with an initial term of 10 years and two optional 5-year renewals, one optional 12-year renewal, one optional 3-year renewal, and five optional 5-year renewals. The lease extends through 2055 with all renewals. The lease agreement has an annual fixed rent provision, a portion of which was prepaid at the casino's opening and the tenant receives rental credits from the landlord extending through the end of the current term. Additionally, the lease contains a variable portion which is adjusted annually based upon the annual gross receipts of the property. Rent paid to the landlord under this provision is graduated and ranges from 2% to 12% of annual gross receipts dependent on the actual revenues of the property.
The Company leases land at the Trop Casino Greenville under three ground leases. The first ground lease has an initial term of 7 years and four optional renewals of varying lengths, which extend the lease through 2038. The lease has an annual fixed rent provision, which is adjusted at each renewal based upon the CPI and does not include a variable rent provision tied to the property's performance. The second ground lease has an initial term of 20 years and six optional renewals of 5 years each. The lease extends through 2044 with all renewals. The lease has an annual fixed rent provision and does not include a variable rent provision tied to the property's performance. The third ground lease has an initial term of 6 years with nine optional renewals of 6 years each. The lease extends through 2057 with all renewals. Rent under the lease is adjusted annually based upon the CPI, with minimum annual increases of 3.3% and does not include a variable rent provision tied to the property's performance.
7.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized at the TRS Properties
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| (in thousands) |
Land and improvements | $ | 30,431 |
| | $ | 30,276 |
|
Building and improvements | 116,776 |
| | 116,286 |
|
Furniture, fixtures, and equipment | 117,247 |
| | 114,972 |
|
Construction in progress | 284 |
| | 8 |
|
Total property and equipment | 264,738 |
| | 261,542 |
|
Less accumulated depreciation | (163,854 | ) | | (153,249 | ) |
Property and equipment, net | $ | 100,884 |
| | $ | 108,293 |
|
8. Receivables
Mortgage Loans Receivable
At December 31, 2018, the Company has financial interests in two casino properties through secured mortgage loans to the respective casino owner-operators. On October 1, 2018, Eldorado purchased theCompany's real estate assets, of Lumière Place Casinousing the impairment model in ASC 360 - Property, Plant and Hotel from Tropicana for a cash purchase price of $246.0 million, exclusive of transaction fees. Financing for the transaction was provided byEquipment. If the Company indetermines the formcarrying amount of $246.0 million secured mortgage loan on Lumière Place (the "Lumière Loan"). The Lumière Loan bears interest at a rate equal to approximately 9.00%. Until the one-year anniversary of the closing, the Lumière Loan will be secured by a first mortgage lien on Lumière Place. On the one-year anniversary of the
Lumière Loan, the mortgage and the related deed of trust on the Lumière Place property will terminate and the loan will continue unsecured until its final maturity on the two-year anniversary of the closing. The parties anticipate that the Lumière Loan will be fully repaid onright-of-use asset or prior to maturity by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferredland right is not recoverable, it would recognize an impairment charge equivalent to the Company and addedamount required to the Eldorado Master Lease.
On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of $57.7 million secured mortgage loan on Belterra Park (the "Belterra Park Loan"). The Belterra Park Loan bears interest at a rate equal to 11.11% and matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051).
Investment in Direct Financing Lease, Net
At the time of the original Pinnacle transaction, the fair value assigned to the land (inclusive of the land rights) at the time of acquisition qualified for operating lease treatment, while the fair value assigned to the buildings was classified as a direct financing lease. Under ASC 840, the accounting treatment for direct financing leases required the Company to record an investment in direct financing leases on its books at lease inception and subsequently recognize interest income and a reduction in the investment for the building portion of rent. This initial net investment was determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, less unearned income. The interest income recorded under the direct financing lease was included in income from direct financing lease on the Company's consolidated statements of income and was recognized over the original 35-year lease term using the effective interest rate method which produced a constant periodic rate of return on the net investment in the leased property. Furthermore, as the net investment in direct financing lease included only future minimum lease payments, rent that was not fixed and determinable at the lease inception was excluded from the determination of the rent attributable to the leased assets and was therefore recorded as income from direct financing lease in the period earned. The unguaranteed residual value was the Company's estimate of what it could realize upon the sale of the property at the end of the lease term.
On October 15, 2018, in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety, the building assets previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet and all rent received under the Amended Pinnacle Master Lease is recorded as rental income on the Company's consolidated statement of income.
At December 31, 2017, the Company's investment in direct financing lease, net, consisted of the following and represented the building assets initially acquired from Pinnacle:
|
| | | |
| December 31, 2017 |
| (in thousands) |
Minimum lease payments receivable | $ | 3,263,387 |
|
Unguaranteed residual value | 689,811 |
|
Gross investment in direct financing lease | 3,953,198 |
|
Less: unearned income | (1,315,559 | ) |
Investment in direct financing lease, net | $ | 2,637,639 |
|
Loan Receivable
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois for $140.7 million. GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Master Leases. The lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for four successive five-year periods (the "Casino Queen Lease").
Simultaneously with the Casino Queen 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. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan to CQ Holding Company, Inc., an affiliate of Casino Queen, to partially finance their acquisition of Lady Luck Casino in Marquette, Iowa. The cash proceeds were net settled. The new loan bears an interest rate of 15% and is pre-payable at any time.
The Company evaluates loans for impairment when it is probable that it will not be able to collect all amounts due according to contractual terms. All amounts due under the contractual terms means that both contractual interest payments and contractual principal payments of a loan will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loanasset to its estimated fair value, calculated in accordance with GAAP.
Cash and record a corresponding chargeCash Equivalents
The Company considers all cash balances and highly-liquid investments with original maturities of three months or less to net income.be cash and cash equivalents.
Prepaid Expenses and Other Assets
Prepaid expenses consist of expenditures for goods or services before the Company received a Noticegoods are used or the services are received. These amounts are deferred and charged to operations as the benefits are realized and primarily consist of Event of Default under the Senior Credit Agreement of CQ Holding Company from Citizens Bank, N.A. ("Citizens"), which reported a covenant default under their senior secured agreement. Under the terms ofprepayments for insurance, property taxes and other contracts that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, the interest due from CQ Holding Company in June, September and December 2018 under the Company's unsecured loan was paid in kind in the amount of $1.5 million. In addition to the covenant violation noted above under the senior credit agreement with Citizens, CQ Holding Company also had a payment default under their senior credit agreement with Citizens. Furthermore, the Company has notified Casino Queen of Events of Default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violationswill be expensed during the year ended December 31, 2018.
During the fourth quarter of 2018, the Company became aware of Casino Queen's intent to sell its operations to a third-party gaming operator. At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at this time, full payment of the principal is still expected, due to the anticipationsubsequent year. It also includes transaction costs that the operations will be sold inallocated to purchase price upon the near termclosing of an asset acquisition. Other assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for an amount allowing for repayment offurther details on the full $13.0 million of loan principal due to GLPI. However, the paid-in-kind interest due to the Company at December 31, 2018 is not expected to be collected, resulting in an impairment charge of $1.5 million during the fourth quarter of 2018. The Company did not recognize the paid-in-kind interest income due to the Company for the quarter ended December 31, 2018 and took a charge for the previously recognized paid-in-kind interest income through the Company’s consolidated statement of earnings as a reversal of the paid-in-kind interest income recognized earlier in the year. The Company cannot be 100% certain that the sale of Casino Queen's operations will come to fruition. The culmination of the actual transaction could result in further impairment charges for the Company. At December 31, 2018, the balance of the loan is $13.0 million. The loan balance is recorded at carrying value which approximates fair value.deferred compensation plan).
At December 31, 2018, all lease payments due from Casino Queen remain current and the Casino Queen Lease remains in compliance with all covenants.
9. Goodwill and Intangible Assets
Goodwill is an asset representingThe Company's goodwill and intangible assets are the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The only goodwillresult of the Company is the goodwill recorded on the bookscontribution of Hollywood Casino Baton Rouge and Hollywood Casino Perryville in connection with Penn's purchase of this entity prior to the Spin-Off. The original assets and liabilities of GLPI, includingCompany's goodwill and intangible assets were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of ASC 505. There is no goodwill recordedresides on the Company's GLP Capital segment, which holds the Company's REIT operations.
Changes in the carrying amountbooks of goodwill for the years ended December 31, 2018 and 2017 are as follows:
|
| | | |
| TRS Properties Business Segment |
| (in thousands) |
Balance at December 31, 2016 | $ | 75,521 |
|
Acquisitions | — |
|
Impairment losses | — |
|
Balance at December 31, 2017 | $ | 75,521 |
|
Acquisitions | — |
|
Impairment losses | (59,454 | ) |
Balance at December 31, 2018 | $ | 16,067 |
|
During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $59.5 million in connection with its operations at Hollywood Casino Baton Rouge. This charge was driven by general market deterioration inRouge subsidiary, while the Baton Rouge regionother intangible asset represents a gaming license on the books of its Hollywood Casino Perryville subsidiary. Both subsidiaries are members of the TRS Segment and are considered separate reporting units under ASC 350 - Intangibles - Goodwill and Other ("ASC 350"). Goodwill is tested at the smoking banreporting unit level, which is an operating segment or one level below an operating segment for which discrete financial information is available
Under ASC 350, the Company is required to test goodwill for impairment at all Baton Rouge, Louisiana casinosleast annually and whenever events or circumstances indicate that went into effect duringit is more likely than not that goodwill may be impaired. The Company has elected to perform its annual goodwill impairment test as of October 1 of each year. In accordance with ASC 350, the second quarter of 2018, both of which significantly impacted the Company's forecasted cash flowsCompany tests goodwill for this reporting unit. Subsequentimpairment subsequent to conductingtesting its impairment tests on other long-lived assets including the gaming license described below, the Company performed Step 1 of the goodwill impairment test, which indicated a potentialfor impairment. Step 1 of the goodwill impairment test involved the determination of the fair value of the Baton Rouge reporting unit and its comparison to the reporting unit's carrying amount. Using a discounted cash flow model, which relied on projected EBITDA to determine the reporting unit's future cash flows, the Company calculated a fair value that was less than the reporting unit's carrying value and proceeded to Step 2. In Step 2 of the goodwill impairment test, the Company performed a fair value allocation as if the reporting unit had been acquired in a business combination and assigned the fair value of the reporting unit calculated in Step 1 to all assets and liabilities of the reporting unit, including any unrecognized intangible assets. Any residual fair value was allocated to goodwill to arrive at the implied fair value of goodwill. After completing the Step 2 allocation, the Company determined the goodwill on its Baton Rouge reporting unit had an implied fair value of $16.1 million and recorded the impairment charge of $59.5 million during the fourth quarter of 2018.
In accordance with ASC 350, the Company considers its gaming license at the Hollywood Casino Perryville propertygaming license an indefinite-lived intangible asset that does not require amortization based on the Company's future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized. Hollywood Casino Perryville's
The Company calculates the fair value of its gaming license will expire in September 2025, fifteen years from the casino's opening date. The Company expects to expense any costs related to the gaming license renewal as incurred. The Company conducted its annual impairment assessment of the gaming license on October 1, 2018 using the Greenfield Method whichunder the income approach. The Greenfield Method estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. ThisThe method also assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. Based upon theseAs such the value of the license is a function of the following items:
•Projected revenues and operating cash flows;
•Theoretical construction costs and duration;
•Pre-opening expenses;
•Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license; and
•Remaining useful life of the license
The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results to determine the estimated fair value of the reporting unit and the indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions, which represent the Company's best estimates of the cash flows expected to result from the use of the assets. Changes in estimates, increases in the Company's cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company's estimates. If the Company's ongoing estimates of future cash flows are not met, the Company may have to record impairment charges in future accounting periods. The Company's estimates of cash flows are based on the current regulatory and economic climates, as well as recent operating information and budgets. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events.
Forecasted cash flows can be significantly impacted by the local economy in which the Company's subsidiaries operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions in which the Company operates can result in increased competition for the property. This generally has a negative effect on profitability once competitors become established, as a certain level of cannibalization occurs absent an overall
increase in customer visitations. Lastly, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows for this reporting unit,flows.
Assumptions and estimates about future cash flow levels are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the gaming license was not impaired. At both December 31, 2018Company's business strategy, which may reallocate capital and 2017,resources to different or new opportunities which management believes will enhance the gaming license had a carryingCompany's overall value of $9.6 million.
10.Long-term Debt
Long-term debt, net of current maturities and unamortized debt issuance costs is as follows:
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| (in thousands) |
Unsecured $1,175 million revolver | $ | 402,000 |
| | $ | — |
|
Unsecured term loan A | — |
| | 230,000 |
|
Unsecured term loan A-1 | 525,000 |
| | 825,000 |
|
$550 million 4.375% senior unsecured notes due November 2018 | — |
| | 550,000 |
|
$1,000 million 4.875% senior unsecured notes due November 2020 | 1,000,000 |
| | 1,000,000 |
|
$400 million 4.375% senior unsecured notes due April 2021 | 400,000 |
| | 400,000 |
|
$500 million 5.375% senior unsecured notes due November 2023 | 500,000 |
| | 500,000 |
|
$850 million 5.250% senior unsecured notes due June 2025 | 850,000 |
| | — |
|
$975 million 5.375% senior unsecured notes due April 2026 | 975,000 |
| | 975,000 |
|
$500 million 5.750% senior unsecured notes due June 2028 | 500,000 |
| | — |
|
$750 million 5.30% senior unsecured notes due January 2029 | 750,000 |
| | — |
|
Capital lease | 1,112 |
| | 1,230 |
|
Total long-term debt | 5,903,112 |
| | 4,481,230 |
|
Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (49,615 | ) | | (38,350 | ) |
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 5,853,497 |
| | $ | 4,442,880 |
|
The following is a schedule of future minimum repayments of long-term debt as of December 31, 2018 (in thousands):
|
| | | |
2019 | $ | 123 |
|
2020 | 1,000,129 |
|
2021 | 925,135 |
|
2022 | 142 |
|
2023 | 902,149 |
|
Over 5 years | 3,075,434 |
|
Total minimum payments | $ | 5,903,112 |
|
Senior Unsecured Credit Facility
The Company's senior unsecured credit facility (the "Credit Facility"), consists of a $1,175 million revolving credit facility and a $525 million Term Loan A-1 facility. On May 21, 2018, the Company entered into the second amendmentbut may be to the Credit Facility, which increased the Company's revolving commitments to an aggregate principal amountdetriment of $1,100 million, eliminated the Term Loan A facility, required the Company to repay a portion of the Term Loan A-1 facility and extended the maturity date of the revolving credit facility. On October 10, 2018, the Company entered into the third amendment to the Credit Facility, which further increased the Company's revolving commitments to an aggregate principal amount of $1,175 million. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021.
its existing operations.
The Company recorded a loss onreclassified its goodwill and other intangible assets into Assets held for sale at December 31, 2020. See Note 6 for additional discussion.
Debt Issuance Costs and Bond Premiums and Discounts
Debt issuance costs that are incurred by the early extinguishmentCompany in connection with the issuance of debt relatedare deferred and amortized to interest expense over the second amendment tocontractual term of the Credit Facility,underlying indebtedness. In accordance with ASU 2015-03, Interest - Imputation of approximately $1.0 million forInterest (Subtopic 835-30): Simplifying the proportional amountPresentation of Debt Issuance Costs, the Company records long-term debt net of unamortized debt issuance costs on its consolidated balance sheets. Similarly, the Company records long-term debt net of any unamortized bond premiums and original issuance discounts on its consolidated balance sheets. Any original issuance discounts or bond premiums are also amortized to interest expense over the contractual term of the underlying indebtedness.
Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the extinguished Term Loan A facilityinputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the bankssubjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are no longer participatingobservable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the Credit Facility.reporting entity's own assumptions, as there is little, if any, related market activity.
At December 31, 2018, The Company's assessment of the Credit Facility hadsignificance of a gross outstanding balance of $927 million. Additionally, at December 31, 2018, the Company was contingently obligated under letters of credit issued pursuantparticular input to the Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $772.6 million of available borrowing capacity under the revolving credit facility as of December 31, 2018.
The interest rates payable on the loans are, at the Company's option, equal to either a LIBOR rate or a base rate plus an applicable margin, which ranges from 1.0% to 2.0% per annum for LIBOR loans and 0.0% to 1.0% per annum for base rate
loans, in each case, depending on the credit ratings assigned to the Credit Facility. At December 31, 2018, the applicable margin was 1.50% for LIBOR loans and 0.50% for base rate loans. In addition, the Company is required to pay a commitment fee on the unused portion of the commitments under the revolving facility at a rate that ranges from 0.15% to 0.35% per annum, depending on the credit ratings assigned to the Credit Facility. At December 31, 2018, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Credit Facility prior to maturity on May 21, 2023fair value measurement requires judgment and may prepay all or any portionaffect the valuation of assets and liabilities and their placement within the loans under the Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any LIBOR breakage costs of the lenders. The Company's wholly owned subsidiary, GLP Capital is the primary obligor under the Credit Facility, which is guaranteed by GLPI.fair value hierarchy.
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 December 31, 2018, the Company was in compliance with all required financial covenants under the Credit Facility.
Senior Unsecured Notes
At December 31, 2018,2020, the Company had an outstanding balance of $4,975$5,375.0 million of senior unsecured notes consisting(the "Senior Notes").
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the following:Company’s outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company’s outstanding 4.375% senior unsecured notes due in April 2021, incurring a loss on the early extinguishment of debt related to the redemption of $17.3 million, primarily for call premium charges and debt issuance write-offs.
On September 26, 2018,June 25, 2020, the Company issued $750$500 million of 5.30%4.00% senior unsecured notes maturing ondue January 15, 20292031 at an issue price equal to 99.985%98.827% of the principal amount and $350to repay indebtedness under its Revolver. On August 18, 2020 the Company issued an additional $200 million of 5.25%4.00% senior unsecured notes maturing on June 1, 2025due January 2031 at an issue price equal to 102.148%103.824% of the principal amount to repay Term Loan A-1 indebtedness, incurring a loss on the early extinguishment of debt of $0.8 million, related to debt issuance write-offs. These bond offerings have extended the maturities of our long-term debt.
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "New 2025"2024 Notes"). The New 2025 and $700 million of 4.00% Senior Unsecured Notes will become partmaturing on January 15, 2030 at an issue price equal to 99.751% of the same series as, and are expected to be fungible with, the Company's previously issued 5.25% senior notes due 2025, $500 million aggregate principal amount of which were originally issued on May 21, 2018 (the "Initial 2025"2030 Notes"). Interest on the notes maturing in 20252024 Notes is payable semi-annually on JuneMarch 1 and DecemberSeptember 1 of each year, commencing on DecemberMarch 1, 2018 and is deemed to accrue from May 21, 2018, the issuance date of the Initial 2025 Notes.2020. Interest on the notes maturing in 20292030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2019.2020. The net proceeds from the sale of the New 20252024 Notes and 2030 Notes were used to (i) finance the notes maturing in 2029, together with funds availableCompany's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below) (ii) repay outstanding borrowings under the Company's revolving credit facility were used in October 2018 to (i) finance GLPI’s acquisitionand (iii) repay a portion of the real property assets of Plainridge Park Casino from Penn and its issuance of a secured mortgage loan to Boyd in connection with Boyd’s acquisition ofoutstanding borrowings under the real property assets of Belterra Park Gaming & Entertainment Center, (ii) finance GLPI’s acquisition of substantially all the real property assets of five gaming facilities owned by Tropicana and its issuance of a mortgage loan to Eldorado in connection with Eldorado’s acquisition of substantially all the real property assets of Lumière Place, and (iii) pay the estimated transaction fees and expenses associated with the transactions.Company's Term Loan A-1 facility.
On May 21, 2018,September 12, 2019, the Company completed a cash tender offer (the "Tender"2019 Tender Offer") to purchase any and all of the outstanding $550its $1,000 million aggregate principal of its 4.375% senior unsecured notesamount 4.875% Senior Unsecured Notes due 2018.2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $393.5$782.6 million in aggregate principal of these notes,the 2020 Notes, or approximately 72%,78% of its
outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 100.396%102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes was tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $2.5$21.0 million, for the proportional amount of unamortized debt issuance costs associated with the tendered notes and the difference between the reaquisitionreacquisition price of the tendered notes2020 Notes and their net carrying value. On August 16, 2018, the Company redeemed the remaining notes for 100% of the principal amount and accrued and unpaid interest to, but not including the redemption date.
Also on May 21, 2018, the Company issued $500 million of 5.25% senior unsecured notes maturing on June 1, 2025 and $500 million of 5.75% senior unsecured notes maturing on June 1, 2028. Interest is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2018. The net proceeds from the sale of these notes were used (i) to
prepay and extinguish the outstanding borrowings under the Term Loan A facility under the Credit Facility and to repay a portion of the outstanding borrowings under the Term Loan A-1 facility, (ii) to finance the tender offer of the 2018 Notes, (iii) to redeem the remaining 2018 Notes and (iv) to pay fees and expenses to amend the Company's Credit Facility, as described above.
On April 28, 2016, in connection with the acquisition of Pinnacle, the Company issued $400 million of 4.375% senior unsecured notes maturing on April 15, 2021 and $975 million of 5.375% senior unsecured notes maturing on April 15, 2026. Interest on these notes is payable semi-annually on April 15 and October 15 of each year. The net proceeds from the sale of these notes were used (i) to finance the repayment, redemption and/or discharge of certain Pinnacle debt obligations that the Company assumed in the Pinnacle Merger, (ii) to pay transaction-related fees and expenses related to the Pinnacle Merger and (iii) for general corporate purposes.
On October 30 and 31, 2013, the Company issued $2,050 million aggregate principal amount of senior unsecured notes: $550 million of 4.375% senior unsecured notes that matured in 2018; $1,000 million of 4.875% senior unsecured notes maturing on November 1, 2020; and $500 million of 5.375% senior unsecured notes maturing on November 1, 2023. Interest on these notes is payable semi-annually on May 1 and November 1 of each year. The net proceeds from the sale of these notes, together with borrowings under the Credit Facility were used (i) to make distributions directly and indirectly to Penn in partial exchange for the contributions of real property assets by Penn and CRC Holdings, Inc., a Penn subsidiary, to the Company in connection with the Spin-Off, (ii) to pay related fees and expenses, (iii) to partially repay amounts funded under the revolving credit facility and (iv) to fund future earnings and profits distributions and for working capital purposes.
The Company may redeem the senior unsecured notes, collectively, the "Notes"Senior Notes of any series at any time, and from time to time, at a redemption price of 100% of the principal amount of the Senior Notes redeemed, plus a "make-whole" redemption premium described in the indenture governing the Senior Notes, together with accrued and unpaid interest to, but not including, the redemption date, except that if Senior Notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the Senior Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the Senior Notes of a particular series, the Company will be required to give holders of the Senior Notes of such series the opportunity to sell their Senior Notes of such series at a price equal to 101% of the principal amount of the Senior Notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The Senior Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.
The Senior Notes were issued by GLP Capital, L.P. and GLP Financing II, Inc. (the "Issuers"), two wholly-owned subsidiaries of GLPI, and are guaranteed on a senior unsecured basis by GLPI. The guarantees of GLPI are full and unconditional. The Senior Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with all of the Issuers' senior indebtedness, including the Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements. See Note 19 for additional financial information on the parent guarantor and subsidiary issuers of the Notes.
The Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At December 31, 2018,2020, the Company was in compliance with all required financial covenants under theits Senior Notes.
CapitalFinance Lease Liability
The Company assumed the capitalfinance lease obligationobligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the capitalfinance lease on its consolidated balance sheet. The original term of the capitalfinance lease wasis 30 years and it will terminate in 2026.
| | | | | | | | | | | |
Summarized financial information for Subsidiary Issuers and Parent Guarantor |
| As of December 31, 2020 | | As of December 31, 2019 |
Real estate investments, net | $ | 2,720,767 | | | $ | 2,514,806 | |
Real estate loans | — | | | 246,000 | |
Right-of-use assets and land rights, net | 121,866 | | | 181,593 | |
Cash and cash equivalents | 480,066 | | | 4,281 | |
Long term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Accrued interest | 72,285 | | | 60,695 | |
Lease liabilities | 58,654 | | | 89,856 | |
Deferred rental revenue | 265,891 | | | 271,837 | |
| | | |
| For the year ended December 31, 2020 | | For the year ended December 31, 2019 |
Revenues | $ | 580,428 | | | $ | 575,451 | |
Income from operations | 446,708 | | | 384,170 | |
Interest expense | (282,142) | | | (301,520) | |
Net income | 146,323 | | | 61,734 | |
The financial information presented above is that of the subsidiary issuers and parent guarantor and the financial information of non-issuer subsidiaries has been excluded. The financial information of subsidiary issuers and the parent guarantor has been presented on a combined basis; however, the only asset on the parent guarantor balance sheet is its investment in subsidiaries which is not included in the presentation above in accordance with the disclosure requirements.
We had no off-balance sheet arrangements at December 31, 2020 and 2019.
Distribution Requirements
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code.
While the Company's Board of Directors declared a cash dividend of $0.70 for the first quarter of 2020, quarterly dividends of $0.60 per share on the Company's common stock were declared for both the second, third and fourth quarters. These dividends consisted of a combination of cash and shares of the Company's common stock. The cash component of the dividend (other than cash paid in lieu of fractional shares) did not exceed 20% in the aggregate, or $0.12 per share, with the balance, or $0.48 per share, payable in shares of the Company's common stock. This quarterly dividend level reflected the impact of the COVID-19 closures on the Company's business.
LIBOR Transition
The majority of our debt is at fixed rates and our exposure to variable interest rates is currently limited to our revolving credit facility and our Term Loan A-2. Both of these debt instruments are indexed to LIBOR which is expected to be phased out during late 2021 through mid-2023. The discontinuance of LIBOR would affect our interest expense and earnings. The borrowings under our Amended Credit Facility will be subject to the expected LIBOR transition. LIBOR is currently expected
to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”). We are currently monitoring the transition and cannot be certain whether SOFR will become the standard rate for our variable rate debt.
Outlook
Based on our current level of operations and anticipated earnings, we believe that cash generated from operations and cash on hand, together with amounts available under our Amended Credit Facility, will be adequate to meet our anticipated debt service requirements, capital expenditures, working capital needs and dividend requirements. During 2020, we refinanced our near term debt obligations and as such have no significant obligations coming due until 2023 and we issued common shares in advance of the planned 2021 closing of the Bally's transaction. We also announced a project to move our Hollywood Casino Baton Rouge property landside in early 2022. On December 15, 2020, we announced that Penn had exercised its option to acquire the gaming operations at Hollywood Casino Perryville for $31.1 million and that we entered into an agreement to sell the gaming operations of Hollywood Casino Baton Rouge for $28.2 million to Casino Queen. The Company will retain ownership of the real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into the Casino Queen Master Lease. Rent under the Casino Queen Master Lease will be adjusted upon completion of the project to reflect a yield of 8.25% on the Company's project costs. Both transactions are expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.
In addition, we expect the majority of our future growth to come from acquisitions of gaming and other properties to lease to third parties. If we consummate significant acquisitions in the future, our cash requirements may increase significantly and we would likely need to raise additional proceeds through a combination of either common equity (including under our ATM Program) and/or debt offerings. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See "Risk Factors-Risks Related to Our Capital Structure" of this Annual Report on Form 10-K for a discussion of the risk related to our capital structure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face market risk exposure in the form of interest rate risk. These market risks arise from our debt obligations. We have no international operations. Our exposure to foreign currency fluctuations is not significant to our financial condition or results of operations.
GLPI’s primary market risk exposure is interest rate risk with respect to its indebtedness of $5,799.9 million at December 31, 2020. Furthermore, $5,375.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from two and one-half years to ten years. An increase in interest rates could make the financing of any acquisition by GLPI more costly, as well as increase the costs of its variable rate debt obligations. Rising interest rates could also limit GLPI’s ability to refinance its debt when it matures or cause GLPI to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. GLPI may manage, or hedge, interest rate risks related to its borrowings by means of interest rate swap agreements. GLPI also expects to manage its exposure to interest rate risk by maintaining a mix of fixed and variable rates for its indebtedness. However, the provisions of the Code applicable to REITs substantially limit GLPI’s ability to hedge its assets and liabilities.
The table below provides information at December 31, 2020 about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing in each fiscal year and the related weighted-average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted-average interest rates for our variable rate debt are based on implied forward LIBOR rates at December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25 12/31/25 | | Thereafter | | Total | | Fair Value at 12/31/2020 |
| (in thousands) |
Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 3,625,000 | | | $ | 5,375,000 | | | $ | 6,026,840 | |
Average interest rate | | | | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 4.88 | % | | | | |
| | | | | | | | | | | | | | | |
Variable rate | $ | — | | | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | | | | | 2.02 | % | | | | | | | | | | |
(1) Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable-rate borrowing. For considerations surrounding the phase out of LIBOR refer to the Liquidity and Capital Resources discussion in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Gaming and Leisure Properties, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gaming and Leisure Properties, Inc. and Subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, changes in shareholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Lease Classification - Lease Term - See Note 14 to the financial statements
Critical Audit Matter Description
The Company performs a lease classification test upon the entry into any new tenant lease or lease modification to determine if the Company will account for the lease as an operating, sales-type lease, or direct financing lease. The accounting guidance under ASC 842 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease. The lease classification tests and the resulting calculations require subjective judgments, such as determining the likelihood a tenant will exercise all renewal options, in order to determine the lease term. A slight change in estimate or judgment can result in a material difference in the financial statement presentation.
Given the significant judgments made by management to determine the expected lease term, we performed audit procedures to assess the reasonableness of such judgments, which required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the judgments surrounding the determination of lease term for any new or reassessed lease included the following, among others:
•We tested the effectiveness of the controls over management’s assessment of the likelihood a tenant would exercise all renewal options.
•We evaluated the significant judgments management made to determine the expected lease term by:
◦Evaluating the significance of the leased assets to the tenant’s operations by examining available information including tenant’s financial statements.
◦Evaluating the Company’s historical pattern of tenant lease modifications by examining both confirming and contradictory evidence.
◦Obtaining lease agreements to examine material lease provisions considered by management in their analysis.
/s/ Deloitte & Touche
New York, New York
February 19, 2021
We have served as the Company's auditor since 2016.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | |
Assets | | | |
Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
Property and equipment, used in operations, net | 80,618 | | | 94,080 | |
Assets held for sale | 61,448 | | | 0 | |
Real estate of Tropicana Las Vegas, net | 304,831 | | | 0 | |
Real estate loans | 0 | | | 303,684 | |
Right-of-use assets and land rights, net | 769,197 | | | 838,734 | |
Cash and cash equivalents | 486,451 | | | 26,823 | |
Prepaid expenses | 2,098 | | | 4,228 | |
Goodwill | 0 | | | 16,067 | |
Other intangible assets | 0 | | | 9,577 | |
| | | |
Deferred tax assets, net | 5,690 | | | 6,056 | |
Other assets | 36,877 | | | 34,494 | |
Total assets | $ | 9,034,368 | | | $ | 8,434,298 | |
| | | |
Liabilities | | | |
Accounts payable | $ | 375 | | | $ | 1,006 | |
Accrued expenses | 398 | | | 6,239 | |
Accrued interest | 72,285 | | | 60,695 | |
Accrued salaries and wages | 5,849 | | | 13,821 | |
Gaming, property, and other taxes | 146 | | | 944 | |
| | | |
Lease liabilities | 152,203 | | | 183,971 | |
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,754,689 | | | 5,737,962 | |
Deferred rental revenue | 333,061 | | | 328,485 | |
Deferred tax liabilities | 359 | | | 279 | |
Other liabilities | 39,985 | | | 26,651 | |
Total liabilities | 6,359,350 | | | 6,360,053 | |
| | | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
| | | |
Shareholders’ equity | | | |
| | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, 0 shares issued or outstanding at December 31, 2020 and December 31, 2019) | 0 | | | 0 | |
Common stock ($.01 par value, 500,000,000 shares authorized, 232,452,220 and 214,694,165 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively) | 2,325 | | | 2,147 | |
Additional paid-in capital | 4,284,789 | | | 3,959,383 | |
Accumulated deficit | (1,612,096) | | | (1,887,285) | |
Total shareholders’ equity | 2,675,018 | | | 2,074,245 | |
Total liabilities and shareholders’ equity | $ | 9,034,368 | | | $ | 8,434,298 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
| | | | | | |
Revenues | | | | | | |
Rental income | | $ | 1,031,036 | | | $ | 996,166 | | | $ | 747,654 | |
Income from direct financing lease | | 0 | | | 0 | | | 81,119 | |
Interest income from real estate loans | | 19,130 | | | 28,916 | | | 6,943 | |
Real estate taxes paid by tenants | | 0 | | | 0 | | | 87,466 | |
Total income from real estate | | 1,050,166 | | | 1,025,082 | | | 923,182 | |
Gaming, food, beverage and other | | 102,999 | | | 128,391 | | | 132,545 | |
Total revenues | | 1,153,165 | | | 1,153,473 | | | 1,055,727 | |
| | | | | | |
Operating expenses | | | | | | |
Gaming, food, beverage and other | | 56,698 | | | 74,700 | | | 77,127 | |
Real estate taxes | | 0 | | | 0 | | | 88,757 | |
Land rights and ground lease expense | | 29,041 | | | 42,438 | | | 28,358 | |
General and administrative | | 68,572 | | | 65,385 | | | 70,819 | |
(Gains) losses from dispositions of properties | | (41,393) | | | 92 | | | 309 | |
Depreciation | | 230,973 | | | 240,435 | | | 137,093 | |
Loan impairment charges | | 0 | | | 13,000 | | | 0 | |
Goodwill impairment charges | | 0 | | | 0 | | | 59,454 | |
Total operating expenses | | 343,891 | | | 436,050 | | | 461,917 | |
Income from operations | | 809,274 | | | 717,423 | | | 593,810 | |
| | | | | | |
Other income (expenses) | | | | | | |
Interest expense | | (282,142) | | | (301,520) | | | (247,684) | |
Interest income | | 569 | | | 756 | | | 1,827 | |
Losses on debt extinguishment | | (18,113) | | | (21,014) | | | (3,473) | |
Total other expenses | | (299,686) | | | (321,778) | | | (249,330) | |
| | | | | | |
Income before income taxes | | 509,588 | | | 395,645 | | | 344,480 | |
Income tax expense | | 3,877 | | | 4,764 | | | 4,964 | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
| | | | | | |
Earnings per common share: | | | | | | |
Basic earnings per common share | | $ | 2.31 | | | $ | 1.82 | | | $ | 1.59 | |
Diluted earnings per common share | | $ | 2.30 | | | $ | 1.81 | | | $ | 1.58 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Shareholders’ Equity |
| Shares | | Amount | | | |
Balance, December 31, 2017 | 212,717,549 | | | $ | 2,127 | | | $ | 3,933,829 | | | $ | (1,477,709) | | | $ | 2,458,247 | |
Stock option activity | 1,007,750 | | | 10 | | | 19,805 | | | — | | | 19,815 | |
Restricted stock activity | 486,633 | | | 5 | | | (1,131) | | | — | | | (1,126) | |
Dividends paid ($2.57 per common share) | 0 | | | 0 | | | 0 | | | (550,435) | | | (550,435) | |
Adoption of new revenue standard | — | | | — | | | — | | | (410) | | | (410) | |
Net income | — | | | — | | | — | | | 339,516 | | | 339,516 | |
Balance, December 31, 2018 | 214,211,932 | | | 2,142 | | | 3,952,503 | | | (1,689,038) | | | 2,265,607 | |
ATM Program offering costs, net of issuance of common stock | 1,500 | | | 0 | | | (255) | | | — | | | (255) | |
Stock option activity | 26,799 | | | 0 | | | 592 | | | — | | | 592 | |
Restricted stock activity | 453,934 | | | 5 | | | 6,543 | | | — | | | 6,548 | |
Dividends paid ($2.74 per common share) | — | | | — | | | — | | | (589,128) | | | (589,128) | |
Net income | — | | | — | | | — | | | 390,881 | | | 390,881 | |
Balance, December 31, 2019 | 214,694,165 | | | 2,147 | | | 3,959,383 | | | (1,887,285) | | | 2,074,245 | |
Issuance of common stock, net of costs | 9,207,971 | | | 92 | | | 320,781 | | | | | 320,873 | |
| | | | | | | | | |
Restricted stock activity | 528,285 | | | 5 | | | 4,706 | | | | | 4,711 | |
Dividends paid ($2.50 per common share) | 8,021,799 | | | 81 | | | (81) | | | (230,522) | | | (230,522) | |
Net income | — | | | — | | | — | | | 505,711 | | | 505,711 | |
Balance, December 31, 2020 | 232,452,220 | | | $ | 2,325 | | | $ | 4,284,789 | | | $ | (1,612,096) | | | $ | 2,675,018 | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | | 2020 | | 2019 | | 2018 |
Operating activities | | | | | | |
Net income | | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 242,995 | | | 258,971 | | | 148,365 | |
Amortization of debt issuance costs, bond premiums and discounts | | 10,503 | | | 11,455 | | | 12,167 | |
(Gains) losses on dispositions of property | | (41,393) | | | 92 | | | 309 | |
Deferred income taxes | | 451 | | | (755) | | | (522) | |
Stock-based compensation | | 20,004 | | | 16,198 | | | 11,152 | |
Straight-line rent adjustments | | 4,576 | | | 34,574 | | | 61,888 | |
Deferred rent recognized | | (337,500) | | | 0 | | | 0 | |
Losses on debt extinguishment | | 18,113 | | | 21,014 | | | 3,473 | |
Loan and goodwill impairment charges | | 0 | | | 13,000 | | | 59,454 | |
(Increase) decrease, | | | | | | |
Prepaid expenses and other assets | | (6,628) | | | (6,070) | | | (673) | |
(Decrease), increase | | | | | | |
Accounts payable and accrued expenses | | (1,252) | | | (1,775) | | | 1,670 | |
Accrued interest | | 11,590 | | | 15,434 | | | 12,020 | |
Accrued salaries and wages | | (5,908) | | | (3,189) | | | 6,201 | |
Gaming, property and other taxes and other liabilities | | 6,815 | | | 472 | | | (587) | |
| | | | | | |
| | | | | | |
Net cash provided by operating activities | | 428,077 | | | 750,302 | | | 654,433 | |
Investing activities | | | | | | |
Capital project expenditures | | (474) | | | 0 | | | (20) | |
Capital maintenance expenditures | | (3,130) | | | (3,017) | | | (4,284) | |
Proceeds from sale of property and equipment | | 15 | | | 200 | | | 3,211 | |
| | | | | | |
| | | | | | |
Acquisition of real estate assets | | (5,898) | | | 0 | | | (1,243,466) | |
Originations of real estate loans | | 0 | | | 0 | | | (303,684) | |
Collections of principal payments on investment in direct financing lease | | 0 | | | 0 | | | 38,459 | |
Net cash used in investing activities | | (9,487) | | | (2,817) | | | (1,509,784) | |
Financing activities | | | | | | |
Dividends paid | | (230,522) | | | (589,128) | | | (550,435) | |
Taxes paid for shares withheld on restricted stock award vestings | | (15,293) | | | (9,058) | | | 7,537 | |
Proceeds from issuance of common stock, net | | 320,873 | | | (255) | | | 0 | |
Proceeds from issuance of long-term debt | | 2,076,383 | | | 1,358,853 | | | 2,593,405 | |
Financing costs | | (11,641) | | | (10,029) | | | (32,426) | |
Repayments of long-term debt | | (2,060,884) | | | (1,477,949) | | | (1,164,117) | |
Premium and related costs paid on tender of senior unsecured notes | | (15,747) | | | (18,879) | | | (1,884) | |
Net cash provided by (used in) financing activities | | 63,169 | | | (746,445) | | | 852,080 | |
Net increase (decrease) in cash and cash equivalents, including cash classified within assets held for sale | | 481,759 | | | 1,040 | | | (3,271) | |
Less decrease in cash classified within assets held for sale | | (22,131) | | | 0 | | | 0 | |
Net increase/decrease in cash and cash equivalents | | 459,628 | | | 1,040 | | | (3,271) | |
Cash and cash equivalents at beginning of period | | 26,823 | | | 25,783 | | | 29,054 | |
Cash and cash equivalents at end of period | | $ | 486,451 | | | $ | 26,823 | | | $ | 25,783 | |
See Note 20 to the Consolidated Financial Statements for supplemental cash flow information.
Gaming and Leisure Properties, Inc.
Notes to the Consolidated Financial Statements
1.Business and Basis of Presentation
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 assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 505-60 - Spinoffs and Reverse Spinoffs ("ASC 505").
The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a TRS, which together with the TRS Properties and GLP Holdings, Inc. is the Company's TRS Segment (the "TRS Segment"). 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.
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 December 31, 2020, GLPI’s portfolio consisted of interests in 48 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars, the real property associated with 4 gaming and related facilities operated by Boyd and the real property associated with the Casino Queen Holding Company Inc. ("Casino Queen") in East St. Louis, Illinois. These facilities, including our corporate headquarters building, are geographically diversified across 16 states and contain approximately 24.3 million square feet. As of December 31, 2020, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease and Casino Queen Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease, a triple-net operating lease the term of which expires October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Segment. GLPI leases the Casino Queen property in East St. Louis back to its operators on a triple-net basis on terms similar to those in the Penn Master Lease (the "Casino Queen Lease").
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of
10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes, and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property.The Belterra Park Lease rent terms are consistent with the Boyd Master Lease.The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities which is adjusted, subject to certain floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
The Meadows Lease
The real estate assets of the Meadows are leased to Penn pursuant to the Meadows Lease. The Meadows Lease commenced on September 9, 2016 and has an initial term of 10 years, with no purchase option, and the option to renew for three successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to an amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to 2% annually thereafter.
Amended and Restated Caesars Master Lease
On October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement (the "Real Estate Purchase Agreement") dated April 15, 2018 between Tropicana and GLP Capital L.P. ("GLP Capital"), the operating partnership of GLPI, which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars Entertainment Corporation (NASDAQ: CZR) ("Caesars")) acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Caesars and a wholly-owned subsidiary of Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 4 successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions (the "Caesars Master Lease"). On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease year, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement with subsidiaries of Caesars in which Caesars transferred
to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. This resulted in a non-cash gain of $41.4 million which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment made.
Lumière Place Lease
On October 1, 2018 the Company entered into a loan agreement with Caesars in connection with Caesars’s acquisition of Lumière Place Casino ("Lumière Place"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan. On September 29, 2020, the transaction closed and we entered into a new triple net lease with Caesars (the "Lumière Place Lease") the initial term of which expires on October 31, 2033, with 4 separate renewal options of five years each, exercisable at the tenants' option. The Lumière Place Lease's rent is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas Casino Hotel Resort ("Tropicana Las Vegas") from Penn in exchange for $307.5 million of rent credits to be applied against future rent obligations. This asset has been placed in our TRS Segment. See Note 7 for further details related to this transaction.
Morgantown Lease
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of Penn for an initial annual rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the Consumer Price Index ("the CPI") increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year subject to escalation provisions following the opening of the property (the "Morgantown Lease").
In the first quarter of 2020, it became clear that there was a global outbreak of a new strain of novel coronavirus COVID-19 ("COVID-19"). The global, domestic and local response to the COVID-19 outbreak continues to evolve. Responses to the COVID-19 outbreak have included mandates from federal, state, and/or local authorities that required temporary closures of or imposed limitations on the operations of non-essential businesses. All of the Company's tenants' casino operations, in addition to the Company's two TRS Properties, were closed in mid-March. Our properties began reopening at limited capacity in May and by early July nearly all had resumed operations at limited capacity. However, in the fourth quarter, increased spread of COVID-19 led some jurisdictions to impose temporary closures once again. As of the date of this filing, only one of our properties remains closed.
The consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("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 may differ from those estimates. Certain prior period amounts have been reclassified to conform to the current period presentation, specifically gains and losses from dispositions of properties were previously classified within General and administrative expenses and are now presented separately on the Consolidated Statements of Income.
2.Summary of Significant Accounting Policies
Real Estate Investments
Real estate investments primarily represent land and buildings leased to the Company's tenants. The Company records the acquisition of real estate assets at fair value, including acquisition and closing costs. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful lives of the buildings and building improvements which are generally between 10 to 31 years.
The Company continually monitors events and circumstances that could indicate that the carrying amount of its real estate investments may not be recoverable or realized. The factors considered by the Company in performing these assessments include evaluating whether the tenant is current on its lease payments, the tenant’s rent coverage ratio, the financial stability of the tenant and its parent company, and any other relevant factors. When indicators of potential impairment suggest that the carrying value of a real estate investment may not be recoverable, the Company estimates the fair value of the investment by calculating the undiscounted future cash flows from the use and eventual disposition of the investment. This amount is compared to the asset's carrying value. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. The Company groups its real estate investments together by lease, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss.
Property and Equipment Used in Operations
Property and equipment are stated at cost, less accumulated depreciation and represent assets used by the Company's TRS Properties and certain corporate assets. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
Depreciation of property and equipment is recorded using the straight-line method over the following estimated useful lives:
| | | | | | | | |
Land improvements | | 15 to 34 years |
Building and improvements | | 5 to 31 years |
Furniture, fixtures, and equipment | | 3 to 31 years |
Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term. The estimated useful lives are determined based on the nature of the assets as well as the Company's current operating strategy.
The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based upon the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the Company determines the carrying amount is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the individual property level. In assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding future cash flows and other factors. The factors considered by the Company in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Real Estate Loans and Other Loans Receivable
The Company may periodically loan funds to casino owner-operators for the purchase of gaming related real estate and/or operations. Loans for the purchase of real estate assets of gaming-related properties are classified as real estate loans on the Company's consolidated balance sheets, while loans for an operator's general operations are classified as loans receivable on the Company's consolidated balance sheets. Loans receivable are recorded on the Company's consolidated balance sheets at carrying value which approximates fair value since collection of principal is reasonably assured. Interest income related to real estate loans is recorded as interest income from real estate loans within the Company's consolidated statements of income in the period earned, whereas interest income related to other loans receivable is recorded as non-operating interest income within the Company's consolidated statements of income in the period earned.
Prior to the adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), the Company evaluated loans for impairment when it was probable that it would not be able to collect all amounts due according to the contractual terms of the agreement. All amounts due under the contractual terms of the agreement means that both contractual interest payments and contractual principal payments will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 (as described in Note 3) did not result in the Company recording any allowances against its real estate loans for expected losses. The Company has no outstanding loans as of December 31, 2020. See Note 8 for further details.
Lease Assets and Lease Liabilities
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use assets and lease liabilities are recorded on the Company's consolidated balance sheet at the lease commencement date for operating leases in which the Company acts as lessee. Right-of-use assets represent the Company's rights to use underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases (in which the Company acts as lessee) cannot readily be determined, the Company utilizes its own estimated incremental borrowing rates to determine the present value of its lease payments. Consideration is given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics, including tenor, when determining the incremental borrowing rates of the Company's leases.
The Company includes options to extend a lease in its lease term when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases associated with its tenant occupied properties, the Company has included all available renewal options in the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components (as necessary) of its leases of all classes of underlying assets as a single lease component. Leases with a term of 12 months or less are not recorded on the Company's consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Right-of-use assets and land rights are monitored for potential impairment in much the same way as the Company's real estate assets, using the impairment model in ASC 360 - Property, Plant and Equipment. If the Company determines the carrying amount of a right-of-use asset or land right is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.
Cash and Cash Equivalents
The Company considers all cash balances and highly-liquid investments with original maturities of three months or less to be cash and cash equivalents.
Prepaid Expenses and Other Assets
Prepaid expenses consist of expenditures for goods or services before the goods are used or the services are received. These amounts are deferred and charged to operations as the benefits are realized and primarily consist of prepayments for insurance, property taxes and other contracts that will be expensed during the subsequent year. It also includes transaction costs that will be allocated to purchase price upon the closing of an asset acquisition. Other assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for further details on the deferred compensation plan).
Goodwill and Intangible Assets
The Company's goodwill and intangible assets are the result of the contribution of Hollywood Casino Baton Rouge and Hollywood Casino Perryville in connection with the Spin-Off. The Company's goodwill resides on the books of its Hollywood Casino Baton Rouge subsidiary, while the other intangible asset represents a gaming license on the books of its Hollywood Casino Perryville subsidiary. Both subsidiaries are members of the TRS Segment and are considered separate reporting units under ASC 350 - Intangibles - Goodwill and Other ("ASC 350"). Goodwill is tested at the reporting unit level, which is an operating segment or one level below an operating segment for which discrete financial information is available
Under ASC 350, the Company is required to test goodwill for impairment at least annually and whenever events or circumstances indicate that it is more likely than not that goodwill may be impaired. The Company has elected to perform its annual goodwill impairment test as of October 1 of each year. In accordance with ASC 350, the Company tests goodwill for impairment subsequent to testing its other long-lived assets for impairment.
In accordance with ASC 350, the Company considers its Hollywood Casino Perryville gaming license an indefinite-lived intangible asset that does not require amortization based on the Company's future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized.
The Company calculates the fair value of its gaming license using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. As such the value of the license is a function of the following items:
•Projected revenues and operating cash flows;
•Theoretical construction costs and duration;
•Pre-opening expenses;
•Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license; and
•Remaining useful life of the license
The evaluation of goodwill and indefinite-lived intangible assets requires the use of estimates about future operating results to determine the estimated fair value of the reporting unit and the indefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions, which represent the Company's best estimates of the cash flows expected to result from the use of the assets. Changes in estimates, increases in the Company's cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company's estimates. If the Company's ongoing estimates of future cash flows are not met, the Company may have to record impairment charges in future accounting periods. The Company's estimates of cash flows are based on the current regulatory and economic climates, as well as recent operating information and budgets. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events.
Forecasted cash flows can be significantly impacted by the local economy in which the Company's subsidiaries operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions in which the Company operates can result in increased competition for the property. This generally has a negative effect on profitability once competitors become established, as a certain level of cannibalization occurs absent an overall
increase in customer visitations. Lastly, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.
Assumptions and estimates about future cash flow levels are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company's business strategy, which may reallocate capital and resources to different or new opportunities which management believes will enhance the Company's overall value but may be to the detriment of its existing operations.
The Company reclassified its goodwill and other intangible assets into Assets held for sale at December 31, 2020. See Note 6 for additional discussion.
Debt Issuance Costs and Bond Premiums and Discounts
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the contractual term of the underlying indebtedness. In accordance with ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, the Company records long-term debt net of unamortized debt issuance costs on its consolidated balance sheets. Similarly, the Company records long-term debt net of any unamortized bond premiums and original issuance discounts on its consolidated balance sheets. Any original issuance discounts or bond premiums are also amortized to interest expense over the contractual term of the underlying indebtedness.
Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Revenue Recognition
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured in accordance with ASC 842 - Leases. 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 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.
Additionally, in accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.
The Company may periodically loan funds to casino owner-operators for the purchase of gaming related real estate. Interest income related to real estate loans is recorded as revenue from real estate within the Company's consolidated statements of income in the period earned.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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 increase. 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. Gaming revenue is recognized net of certain sales incentives, including promotional allowances in accordance with ASC 606 - Revenues from Contracts with Customers. The Company also defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play until a later period when the points are redeemed or forfeited. Other revenues at the TRS Properties are derived from the properties' dining, retail and certain other ancillary activities and revenue for these activities is recognized as services are performed.
Stock-Based Compensation
The Company's Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan") provides for the Company to issue restricted stock awards, including performance-based restricted stock awards, and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
The Company accounts for stock compensation under ASC 718 - Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day prior to 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.
The unrecognized compensation cost relating to restricted stock awards and performance-based restricted stock awards is recognized as expense over the awards’ remaining vesting periods.
See Note 15 for further information related to stock-based compensation.
Income Taxes
The TRS Segment is able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS Segment are subject to federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realizability of the deferred tax assets is evaluated by assessing the valuation allowance and by adjusting the amount of the allowance, if any, as necessary. The factors used to assess the likelihood of realization are the forecast of future taxable income.
ASC 740 also creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not have any uncertain tax positions for the three years ended December 31, 2020.
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. If and when they occur, the Company will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of income. During the years ended December 31, 2020, 2019 and 2018, the Company recognized 0 penalties and interest, net of deferred income taxes.
The Company elected on its U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and the Company, together with an indirect wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas, elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary”.
The Company continues to be organized and to operate in a manner that will permit the Company to qualify as a REIT. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to shareholders. As a REIT, the Company generally will not be subject to federal, state or local income tax on income that it distributes as dividends to its shareholders, except in those jurisdictions that do not allow a deduction for such distributions. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal, state and local income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate income tax rates, and dividends paid to its shareholders would not be deductible by the Company in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect the Company's net income and net cash available for distribution to shareholders. Unless the Company was entitled to relief under certain Internal Revenue Code provisions, the Company also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which it failed to qualify to be taxed as a REIT.
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. See Note 17 for further details on the Company's earnings per share calculations.
Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas. See Note 19 for further information with respect to the Company’s segments.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, tenants, or obligors related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Additionally, concentrations of credit risk may arise when revenues of the Company are derived from a small number of tenants. As of December 31, 2020, substantially all of the Company's real estate properties were leased to Penn, Caesars and Boyd. During the year ended December 31, 2020, approximately 78%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases and real estate loans with Penn, Caesars and Boyd, respectively. Revenues from our tenants are reported in the Company's GLP Capital, L.P. reportable segment. Penn, Caesars and Boyd are publicly traded companies that are subject to the informational filing requirements of the Securities Exchange Act of 1934, as amended, and are required to file periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). Readers are directed to Penn, Caesars and Boyd's respective websites for further financial information on these companies. Other than the Company's tenant concentration, management believes the Company's portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2020, the Company's portfolio of 48 properties is diversified by location across 16 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable, real estate loans and other loans receivable. The Company's policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. At times, the Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
3. New Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. The Company's adoption of ASU 2018-15 on January 1, 2020 did not have an impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage, real estate and other loans receivable, amongst other financial instruments. ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The impact of the adoption of this pronouncement was immaterial.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform ("ASU 2020-04"). Reference rates such as London Interbank Offered Rate ("LIBOR") are widely used in a broad range of financial instruments and other agreements. Regulators and market participants in various jurisdictions have undertaken efforts, generally referred to as "reference rate reform", to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. As a result of this reform initiative, certain widely used rates such as LIBOR are expected to be discontinued. ASU 2020-04 provides optional expedients for applying the guidance for contract modifications or other situations affected by reference rate reform, specifically addressing the accounting for modifications of contracts within the scope of ASC Topic 310 on receivables, ASC 470 on debt, and ASC 842 on leases and ASC subtopic 815-15 on embedded derivatives. Based on the limited amount of obligations and contracts the Company currently has that references LIBOR, the Company does not anticipate any material impact from this pronouncement on its Consolidated Financial Statements.
4.Real Estate Investments
Real estate investments, net, represent investments in 45 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 2,667,616 | | | $ | 2,552,285 | |
Building and improvements | 6,030,482 | | | 5,749,211 | |
| | | |
Total real estate investments | 8,698,098 | | | 8,301,496 | |
Less accumulated depreciation | (1,410,940) | | | (1,200,941) | |
Real estate investments, net | $ | 7,287,158 | | | $ | 7,100,555 | |
The increase in real estate investments is primarily due to the Company acquiring the real estate of Belterra Park in satisfaction of the Belterra Park Loan in May 2020 and the acquisition of the real estate of Lumière Place in satisfaction of the CZR loan in September 2020 for $57.7 million ($11.7 million of which was allocated to land and land improvements and $46.0 million to building and improvements) and $246.0 million ($26.9 million of which was allocated to land and land improvements and $219.1 million to building and improvements), respectively. Additionally, the Exchange Transaction described in Note 1 which closed in December 2020, resulted in an increase to real estate investments of $72.6 million (net increase to land and improvements of $46.4 million and building and improvements of $26.2 million). Finally, the Company acquired the land underlying Penn's development project in Morgantown, Pennsylvania for $30.0 million.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized at the TRS Properties as the real estate will be leased to third party operators subsequent to the completion of the sale transactions as discussed in Note 6.
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land and improvements | $ | 30,540 | | | $ | 30,492 | |
Building and improvements | 117,333 | | | 116,904 | |
Furniture, fixtures, and equipment (1) | 28,767 | | | 118,766 | |
Construction in progress | 474 | | | 120 | |
Total property and equipment | 177,114 | | | 266,282 | |
Less accumulated depreciation (1) | (96,496) | | | (172,202) | |
Property and equipment, net | $ | 80,618 | | | $ | 94,080 | |
(1) The majority of the decline at December 31, 2020 compared to the prior year is related to the reclassification of certain amounts to Assets held for sale. See Note 6 for further details.
6. Assets Held for Sale
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million. The Company will retain ownership of all real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into a master lease with Casino Queen, which will include the Casino Queen property in East St. Louis that is currently leased by us to Casino Queen and the Hollywood Casino Baton Rouge facility (the "Casino Queen Master Lease"). The initial annual cash rent on the retained real estate will be approximately $21.4 million and the Casino Queen Master Lease will have an initial term of 15 years with 4 5 year renewal options exercisable by the tenant. Additionally, the Company will complete the current land side development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2021.
On December 11, 2020, Penn agreed to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million, with the closing of such purchase, subject to regulatory approvals, expected to occur during the second half of 2021. Upon closing, the Company will lease the real estate of the Perryville facility to Penn pursuant to a lease providing for initial annual rent on the retained real estate of $7.77 million, subject to escalation provisions.
The Company has classified the operating assets of the two properties above as Assets held for sale since we expect these transactions to close within 12 months and classified the respective liabilities within Other liabilities on the Consolidated Balance Sheet which is comprised of the following. (in thousands)
| | | | | |
Assets | |
Property and equipment, used in operations, net | $ | 8,780 | |
Right-of-use assets and land rights, net | $ | 263 | |
Cash and cash equivalents | $ | 22,131 | |
Prepaid expenses | $ | 2,473 | |
Goodwill | $ | 16,067 | |
Other intangible assets | $ | 9,577 | |
Other assets | $ | 2,157 | |
Total | $ | 61,448 | |
| |
Liabilities | |
Accounts payable | $ | 8 | |
Accrued expenses | $ | 3,387 | |
Accrued salaries and wages | $ | 2,064 | |
Gaming, property and other taxes | $ | 398 | |
Lease liabilities | $ | 262 | |
Other liabilities | $ | 710 | |
Total which is classified in Other Liabilities | $ | 6,829 | |
The assets held for sale reside in the Company's TRS Segment. See Note 19 for the pre-tax income of this segment for the years ended December 31, 2020, 2019 and 2018 which is comprised solely of the properties above with the exception of $2.7 million of depreciation expense associated with Tropicana Las Vegas for the year ended December 31, 2020.
7. Acquisitions
The Company accounts for its acquisitions of real estate assets as asset acquisitions under ASC 805 - Business Combinations. Under asset acquisition accounting, transaction costs incurred to acquire the purchased assets are also included as part of the asset cost.
Pending acquisitions
On October 27, 2020, the Company entered into a series of definitive agreements pursuant to which a subsidiary of Bally's Corporation (NYSE: BALY) (Bally's) will acquire 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company will reacquire the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company entered into a real estate purchase agreement with Bally's pursuant to which the Company will purchase the real estate assets of the Dover Downs Hotel & Casino, located in Dover, Delaware which is currently owned and operated by Bally's, for a cash purchase price of approximately $144.0 million. At the closing of the transactions, which are expected in mid-2021, subject to regulatory approvals, the Tropicana Evansville and Dover Downs Hotel and Casino facilities will be added to a new master lease between the Company and Bally's (the “Bally's Master Lease”). The Company anticipates that the Bally's Master Lease will have an initial term of 15 years, with no purchase option, followed by 4 five-year renewal options (exercisable by the tenant) on the same terms and conditions. Rent under the Bally's Master Lease will be $40.0 million annually and is subject to an annual escalator of up to 2% determined in relation to the annual increase in the CPI. The Company expects this transaction to close in mid-2021 following the completion of customary closing conditions and regulatory approvals. On November 6, 2020, the Company issued 9.2 million common shares at $36.25 per share to partially finance the funding required for this transaction.
Current year acquisitions
As previously discussed in Note 1, the impact of COVID-19 resulted in casino-wide closures by all of our tenants. As a result of COVID-19, on April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of rent credits, which were fully utilized in 2020 for rent due under the parties' existing leases.
An affiliate of Penn will continue to operate the casino and hotel business of the Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the earlier of two years (subject to three one-year extensions at the Company's option) or until the Tropicana Las Vegas is sold. The Company will conduct a sale process with respect to the Tropicana Las Vegas, with Penn receiving 75% of the net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the first 12 months following closing and 50% of net proceeds above $307.5 million (plus certain taxes, expenses and costs) if a sale agreement is signed during the subsequent 12 months following closing. Penn will not be entitled to receive any net sale proceeds if the relevant sale agreement is signed at any time after 24 months from closing.
The Company recorded an initial land and building value of $226.2 million and $81.3 million, respectively. During the year ended December 31, 2020 depreciation expense of $2.7 million was recorded. Additionally, deferred rent of $307.5 million was recorded at the acquisition date, which has been fully recognized for the year ended December 31, 2020.
The Tropicana Las Vegas assets are summarized below.
| | | | | | | |
| December 31, 2020 | | |
| (in thousands) |
Land and improvements | $ | 226,160 | | | |
Building and improvements | 81,340 | | | |
Total real estate of Tropicana Las Vegas | 307,500 | | | |
Less accumulated depreciation | (2,669) | | | |
Real estate of Tropicana Las Vegas , net | $ | 304,831 | | | |
| | | |
| | | |
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020.The Company is leasing the land back to an affiliate of Penn pursuant to the Morgantown Lease for an initial annual rent of $3.0 million, subject to escalation provisions following the opening of the property.
On October 27, 2020, the Company entered into an Exchange Agreement with subsidiaries of Caesars that own, respectively, Waterloo and Bettendorf. Pursuant to the terms of the agreement, Caesars transferred to the Company the real estate assets of the Waterloo and Bettendorf properties in exchange for the transfer by the Company to Caesars of the real property assets of the Tropicana Evansville, plus a cash payment of $5.7 million.The exchange transaction closed on December 18, 2020, which resulted in the Waterloo and Bettendorf facilities being added to the Amended and Restated Caesars Master Lease and the rent increased by $0.5 million annually. The Company recorded a non-cash gain of $41.4 million in the fourth quarter of 2020 related to the transaction, which represented the difference between the fair value of the properties received compared to the carrying value of Tropicana Evansville and the cash payment of $5.7 million. The following table summarizes the fair value of the assets acquired in the Exchange Agreement and the carrying value of the Tropicana Evansville assets that were transferred to Caesars. (in thousands):
| | | | | | | | | | | |
| Bettendorf | Waterloo | Total |
Land | $ | 29,636 | | $ | 64,262 | | $ | 93,898 | |
Building and improvements | 85,150 | | 77,958 | | 163,108 | |
Total real estate investments | $ | 114,786 | | $ | 142,220 | | $ | 257,006 | |
Less: Evansville Land and improvements | | | (47,439) | |
Less: Evansville Buildings and improvements, net | | | (136,858) | |
Less: Evansville Right of use assets and land rights, net | | | (55,456) | |
Add: Evansville, Operating Lease Liabilities | | | 29,795 | |
Prior Year Acquisitions
2018
On October 15, 2018, in conjunction with the Penn-Pinnacle Merger the Company acquired the real property assets of Plainridge Park from Penn for approximately $250.9 million. This property was added to the Amended Pinnacle Master Lease via the fourth amendment to the Pinnacle Master Lease and is leased to Penn which will continue to operate the property. The initial annual cash rent of $25.0 million for Plainridge Park will not be subject to rent escalators or adjustments.
Also in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd and to increase fixed rent under the lease by an additional $13.9 million annually. The Company entered into the Boyd Master Lease for these properties on terms similar to the Company’s existing master leases. As a result of the fourth amendment to the Pinnacle Master Lease, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety, the building assets of $2.6 billion previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet and all rent received under the Amended Pinnacle Master Lease is recorded as rental income on the Company's consolidated statement of income. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger.
On October 1, 2018, the Company acquired the real property assets of five casino properties from Tropicana and certain of its affiliates for approximately $992.5 million, pursuant to the Real Estate Purchase Agreement dated April 15, 2018 between Tropicana and GLP Capital, which was subsequently amended on October 1, 2018. Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge and the rights to six long-term ground leases for land on which the operations of the acquired Tropicana properties reside. Concurrent with the Tropicana Acquisition, Caesars acquired the operating assets of these properties from Tropicana pursuant to the Tropicana Merger Agreement and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 4 successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions. Initial annual rent under the Caesars Master Lease was $87.6 million and is subject to annual rent escalators and biennial percentage rent adjustments.
Purchase price allocations are primarily based on the fair values of assets acquired and liabilities assumed at the time of acquisition. The following table summarizes the purchase price allocation of the assets acquired in the Tropicana Acquisition (in thousands):
| | | | | |
Real estate investments, net | $ | 948,217 | |
Land rights, net | 44,331 | |
Total purchase price | $ | 992,548 | |
8. Receivables
Real Estate Loans
As discussed in Note 1, the Company historically had the CZR loan outstanding which was utilized by Caesars in connection with its acquisition of Lumière Place. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place real estate in satisfaction of the CZR loan, subject to the Lumière Place Lease, and closed this transaction on September 29, 2020.
On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of the Belterra Park Loan. The Belterra Park Loan's initial interest rate was equal to 11.11% and the loan matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to the Belterra Park Lease.
Other Loans Receivable
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois. GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The Casino Queen Lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for 4 successive 5-year periods.
Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, prepayable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan (the "Casino Queen Loan") to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance its acquisition of Lady Luck Casino in Marquette, Iowa. The Casino Queen Loan bears an interest rate of 15% and is prepayable at any time.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under its senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of events of default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI. However, the paid-in-kind interest due to the Company at December 31, 2018 was not expected to be collected, resulting in an impairment charge of $1.5 million during the fourth quarter of 2018. The Company did not recognize the paid-in-kind interest income due to the Company for the quarter ended December 31, 2018 and took a charge for the previously recognized paid-in-kind interest income through the Company’s consolidated statement of earnings as a reversal of the paid-in-kind interest income recognized earlier in the year.
During 2019, the operating results of Casino Queen continued to decline, the secured debt of Casino Queen was sold to a third-party casino operator at a discount and the Company no longer expected the loan to be repaid. Therefore, the Company recorded an impairment charge of $13.0 million through the Consolidated Statement of Income for the year ended December 31, 2019 to reflect the write-off of the Casino Queen Loan.
Casino Queen was closed in mid-March due to COVID-19 and Casino Queen was in payment default on their lease starting in April 2020. The Company entered into a deferred rental agreement with Casino Queen and received all delinquent rental payments in the fourth quarter of 2020.
9. Lease Assets and Lease Liabilities
Lease Assets
The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which are ground leases related to properties the Company leases to its tenants under triple-net operating leases. These ground leases may include fixed rent, as well as variable rent based upon an individual property’s performance or changes in an index such as the CPI and have maturity dates ranging from 2028 to 2108, when considering all renewal options. For certain of these ground leases, the Company’s tenants are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its consolidated balance sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the consolidated balance sheet.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
| | | | | | | | |
| December 31, 2020 | December 31, 2019 |
Right-of-use assets - operating leases (1) | $ | 151,339 | | $ | 184,063 | |
Land rights, net | 617,858 | | 654,671 | |
Right-of-use assets and land rights, net | $ | 769,197 | | $ | 838,734 | |
(1) In addition, there is $0.3 million of operating lease right-of-use assets included in assets held for sale.
As described in Note 8, on December 18, 2020, the Company and Caesars completed an Exchange Agreement in which the Company transferred to Caesars the real property assets of Tropicana Evansville. In connection with the exchange, the Company removed the land right and right of use asset related to the long-term ground lease at this property which totaled $24.8 million and $30.7 million, respectively, at the closing of the transaction along with the lease liability of $29.8 million it had recorded on its Consolidated Balance Sheet for this lease.
On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the long-term ground lease at this property and bringing the net book value of this land right to 0 at December 31, 2019. Subsequent to the property's closure, the Company entered into an agreement to terminate the long-term ground lease for the Resorts Casino Tunica property, which became effective in February 2020. In connection with the exercised termination option, the Company remeasured the lease liability and adjusted the right-of-use asset it had recorded on its consolidated balance sheet for this lease to align with the new termination date.
Land Rights
The land rights are amortized over the individual lease term of the related ground lease, including all renewal options, which ranged from 10 years to 92 years at their respective acquisition dates. Land rights net, consist of the following:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Land rights | $ | 667,751 | | | $ | 694,077 | |
Less accumulated amortization | (49,893) | | | (39,406) | |
Land rights, net | $ | 617,858 | | | $ | 654,671 | |
As of December 31, 2020, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,372 | |
2022 | 11,372 | |
2023 | 11,372 | |
2024 | 11,372 | |
2025 | 11,372 | |
Thereafter | 560,998 | |
Total | $ | 617,858 | |
Lease Liabilities
At December 31, 2020, maturities of the Company's operating lease liabilities were as follows (in thousands):
| | | | | |
Year ending December 31, | |
2021 | $ | 11,079 | |
2022 | 11,082 | |
2023 | 11,081 | |
2024 | 11,034 | |
2025 | 10,984 | |
Thereafter | 569,957 | |
Total lease payments | $ | 625,217 | |
Less: interest | (473,014) | |
Present value of lease liabilities (1) | $ | 152,203 | |
(1) In addition, there is $0.3 million of lease liabilities included in other liabilities related to liabilities held for sale.
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the Consolidated Balance Sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Operating lease cost | $ | 13,907 | | | $ | 15,482 | |
Variable lease cost (1) | 3,364 | | | 9,048 | |
Short-term lease cost | 625 | | | 1,060 | |
Amortization of land right assets | 12,022 | | | 18,536 | |
Total lease cost | $ | 29,918 | | | $ | 44,126 | |
(1)Variable lease costs for the year ended December 31, 2020 included a true up of the monthly rental payments paid by our tenants on certain ground leases that are based on estimated current year annual performance which were impacted by casino closures due to COVID-19. As discussed previously, under ASC 842, the Company is required to gross up its financial statements by recording both expense and revenue (recorded within rental income on the Consolidated Statements of Income) for these payments since the Company is considered the primary obligor.
Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the consolidated statements of income. The Company's short-term lease costs as well as a small portion of operating lease costs are recorded in both gaming, food, beverage and other expense and general and administrative expense in the consolidated statements of income. Amortization expense related to the land right intangibles totaled $11.3 million for the year ended December 31, 2018. Other lease costs totaled $18.9 million for the year ended December 31, 2018.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| December 31, 2020 |
Weighted average remaining lease term - operating leases | 56.41 years |
Weighted average discount rate - operating leases | 6.7% |
In addition, the weighted average remaining lease term and the weighted average discount rate for those operating leases included in assets held for sale and other liabilities is 1.79 years and 4.0%, respectively.
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases (1) (2) | $ | 1,600 | | | $ | 2,226 | |
| | | |
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases (2) | $ | 95 | | | $ | 293 | |
(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.
(2) In addition, there is $0.2 million and $0.3 million related to assets held for sale and other liabilities for operating cash flows from cash paid for amounts included in the measurement of lease liabilities and right-of-use assets obtained for new lease obligations, respectively for the year ended December 31, 2020.
10. Goodwill and Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The only goodwill of the Company is recorded on the books of Hollywood Casino Baton Rouge, in connection with Penn's purchase of this entity prior to the Spin-Off. The original assets and liabilities of GLPI, including goodwill and intangible assets were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of ASC 505. There is no goodwill recorded on the Company's GLP Capital segment, which holds the Company's REIT operations.
During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $59.5 million in connection with its operations at Hollywood Casino Baton Rouge. This charge was driven by general market deterioration in the Baton Rouge region and the smoking ban at all Baton Rouge, Louisiana casinos that went into effect during the second quarter of 2018, both of which significantly impacted the Company's forecasted cash flows for this reporting unit. Subsequent to conducting its impairment tests on other long-lived assets, the Company performed Step 1 of the goodwill impairment test, which indicated a potential impairment. Step 1 of the goodwill impairment test involved the determination of the fair value of the Baton Rouge reporting unit and its comparison to the reporting unit's carrying amount. Using a discounted cash flow model, which relied on projected EBITDA to determine the reporting unit's future cash flows, the Company calculated a fair value that was less than the reporting unit's carrying value and proceeded to Step 2. In Step 2 of the goodwill impairment test, the Company performed a fair value allocation as if the reporting unit had been acquired in a business combination and assigned the fair value of the reporting unit calculated in Step 1 to all assets and liabilities of the reporting unit, including any unrecognized intangible assets. Any residual fair value was allocated to goodwill to arrive at the implied fair value of goodwill. After completing the Step 2 allocation, the Company determined the goodwill on its Baton Rouge reporting unit had an implied fair value of $16.1 million and recorded the impairment charge of $59.5 million during the fourth quarter of 2018. There have been no changes in the carrying value of goodwill of $16.1 million for the years ended December 31, 2020 and 2019. As described in Note 6, the Company's goodwill balance at December 31, 2020 has been reclassified to Assets held for sale.
In accordance with ASC 350, the Company considers its gaming license at the Hollywood Casino Perryville property an indefinite-lived intangible asset that does not require amortization based on future expectations to operate this casino indefinitely, as well as the gaming industry's historical experience in renewing these intangible assets at minimal cost with various state gaming commissions. Rather, the Company's gaming license is tested annually, or more frequently if indicators of impairment exist, for impairment by comparing the fair value of the recorded asset to its carrying amount. If the carrying amount of the indefinite-life intangible asset exceeds its fair value, an impairment loss is recognized. Hollywood Casino Perryville's gaming license will expire in September 2025, fifteen years from the casino's opening date. The Company expects to expense any costs related to the gaming license renewal as incurred. The Company conducts its annual impairment assessment of the gaming license on October 1st using the Greenfield Method which estimates the fair value of the gaming license assuming the Company built a casino with similar utility to that of the existing facility. This method also assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. Based upon these assumptions and the Company's current forecasted cash flows for this reporting unit, the gaming license was not impaired. At both December 31, 2020 and 2019, the gaming license had a carrying value of $9.6 million. As described in Note 6, the Company's other intangible assets balance at December 31, 2020 has been reclassified to Assets held for sale.
11. Fair Value of Financial Assets and Liabilities
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Deferred Compensation Plan Assets
The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the consolidated balance sheets.
Real Estate Loans
The fair value of the real estate loans approximates the carrying value of the Company's real estate loans, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the real estate loans is considered a Level 3 measurement as defined under ASC 820.
Long-term Debt
The fair value of the Senior Notes are estimated based on quoted prices in active markets and as such are Level 1 measurements as defined under ASC 820. The fair value of the obligations in our Amended Credit Facility is based on indicative pricing from market information (Level 2 inputs).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents (1) | $ | 486,451 | | | $ | 486,451 | | | $ | 26,823 | | | $ | 26,823 | |
Deferred compensation plan assets | 35,514 | | | 35,514 | | | 28,855 | | | 28,855 | |
Real estate loans | 0 | | | 0 | | | 303,684 | | | 303,684 | |
Financial liabilities: | | | | | | | |
Long-term debt: | | | | | | | |
Senior unsecured credit facility | 424,019 | | | 424,019 | | | 495,000 | | | 493,533 | |
Senior unsecured notes | 5,375,000 | | | 6,026,840 | | | 5,290,174 | | | 5,707,996 | |
(1) In addition, there is $22.1 million in cash and cash equivalents in assets held for sale.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
There were no liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2020 and 2019. There were no assets measured at fair value on a nonrecurring basis during the year ended December 31, 2020; however, assets measured at fair value on a nonrecurring basis during the year ended December 31, 2019 are described below. Loan Receivable
During the first quarter of 2019, the Company recorded an impairment charge of $13.0 million related to the write-off of the principal due to the Company under the Casino Queen Loan. During 2019, the operating results of Casino Queen continued to decline, the secured debt of Casino Queen was sold to a third-party casino operator at a discount and the Company no longer expected the loan to be repaid. Therefore, the remaining balance of the Casino Queen Loan was written off and an impairment charge was recorded in the Consolidated Statement of Income for the year ended December 31, 2019.
12.Long-term Debt
Long-term debt, net of current maturities and unamortized debt issuance costs is as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| (in thousands) |
Unsecured $1,175 million revolver | $ | 0 | | | $ | 46,000 | |
Unsecured term loan A-1 | 0 | | | 449,000 | |
Unsecured term loans A-2 | 424,019 | | | 0 | |
$1,000 million 4.875% senior unsecured notes due November 2020 | 0 | | | 215,174 | |
$400 million 4.375% senior unsecured notes due April 2021 | 0 | | | 400,000 | |
$500 million 5.375% senior unsecured notes due November 2023 | 500,000 | | | 500,000 | |
$400 million 3.350% senior unsecured notes due September 2024 | 400,000 | | | 400,000 | |
$850 million 5.250% senior unsecured notes due June 2025 | 850,000 | | | 850,000 | |
$975 million 5.375% senior unsecured notes due April 2026 | 975,000 | | | 975,000 | |
$500 million 5.750% senior unsecured notes due June 2028 | 500,000 | | | 500,000 | |
$750 million 5.300% senior unsecured notes due January 2029 | 750,000 | | | 750,000 | |
$700 million 4.000% senior unsecured notes due January 2030 | 700,000 | | | 700,000 | |
$700 million 4.00% senior unsecured notes due January 2031 | 700,000 | | | 0 | |
Finance lease liability | 860 | | | 989 | |
Total long-term debt | 5,799,879 | | | 5,786,163 | |
Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (45,190) | | | (48,201) | |
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 5,754,689 | | | $ | 5,737,962 | |
The following is a schedule of future minimum repayments of long-term debt as of December 31, 2020 (in thousands):
| | | | | |
2021 | $ | 135 | |
2022 | 142 | |
2023 | 924,168 | |
2024 | 400,156 | |
2025 | 850,164 | |
Over 5 years | 3,625,114 | |
Total minimum payments | $ | 5,799,879 | |
Senior Unsecured Credit Facility
Prior to June 25, 2020, the Company's senior unsecured credit facility (the "Credit Facility"), consisted of a $1,175 million revolving credit facility (the "Revolver") with a maturity date of May 21, 2023, and a $449 million Term Loan A-1 facility with a maturity date of April 28, 2021.
The Company fully drew down on its Revolver in the first quarter of 2020 to increase its liquidity position and repay certain senior unsecured notes as described below. On June 25, 2020, the Company entered into an amendment to the Credit Facility (as amended, the "Amended Credit Facility" which extended the maturity date of approximately $224 million of outstanding Term Loan A-1 facility borrowings to May 21, 2023, which term loans are now classified as a new tranche of term loans (Term Loans A-2). Additionally, the Company borrowed incremental Term Loans A-2 totaling $200 million. Furthermore, on June 25, 2020, the Company also closed on an offering of $500 million of 4.00% unsecured senior notes due in January 2031 priced at a slight discount to par. The Company utilized the proceeds from these two financings along with cash on hand to repay all outstanding obligations under its Revolver. On August 18, 2020, the Company borrowed an additional $200 million of 4.00% unsecured senior notes due in January 2031 priced at a premium to par. The Company utilized the net proceeds from this additional borrowing to repay indebtedness under the Term Loan A-1 facility.
At December 31, 2020, the Credit Facility had a gross outstanding balance of $424.0 million, consisting of the $424.0 million Term Loan A-2 facility. No amounts were outstanding under the Revolver. Additionally, at December 31, 2020, the Company was contingently obligated under letters of credit issued pursuant to the Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $1,174.6 million of available borrowing capacity under the Revolver.
The interest rates payable on the loans are, at the Company's option, equal to either a LIBOR rate or a base rate plus an applicable margin, which ranges from 1.0% to 2.0% per annum for LIBOR loans and 0.0% to 1.0% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Credit Facility. At December 31, 2020, the applicable margin was 1.50% for LIBOR loans and 0.50% for base rate loans. In addition, the Company is required to pay a commitment fee on the unused portion of the commitments under the Revolver at a rate that ranges from 0.15% to 0.35% per annum, depending on the credit ratings assigned to the Credit Facility. At December 31, 2020, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Credit Facility prior to maturity and may prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any LIBOR breakage costs of the lenders. The Company's wholly owned subsidiary, GLP Capital, is the primary obligor under the Credit Facility, which is guaranteed by GLPI.
The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At December 31, 2020, the Company was in compliance with all required financial covenants under the Credit Facility.
Senior Unsecured Notes
At December 31, 2020, the Company had an outstanding balance of $5,375.0 million of senior unsecured notes (the "Senior Notes").
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the Company’s outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company’s outstanding 4.375% senior unsecured notes due in April 2021, incurring a loss on the early extinguishment of debt related to the redemption of $17.3 million, primarily for call premium charges and debt issuance write-offs.
On June 25, 2020, the Company issued $500 million of 4.00% senior unsecured notes due January 2031 at an issue price equal to 98.827% of the principal amount to repay indebtedness under its Revolver. On August 18, 2020, the Company issued an additional $200 million of 4.00% senior unsecured notes due January 2031 at an issue price equal to 103.824% of the principal amount to repay Term Loan A-1 indebtedness, incurring a loss on the early extinguishment of debt of $0.8 million, related to debt issuance write-offs. These bond offerings have extended the maturities of our long-term debt.
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "2024 Notes") and $700 million of 4.00% Senior Unsecured Notes maturing on January 15, 2030 at an issue price equal to 99.751% of the principal amount (the "2030 Notes"). Interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2020. Interest on the 2030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2020. The net proceeds from the sale of the 2024 Notes and 2030 Notes were used to (i) finance the Company's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below), (ii) repay outstanding borrowings under the Company's revolving credit facility and (iii) repay a portion of the outstanding borrowings under the Company's Term Loan A-1 facility.
On September 12, 2019, the Company completed a cash tender offer (the "2019 Tender Offer") to purchase its $1,000 million aggregate principal amount 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"). The Company received early
tenders from the holders of approximately $782.6 million in aggregate principal of the 2020 Notes, or approximately 78% of its outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes was tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $21.0 million, for the difference between the reacquisition price of the tendered 2020 Notes and their net carrying value.
The Company may redeem the Senior Notes of any series at any time, and from time to time, at a redemption price of 100% of the principal amount of the Senior Notes redeemed, plus a "make-whole" redemption premium described in the indenture governing the Senior Notes, together with accrued and unpaid interest to, but not including, the redemption date, except that if Senior Notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the Senior Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the Senior Notes of a particular series, the Company will be required to give holders of the Senior Notes of such series the opportunity to sell their Senior Notes of such series at a price equal to 101% of the principal amount of the Senior Notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The Senior Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.
The Senior Notes were issued by GLP Capital, L.P. and GLP Financing II, Inc. (the "Issuers"), 2 wholly-owned subsidiaries of GLPI, and are guaranteed on a senior unsecured basis by GLPI. The guarantees of GLPI are full and unconditional. The Senior Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with all of the Issuers' senior indebtedness, including the Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements.
The Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At December 31, 2020, the Company was in compliance with all required financial covenants under its Senior Notes.
Finance Lease Liability
The Company assumed the finance lease obligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the finance lease on its consolidated balance sheet. The original term of the finance lease is 30 years and it will terminate in 2026.
13.Commitments and Contingencies
Separation and Distribution Agreements
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. Similarly, pursuant to a Separation and Distribution Agreement between Pinnacle's operating company and GLPI (as successor to Pinnacle Entertainment), any liability arising from or relating to legal proceedings involving the business and operations of Pinnacle's real property holdings prior to the Pinnacle Merger will be retained by Pinnacle, and Pinnacle 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. Effective October 15, 2018, Penn assumed all obligations of Pinnacle as pursuant to a merger of Pinnacle with and into a subsidiary of Penn. There can be no assurance that Penn will be able to fully satisfy these indemnification obligations. Moreover, even if the Company ultimately succeeds in recovering from Penn any amounts for which the Company is liable, it may be temporarily required to bear those losses.
Litigation
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, and other matters arising in the normal course of business. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming, and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.
Operating Lease Commitments
As part of the Spin-Off, Penn assigned to GLPI various leases for the land and buildings acquired in connection with the Spin-Off. The lease agreements contain base lease payments and, in some instances, a percentage rent based on a percent of adjusted gaming wins, as described in the respective leases. The portion of the rent that is fixed and determinable is included in the schedule below as a future commitment, while the portion of the rent that is variable is excluded from future commitments as the amounts are not fixed and determinable at December 31, 2018 and therefore considered contingent rent. The following is a description of the more significant lease contracts assigned to GLPI at the Spin-Off:
The Company leases land at the Boomtown Casino Biloxi under two ground leases. The first ground lease has a term of 99 years. The annual rental payments under the first ground lease are increased every 5 years by 15%. The second ground lease has an initial term of 10 years and is automatically extended for additional 10-year terms unless notice is provided to the landlord within 180 days of the current term's end date. The annual rental payments under the second ground lease are increased every 5 years by 4%. Neither of the leases include a variable rent provision tied to the property's performance
The Company has an operating lease for the land utilized in connection with the operations of Hollywood Casino Tunica in Tunica, Mississippi. The lease has a five-year initial term and nine five-year renewals at the tenant's option. The lease agreement has an annual fixed rent provision, as well as an annual revenue-sharing provision, which is equal to the result obtained by subtracting the fixed rent provision from 4% of gross revenues.
The Company has an operating lease with the City of Bangor for the land utilized in connection with the operations of Hollywood Casino Bangor. Rent under the lease is adjusted every 5 years based upon the CPI and does not include a variable rent provision tied to the property's performance. The initial term of the lease is 15 years, with three ten-year renewal options.
The Company leases land at the Argosy Casino Alton under a ground lease with a 30-year initial term and two optional renewals of 10 years each. The lease agreement contains a fixed rent provision and does not include a variable portion tied to the property's performance.
The Company leases land at Hollywood Casino Aurora under a ground lease with a 49-year initial term and five optional renewals of 10 years each. The lease agreement contains a fixed rent provision which is adjusted annually based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company also obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. The Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the consolidated statements of income as the Company has concluded that as the lessee it is the primary obligor under these ground leases. However, the Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord. The portion of the ground lease rent that is fixed and determinable is included in the schedule below as a future commitment, while the portion of the ground lease rent that is variable is excluded from future commitments as the amounts are not fixed and determinable at December 31, 2018 and therefore considered contingent rent. Details of the acquired ground leases are below:
During October 2018, the Company acquired the real estate assets of five properties from Tropicana, including the rights to land subject to long-term ground leases. The Company assumed six ground leases related to the acquired Tropicana Properties and immediately subleased the land to Eldorado, who is responsible for payment directly to the landlord. For those ground leases with optional renewal terms extending beyond the 15-year lease term of the Eldorado Master Lease, the Company has included only the renewals that align most closely to the 2033 termination date of the Eldorado Master Lease in the schedule below, as it cannot be reasonably assured it will renew ground leases for land subleased to Eldorado beyond the term of the Eldorado Master Lease. The following is a description of the lease contracts assumed from the acquisition of the Tropicana Properties:
The Company leases land at the Belle of Baton Rouge property under two ground leases. The first ground lease has an initial term of 5 years and two automatic renewals of 5 years each. The lease extends through 2028 with the automatic renewals. Rent under this lease increases by 3% every 2 years and does not include a variable portion tied to the property's performance. The second ground lease has an initial term of 17 years, followed by one automatic 3-year renewal and eight optional renewals of 10 years each. The lease extends through 2083 with all renewals. Rent under this lease is adjusted every 5 years based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company leases land at the Tropicana Evansville Casino under a ground lease with an initial term of 10 years and two optional 5-year renewals, one optional 12-year renewal, one optional 3-year renewal, and five optional 5-year renewals. The lease extends through 2055 with all renewals. The lease agreement has an annual fixed rent provision, a portion of which was prepaid at the casino's opening and the tenant receives rental credits from the landlord extending through the end of the current term. Additionally, the lease contains a variable portion which is adjusted annually based upon the annual gross receipts of the property. Rent paid to the landlord under this provision is graduated and ranges from 2% to 12% of annual gross receipts dependent on the actual revenues of the property.
The Company leases land at the Trop Casino Greenville under three ground leases. The first ground lease has an initial term of 7 years and four optional renewals of varying lengths, which extend the lease through 2038. The lease has an annual fixed rent provision, which is adjusted at each renewal based upon the CPI and does not include a variable rent provision tied to the property's performance. The second ground lease has an initial term of 20 years and six optional renewals of 5 years each. The lease extends through 2044 with all renewals. The lease has an annual fixed rent provision and does not include a variable rent provision tied to the property's performance. The third ground lease has an initial term of 6 years with nine optional renewals of 6 years each. The lease extends through 2057 with all renewals. Rent under the lease is adjusted annually based upon the CPI, with minimum annual increases of 3.3% and does not include a variable rent provision tied to the property's performance.
During May 2017, the Company acquired the real estate assets of the Tunica Properties, including the rights to land subject to long-term ground leases. The Company assumed three ground leases related to the acquired Tunica Properties and immediately subleased the land to Penn, who is responsible for payment directly to the landlord. For those ground leases with optional renewal terms extending beyond the 35-year lease term of the Penn Master Lease, the Company has included only the renewals that align most closely to the 2048 termination date of the Penn Master Lease in the schedule below, as it cannot be reasonably assured it will renew ground leases for land subleased to Penn beyond the term of the Penn Master Lease. The following is a description of the lease contracts assumed from the acquisition of the Tunica Properties:
The Company leases land at the Resorts Casino Tunica property under a ground lease with an initial term of 3 years and nine optional renewals of 5 years each. The lease extends through 2042 with all renewals. The lease has an annual fixed rent provision and does not include a variable portion.
The Company leases land at the 1st Jackpot Casino under two ground leases. The first ground lease has an initial term of 6 years and nine optional renewals of 6 years each. The lease extends through 2054 with all renewals. Rent under this lease is adjusted annually based upon the CPI and does not include a variable portion. The second lease has an initial term of 10 years with ten optional renewals of 5 years each. The lease extends through 2055 with all renewals. The lease has an annual
fixed rent provision and a variable portion which is adjusted annually based upon net gaming revenues of up to 4%, dependent on the property's operating results.
During April 2016, the Company acquired the majority of the real estate assets of Pinnacle, including the rights to land subject to long-term ground leases. The Company assumed ground leases at several of the acquired Pinnacle properties and immediately subleased the land back to Pinnacle. Subsequent to the Penn-Pinnacle Merger in October 2018, Penn assumed the ground leases at the Ameristar East Chicago, River City Hotel and Casino and L'Auberge Lakes Charles properties and Boyd assumed the ground leases at the Belterra Casino Resort property. Penn and Boyd are responsible for payment directly to the respective landlords at these properties. For those ground leases with optional renewal terms extending beyond the 10-year lease term of the Amended Pinnacle Master Lease and the Boyd Master Lease, the Company has included only the renewals that align most closely to the 2026 termination date of the Amended Pinnacle Master Lease and the Boyd Master Lease in the schedule below, as it cannot be reasonably assured it will renew ground leases for land subleased to Penn and Boyd beyond the terms of the Amended Pinnacle Master Lease and the Boyd Master Lease. The following is a description of the significant lease contracts originally assumed from Pinnacle:
The Company leases land at the Belterra Casino Resort under two ground leases, each with an initial term of 5 years and nine automatic renewals of 5 years each. The renewal options extend the leases through 2049 and are not terminable by the Company. The first ground lease includes a base portion which is adjusted at each renewal based upon the CPI and a variable portion which is adjusted annually based upon 1.5% of gross gaming wins in excess of $100 million. The second ground lease has a fixed rent provision only.
The Company leases land at the Ameristar East Chicago property under a ground lease with an initial term of 30 years and two optional renewals of 30 years each. The lease extends through 2086 with all renewals. Rent under the lease is adjusted every 3 years based upon the CPI and does not include a variable rent provision tied to the property's performance.
The Company leases land at the River City Hotel and Casino under a ground lease with a term of 99 years that extends through 2108. The lease includes a base portion which is fixed and a variable portion which is adjusted annually based upon 2.5% of the annual gross receipts of the property less fixed rent payments made in the same year.
The Company leases land at the L'Auberge Lakes Charles property under a ground lease with an initial term of 10 years and six optional renewals of 10 years each. The lease extends through 2075 with all renewals. Rent under the lease is adjusted annually based upon the CPI and does not include a variable rent provision tied to the property's performance.
In addition, the Company is liable under numerous operating leases for equipment and other miscellaneous assets, which expire at various dates through 2023.
Total rental expense under these agreements was $18.9 million, $15.8 million and $11.0 million for the years ended December 31, 2018, 2017 and 2016. This includes rent expense under the leases assigned to the Company at Spin-Off, leases for equipment and miscellaneous assets and the fixed and variable rent under the ground leases discussed above.
The future minimum lease commitments, as of inception of the lease, relating to noncancelable operating leases at December 31, 2018 are as follows (in thousands):
|
| | | |
Year ending December 31, (1) |
|
2019 | $ | 15,519 |
|
2020 | 15,159 |
|
2021 | 15,042 |
|
2022 | 15,026 |
|
2023 | 15,005 |
|
Thereafter | 541,135 |
|
Total | $ | 616,886 |
|
(1) The above table excludes contingent rent in accordance with ASC 840.
Employee Benefit Plans
The Company maintains a defined contribution plan under the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended, which covers all eligible employees. The plan enables participating employees to defer a portion of their salary and/or their annual bonus in a retirement fund to be administered by the Company. The Company makes a discretionary match contribution of 50% of employees' elective salary deferrals, up to a maximum of 6% of eligible employee compensation. The matching contributions for the defined contribution plan were $0.3 million for each of the years ended December 31, 2018, 20172020, 2019 and 2016.2018.
The Company maintains a non-qualified deferred compensation plan that covers most management and other highly-compensated employees. The plan allows the participants to defer, on a pre-tax basis, a portion of their base annual salary and/or their annual bonus, and earn tax-deferred earnings on these deferrals. The plan also provides for matching Company contributions that vest over a five-year period. The Company has established a Trust, and transfers to the Trust, on a periodic basis, an amount necessary to provide for its respective future liabilities with respect to participant deferral and Company contribution amounts. The Company's matching contributions for the non-qualified deferred compensation plan for the years ended December 31, 2018, 20172020, 2019 and 20162018 were $0.7 million, $0.6 million and $0.7 million, respectively. The Company's deferred compensation liability, which was included in other liabilities within the consolidated balance sheet, was $22.8$32.4 million and $22.7$25.2 million at December 31, 20182020 and 2017,2019, respectively. Assets held in the Trust were $22.7$35.5 million and $22.6$28.9 million at December 31, 20182020 and 2017,2019, respectively, and are included in other assets within the consolidated balance sheet.
Labor Agreements
Some of Hollywood Casino Perryville's employees are currently represented by labor unions. The Seafarers Entertainment and Allied Trade Union represents 145129 of Hollywood Casino Perryville's employees under an agreement that expires in February 2020.January 2032. Additionally, Local No. 27 United Food and Commercial Workers and United Industrial Service Transportation Professional and Government Workers of North America and Local No. 27 United Food and Commercial Workers represent certain employees under collective bargaining agreements that expire in 2020,2021 and 2033, respectively, neither of which represents more than 50 of Hollywood Casino Perryville's employees. If the Company fails to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on Hollywood Casino Perryville's business, financial condition and results of operations. There can be no assurance that Hollywood Casino Perryville will be able to maintain these agreements.
12.
14. Revenue Recognition
Revenues from Real Estate
As of December 31, 2018, 202020, 19 of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Penn Master Lease, an additional 12 of the Company's real estate investment properties were leased to a subsidiary of Penn under the Amended Pinnacle Master Lease, 56 of the Company's real estate investment properties were leased to a subsidiary of EldoradoCaesars under the EldoradoAmended and Restated Caesars Master Lease and 3 of the Company's real estate investment properties were leased to a subsidiary of Boyd under the Boyd Master Lease. Additionally, the Meadows real estate assets are leased to Penn pursuant to the Meadows Lease, the land under a single property triple-net leasePenn development facility subject to the Morgantown Lease and the Casino Queen real estate assets are leased back to the operator under an additionalthe Casino Queen Lease. Finally, the Company has single property triple-net lease.triple net leases with Caesars under the Lumière Place Lease and Boyd under the Belterra Park Lease.
The obligations under the Penn Master Lease and Amended Pinnacle Master LeasesLease, as well as the Meadows Lease and Morgantown Lease are guaranteed by Penn and, with respect to each lease, jointly and severally by most of Penn's subsidiaries that occupy and operate the facilities leased under these master leases. A defaultcovered by Penn or its subsidiaries with regard to any facility undersuch lease. Similarly, the Penn Master Lease will cause a default with regard to the Penn Master Lease and a default by Penn or its subsidiaries with regard to any facilityobligations under the Amended Pinnacle Master Lease will cause a default with regard to the Amended Pinnacle Master Lease. The obligations under the Eldoradoand Restated Caesars Master Lease are jointly and severally guaranteed by EldoradoCaesars and by most of Eldorado'sCaesars subsidiaries that occupy and operate the facilities
leased under the Eldorado Master Lease. A default by Eldorado or its subsidiaries with regard to any facility under the Eldorado Master Lease will cause a default with regard to the Eldorado Master Lease.facilities. The obligations under the Boyd Master LeasesLease are jointly and severally guaranteed by most of Boyd's subsidiaries that occupy and operate the facilities leased under the Boyd Master Lease. A default by Boyd or its subsidiaries with regard to any facility under the Boyd Master Lease will cause a default with regard to the Boyd 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 prospectively adjusted, subject to certain floors (i) every five years to an amount equal to 4% of the average net revenues of all facilities under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years in excess of a contractual baseline, and (ii) monthly by an amount equal to 20% of the net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month.month in excess of a contractual baseline, although Hollywood Casino Toledo has a monthly percentage rent floor which equals $22.9 million annually.
Similar to the Penn Master Lease, the Amended Pinnacle Master Lease also includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities, which is prospectively adjusted, subject to certain floors every two years to an amount equal to 4% of the average annual net revenues of all facilities under the Amended Pinnacle Master Lease during the preceding two years.
years in excess of a contractual baseline. The EldoradoAmended Pinnacle Master Lease includesreset on May 1, 2020 which resulted in an annual decline of $5.0 million.
On July 23, 2020, the Amended and Restated Caesars Master Lease became effective as described more fully in Note 1. This modification was accounted for as a fixed component,new lease which the Company concluded continued to meet the criteria for operating lease treatment. As a portionresult, the existing deferred revenue at the time of the amendment is being recognized to the income statement over the Amended and Restated Caesars Master Lease's new initial lease term, which is subjectnow expires in September 2038. The Company has concluded the renewal options of up to an annual 2% escalator ifadditional 20 years at the tenants' option are not reasonably certain rent coverage ratio thresholds are metof being exercised as failure to renew would not result in a significant penalty to the tenant. In addition, the guaranteed fixed escalations in the new initial lease term will be recognized on a straight line basis.
On December 18, 2020, following the receipt of required regulatory approvals, the Company and a component that is based onCaesars completed an Exchange Agreement with subsidiaries of Caesars in which Caesars transferred to the performanceCompany the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. The Waterloo and Bettendorf facilities were added to the Amended and Restated Caesars Master Lease and the rent was increased by $520,000 annually. This Exchange Transaction resulted in a reconsideration of the Amended and Restated Caesars Master Lease which resulted in the continuation of operating lease treatment for accounting classification purposes. Additionally, a non cash gain of $41.4 million was recorded in other income which reflected the fair value of the Waterloo and Bettendorf facilities which is adjusted, subject to certain floors every two years to an amount equal to 4%exceeded the net book value of the average annual net revenuesTropicana Evansville property and the $5.7 million payment at the date of all facilities under the Eldorado Master Lease during the preceding two years.exchange.
The Boyd 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 every two years to an amount equal to 4% of the average annual net revenues of all facilities under the Boyd Master Lease during the preceding two years.years in excess of a contractual baseline.
In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to the Belterra Park Lease with a Boyd affiliate operating the property.The Belterra Park Lease rent terms are consistent with the Boyd Master Lease.The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities which is adjusted, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
On September 29, 2020, the Company acquired the real estate of Lumière Place in satisfaction of the CZR loan, subject to the Lumière Place Lease, the initial term of which expires on October 31, 2033, with 4 separate renewal options of five years each, exercisable at the tenants' option. The Lumière Place Lease's rent is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met.
The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to a fixedan amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31.0 million, at which point the escalator will be reduced to 2% annually thereafter.
The Morgantown Lease became effective on October 1, 2020 whereby the Company is leasing the land under Penn's
gaming facility under construction for an initial cash rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the CPI increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year.
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 fixedan 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 fivefive-year period.
Furthermore, the Company's master leases provide for a floor on the percentage rent described above, should the Company's tenants acquire or commence operating a competing facility within a restricted area (typically 60 miles from a property under the existing master lease with such tenant). These clauses provide landlord protections by basing the percentage rent floor for any affected facility on the net revenues of such facility for the calendar year period.immediately preceding the year in which the competing facility is acquired or first operated by the tenant. In June 2019, a percentage rent floor was triggered on Penn's Hollywood Casino Toledo property, as a result of Penn's purchase of the operations of the Greektown Casino-Hotel in Detroit, Michigan.
In addition to rent, as triple-net lessees, all of the Company's tenants are required to pay the following executory costs: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, including coverage of the landlord's interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
The Company determined, based on facts and circumstances prevailing at the time of each lease's inception, that neither Penn nor Casino Queen could continue as a going concern without the property(ies) that are leased to itthem under the respective master lease agreement (inPenn Master Lease and the instance of Penn) and single property lease (in the instance of Casino Queen) with the Company.Queen Master Lease. 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 master lease,Penn Master Lease, Penn must make renewal elections 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 leasePenn Master Lease or Casino Queen Lease, respectively, would impose a significant penalty on such tenant such that renewal of all lease renewal options appearsappeared at lease inception to be reasonably assured. Therefore, the Company concluded that the term of the Penn Master Lease and the Casino Queen Lease is 35 years, equal to the initial 15-year term plus all four4 of the 5-year renewal options.
As discussed in Note 4, onOn October 15, 2018, in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended via theby a fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreementAmended Pinnacle Master Lease qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety. Because the properties under the Amended Pinnacle Master Lease dodid not represent a meaningful portion of Penn's business at the time Penn assumed the lease,Amended Pinnacle Master Lease, the Company has concluded that the lease term of the Amended Pinnacle Master Lease is 10 years, equal to the initial 10-year term only.
Also as described in Note 4, subsequent to purchasing the majority of Pinnacle's real estate assets and leasing them back to Pinnacle,In connection with Penn exercising its first renewal option on October 1, 2020, the Company entered intoreassessed the Amended Pinnacle Master Lease as the lease term now concludes on May 1, 2031. The Company continued to conclude that each individual lease component within the Amended Pinnacle Master Lease meets the definition of an operating lease. The deferred rent and fixed minimum lease payments at October 1, 2020 are being recognized on a separate triple-netstraight-line basis over the new initial lease with Pinnacle to leaseterm ending on May 1, 2031.
Because the Meadows real estate assets to
Pinnacle. Because this lease involved onlyLease was a single property within Pinnacle's portfolio,lease operated by a large multi-property operator, GLPI concluded it was not reasonably assured at lease inception that Pinnaclethe operator would elect to exercise allany lease renewal options. Therefore, the Company concluded that the lease term of the Meadows Lease is 10 years, equal to the initial 10-year term only. In
conjunction with the Penn-Pinnacle Merger, Penn assumed the Meadows Lease.Lease from Pinnacle. The accounting for the Meadows Lease, including the lease term was not impacted by the change in tenant. Based upon similar fact patterns, the Company concluded it was not reasonably assured at lease inception that EldoradoCaesars or Boyd would elect to exercise all lease renewal options under their respective master leases. Thethe Caesars Master Lease and the Boyd Master Lease as the earnings from these properties under both master leases dodid not represent a significantmeaningful portion of either tenant's business at lease inception; therefore the Company has concluded that the lease term of the EldoradoAmended and Restated Caesars Master Lease is 15was its remaining initial lease term which was extended by 5 years when the Amended and theRestated Caesars Master Lease became effective on July 23, 2020. The lease term of the Boyd Master Lease is 10 years, equal to the initial termsterm of such master lease.
The Belterra Park Lease, Morgantown Lease and Lumière Park Lease are single property leases only.operated by large-multi-property operators and as such the Company concluded it was not reasonably assured at lease inception that the operator would elect to exercise any renewal options, as such the lease term of these leases is equal to their initial terms.
Details of the Company's rental income for the year ended December 31, 2020 was as follows (in thousands):
| | | | | |
| Year Ended December 31, 2020 |
Building base rent (1) | $ | 676,929 | |
Land base rent | 194,939 | |
Percentage rent | 148,647 | |
Total cash rental income (2) | $ | 1,020,515 | |
Straight-line rent adjustments | (4,576) | |
Ground rent in revenue | 14,905 | |
Other rental revenue | 192 | |
Total rental income | $ | 1,031,036 | |
(1) Building base rent is subject to the annual rent escalators described above.
(2) Cash rental income includes rent credits of $337.5 million related to the Tropicana Las Vegas and Morgantown transactions with Penn. See Note 7 for further details.
As of December 31, 2018,2020, the future minimum rental income from the Company's rental properties under non-cancelable operating leases, including any reasonably assured rentalrenewal periods, was as follows (in thousands):
| | Year ending December 31, | Future Rental Payments Receivable | | Straight-Line Rent Adjustments | | Future Base Ground Rents Receivable | | Future Income to be Recognized Related to Operating Leases | Year ending December 31, | Future Rental Payments Receivable | | Straight-Line Rent Adjustments | | Future Base Ground Rents Receivable | | Future Income to be Recognized Related to Operating Leases |
2019 | $ | 959,797 |
| | $ | (34,574 | ) | | $ | 13,403 |
| | $ | 938,626 |
| |
2020 | 920,129 |
| | (2,567 | ) | | 13,408 |
| | 930,970 |
| |
2021 | 854,210 |
| | 21,786 |
| | 13,414 |
| | 889,410 |
| 2021 | $ | 1,015,479 | | | $ | 3,312 | | | $ | 9,462 | | | $ | 1,028,253 | |
2022 | 854,210 |
| | 21,786 |
| | 13,420 |
| | 889,416 |
| 2022 | 987,785 | | | 22,180 | | | 9,468 | | | 1,019,433 | |
2023 | 854,210 |
| | 21,786 |
| | 13,425 |
| | 889,421 |
| 2023 | 962,333 | | | 30,927 | | | 9,473 | | | 1,002,733 | |
2024 | | 2024 | 930,017 | | | 30,053 | | | 9,480 | | | 969,550 | |
2025 | | 2025 | 931,378 | | | 28,927 | | | 9,486 | | | 969,791 | |
Thereafter | 11,146,434 |
| | 265,694 |
| | 471,598 |
| | 11,883,726 |
| Thereafter | 12,488,695 | | | 217,662 | | | 78,558 | | | 12,784,915 | |
Total | $ | 15,588,990 |
| | $ | 293,911 |
| | $ | 538,668 |
| | $ | 16,421,569 |
| Total | $ | 17,315,687 | | | $ | 333,061 | | | $ | 125,927 | | | $ | 17,774,675 | |
The table above presents the cash rent the Company expects to receive from its tenants, offset by adjustments to recognize this rent on a straight-line basis over the lease term. The Company also includes the future non-cash revenue it expects to recognize from the fixed portion of tenant paid ground leases in the table above. For further details on these tenant paid ground leases, refer to Note 11.
For the years ended December 31, 2018, 2017 and 2016, GLPI recognized $48.9 million, $46.8 million and $43.8 million, respectively, in contingent rental income from Hollywood Casino Columbus and Hollywood Casino Toledo related to clause (ii) in the paragraph above. The expected future minimum rental income from these properties, as well as any anticipated future rent based on the performance of the Company's leased facilities that resets after a certain passage of time are excluded from the table above as they are considered contingent rental income under ASC 840. Any anticipated future rent escalations are also excluded from the table above.9.
The Company has financial interests in twomay periodically loan funds to casino properties through secured mortgage loans toowner-operators for the respective casino owner-operators.purchase of real estate. Interest income related to mortgagereal estate loans receivable is recorded as revenue from mortgaged real estate within the Company's consolidated statements of income in the period earned. During the yearyears ended December 31, 2018,2020 and 2019, the Company recognized interest income from these real estate loans of $6.9 million.$19.1 million and $28.9 million, respectively.
Gaming, Food, Beverage and Other Revenues
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines, and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines 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.
On January 1, 2018, thenet of certain sales incentives, including promotional allowances in accordance with ASC 606. The Company adopted ASU 2014-09, which altered the recognition of revenue at the TRS Properties related to the customer loyalty programs. Specifically, the recognition of revenue associated with these points-based programs was impacted by eliminating the current accrual for the cost of the points awarded at the time of play and instead deferring thealso defers a portion of the revenue received from customers (who participate in the customerpoints-based loyalty programs) at the time of play and attributed to the awarded points until a later period when suchthe points are redeemed or forfeited. The revenue deferral is calculated by allocating a portion ofOther revenues at our TRS Properties are derived from our dining, retail and certain other ancillary activities. During the transaction price to the points based upon their retail value. Under the former guidance, the cost of the points was recorded as an operating expense through the gaming, food, beverage and other expense line item of the Company's consolidated statement of income. Under ASU 2014-09, promotional allowances representing the retail value of food, beverages and other services
furnished to guests without charge are no longer presented as a separate line item on the consolidated statements of income, rather they are presented on a net basis within gaming, food, beverage and other revenue. This change has no impact to total revenues and is for presentation purposes only. The impact of adopting ASU 2014-09 was immaterial to the Company's total revenue for the yearyears ended December 31, 2018.
The following table discloses2020 and 2019, the components ofCompany recognized gaming, food, beverage and other revenue withinof $103.0 million and $128.4 million, respectively.
15. Stock-Based Compensation
As of December 31, 2020, the consolidated statementsCompany had 4,111,073 shares available for future issuance under the Amended 2013 Long Term Incentive Compensation Plan (the "2013 Plan"). The 2013 Plan provides for the Company to issue restricted stock awards, including performance-based restricted stock awards and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards. The Company issues new authorized common shares to satisfy stock option exercises and restricted stock award releases.
As of incomeDecember 31, 2020, there was $3.2 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 1.59 years. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $9.3 million, $7.5 million and $4.7 million, respectively, of compensation expense associated with these awards. The total fair value of awards released during the years ended December 31, 2020, 2019 and 2018, was $13.7 million, $10.1 million and $10.0 million, respectively.
The following table contains information on restricted stock award activity for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | |
| Number of Award Shares | | Weighted Average Grant-Date Fair Value |
Outstanding at December 31, 2018 | 299,642 | | | $ | 33.53 | |
Granted | 317,290 | | | $ | 22.69 | |
Released | (299,961) | | | $ | 21.47 | |
Canceled | 0 | | | $ | 0 | |
Outstanding at December 31, 2019 | 316,971 | | | $ | 34.10 | |
Granted | 275,456 | | | $ | 28.29 | |
Released | (331,868) | | | $ | 25.65 | |
Canceled | (7,999) | | | $ | 38.46 | |
Outstanding at December 31, 2020 | 252,560 | | | $ | 38.72 | |
Performance-based restricted stock awards have a three-year cliff vesting with the amount of restricted shares vesting at the end of the three-year period determined based upon the Company’s performance as measured against its peers. More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three-year total shareholder return measured against the three-year total shareholder return of the companies included in the MSCI US REIT index and the Company's stock performance ranking among a group of triple-net REIT peer companies. The triple-net measurement group includes publicly traded REITs, which the Company believes derive at least 75% of revenues from triple-net leases and meet a minimum market capitalization. As of December 31, 2020, there was $9.0 million of total unrecognized compensation cost for performance-based restricted stock awards, which will be recognized over the awards' remaining weighted average vesting period of 1.73 years. For the years ended December 31, 2020, 2019 and 2018, 2017the Company recognized $10.7 million, $8.7 million and 2016: $6.4 million, respectively, of compensation expense associated with these awards. The total fair value of performance-based stock awards released during the years ended December 31, 2020, 2019, and 2018 was $23.4 million, $14.7 million, and $20.1 million respectively.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| (in thousands) |
Slot machines | $ | 111,315 |
| | $ | 118,998 |
| | $ | 119,390 |
|
Table games | 15,528 |
| | 17,218 |
| | 18,069 |
|
Poker | 1,114 |
| | 1,182 |
| | 1,135 |
|
Food, beverage and other | 8,762 |
| | 9,468 |
| | 11,067 |
|
Promotional allowances | (4,174 | ) | | (4,780 | ) | | (5,610 | ) |
Total gaming, food, beverage and other revenue | $ | 132,545 |
| | $ | 142,086 |
| | $ | 144,051 |
|
The following table contains information on performance-based restricted stock award activity for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | |
| Number of Performance-Based Award Shares | | Weighted Average Grant-Date Fair Value |
Outstanding at December 31, 2018 | 1,342,000 | | | $ | 18.60 | |
Granted | 512,000 | | | $ | 17.85 | |
Released | (447,334) | | | $ | 17.22 | |
Canceled | (23,332) | | | $ | 18.63 | |
Outstanding at December 31, 2019 | 1,383,334 | | | $ | 18.77 | |
Granted | 504,000 | | | $ | 23.62 | |
Released | (561,667) | | | $ | 18.51 | |
Canceled | (131,673) | | | $ | 20.74 | |
Outstanding at December 31, 2020 | 1,193,994 | | | $ | 20.72 | |
13.
16. Income Taxes
The Company elected on its U.S. federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT. The benefits of the intended REIT conversion on the Company's tax provision and effective income tax rate are reflected in the tables below. Deferred tax assets and liabilities are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. As a result of the Tax Cuts and Jobs Act, the corporate tax rate was permanently lowered from the previous maximum rate of 35% to 21%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate, U.S. generally accepted accounting principles required companies to re-value their deferred tax assets and liabilities as of the date of the enactment, with resulting tax effects accounted for in the reported period of enactment. As such, the Company revalued its net deferred tax asset at December 31, 2017. This revaluation resulted in a reduction in the value of its net deferred tax asset of approximately $1.8 million, which was recorded as additional income tax expense in the Company’s consolidated statement of income for the year ended December 31, 2017.
The components of the Company's deferred tax assets and liabilities related to its TRS, are as follows:
| | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 |
| (in thousands) |
Deferred tax assets: | | | |
Accrued expenses | $ | 1,508 | | | $ | 1,597 | |
Property and equipment | 6,443 | | | 5,844 | |
Interest expense | 1,170 | | | 596 | |
Net operating losses | 310 | | | 0 | |
Gross deferred tax assets | 9,431 | | | 8,037 | |
Less: valuation allowance | (1,731) | | | 0 | |
Net deferred tax assets | 7,700 | | | 8,037 | |
Deferred tax liabilities: | | | |
Property and equipment | (556) | | | (624) | |
Intangibles | (1,813) | | | (1,636) | |
Net deferred tax liabilities | (2,369) | | | (2,260) | |
Net: | $ | 5,331 | | | $ | 5,777 | |
The carrying amounts of deferred tax assets have been reduced by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, the Company gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets.
As of December 31, 2020, the valuation allowance against deferred tax assets was $1.7 million.The valuation allowance balance is associated mainly with net operating losses, disallowed interest expense carryforward, and other additional deferred tax assets.
|
| | | | | | | |
Year ended December 31, | 2018 | | 2017 |
| (in thousands) |
Deferred tax assets: | |
| | |
|
Accrued expenses | $ | 1,416 |
| | $ | 1,597 |
|
Property and equipment | 5,405 |
| | 4,823 |
|
Interest expense | 313 |
| | — |
|
Net deferred tax assets | 7,134 |
| | 6,420 |
|
Deferred tax liabilities: | |
| | |
|
Property and equipment | (757 | ) | | (902 | ) |
Intangibles | (1,460 | ) | | (1,284 | ) |
Net deferred tax liabilities | (2,217 | ) | | (2,186 | ) |
Net: | $ | 4,917 |
| | $ | 4,234 |
|
The provision for income taxes charged to operations for years ended December 31, 2018, 20172020, 2019 and 20162018 was as follows:
| | Year ended December 31, | 2018 |
| 2017 |
| 2016 | Year ended December 31, | 2020 | | 2019 | | 2018 |
| (in thousands) | | (in thousands) |
Current tax expense | |
|
| |
|
| |
| Current tax expense | | | | | |
Federal | $ | 2,856 |
| | $ | 7,039 |
| | $ | 6,004 |
| Federal | $ | 1,111 | | | $ | 3,005 | | | $ | 2,856 | |
State | 2,630 |
| | 3,309 |
| | 3,076 |
| State | 2,315 | | | 2,514 | | | 2,630 | |
Total current | 5,486 |
| | 10,348 |
| | 9,080 |
| Total current | 3,426 | | | 5,519 | | | 5,486 | |
Deferred tax (benefit) expense | |
|
| |
|
| |
| Deferred tax (benefit) expense | | | | | |
Federal | (512 | ) | | (166 | ) | | (1,324 | ) | Federal | 467 | | | (667) | | | (512) | |
State | (10 | ) | | (395 | ) | | (211 | ) | State | (16) | | | (88) | | | (10) | |
Total deferred | (522 | ) | | (561 | ) | | (1,535 | ) | Total deferred | 451 | | | (755) | | | (522) | |
Total provision | $ | 4,964 |
| | $ | 9,787 |
| | $ | 7,545 |
| Total provision | $ | 3,877 | | | $ | 4,764 | | | $ | 4,964 | |
The following tables reconcile the statutory federal income tax rate to the actual effective income tax rate for the years ended December 31, 2018, 20172020, 2019 and 2016:2018:
| | Year ended December 31, | 2018 |
| 2017 |
| 2016 | Year ended December 31, | 2020 | | 2019 | | 2018 |
Percent of pretax income | |
|
| |
|
| |
| Percent of pretax income | | | | | |
U.S. federal statutory income tax rate | 21.0 | % | | 35.0 | % | | 35.0 | % | U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State and local income taxes | 0.6 | % | | 0.6 | % | | 0.7 | % | State and local income taxes | 0.4 | % | | 0.5 | % | | 0.6 | % |
Federal tax rate change | — | % | | 0.5 | % | | — | % | |
Valuation allowance | | Valuation allowance | 0.3 | % | | 0 | % | | 0 | % |
| REIT conversion benefit | (23.8 | )% | | (33.6 | )% | | (33.2 | )% | REIT conversion benefit | (21.0) | % | | (20.3) | % | | (23.8) | % |
Goodwill impairment charges | 3.6 | % | | — | % | | — | % | Goodwill impairment charges | 0 | % | | 0 | % | | 3.6 | % |
Other miscellaneous items | | Other miscellaneous items | 0.1 | % | | 0 | % | | 0 | % |
| 1.4 | % | | 2.5 | % | | 2.5 | % | | 0.8 | % | | 1.2 | % | | 1.4 | % |
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 | | 2018 | |
| (in thousands) | |
Amount based upon pretax income | | | | | | |
U.S. federal statutory income tax | $ | 107,013 | | | $ | 83,086 | | | $ | 72,341 | | |
State and local income taxes | 1,955 | | | 2,051 | | | 2,246 | | |
Valuation allowance | 1,731 | | | 0 | | | 0 | | |
| | | | | | |
REIT conversion benefit | (106,839) | | | (80,397) | | | (82,151) | | |
Goodwill impairment charges | 0 | | | 0 | | | 12,485 | | |
Permanent differences | 16 | | | 23 | | | 19 | | |
Other miscellaneous items | 1 | | | 1 | | | 24 | | |
| $ | 3,877 | | | $ | 4,764 | | | $ | 4,964 | | |
|
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
| (in thousands) |
Amount based upon pretax income | |
| | |
| | |
|
U.S. federal statutory income tax | $ | 72,341 |
| | $ | 136,636 |
| | $ | 103,897 |
|
State and local income taxes | 2,246 |
| | 2,284 |
| | 2,039 |
|
Federal tax rate change | — |
| | 1,818 |
| | — |
|
REIT conversion benefit | (82,151 | ) | | (130,876 | ) | | (98,459 | ) |
Goodwill impairment charges | 12,485 |
| | — |
| | — |
|
Permanent differences | 19 |
| | 49 |
| | 44 |
|
Other miscellaneous items | 24 |
| | (124 | ) | | 24 |
|
| $ | 4,964 |
| | $ | 9,787 |
| | $ | 7,545 |
|
The Company is still subject to federal income tax examinations for its years ended December 31, 20152016 and forward.
14.
17. Earnings Per Share
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 years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (in thousands) |
Determination of shares: | | | | | |
Weighted-average common shares outstanding | 218,817 | | | 214,667 | | | 213,720 | |
Assumed conversion of employee stock-based awards | 0 | | | 0 | | | 206 | |
Assumed conversion of restricted stock awards | 76 | | | 117 | | | 80 | |
Assumed conversion of performance-based restricted stock awards | 880 | | | 1,002 | | | 773 | |
Diluted weighted-average common shares outstanding | 219,773 | | | 215,786 | | | 214,779 | |
The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (in thousands, except per share and share amounts) |
Calculation of basic EPS: | | | | | |
Net income | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
Less: Net income allocated to participating securities | (583) | | | (576) | | | (475) | |
Net income attributable to common shareholders | $ | 505,128 | | | $ | 390,305 | | | $ | 339,041 | |
Weighted-average common shares outstanding | 218,817 | | | 214,667 | | | 213,720 | |
Basic EPS | $ | 2.31 | | | $ | 1.82 | | | $ | 1.59 | |
| | | | | |
Calculation of diluted EPS: | | | | | |
Net income | $ | 505,711 | | | $ | 390,881 | | | $ | 339,516 | |
Diluted weighted-average common shares outstanding | 219,773 | | | 215,786 | | | 214,779 | |
Diluted EPS | $ | 2.30 | | | $ | 1.81 | | | $ | 1.58 | |
| | | | | |
Antidilutive securities excluded from the computation of diluted earnings per share (in shares) | 426 | | | 0 | | | 13,335 | |
18.Shareholders' Equity
Common Stock
ATM Program
DuringOn August 2016,14, 2019, the Company commenced a continuous equity offering under which the Company may sell up to an aggregate of $400$600 million of its common stock from time to time through a sales agent in "at the market" offerings (the "ATM"2019 ATM Program"). Actual sales will depend on a variety of factors, including market conditions, the trading price of the
Company's common stock and determinations of the appropriate sources of funding for proposed transactions.funding. The Company may sell the shares in amounts and at times to be determined by the Company, but has no obligation to sell any of the shares in the 2019 ATM Program. The 2019 ATM Program also allows the Company to enter into forward sale agreements. In no event will the aggregate number of shares sold under the 2019 ATM Program (whether under any forward sale agreement or through a sales agent), have an aggregate sales price in excess of $400$600 million. The Company expects, that if it enters into a forward sale contract, to physically settle each forward sale agreement with the forward purchaser on one or more dates specified by the Company prior to the maturity date of that particular forward sale agreement, in which case the aggregate net cash proceeds at settlement will equal the number of shares underlying the particular forward sale agreement multiplied by the relevant forward sale price. However, the Company may also elect to cash settle or net share settle a particular forward sale agreement, in which case proceeds may or may not be received or cash may be owed to the forward purchaser.
In connection with the 2019 ATM Program, the Company engaged a sales agent who may receive compensation of up to 2% of the gross sales price of the shares sold. Similarly, in the event the Company enters into a forward sale agreement, it will pay the relevant forward seller a commission of up to 2% of the sales price of all borrowed shares of common stock sold during the applicable selling period of the forward sale agreement.
No shares were sold under the ATM Program during the year ended December 31, 2018. During the year ended December 31, 2017,2020, GLPI sold 3,864,8727,971 shares of its common stock at an average price of $36.22$45.90 per share under the 2019 ATM Program, which generated gross proceeds of approximately $140.0$0.4 million (net proceeds of approximately $139.4$0.2 million). Program commencement to date, the Company has sold 5,186,8719,471 shares of its common stock at an average price of $35.91$45.46 per share under the ATM Program and generated gross proceeds of approximately $186.3$0.4 million (net proceedscosts of approximately $185.0$0.1 million). The Company used the net proceeds from the ATM Program to partially fund its acquisition of the Meadows' and Tunica Properties' real estate assets. As of December 31, 2018,2020, the Company had $213.7$599.6 million remaining for issuance under the 2019 ATM Program and had not entered into any forward sale agreements.
Stock Issued in Connection with Pinnacle Transaction
On April 6, 2016,During the fourth quarter of 2020, the Company closed a public offering of 28,750,000 shares of its common stock, at a public offering price of $30.00 per share, before underwriting discount, which included 3,750,000issued 9.2 million shares of common stock issued in connection with the exercise in full of the underwriters’ option to purchase additional shares.
The Company received approximately $825.2 million in net proceeds from the offering and used the net proceeds from the offeringat $36.25 per share to partially fund its acquisition of substantially all offinance the real estate assets of Pinnacle, including the repayment, redemption and/or discharge of a portion of certain debt of Pinnacle assumed by the Company in connection with the Pinnacle Merger and the payment of transaction-related fees and expenses.
Additionally, on April 28, 2016, in connection with the Pinnacle Merger, the Company issued approximately 56.0 million shares of its common stock to Pinnacle stockholders and to Pinnacle to satisfy the Company's portion of Pinnacle's employee equity and cash-based incentive awards as considerationfunding required for the Pinnacle real estate assets.upcoming Bally's transaction. See Note 7 for further details.
The following table lists the regular dividends declared and paid by the Company during the years ended December 31, 2018, 20172020, 2019 and 2016:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Shareholder Record Date | | Securities Class | | Dividend Per Share | | Period Covered | | Distribution Date | | Dividend Amount (1) |
| | | | | | | | | | | | (in thousands) |
2020 | | | | | | | | | | | | |
February 20, 2020 | | March 6, 2020 | | Common Stock | | $ | 0.70 | | | First Quarter 2020 | | March 20, 2020 | | $ | 150,574 | |
April 29, 2020 | | May 13, 2020 | | Common Stock | | $ | 0.60 | | | Second Quarter 2020 | | June 26, 2020 | | $ | 129,071 | |
August 6, 2020 | | August 17, 2020 | | Common Stock | | $ | 0.60 | | | Third Quarter 2020 | | September 25, 2020 | | $ | 130,697 | |
November 5, 2020 | | November 16, 2020 | | Common Stock | | $ | 0.60 | | | Fourth Quarter 2020 | | December 24, 2020 | | $ | 137,943 | |
2019 | | | | | | | | | | | | |
February 19, 2019 | | March 8, 2019 | | Common Stock | | $ | 0.68 | | | First Quarter 2019 | | March 22, 2019 | | $ | 145,954 | |
May 28, 2019 | | June 14, 2019 | | Common Stock | | $ | 0.68 | | | Second Quarter 2019 | | June 28, 2019 | | $ | 145,978 | |
August 20, 2019 | | September 6, 2019 | | Common Stock | | $ | 0.68 | | | Third Quarter 2019 | | September 20, 2019 | | $ | 145,984 | |
November 26, 2019 | | December 13, 2019 | | Common Stock | | $ | 0.70 | | | Fourth Quarter 2019 | | December 27, 2019 | | $ | 150,285 | |
2018 | | | | | | | | | | | | |
February 1, 2018 | | March 9, 2018 | | Common Stock | | $ | 0.63 | | | First Quarter 2018 | | March 23, 2018 | | $ | 134,490 | |
April 24, 2018 | | June 15, 2018 | | Common Stock | | $ | 0.63 | | | Second Quarter 2018 | | June 29, 2018 | | $ | 134,631 | |
July 31, 2018 | | September 7, 2018 | | Common Stock | | $ | 0.63 | | | Third Quarter 2018 | | September 21, 2018 | | $ | 134,844 | |
October 12, 2018 | | December 14, 2018 | | Common Stock | | $ | 0.68 | | | Fourth Quarter 2018 | | December 28, 2018 | | $ | 145,627 | |
|
| | | | | | | | | | | | | | | | |
Declaration Date | | Shareholder Record Date | | Securities Class | | Dividend Per Share | | Period Covered | | Distribution Date | | Dividend Amount |
| | | | | | | | | | | | (in thousands) |
2018 | | | | | | | | | | | | |
February 1, 2018 | | March 9, 2018 | | Common Stock | | $ | 0.63 |
| | First Quarter 2018 | | March 23, 2018 | | $ | 134,490 |
|
April 24, 2018 | | June 15, 2018 | | Common Stock | | $ | 0.63 |
| | Second Quarter 2018 | | June 29, 2018 | | $ | 134,631 |
|
July 31, 2018 | | September 7, 2018 | | Common Stock | | $ | 0.63 |
| | Third Quarter 2018 | | September 21, 2018 | | $ | 134,844 |
|
October 12, 2018 | | December 14, 2018 | | Common Stock | | $ | 0.68 |
| | Fourth Quarter 2018 | | December 28, 2018 | | $ | 145,627 |
|
2017 | | | | | | | | | | | | |
February 1, 2017 | | March 13, 2017 | | Common Stock | | $ | 0.62 |
| | First Quarter 2017 | | March 24, 2017 | | $ | 129,007 |
|
April 25, 2017 | | June 16, 2017 | | Common Stock | | $ | 0.62 |
| | Second Quarter 2017 | | June 30, 2017 | | $ | 131,554 |
|
July 25, 2017 | | September 8, 2017 | | Common Stock | | $ | 0.63 |
| | Third Quarter 2017 | | September 22, 2017 | | $ | 133,936 |
|
October 19, 2017 | | December 1, 2017 | | Common Stock | | $ | 0.63 |
| | Fourth Quarter 2017 | | December 15, 2017 | | $ | 133,942 |
|
2016 | | | | | | | | | | | | |
January 29, 2016 | | February 22, 2016 | | Common Stock | | $ | 0.56 |
| | First Quarter 2016 | | March 25, 2016 | | $ | 65,345 |
|
April 25, 2016 | | June 2, 2016 | | Common Stock | | $ | 0.56 |
| | Second Quarter 2016 | | June 17, 2016 | | $ | 113,212 |
|
August 3, 2016 | | September 12, 2016 | | Common Stock | | $ | 0.60 |
| | Third Quarter 2016 | | September 23, 2016 | | $ | 124,262 |
|
November 4, 2016 | | December 5, 2016 | | Common Stock | | $ | 0.60 |
| | Fourth Quarter 2016 | | December 16, 2016 | | $ | 124,466 |
|
(1) Dividend distributed on June 26, 2020 was paid $25.8 million in cash and $103.2 million in stock (2,697,946 shares at $38.2643). Dividend distributed on September 25, 2020 was paid $26.2 million in cash and $104.5 million in stock (2,767,704 shares at $37.7635). Dividend distributed on December 24, 2020 was paid $27.6 million in cash and $110.3 million in stock (2,543,675 shares at $43.3758). For accounting purposes, since the Company is in an accumulated deficit position the value of the stock dividend was recorded at its par value.
In addition, for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, 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 $0.8 million, $0.9 million and $1.1$0.8 million, respectively. Dividends distributed to the Company's employees on June 26, 2020 were paid $33 thousand in cash and $153 thousand in stock (4,006 shares at $38.2643). Dividends distributed to the Company's employees on September 25, 2020 were paid $32 thousand in cash and $217 thousand
in stock (5,746 shares at$37.7635). Dividends distributed to the Company's employees on December 24, 2020 were paid $34 thousand in cash and $118 thousand in stock (2,722 shares at $43.3758).
A summary of the Company's common stock distributions for the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows (unaudited):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (in dollars per share) |
Qualified dividends | $ | 0 | | | $ | 0.0387 | | | $ | 0.0391 | |
Non-qualified dividends | 2.4517 | | | 2.2649 | | | 2.2955 | |
Capital gains | 0.0025 | | | 0.0353 | | | 0.0270 | |
Non-taxable return of capital | 0.0458 | | | 0.4011 | | | 0.2084 | |
Total distributions per common share | $ | 2.50 | | | $ | 2.74 | | | $ | 2.57 | |
| | | | | |
Percentage classified as qualified dividends | 0 | % | | 1.41 | % | | 1.52 | % |
Percentage classified as non-qualified dividends | 98.07 | % | | 82.66 | % | | 89.32 | % |
Percentage classified as capital gains | 0.10 | % | | 1.29 | % | | 1.05 | % |
Percentage classified as non-taxable return of capital | 1.83 | % | | 14.64 | % | | 8.11 | % |
| 100.00 | % | | 100.00 | % | | 100.00 | % |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| (in dollars per share) |
Qualified dividends | $ | 0.0391 |
| | $ | 0.0543 |
| | $ | 0.1050 |
|
Non-qualified dividends | 2.2955 |
| | 2.2436 |
| | 2.0746 |
|
Capital gains | 0.0270 |
| | 0.0371 |
| | 0.0624 |
|
Non-taxable return of capital | 0.2084 |
| | 0.1650 |
| | 0.0780 |
|
Total distributions per common share | $ | 2.57 |
| | $ | 2.50 |
| | $ | 2.32 |
|
| | | | | |
Percentage classified as qualified dividends | 1.52 | % | | 2.17 | % | | 4.53 | % |
Percentage classified as non-qualified dividends | 89.32 | % | | 89.75 | % | | 89.42 | % |
Percentage classified as capital gains | 1.05 | % | | 1.48 | % | | 2.69 | % |
Percentage classified as non-taxable return of capital | 8.11 | % | | 6.60 | % | | 3.36 | % |
| 100.00 | % | | 100.00 | % | | 100.00 | % |
15. Stock-Based Compensation
As of December 31, 2018, the Company had 2,556,815 shares available for future issuance under the Amended and Restated 2013 Long Term Incentive Compensation Plan (the "2013 Plan") that was approved by shareholders on October 23, 2013. The 2013 Plan provides for the Company to issue restricted stock awards, including performance-based restricted stock awards and other equity or cash based awards to employees. Any director, employee or consultant shall be eligible to receive such awards.
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 and phantom stock units ("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 cost relating to restricted stock awards and performance-based restricted stock awards will be amortized to expense over the awards’ remaining vesting periods.
As of December 31, 2018, all outstanding stock options were fully vested and there was no remaining unrecognized compensation cost related to stock options. For the years ended December 31, 2018 and 2017, the Company recognized no compensation expense associated with these awards and recognized $20 thousand of compensation expense associated with these awards for the year ended December 31, 2016. In addition, for the year ended December 31, 2016 the Company also recognized $4.5 million of compensation expense relating to the $2.32 per share dividends paid on vested employee stock options.
The following tables contain information on stock options issued and outstanding for the year ended December 31, 2018 :
|
| | | | | | | | | | | | | |
| | Number of Option Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in thousands) |
Outstanding at December 31, 2017 | | 1,040,745 |
| | $ | 19.80 |
| | | | |
|
Exercised | | (1,012,508 | ) | | 19.74 |
| | | | |
|
Canceled | | (1,438 | ) | | 17.33 |
| | | | |
|
Outstanding at December 31, 2018 | | 26,799 |
| | $ | 22.09 |
| | 0.01 | | $ | 272 |
|
The Company had 26,799 stock options that were exercisable at December 31, 2018 with an exercise price of $22.09 which had an intrinsic value of $0.3 million and a weighted-average remaining contractual term of 0.01 years. The aggregate intrinsic value of stock options exercised for the years ended December 31, 2018, 2017 and 2016 was $15.1 million, $14.9 million and $75.0 million, respectively. The Company issues new authorized common shares to satisfy stock option exercises and restricted stock award releases.
As of December 31, 2018, there was $5.4 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 1.71 years. For the years ended December 31, 2018, 2017 and 2016, the Company recognized $4.7 million, $6.0 million and $7.3 million, respectively, of compensation expense associated with these awards. The total fair value of awards released for the years ended December 31, 2018, 2017 and 2016, was $10.0 million, $7.3 million and $5.3 million, respectively.
The following table contains information on restricted stock award activity for the years ended December 31, 2018 and 2017:
|
| | | | | | |
| Number of Award Shares | | Weighted Average Grant-Date Fair Value |
Outstanding at December 31, 2016 | 413,242 |
| | $ | 30.59 |
|
Granted | 184,791 |
| | $ | 30.89 |
|
Released | (251,313 | ) | | $ | 32.05 |
|
Canceled | (1,976 | ) | | $ | 30.37 |
|
December 31, 2017 | 344,744 |
| | $ | 29.69 |
|
Granted | 283,183 |
| | $ | 23.34 |
|
Released | (273,286 | ) | | $ | 18.16 |
|
Canceled (1) | (54,999 | ) | | $ | 33.34 |
|
Outstanding at December 31, 2018 | 299,642 |
| | $ | 33.53 |
|
Performance-based restricted stock awards have a three-year cliff vesting with the amount of restricted shares vesting at the end of the three-year period determined based upon the Company’s performance as measured against its peers. More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three-year total shareholder return measured against the three-year return of the companies included in the MSCI US REIT index and the Company's stock performance ranking among a group of triple-net REIT peer companies. The triple-net measurement group includes publicly traded REITs deriving at least 75% of revenues from triple-net leases. As of December 31, 2018, there was $8.9 million of total unrecognized compensation cost, which will be recognized over the awards' remaining weighted average vesting period of 1.70 years. For the years ended December 31, 2018, 2017 and 2016, the Company recognized $6.4 million, $9.7 million and $11.0 million, respectively, of compensation expense associated with these awards.
The following table contains information on performance-based restricted stock award activity for the years ended December 31, 2018 and 2017:
|
| | | | | | |
| Number of Performance-Based Award Shares | | Weighted Average Grant-Date Fair Value |
Outstanding at December 31, 2016 | 1,106,000 |
| | $ | 17.25 |
|
Granted | 558,000 |
| | $ | 17.95 |
|
Released | — |
| | $ | — |
|
Canceled | — |
| | $ | — |
|
December 31, 2017 | 1,664,000 |
| | $ | 17.49 |
|
Granted | 556,000 |
| | $ | 20.64 |
|
Released | (548,000 | ) | | $ | 17.29 |
|
Canceled (1) | (330,000 | ) | | $ | 18.60 |
|
Outstanding at December 31, 2018 | 1,342,000 |
| | $ | 18.60 |
|
(1) The canceled shares and the resulting reversal of expense during the second quarter of 2018 are the result of the retirement of the Company's former Chief Financial Officer.
16.19.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.
| | | | | | | | | | | | GLP Capital | | TRS Segment (1) | | Total |
| | GLP Capital | | TRS Properties | | Eliminations (1) | | Total | | (in thousands) |
For the year ended December 31, 2020 | | For the year ended December 31, 2020 | |
Total revenues | | Total revenues | | $ | 1,050,166 | | | $ | 102,999 | | | $ | 1,153,165 | |
Income from operations | | Income from operations | | 792,467 | | | 16,807 | | | 809,274 | |
Interest expense | | Interest expense | | 266,163 | | | 15,979 | | | 282,142 | |
Income before income taxes | | Income before income taxes | | 508,757 | | | 831 | | | 509,588 | |
Income tax expense | | Income tax expense | | 697 | | | 3,180 | | | 3,877 | |
Net income (loss) | | Net income (loss) | | 508,060 | | | (2,349) | | | 505,711 | |
Depreciation | | Depreciation | | 222,041 | | | 8,932 | | | 230,973 | |
Capital project expenditures | | Capital project expenditures | | 0 | | | 474 | | | 474 | |
Capital maintenance expenditures | | Capital maintenance expenditures | | 186 | | | 2,944 | | | 3,130 | |
| For the year ended December 31, 2019 | | For the year ended December 31, 2019 | |
Total revenues | | Total revenues | | $ | 1,025,082 | | | $ | 128,391 | | | $ | 1,153,473 | |
Income from operations | | Income from operations | | 694,215 | | | 23,208 | | | 717,423 | |
Interest expense (2) | | Interest expense (2) | | 291,114 | | | 10,406 | | | 301,520 | |
Income before income taxes | | Income before income taxes | | 382,841 | | | 12,804 | | | 395,645 | |
Income tax expense | | Income tax expense | | 657 | | | 4,107 | | | 4,764 | |
Net income | | Net income | | 382,184 | | | 8,697 | | | 390,881 | |
Depreciation | | Depreciation | | 232,708 | | | 7,727 | | | 240,435 | |
Capital project expenditures | | Capital project expenditures | | 0 | | | 0 | | | 0 | |
Capital maintenance expenditures | | Capital maintenance expenditures | | 22 | | | 2,995 | | | 3,017 | |
| | (in thousands) | |
For the year ended December 31, 2018 | | | | | | | | | For the year ended December 31, 2018 | |
Total revenues | | $ | 923,182 |
| | $ | 132,545 |
| | $ | — |
| | $ | 1,055,727 |
| Total revenues | | $ | 923,182 | | | $ | 132,545 | | | $ | 1,055,727 | |
Income (loss) from operations | | 630,122 |
| | (36,312 | ) | | — |
| | 593,810 |
| Income (loss) from operations | | 630,122 | | | (36,312) | | | 593,810 | |
Interest expense | | 247,684 |
| | 10,406 |
| | (10,406 | ) | | 247,684 |
| Interest expense | | 237,278 | | | 10,406 | | | 247,684 | |
Income (loss) before income taxes | | 391,196 |
| | (46,716 | ) | | — |
| | 344,480 |
| Income (loss) before income taxes | | 391,196 | | | (46,716) | | | 344,480 | |
Income tax expense | | 855 |
| | 4,109 |
| | — |
| | 4,964 |
| Income tax expense | | 855 | | | 4,109 | | | 4,964 | |
Net income (loss) | | 390,341 |
| | (50,825 | ) | | — |
| | 339,516 |
| Net income (loss) | | 390,341 | | | (50,825) | | | 339,516 | |
Depreciation | | 127,696 |
| | 9,397 |
| | — |
| | 137,093 |
| Depreciation | | 127,696 | | | 9,397 | | | 137,093 | |
Capital project expenditures | | 20 |
| | — |
| | — |
| | 20 |
| Capital project expenditures | | 20 | | | 0 | | | 20 | |
Capital maintenance expenditures | | 55 |
| | 4,229 |
| | — |
| | 4,284 |
| Capital maintenance expenditures | | 55 | | | 4,229 | | | 4,284 | |
| | | | | | | | | |
For the year ended December 31, 2017 | | | | | | | | | |
Total revenues | | $ | 829,221 |
| | $ | 142,086 |
| | $ | — |
| | $ | 971,307 |
| |
Income from operations | | 578,661 |
| | 26,857 |
| | — |
| | 605,518 |
| |
Interest expense | | 217,068 |
| | 10,406 |
| | (10,406 | ) | | 217,068 |
| |
Income before income taxes | | 373,931 |
| | 16,454 |
| | — |
| | 390,385 |
| |
Income tax expense | | 1,099 |
| | 8,688 |
| | — |
| | 9,787 |
| |
Net income | | 372,832 |
| | 7,766 |
| | — |
| | 380,598 |
| |
Depreciation | | 102,652 |
| | 10,828 |
| | — |
| | 113,480 |
| |
Capital project expenditures | | 78 |
| | — |
| | — |
| | 78 |
| |
Capital maintenance expenditures | | — |
| | 3,178 |
| | — |
| | 3,178 |
| |
| | | | | | | | | |
For the year ended December 31, 2016 | | | | | | | | | |
Total revenues | | $ | 684,204 |
| | $ | 144,051 |
| | $ | — |
| | $ | 828,255 |
| |
Income from operations | | 454,682 |
| | 25,941 |
| | — |
| | 480,623 |
| |
Interest expense | | 185,896 |
| | 10,406 |
| | (10,406 | ) | | 185,896 |
| |
Income before income taxes | | 281,311 |
| | 15,539 |
| | — |
| | 296,850 |
| |
Income tax expense | | 1,016 |
| | 6,529 |
| | — |
| | 7,545 |
| |
Net income | | 280,295 |
| | 9,010 |
| | — |
| | 289,305 |
| |
Depreciation | | 98,171 |
| | 11,383 |
| | — |
| | 109,554 |
| |
Capital project expenditures | | 229 |
| | 101 |
| | — |
| | 330 |
| |
Capital maintenance expenditures | | — |
| | 3,111 |
| | — |
| | 3,111 |
| |
| | | | | | | | | |
Balance sheet at December 31, 2018 | | | | | | | | | |
Balance sheet at December 31, 2020 | | Balance sheet at December 31, 2020 | |
Total assets | | $ | 8,441,345 |
| | $ | 135,948 |
| | $ | — |
| | $ | 8,577,293 |
| Total assets | | $ | 8,590,190 | | | $ | 444,178 | | | $ | 9,034,368 | |
| | | | | | | | | |
Balance sheet at December 31, 2017 | | | | | | | | | |
Balance sheet at December 31, 2019 | | Balance sheet at December 31, 2019 | |
Total assets | | $ | 7,045,747 |
| | $ | 201,135 |
| | $ | — |
| | $ | 7,246,882 |
| Total assets | | $ | 8,299,143 | | | $ | 135,155 | | | $ | 8,434,298 | |
(1) Amounts inResults for the "Eliminations" column represent the eliminationyear ended December 31, 2020 include depreciation expense of $2.7 million associated with Tropicana Las Vegas.
(2) Interest expense is net of intercompany interest payments fromeliminations of $16.0 million for the Company’s TRS Properties business segmentyear ended December 31, 2020 compared to its GLP Capital business segment.
17. Summarized Quarterly Data (Unaudited)
The following table summarizes the quarterly results$10.4 million for each of operations for the years ended December 31, 20182019 and 2017:2018.
|
| | | | | | | | | | | | | | | | | |
| Fiscal Quarter | |
| First | | Second | | Third | | Fourth | |
| (in thousands, except per share data) | |
2018 | |
| | |
| | |
| | |
| |
Total revenues | $ | 244,050 |
| | $ | 254,221 |
| | $ | 254,139 |
| | $ | 303,317 |
| (1 | ) |
Income from operations | 151,851 |
| | 153,241 |
| | 164,834 |
| | 123,884 |
| (1 | ) |
Net income | 96,772 |
| | 91,998 |
| | 104,815 |
| | 45,931 |
| (2 | ) |
| | | | | | | | |
Earnings per common share: | |
| | |
| | |
| | |
| |
Basic earnings per common share | $ | 0.45 |
| | $ | 0.43 |
| | $ | 0.49 |
| | $ | 0.21 |
| |
Diluted earnings per common share | $ | 0.45 |
| | $ | 0.43 |
| | $ | 0.49 |
| | $ | 0.21 |
| |
| | | | | | | | |
2017 | |
| | |
| | |
| | |
| |
Total revenues | $ | 242,713 |
| | $ | 243,391 |
| | $ | 244,506 |
| | $ | 240,697 |
| |
Income from operations | 150,006 |
| | 152,696 |
| | 152,699 |
| | 150,117 |
| |
Net income | 93,991 |
| | 96,334 |
| | 97,014 |
| | 93,259 |
| |
| | | | | | | | |
Earnings per common share: | |
| | |
| | |
| | |
| |
Basic earnings per common share | $ | 0.45 |
| | $ | 0.46 |
| | $ | 0.46 |
| | $ | 0.44 |
| |
Diluted earnings per common share | $ | 0.45 |
| | $ | 0.45 |
| | $ | 0.45 |
| | $ | 0.43 |
| |
(1) During October 2018, the Company acquired the real property assets of five casino properties from Tropicana and
leased these assets to Eldorado under a new triple-net lease. Also during October 2018, in conjunction with the Penn-
Pinnacle Merger, the Company acquired the real property assets of Plainridge Park and added this property to the
Amended Pinnacle Master Lease. These transactions, in addition to the treatment of the Amended Pinnacle Master Lease as an operating lease in its entirety, as detailed in Note 4 were the primary drivers for the Company's improved operating results in the fourth quarter of 2018.
(2) During the fourth quarter of 2018, the Company recorded an impairment charge of $59.5 million, related to the
goodwill recorded on the books of its subsidiary, Hollywood Casino Baton Rouge. This was the largest driver of the decrease in the Company's net income during the fourth quarter of 2018. For further information on the impairment charge see Note 9.
18.20. Supplemental Disclosures of Cash Flow Information and Noncash Activities
Supplemental disclosures of cash flow information are as follows:
| | | | | | | | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 | | 2018 |
| (in thousands) |
Cash paid for income taxes, net of refunds received | $ | 3,383 | | | $ | 5,554 | | | $ | 5,389 | |
Cash paid for interest | 261,127 | | | 274,530 | | | 229,779 | |
|
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
| (in thousands) |
Cash paid for income taxes, net of refunds received | $ | 5,389 |
| | $ | 11,646 |
| | $ | 7,362 |
|
Cash paid for interest | 229,779 |
| | 204,442 |
| | 154,527 |
|
Noncash Investing and Financing Activities
On January 1, 2019, in conjunction with its adoption of ASU 2016-02, the Company recorded right-of-use assets and related lease liabilities of $203 million on its consolidated balance sheet to represent its rights to underlying assets and future lease obligations. In 2020, the Company acquired from Penn the real property associated with the Tropicana Las Vegas in exchange for rent credits of $307.5 million and the land at Penn's development facility in Morgantown, Pennsylvania for rent credits of $30.0 million. For the year ended December 31, 2020, the Company also acquired the real property of Belterra Park in satisfaction of the Belterra Park Loan of $57.7 million held on the property, subject to the Belterra Park Lease and acquired the real property of Lumière Place in satisfaction of the $246.0 million CZR loan subject to the Lumière Place Lease. In addition, as described in Note 7, the Company entered into an Exchange Agreement pursuant to which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf for the real estate assets of Tropicana Evansville and a cash payment of $5.7 million.
Finally, see Note 18 for a description of the stock dividend that has been distributed in 2020. The Company did not engage in any other noncash investing and financing activities are as follows:
|
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
| (in thousands) |
Reclass of assets from investment in direct financing lease to real estate investments | $ | 2,599,180 |
| | $ | — |
| | $ | — |
|
Equity raised to partially finance the original Pinnacle transaction | — |
| | — |
| | 1,823,991 |
|
19.Supplementary Consolidating Financial Information of Parent Guarantor and Subsidiary Issuers
GLPI guarantees the Notes issued by its subsidiaries, GLP Capital, L.P. and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. None of GLPI's subsidiaries guarantee the Notes.
Summarized balance sheet information as of December 31, 2018 and 2017 and summarized income statement and cash flow information forduring the years ended December 31, 2018, 20172020, 2019 and 2016 for GLPI as the parent guarantor, for GLP Capital, L.P. and GLP Financing II, Inc. as the subsidiary issuers and the other subsidiary non-issuers is presented below.2018.
|
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2018 Consolidating Balance Sheet | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Assets | | |
| | |
| | |
| | |
| | |
|
Real estate investments, net | | $ | — |
| | $ | 2,637,404 |
| | $ | 4,694,056 |
| | $ | — |
| | $ | 7,331,460 |
|
Land rights, net | | — |
| | 100,938 |
| | 572,269 |
| | — |
| | 673,207 |
|
Property and equipment, used in operations, net | | — |
| | 18,577 |
| | 82,307 |
| | — |
| | 100,884 |
|
Mortgage loans receivable | | — |
| | 246,000 |
| | 57,684 |
| | — |
| | 303,684 |
|
Investment in direct financing lease, net | | — |
| | — |
| | — |
| | — |
| | — |
|
Cash and cash equivalents | | — |
| | 4,632 |
| | 21,151 |
| | — |
| | 25,783 |
|
Prepaid expenses | | — |
| | 27,071 |
| | 2,885 |
| | 1,011 |
| | 30,967 |
|
Goodwill | | — |
| | — |
| | 16,067 |
| | — |
| | 16,067 |
|
Other intangible assets | | — |
| | — |
| | 9,577 |
| | — |
| | 9,577 |
|
Loan receivable | | — |
| | — |
| | 13,000 |
| | — |
| | 13,000 |
|
Intercompany loan receivable | | — |
| | 193,595 |
| | — |
| | (193,595 | ) | | — |
|
Intercompany transactions and investment in subsidiaries | | 2,265,607 |
| | 5,247,229 |
| | 2,697,241 |
| | (10,210,077 | ) | | — |
|
Deferred tax assets | | — |
| | — |
| | 5,178 |
| | — |
| | 5,178 |
|
Other assets | | — |
| | 47,378 |
| | 20,108 |
| | — |
| | 67,486 |
|
Total assets | | $ | 2,265,607 |
| | $ | 8,522,824 |
| | $ | 8,191,523 |
| | $ | (10,402,661 | ) | | $ | 8,577,293 |
|
| | | | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
| | |
|
Accounts payable | | $ | — |
| | $ | 2,469 |
| | $ | 42 |
| | $ | — |
| | $ | 2,511 |
|
Accrued expenses | | — |
| | 23,587 |
| | 6,710 |
| | — |
| | 30,297 |
|
Accrued interest | | — |
| | 45,261 |
| | — |
| | — |
| | 45,261 |
|
Accrued salaries and wages | | — |
| | 14,628 |
| | 2,382 |
| | — |
| | 17,010 |
|
Gaming, property, and other taxes | | — |
| | 24,055 |
| | 18,824 |
| | — |
| | 42,879 |
|
Income taxes | | — |
| | (2 | ) | | (1,009 | ) | | 1,011 |
| | — |
|
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | | — |
| | 5,853,497 |
| | — |
| | — |
| | 5,853,497 |
|
Intercompany loan payable | | — |
| | — |
| | 193,595 |
| | (193,595 | ) | | — |
|
Deferred rental revenue | | — |
| | 269,185 |
| | 24,726 |
| | — |
| | 293,911 |
|
Deferred tax liabilities | | — |
| | — |
| | 261 |
| | — |
| | 261 |
|
Other liabilities | | — |
| | 24,536 |
| | 1,523 |
| | — |
| | 26,059 |
|
Total liabilities | | — |
| | 6,257,216 |
| | 247,054 |
| | (192,584 | ) | | 6,311,686 |
|
| | | | | | | | | | |
Shareholders’ equity (deficit) | | |
| | |
| | |
| | |
| | |
|
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2018) | | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock ($.01 par value, 500,000,000 shares authorized, 214,211,932 shares issued and outstanding at December 31, 2018) | | 2,142 |
| | 2,142 |
| | 2,142 |
| | (4,284 | ) | | 2,142 |
|
Additional paid-in capital | | 3,952,503 |
| | 3,952,506 |
| | 9,832,830 |
| | (13,785,336 | ) | | 3,952,503 |
|
Retained accumulated (deficit) earnings | | (1,689,038 | ) | | (1,689,040 | ) | | (1,890,503 | ) | | 3,579,543 |
| | (1,689,038 | ) |
Total shareholders’ equity (deficit) | | 2,265,607 |
| | 2,265,608 |
| | 7,944,469 |
| | (10,210,077 | ) | | 2,265,607 |
|
Total liabilities and shareholders’ equity (deficit) | | $ | 2,265,607 |
| | $ | 8,522,824 |
| | $ | 8,191,523 |
| | $ | (10,402,661 | ) | | $ | 8,577,293 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2018 Consolidating Statement of Income | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Revenues | | |
| | |
| | |
| | |
| | |
|
Rental income | | $ | — |
| | $ | 437,211 |
| | $ | 310,443 |
| | $ | — |
| | $ | 747,654 |
|
Income from direct financing lease | | — |
| | — |
| | 81,119 |
| | — |
| | 81,119 |
|
Interest income from mortgaged real estate | | — |
| | 5,590 |
| | 1,353 |
| | — |
| | 6,943 |
|
Real estate taxes paid by tenants | | — |
| | 46,327 |
| | 41,139 |
| | — |
| | 87,466 |
|
Total income from real estate | | — |
| | 489,128 |
| | 434,054 |
| | — |
| | 923,182 |
|
Gaming, food, beverage and other | | — |
| | — |
| | 132,545 |
| | — |
| | 132,545 |
|
Total revenues | | — |
| | 489,128 |
| | 566,599 |
| | — |
| | 1,055,727 |
|
Operating expenses | | |
| | |
| | |
| | |
| | |
|
Gaming, food, beverage and other | | — |
| | — |
| | 77,127 |
| | — |
| | 77,127 |
|
Real estate taxes | | — |
| | 46,443 |
| | 42,314 |
| | — |
| | 88,757 |
|
Land rights and ground lease expense | | — |
| | 10,156 |
| | 18,202 |
| | — |
| | 28,358 |
|
General and administrative | | — |
| | 49,161 |
| | 21,967 |
| | — |
| | 71,128 |
|
Depreciation | | — |
| | 97,632 |
| | 39,461 |
| | — |
| | 137,093 |
|
Goodwill impairment charges | | — |
| | — |
| | 59,454 |
| | — |
| | 59,454 |
|
Total operating expenses | | — |
| | 203,392 |
| | 258,525 |
| | — |
| | 461,917 |
|
Income from operations | | — |
| | 285,736 |
| | 308,074 |
| | — |
| | 593,810 |
|
| | | | | | | | | | |
Other income (expenses) | | |
| | |
| | |
| | |
| | |
|
Interest expense | | — |
| | (247,684 | ) | | — |
| | — |
| | (247,684 | ) |
Interest income | | — |
| | 1,355 |
| | 472 |
| | — |
| | 1,827 |
|
Losses on debt extinguishment | | — |
| | (3,473 | ) | | — |
| | — |
| | (3,473 | ) |
Intercompany dividends and interest | | — |
| | 460,044 |
| | 10,280 |
| | (470,324 | ) | | — |
|
Total other expenses | | — |
| | 210,242 |
| | 10,752 |
| | (470,324 | ) | | (249,330 | ) |
| | | | | | | | | | |
Income before income taxes | | — |
| | 495,978 |
| | 318,826 |
| | (470,324 | ) | | 344,480 |
|
Income tax expense | | — |
| | 855 |
| | 4,109 |
| | — |
| | 4,964 |
|
Net income | | $ | — |
| | $ | 495,123 |
| | $ | 314,717 |
| | $ | (470,324 | ) | | $ | 339,516 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2018 Consolidating Statement of Cash Flows | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Operating activities | | |
| | |
| | |
| | |
| | |
|
Net income | | $ | — |
| | $ | 495,123 |
| | $ | 314,717 |
| | $ | (470,324 | ) | | $ | 339,516 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
| | |
| | |
| | |
| | |
Depreciation and amortization | | — |
| | 99,678 |
| | 48,687 |
| | — |
| | 148,365 |
|
Amortization of debt issuance costs, bond premiums and original issuance discounts | | — |
| | 12,167 |
| | — |
| | — |
| | 12,167 |
|
Losses on dispositions of property | | — |
| | 75 |
| | 234 |
| | — |
| | 309 |
|
Deferred income taxes | | — |
| | — |
| | (522 | ) | | — |
| | (522 | ) |
Stock-based compensation | | — |
| | 11,152 |
| | — |
| | — |
| | 11,152 |
|
Straight-line rent adjustments | | — |
| | 49,166 |
| | 12,722 |
| | — |
| | 61,888 |
|
Losses on debt extinguishment | | — |
| | 3,473 |
| | — |
| | — |
| | 3,473 |
|
Goodwill impairment charges | | — |
| | — |
| | 59,454 |
| | — |
| | 59,454 |
|
| | | | | | | | | | |
(Increase) decrease, | | |
| | |
| | |
| | |
| | |
Prepaid expenses and other assets | | — |
| | (1,777 | ) | | 477 |
| | 627 |
| | (673 | ) |
Intercompany | | — |
| | 66 |
| | (66 | ) | | — |
| | — |
|
(Decrease) increase, | | |
| | |
| | |
| | |
| | |
Accounts payable | | — |
| | 1,851 |
| | (55 | ) | | — |
| | 1,796 |
|
Accrued expenses | | — |
| | (205 | ) | | 79 |
| | — |
| | (126 | ) |
Accrued interest | | — |
| | 12,020 |
| | — |
| | — |
| | 12,020 |
|
Accrued salaries and wages | | — |
| | 6,796 |
| | (595 | ) | | — |
| | 6,201 |
|
Gaming, property and other taxes | | — |
| | (78 | ) | | (71 | ) | | — |
| | (149 | ) |
Income taxes | | — |
| | 304 |
| | 323 |
| | (627 | ) | | — |
|
Other liabilities | | — |
| | 55 |
| | (493 | ) | | — |
| | (438 | ) |
Net cash provided by (used in) operating activities | | — |
| | 689,866 |
| | 434,891 |
| | (470,324 | ) | | 654,433 |
|
Investing activities | | |
| | |
| | |
| | |
| | |
|
Capital project expenditures | | — |
| | (20 | ) | | — |
| | — |
| | (20 | ) |
Capital maintenance expenditures | | — |
| | (55 | ) | | (4,229 | ) | | — |
| | (4,284 | ) |
Proceeds from sale of property and equipment | | — |
| | 3,195 |
| | 16 |
| | — |
| | 3,211 |
|
Acquisition of real estate assets | | — |
| | (985,750 | ) | | (257,716 | ) | | — |
| | (1,243,466 | ) |
Originations of mortgage loans receivable | | — |
| | (246,000 | ) | | (57,684 | ) | | — |
| | (303,684 | ) |
Collection of principal payments on investment in direct financing lease | | — |
| | — |
| | 38,459 |
| | — |
| | 38,459 |
|
Net cash used in investing activities | | — |
| | (1,228,630 | ) | | (281,154 | ) | | — |
| | (1,509,784 | ) |
Financing activities | | |
| | |
| | |
| | |
| | |
|
Dividends paid | | (550,435 | ) | | — |
| | — |
| | — |
| | (550,435 | ) |
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | 7,537 |
| | — |
| | — |
| | — |
| | 7,537 |
|
Proceeds from issuance of long-term debt | | — |
| | 2,593,405 |
| | — |
| | — |
| | 2,593,405 |
|
Financing costs | | — |
| | (32,426 | ) | | — |
| | — |
| | (32,426 | ) |
Payments of long-term debt | | — |
| | (1,164,117 | ) | | — |
| | — |
| | (1,164,117 | ) |
Premium and related costs paid on tender of senior unsecured notes | | — |
| | (1,884 | ) | | — |
| | — |
| | (1,884 | ) |
Intercompany financing | | 542,898 |
| | (858,316 | ) | | (154,906 | ) | | 470,324 |
| | — |
|
Net cash provided by (used in) financing activities | | — |
| | 536,662 |
| | (154,906 | ) | | 470,324 |
| | 852,080 |
|
Net decrease in cash and cash equivalents | | — |
| | (2,102 | ) | | (1,169 | ) | | — |
| | (3,271 | ) |
Cash and cash equivalents at beginning of period | | — |
| | 6,734 |
| | 22,320 |
| | — |
| | 29,054 |
|
Cash and cash equivalents at end of period | | $ | — |
| | $ | 4,632 |
| | $ | 21,151 |
| | $ | — |
| | $ | 25,783 |
|
|
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017 Consolidating Balance Sheet | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Assets | | |
| | |
| | |
| | |
| | |
|
Real estate investments, net | | $ | — |
| | $ | 1,794,840 |
| | $ | 1,867,205 |
| | $ | — |
| | $ | 3,662,045 |
|
Land rights, net | | — |
| | 58,635 |
| | 581,513 |
| | — |
| | 640,148 |
|
Property and equipment, used in operations, net | | — |
| | 20,568 |
| | 87,725 |
| | — |
| | 108,293 |
|
Investment in direct financing lease, net | | — |
| | — |
| | 2,637,639 |
| | — |
| | 2,637,639 |
|
Cash and cash equivalents | | — |
| | 6,734 |
| | 22,320 |
| | — |
| | 29,054 |
|
Prepaid expenses | | — |
| | 4,067 |
| | 2,746 |
| | 1,639 |
| | 8,452 |
|
Goodwill | | — |
| | — |
| | 75,521 |
| | — |
| | 75,521 |
|
Other intangible assets | | — |
| | — |
| | 9,577 |
| | — |
| | 9,577 |
|
Loan receivable | | — |
| | — |
| | 13,000 |
| | — |
| | 13,000 |
|
Intercompany loan receivable | | — |
| | 193,595 |
| | — |
| | (193,595 | ) | | — |
|
Intercompany transactions and investment in subsidiaries | | 2,458,247 |
| | 5,087,893 |
| | 2,959,174 |
| | (10,505,314 | ) | | — |
|
Deferred tax assets | | — |
| | — |
| | 4,478 |
| | — |
| | 4,478 |
|
Other assets | | — |
| | 42,485 |
| | 16,190 |
| | — |
| | 58,675 |
|
Total assets | | $ | 2,458,247 |
| | $ | 7,208,817 |
| | $ | 8,277,088 |
| | $ | (10,697,270 | ) | | $ | 7,246,882 |
|
| | | | | | | | | | |
Liabilities | | |
| | |
| | |
| | |
| | |
|
Accounts payable | | $ | — |
| | $ | 619 |
| | $ | 96 |
| | $ | — |
| | $ | 715 |
|
Accrued expenses | | — |
| | 672 |
| | 7,241 |
| | — |
| | 7,913 |
|
Accrued interest | | — |
| | 33,241 |
| | — |
| | — |
| | 33,241 |
|
Accrued salaries and wages | | — |
| | 7,832 |
| | 2,977 |
| | — |
| | 10,809 |
|
Gaming, property, and other taxes | | — |
| | 21,135 |
| | 14,264 |
| | — |
| | 35,399 |
|
Income taxes | | — |
| | (306 | ) | | (1,333 | ) | | 1,639 |
| | — |
|
Long-term debt, net of unamortized debt issuance costs | | — |
| | 4,442,880 |
| | — |
| | — |
| | 4,442,880 |
|
Intercompany loan payable | | — |
| | — |
| | 193,595 |
| | (193,595 | ) | | — |
|
Deferred rental revenue | | — |
| | 220,019 |
| | 12,004 |
| | — |
| | 232,023 |
|
Deferred tax liabilities | | — |
| | — |
| | 244 |
| | — |
| | 244 |
|
Other liabilities | | — |
| | 24,478 |
| | 933 |
| | — |
| | 25,411 |
|
Total liabilities | | — |
| | 4,750,570 |
| | 230,021 |
| | (191,956 | ) | | 4,788,635 |
|
| | | | | | | | | | |
Shareholders’ equity (deficit) | | |
| | |
| | |
| | |
| | |
|
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2017) | | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock ($.01 par value, 500,000,000 shares authorized, 212,717,549 shares issued and outstanding at December 31, 2017) | | 2,127 |
| | 2,127 |
| | 2,127 |
| | (4,254 | ) | | 2,127 |
|
Additional paid-in capital | | 3,933,829 |
| | 3,933,831 |
| | 9,498,755 |
| | (13,432,586 | ) | | 3,933,829 |
|
Retained accumulated (deficit) earnings | | (1,477,709 | ) | | (1,477,711 | ) | | (1,453,815 | ) | | 2,931,526 |
| | (1,477,709 | ) |
Total shareholders’ equity (deficit) | | 2,458,247 |
| | 2,458,247 |
| | 8,047,067 |
| | (10,505,314 | ) | | 2,458,247 |
|
Total liabilities and shareholders’ equity (deficit) | | $ | 2,458,247 |
| | $ | 7,208,817 |
| | $ | 8,277,088 |
| | $ | (10,697,270 | ) | | $ | 7,246,882 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2017 Consolidating Statement of Income | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non- Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Revenues | | |
| | |
| | |
| | |
| | |
|
Rental income | | $ | — |
| | $ | 398,070 |
| | $ | 273,120 |
| | $ | — |
| | $ | 671,190 |
|
Income from direct financing lease | | — |
| | — |
| | 74,333 |
| | — |
| | 74,333 |
|
Interest income from mortgaged real estate | | — |
| | — |
| | — |
| | — |
| | — |
|
Real estate taxes paid by tenants | | — |
| | 43,672 |
| | 40,026 |
| | — |
| | 83,698 |
|
Total income from real estate | | — |
| | 441,742 |
| | 387,479 |
| | — |
| | 829,221 |
|
Gaming, food, beverage and other | | — |
| | — |
| | 142,086 |
| | — |
| | 142,086 |
|
Total revenues | | — |
| | 441,742 |
| | 529,565 |
| | — |
| | 971,307 |
|
Operating expenses | | |
| | |
| | |
| | |
| | |
Gaming, food, beverage and other | | — |
| | — |
| | 80,487 |
| | — |
| | 80,487 |
|
Real estate taxes | | — |
| | 43,755 |
| | 40,911 |
| | — |
| | 84,666 |
|
Land rights and ground lease expense | | — |
| | 5,895 |
| | 18,110 |
| | — |
| | 24,005 |
|
General and administrative | | — |
| | 39,863 |
| | 23,288 |
| | — |
| | 63,151 |
|
Depreciation | | — |
| | 93,948 |
| | 19,532 |
| | — |
| | 113,480 |
|
Total operating expenses | | — |
| | 183,461 |
| | 182,328 |
| | — |
| | 365,789 |
|
Income from operations | | — |
| | 258,281 |
| | 347,237 |
| | — |
| | 605,518 |
|
| | | | | | | | | | |
Other income (expenses) | | |
| | |
| | |
| | |
| | |
Interest expense | | — |
| | (217,068 | ) | | — |
| | — |
| | (217,068 | ) |
Interest income | | — |
| | — |
| | 1,935 |
| | — |
| | 1,935 |
|
Intercompany dividends and interest | | — |
| | 451,295 |
| | 12,318 |
| | (463,613 | ) | | — |
|
Total other expenses | | — |
| | 234,227 |
| | 14,253 |
| | (463,613 | ) | | (215,133 | ) |
| | | | | | | | | | |
Income before income taxes | | — |
| | 492,508 |
| | 361,490 |
| | (463,613 | ) | | 390,385 |
|
Income tax expense | | — |
| | 1,099 |
| | 8,688 |
| | — |
| | 9,787 |
|
Net income | | $ | — |
| | $ | 491,409 |
| | $ | 352,802 |
| | $ | (463,613 | ) | | $ | 380,598 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2017 Consolidating Statement of Cash Flows | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Operating activities | | |
| | |
| | |
| | |
| | |
|
Net income | | $ | — |
| | $ | 491,409 |
| | $ | 352,802 |
| | $ | (463,613 | ) | | $ | 380,598 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
| | |
| | |
| | |
| | |
Depreciation | | — |
| | 95,058 |
| | 28,777 |
| | — |
| | 123,835 |
|
Amortization of debt issuance costs | | — |
| | 13,026 |
| | — |
| | — |
| | 13,026 |
|
Losses on dispositions of property | | — |
| | — |
| | 530 |
| | — |
| | 530 |
|
Deferred income taxes | | — |
| | — |
| | (561 | ) | | — |
| | (561 | ) |
Stock-based compensation | | — |
| | 15,636 |
| | — |
| | — |
| | 15,636 |
|
Straight-line rent adjustments | | — |
| | 56,815 |
| | 9,156 |
| | — |
| | 65,971 |
|
| | | | | | | | | | |
Decrease (increase), | | |
| | |
| | |
| | |
| | |
Prepaid expenses and other assets | | — |
| | (5,703 | ) | | 1,268 |
| | (897 | ) | | (5,332 | ) |
Intercompany | | — |
| | 317 |
| | (317 | ) | | — |
| | — |
|
(Decrease) increase, | | 0 |
| | 0 |
| | |
| | 0 |
| | |
Accounts payable | | — |
| | 148 |
| | (569 | ) | | — |
| | (421 | ) |
Accrued expenses | | — |
| | 103 |
| | 308 |
| | — |
| | 411 |
|
Accrued interest | | — |
| | (502 | ) | | — |
| | — |
| | (502 | ) |
Accrued salaries and wages | | — |
| | (79 | ) | | 269 |
| | — |
| | 190 |
|
Gaming, property and other taxes | | — |
| | (505 | ) | | (12 | ) | | — |
| | (517 | ) |
Income taxes | | — |
| | (325 | ) | | (572 | ) | | 897 |
| | — |
|
Other liabilities | | — |
| | 6,591 |
| | (744 | ) | | — |
| | 5,847 |
|
Net cash provided by (used in) operating activities | | — |
| | 671,989 |
| | 390,335 |
| | (463,613 | ) | | 598,711 |
|
Investing activities | | |
| | |
| | |
| | |
| | |
|
Capital project expenditures | | — |
| | (78 | ) | | — |
| | — |
| | (78 | ) |
Capital maintenance expenditures | | — |
| | — |
| | (3,178 | ) | | — |
| | (3,178 | ) |
Proceeds from sale of property and equipment | | — |
| | 10 |
| | 924 |
| | — |
| | 934 |
|
Principal payments on loan receivable | | — |
| | — |
| | 13,200 |
| | — |
| | 13,200 |
|
Acquisition of real estate assets | | — |
| | (82,866 | ) | | (386 | ) | | — |
| | (83,252 | ) |
Collection of principal payments on investment in direct financing lease | | — |
| | — |
| | 73,072 |
| | — |
| | 73,072 |
|
Net cash (used in) provided by investing activities | | — |
| | (82,934 | ) | | 83,632 |
| | — |
| | 698 |
|
Financing activities | | |
| | |
| | |
| | |
| | |
|
Dividends paid | | (529,370 | ) | | — |
| | — |
| | — |
| | (529,370 | ) |
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | 18,157 |
| | — |
| | — |
| | — |
| | 18,157 |
|
Proceeds from issuance of common stock, net of issuance costs | | 139,414 |
| | — |
| | — |
| | — |
| | 139,414 |
|
Proceeds from issuance of long-term debt | | — |
| | 100,000 |
| | — |
| | — |
| | 100,000 |
|
Payments of long-term debt | | — |
| | (335,112 | ) | | — |
| | — |
| | (335,112 | ) |
Intercompany financing | | 371,799 |
| | (358,983 | ) | | (476,429 | ) | | 463,613 |
| | — |
|
Net cash (used in) provided by financing activities | | — |
| | (594,095 | ) | | (476,429 | ) | | 463,613 |
| | (606,911 | ) |
Net decrease in cash and cash equivalents | | — |
| | (5,040 | ) | | (2,462 | ) | | — |
| | (7,502 | ) |
Cash and cash equivalents at beginning of period | | — |
| | 11,774 |
| | 24,782 |
| | — |
| | 36,556 |
|
Cash and cash equivalents at end of period | | $ | — |
| | $ | 6,734 |
| | $ | 22,320 |
| | $ | — |
| | $ | 29,054 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2016 Consolidating Statement of Income | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non- Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Revenues | | |
| | |
| | |
| | |
| | |
|
Rental income | | $ | — |
| | $ | 383,553 |
| | $ | 183,891 |
| | $ | — |
| | $ | 567,444 |
|
Income from direct financing lease | | — |
| | — |
| | 48,917 |
| | — |
| | 48,917 |
|
Interest income from mortgaged real estate | | — |
| | — |
| | — |
| | — |
| | — |
|
Real estate taxes paid by tenants | | — |
| | 41,441 |
| | 26,402 |
| | — |
| | 67,843 |
|
Total income from real estate | | — |
| | 424,994 |
| | 259,210 |
| | — |
| | 684,204 |
|
Gaming, food, beverage and other | | — |
| | — |
| | 144,051 |
| | — |
| | 144,051 |
|
Total revenues | | — |
| | 424,994 |
| | 403,261 |
| | — |
| | 828,255 |
|
Operating expenses | | |
| | |
| | |
| | |
| | |
Gaming, food, beverage and other | | — |
| | — |
| | 82,463 |
| | — |
| | 82,463 |
|
Real estate taxes | | — |
| | 41,510 |
| | 27,938 |
| | — |
| | 69,448 |
|
Land rights and ground lease expense | | — |
| | 2,685 |
| | 12,114 |
| | — |
| | 14,799 |
|
General and administrative | | — |
| | 48,452 |
| | 22,916 |
| | — |
| | 71,368 |
|
Depreciation | | — |
| | 93,476 |
| | 16,078 |
| | — |
| | 109,554 |
|
Total operating expenses | | — |
| | 186,123 |
| | 161,509 |
| | — |
| | 347,632 |
|
Income from operations | | — |
| | 238,871 |
| | 241,752 |
| | — |
| | 480,623 |
|
| | | | | | | | | | |
Other income (expenses) | | |
| | |
| | |
| | |
| | |
Interest expense | | — |
| | (185,896 | ) | | — |
| | — |
| | (185,896 | ) |
Interest income | | — |
| | 169 |
| | 1,954 |
| | — |
| | 2,123 |
|
Intercompany dividends and interest | | — |
| | 318,047 |
| | 19,670 |
| | (337,717 | ) | | — |
|
Total other expenses | | — |
| | 132,320 |
| | 21,624 |
| | (337,717 | ) | | (183,773 | ) |
| | | | | | | | | | |
Income before income taxes | | — |
| | 371,191 |
| | 263,376 |
| | (337,717 | ) | | 296,850 |
|
Income tax expense | | — |
| | 1,016 |
| | 6,529 |
| | — |
| | 7,545 |
|
Net income | | $ | — |
| | $ | 370,175 |
| | $ | 256,847 |
| | $ | (337,717 | ) | | $ | 289,305 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2016 Consolidating Statement of Cash Flows | | Parent Guarantor | | Subsidiary Issuers | | Other Subsidiary Non-Issuers | | Eliminations | | Consolidated |
| | (in thousands) |
Operating activities | | |
| | |
| | |
| | |
| | |
|
Net income | | $ | — |
| | $ | 370,175 |
| | $ | 256,847 |
| | $ | (337,717 | ) | | $ | 289,305 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
| | |
| | |
| | |
| |
|
|
Depreciation and amortization | | — |
| | 93,476 |
| | 22,241 |
| | — |
| | 115,717 |
|
Amortization of debt issuance costs | | — |
| | 15,146 |
| | — |
| | — |
| | 15,146 |
|
(Gains) losses on sales of property | | — |
| | (471 | ) | | 16 |
| | — |
| | (455 | ) |
Deferred income taxes | | — |
| | — |
| | (1,535 | ) | | — |
| | (1,535 | ) |
Stock-based compensation | | — |
| | 18,312 |
| | — |
| | — |
| | 18,312 |
|
Straight-line rent adjustments | | — |
| | 55,825 |
| | 2,848 |
| | — |
| | 58,673 |
|
| | | | | | | | | | |
(Increase) decrease, | | |
| | |
| | |
| | |
| | |
Prepaid expenses and other assets | | — |
| | 6,939 |
| | (1,554 | ) | | 2,180 |
| | 7,565 |
|
Intercompany | | — |
| | 21 |
| | (21 | ) | | — |
| | — |
|
Increase (decrease), | | 0 |
| | 0 |
| | |
| | 0 |
| | |
Accounts payable | | — |
| | 119 |
| | 387 |
| | — |
| | 506 |
|
Accrued expenses | | — |
| | (4,303 | ) | | (369 | ) | | — |
| | (4,672 | ) |
Accrued interest | | — |
| | 16,120 |
| | — |
| | — |
| | 16,120 |
|
Accrued salaries and wages | | — |
| | (2,817 | ) | | (283 | ) | | — |
| | (3,100 | ) |
Gaming, property and other taxes | | — |
| | 899 |
| | 14 |
| | — |
| | 913 |
|
Income taxes | | — |
| | 59 |
| | 2,121 |
| | (2,180 | ) | | — |
|
Other liabilities | | — |
| | 1,589 |
| | 286 |
| | — |
| | 1,875 |
|
Net cash provided by (used in) operating activities | | — |
| | 571,089 |
| | 280,998 |
| | (337,717 | ) | | 514,370 |
|
Investing activities | | |
| | |
| | |
| | |
| | |
|
Capital project expenditures | | — |
| | (229 | ) | | (101 | ) | | — |
| | (330 | ) |
Capital maintenance expenditures | | — |
| | — |
| | (3,111 | ) | | — |
| | (3,111 | ) |
Proceeds from sale of property and equipment | | — |
| | 897 |
| | 237 |
| | — |
| | 1,134 |
|
Principal payments on loan receivable | | — |
| | — |
| | 3,150 |
| | — |
| | 3,150 |
|
Acquisition of real estate | | — |
| | — |
| | (3,267,992 | ) | | — |
| | (3,267,992 | ) |
Collection of principal payments on investment in direct financing lease | | — |
| | — |
| | 48,533 |
| | — |
| | 48,533 |
|
Net cash provided by (used in) investing activities | | — |
| | 668 |
| | (3,219,284 | ) | | — |
| | (3,218,616 | ) |
Financing activities | | |
| | |
| | |
| | |
| | |
|
Dividends paid | | (428,352 | ) | | — |
| | — |
| | — |
| | (428,352 | ) |
Proceeds from exercise of options, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | 113,484 |
| | — |
| | — |
| | — |
| | 113,484 |
|
Proceeds from issuance of common stock, net of issuance costs | | 870,810 |
| | — |
| | — |
| | — |
| | 870,810 |
|
Proceeds from issuance of long-term debt | | — |
| | 2,552,000 |
| | — |
| | — |
| | 2,552,000 |
|
Financing costs | | — |
| | (31,911 | ) | | — |
| | — |
| | (31,911 | ) |
Payments of long-term debt | | — |
| | (377,104 | ) | | — |
| | — |
| | (377,104 | ) |
Intercompany financing | | (555,942 | ) | | (2,711,684 | ) | | 2,929,909 |
| | 337,717 |
| | — |
|
Net cash (used in) provided by financing activities | | — |
| | (568,699 | ) | | 2,929,909 |
| | 337,717 |
| | 2,698,927 |
|
Net increase (decrease) in cash and cash equivalents | | — |
| | 3,058 |
| | (8,377 | ) | | — |
| | (5,319 | ) |
Cash and cash equivalents at beginning of period | | — |
| | 8,716 |
| | 33,159 |
| | $ | — |
| | 41,875 |
|
Cash and cash equivalents at end of period | | $ | — |
| | $ | 11,774 |
| | $ | 24,782 |
| | $ | — |
| | $ | 36,556 |
|
SCHEDULE III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
December 31, 20182020
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to Company | | | | Net Capitalized Costs (Retirements) Subsequent to Acquisition | | Gross Amount at which Carried at Close of Period | | | | | | | | Life on which Depreciation in Latest Income Statement is Computed |
| | | | | | | | | | | | | | | | | | | | | Original Date of Construction / Renovation | | | |
Description | | Location | | Encumbrances | | Land and Improvements | | Buildings and Improvements | | | | | Land and Improvements | | Buildings and Improvements | | Total (6) | | Accumulated Depreciation | | | Date Acquired | |
Rental Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Hollywood Casino Lawrenceburg | | Lawrenceburg, IN | | $ | 0 | | | $ | 15,251 | | | $ | 342,393 | | | | | $ | (30) | | | $ | 15,222 | | | $ | 342,392 | | | $ | 357,614 | | | $ | 163,370 | | | 1997/2009 | | 11/1/2013 | | 31 |
Hollywood Casino Aurora | | Aurora, IL | | 0 | | | 4,937 | | | 98,378 | | | | | (383) | | | 4,936 | | | 97,996 | | | 102,932 | | | 72,868 | | | 1993/2002/ 2012 | | 11/1/2013 | | 30 |
Hollywood Casino Joliet | | Joliet, IL | | 0 | | | 19,214 | | | 101,104 | | | | | (20) | | | 19,194 | | | 101,104 | | | 120,298 | | | 64,300 | | | 1992/2003/ 2010 | | 11/1/2013 | | 31 |
Argosy Casino Alton | | Alton, IL | | 0 | | | 0 | | | 6,462 | | | | | 0 | | | 0 | | | 6,462 | | | 6,462 | | | 4,741 | | | 1991/1999 | | 11/1/2013 | | 31 |
Hollywood Casino Toledo | | Toledo, OH | | 0 | | | 12,003 | | | 144,093 | | | | | (201) | | | 11,802 | | | 144,093 | | | 155,895 | | | 45,379 | | | 2012 | | 11/1/2013 | | 31 |
Hollywood Casino Columbus | | Columbus, OH | | 0 | | | 38,240 | | | 188,543 | | | | | 105 | | | 38,266 | | | 188,622 | | | 226,888 | | | 60,259 | | | 2012 | | 11/1/2013 | | 31 |
Hollywood Casino at Charles Town Races | | Charles Town, WV | | 0 | | | 35,102 | | | 233,069 | | | | | 0 | | | 35,102 | | | 233,069 | | | 268,171 | | | 146,579 | | | 1997/2010 | | 11/1/2013 | | 31 |
Hollywood Casino at Penn National Race Course | | Grantville, PA | | 0 | | | 25,500 | | | 161,810 | | | | | 0 | | | 25,500 | | | 161,810 | | | 187,310 | | | 88,411 | | | 2008/2010 | | 11/1/2013 | | 31 |
M Resort | | Henderson, NV | | 0 | | | 66,104 | | | 126,689 | | | | | (436) | | | 65,668 | | | 126,689 | | | 192,357 | | | 45,421 | | | 2009/2012 | | 11/1/2013 | | 30 |
Hollywood Casino Bangor | | Bangor, ME | | 0 | | | 12,883 | | | 84,257 | | | | | 0 | | | 12,883 | | | 84,257 | | | 97,140 | | | 38,102 | | | 2008/2012 | | 11/1/2013 | | 31 |
Zia Park Casino | | Hobbs, NM | | 0 | | | 9,313 | | | 38,947 | | | | | 0 | | | 9,313 | | | 38,947 | | | 48,260 | | | 23,174 | | | 2005 | | 11/1/2013 | | 31 |
Hollywood Casino Gulf Coast | | Bay St. Louis, MS | | 0 | | | 59,388 | | | 87,352 | | | | | (229) | | | 59,176 | | | 87,335 | | | 146,511 | | | 56,358 | | | 1992/2006/ 2011 | | 11/1/2013 | | 40 |
Argosy Casino Riverside | | Riverside, MO | | 0 | | | 23,468 | | | 143,301 | | | | | (77) | | | 23,391 | | | 143,301 | | | 166,692 | | | 72,307 | | | 1994/2007 | | 11/1/2013 | | 37 |
Hollywood Casino Tunica | | Tunica, MS | | 0 | | | 4,634 | | | 42,031 | | | | | 0 | | | 4,634 | | | 42,031 | | | 46,665 | | | 29,759 | | | 1994/2012 | | 11/1/2013 | | 31 |
Boomtown Biloxi | | Biloxi, MS | | 0 | | | 3,423 | | | 63,083 | | | | | (137) | | | 3,286 | | | 63,083 | | | 66,369 | | | 52,448 | | | 1994/2006 | | 11/1/2013 | | 15 |
Hollywood Casino St. Louis | | Maryland Heights, MO | | 0 | | | 44,198 | | | 177,063 | | | | | (3,239) | | | 40,959 | | | 177,063 | | | 218,022 | | | 98,929 | | | 1997/2013 | | 11/1/2013 | | 13 |
Hollywood Casino at Dayton Raceway | | Dayton, OH | | 0 | | | 3,211 | | | 0 | | | | | 86,288 | | | 3,211 | | | 86,288 | | | 89,499 | | | 17,732 | | | 2014 | | 11/1/2013 | | 31 |
Hollywood Casino at Mahoning Valley Race Track (1) | | Youngstown, OH | | 0 | | | 5,683 | | | 0 | | | | | 94,314 | | | 5,833 | | | 94,164 | | | 99,997 | | | 19,113 | | | 2014 | | 11/1/2013 | | 31 |
Resorts Casino Tunica | | Tunica, MS | | 0 | | | 0 | | | 12,860 | | | | | (12,860) | | | 0 | | | 0 | | | 0 | | | 0 | | | 1994/1996/ 2005/2014 | | 5/1/2017 | | N/A |
1st Jackpot Casino | | Tunica, MS | | 0 | | | 161 | | | 10,100 | | | | | 0 | | | 161 | | | 10,100 | | | 10,261 | | | 1,356 | | | 1995 | | 5/1/2017 | | 31 |
Ameristar Black Hawk | | Black Hawk, CO | | 0 | | | 243,092 | | | 334,024 | | | | | 0 | | | 243,092 | | | 334,024 | | | 577,116 | | | 24,886 | | | 2000 | | 4/28/2016 | | 31 |
Ameristar East Chicago | | East Chicago, IN | | 0 | | | 4,198 | | | 123,430 | | | | | 0 | | | 4,198 | | | 123,430 | | | 127,628 | | | 10,578 | | | 1997 | | 4/28/2016 | | 31 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to Company | | Net Capitalized Costs (Retirements) Subsequent to Acquisition | | Gross Amount at which Carried at Close of Period | | | | | | | | Life on which Depreciation in Latest Income Statement is Computed |
| | | | | | | | | | | | | | | | | | | Original Date of Construction / Renovation | | | |
Description | | Location | | Encumbrances | | Land and Improvements | | Buildings and Improvements | | | Land and Improvements | | Buildings and Improvements | | Total (5) | | Accumulated Depreciation | | | Date Acquired | |
Rental Properties: | | | | | | | | | | | | | | | | | | | | | | | | |
Hollywood Casino Lawrenceburg | | Lawrenceburg, IN | | $ | — |
| | $ | 15,251 |
| | $ | 342,393 |
| | $ | (30 | ) | | $ | 15,222 |
| | $ | 342,392 |
| | $ | 357,614 |
| | $ | 137,260 |
| | 1997/2009 | | 11/1/2013 | | 31 |
Hollywood Casino Aurora | | Aurora, IL | | — |
| | 4,937 |
| | 98,378 |
| | (383 | ) | | 4,936 |
| | 97,996 |
| | 102,932 |
| | 64,968 |
| | 1993/2002/ 2012 | | 11/1/2013 | | 30 |
Hollywood Casino Joliet | | Joliet, IL | | — |
| | 19,214 |
| | 101,104 |
| | (20 | ) | | 19,194 |
| | 101,104 |
| | 120,298 |
| | 58,721 |
| | 1992/2003/ 2010 | | 11/1/2013 | | 31 |
Argosy Casino Alton | | Alton, IL | | — |
| | — |
| | 6,462 |
| | — |
| | — |
| | 6,462 |
| | 6,462 |
| | 4,453 |
| | 1991/1999 | | 11/1/2013 | | 31 |
Hollywood Casino Toledo | | Toledo, OH | | — |
| | 12,003 |
| | 144,093 |
| | (201 | ) | | 11,802 |
| | 144,093 |
| | 155,895 |
| | 34,842 |
| | 2012 | | 11/1/2013 | | 31 |
Hollywood Casino Columbus | | Columbus, OH | | — |
| | 38,240 |
| | 188,543 |
| | 105 |
| | 38,266 |
| | 188,622 |
| | 226,888 |
| | 45,507 |
| | 2012 | | 11/1/2013 | | 31 |
Hollywood Casino at Charles Town Races | | Charles Town, WV | | — |
| | 35,102 |
| | 233,069 |
| | — |
| | 35,102 |
| | 233,069 |
| | 268,171 |
| | 129,718 |
| | 1997/2010 | | 11/1/2013 | | 31 |
Hollywood Casino at Penn National Race Course | | Grantville, PA | | — |
| | 25,500 |
| | 161,810 |
| | — |
| | 25,500 |
| | 161,810 |
| | 187,310 |
| | 74,989 |
| | 2008/2010 | | 11/1/2013 | | 31 |
M Resort | | Henderson, NV | | — |
| | 66,104 |
| | 126,689 |
| | (436 | ) | | 65,668 |
| | 126,689 |
| | 192,357 |
| | 35,789 |
| | 2009/2012 | | 11/1/2013 | | 30 |
Hollywood Casino Bangor | | Bangor, ME | | — |
| | 12,883 |
| | 84,257 |
| | — |
| | 12,883 |
| | 84,257 |
| | 97,140 |
| | 31,965 |
| | 2008/2012 | | 11/1/2013 | | 31 |
Zia Park Casino | | Hobbs, NM | | — |
| | 9,313 |
| | 38,947 |
| | — |
| | 9,313 |
| | 38,947 |
| | 48,260 |
| | 19,738 |
| | 2005 | | 11/1/2013 | | 31 |
Hollywood Casino Gulf Coast | | Bay St. Louis, MS | | — |
| | 59,388 |
| | 87,352 |
| | (229 | ) | | 59,176 |
| | 87,335 |
| | 146,511 |
| | 50,152 |
| | 1992/2006/ 2011 | | 11/1/2013 | | 40 |
Argosy Casino Riverside | | Riverside, MO | | — |
| | 23,468 |
| | 143,301 |
| | (77 | ) | | 23,391 |
| | 143,301 |
| | 166,692 |
| | 63,166 |
| | 1994/2007 | | 11/1/2013 | | 37 |
Hollywood Casino Tunica | | Tunica, MS | | — |
| | 4,634 |
| | 42,031 |
| | — |
| | 4,634 |
| | 42,031 |
| | 46,665 |
| | 26,859 |
| | 1994/2012 | | 11/1/2013 | | 31 |
Boomtown Biloxi | | Biloxi, MS | | — |
| | 3,423 |
| | 63,083 |
| | (137 | ) | | 3,286 |
| | 63,083 |
| | 66,369 |
| | 46,443 |
| | 1994/2006 | | 11/1/2013 | | 15 |
Hollywood Casino St. Louis | | Maryland Heights, MO | | — |
| | 44,198 |
| | 177,063 |
| | (3,049 | ) | | 41,149 |
| | 177,063 |
| | 218,212 |
| | 75,384 |
| | 1997/2013 | | 11/1/2013 | | 13 |
Hollywood Casino at Dayton Raceway (2) | | Dayton, OH | | — |
| | 3,211 |
| | — |
| | 86,288 |
| | 3,211 |
| | 86,288 |
| | 89,499 |
| | 12,165 |
| | 2014 | | 11/1/2013 | | 31 |
Hollywood Casino at Mahoning Valley Race Track (2) | | Youngstown, OH | | — |
| | 5,683 |
| | — |
| | 94,314 |
| | 5,833 |
| | 94,164 |
| | 99,997 |
| | 13,018 |
| | 2014 | | 11/1/2013 | | 31 |
Resorts Casino Tunica | | Tunica, MS | | — |
| | — |
| | 12,860 |
| | — |
| | — |
| | 12,860 |
| | 12,860 |
| | 2,058 |
| | 1994/1996/ 2005/2014 | | 5/1/2017 | | 31 |
1st Jackpot Casino | | Tunica, MS | | — |
| | 161 |
| | 10,100 |
| | — |
| | 161 |
| | 10,100 |
| | 10,261 |
| | 608 |
| | 1995 | | 5/1/2017 | | 31 |
Ameristar Black Hawk (1) | | Black Hawk, CO | | — |
| | 243,092 |
| | 334,024 |
| | — |
| | 243,092 |
| | 334,024 |
| | 577,116 |
| | 2,348 |
| | 2000 | | 4/28/2016 | | 31 |
Ameristar East Chicago (1) | | East Chicago, IN | | — |
| | 4,198 |
| | 123,430 |
| | — |
| | 4,198 |
| | 123,430 |
| | 127,628 |
| | 998 |
| | 1997 | | 4/28/2016 | | 31 |
Belterra Casino Resort (1) | | Florence, IN | | — |
| | 63,420 |
| | 172,875 |
| | — |
| | 63,420 |
| | 172,875 |
| | 236,295 |
| | 1,821 |
| | 2000 | | 4/28/2016 | | 31 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Belterra Casino Resort | | Florence, IN | | 0 | | | 63,420 | | | 172,875 | | | | | 0 | | | 63,420 | | | 172,875 | | | 236,295 | | | 16,123 | | | 2000 | | 4/28/2016 | | 31 |
Ameristar Council Bluffs | | Council Bluffs, IA | | 0 | | | 84,009 | | | 109,027 | | | | | 0 | | | 84,009 | | | 109,027 | | | 193,036 | | | 9,648 | | | 1996 | | 4/28/2016 | | 31 |
L'Auberge Baton Rouge | | Baton Rouge, LA | | 0 | | | 205,274 | | | 178,426 | | | | | 0 | | | 205,274 | | | 178,426 | | | 383,700 | | | 14,158 | | | 2012 | | 4/28/2016 | | 31 |
Boomtown Bossier City | | Bossier City, LA | | 0 | | | 79,022 | | | 107,067 | | | | | 0 | | | 79,022 | | | 107,067 | | | 186,089 | | | 8,826 | | | 2002 | | 4/28/2016 | | 31 |
L'Auberge Lake Charles | | Lake Charles, LA | | 0 | | | 14,831 | | | 310,877 | | | | | 0 | | | 14,831 | | | 310,877 | | | 325,708 | | | 28,166 | | | 2005 | | 4/28/2016 | | 31 |
Boomtown New Orleans | | Boomtown, LA | | 0 | | | 46,019 | | | 58,258 | | | | | 0 | | | 46,019 | | | 58,258 | | | 104,277 | | | 5,238 | | | 1994 | | 4/28/2016 | | 31 |
Ameristar Vicksburg | | Vicksburg, MS | | 0 | | | 128,068 | | | 96,106 | | | | | 0 | | | 128,068 | | | 96,106 | | | 224,174 | | | 10,290 | | | 1994 | | 4/28/2016 | | 31 |
River City Casino & Hotel | | St Louis, MO | | — | | | 8,117 | | | 221,038 | | | | | — | | | 8,117 | | | 221,038 | | | 229,155 | | | 18,138 | | | 2010 | | 4/28/2016 | | 31 |
Ameristar Kansas City | | Kansas City, MO | | 0 | | | 239,111 | | | 271,598 | | | | | 0 | | | 239,111 | | | 271,598 | | | 510,709 | | | 24,970 | | | 1997 | | 4/28/2016 | | 31 |
Ameristar St. Charles | | St. Charles, MO | | 0 | | | 375,597 | | | 437,908 | | | | | 0 | | | 375,596 | | | 437,908 | | | 813,504 | | | 33,300 | | | 1994 | | 4/28/2016 | | 31 |
Jackpot Properties | | Jackpot, NV | | 0 | | | 48,785 | | | 61,550 | | | | | 0 | | | 48,785 | | | 61,550 | | | 110,335 | | | 7,290 | | | 1954 | | 4/28/2016 | | 31 |
Plainridge Park Casino | | Plainridge, MA | | 0 | | | 127,068 | | | 123,850 | | | | | 0 | | | 127,068 | | | 123,850 | | | 250,918 | | | 8,823 | | | 2015 | | 10/15/2018 | | 31 |
Belterra Park Gaming and Entertainment Center (1) | | Cincinnati, OH | | 0 | | | 11,689 | | | 45,995 | | | | | 0 | | | 11,689 | | | 45,995 | | | 57,684 | | | 1,401 | | | 2013 | | 5/6/2020 | | 31 |
The Meadows Racetrack and Casino | | Washington, PA | | 0 | | | 181,532 | | | 141,370 | | | | | 386 | | | 181,918 | | | 141,370 | | | 323,288 | | | 24,291 | | | 2006 | | 9/9/2016 | | 31 |
Casino Queen | | East St. Louis, IL | | 0 | | | 70,716 | | | 70,014 | | | | | 0 | | | 70,716 | | | 70,014 | | | 140,730 | | | 18,882 | | | 1999 | | 1/23/2014 | | 31 |
Tropicana Atlantic City | | Atlantic City, NJ | | 0 | | | 166,974 | | | 392,923 | | | | | 0 | | | 166,974 | | | 392,923 | | | 559,897 | | | 28,061 | | | 1981 | | 10/1/2018 | | 31 |
Tropicana Evansville (2) | | Evansville, IN | | 0 | | | 47,439 | | | 146,930 | | | | | (194,369) | | | 0 | | | 0 | | | 0 | | | 0 | | | 1995 | | 10/1/2018 | | N/A |
Tropicana Laughlin | | Laughlin, NV | | 0 | | | 20,671 | | | 80,530 | | | | | 0 | | | 20,671 | | | 80,530 | | | 101,201 | | | 6,428 | | | 1988 | | 10/1/2018 | | 27 |
Trop Casino Greenville | | Greenville, MS | | 0 | | | 0 | | | 21,680 | | | | | 0 | | | 0 | | | 21,680 | | | 21,680 | | | 1,544 | | | 2012 | | 10/1/2018 | | 31 |
Belle of Baton Rouge | | Baton Rouge, LA | | 0 | | | 11,873 | | | 52,400 | | | | | 0 | | | 11,873 | | | 52,400 | | | 64,273 | | | 5,488 | | | 1994 | | 10/1/2018 | | 31 |
Isle Casino Waterloo (2) | | Waterloo, IA | | 0 | | | 64,263 | | | 77,958 | | | | | 0 | | | 64,263 | | | 77,958 | | | 142,221 | | | 105 | | | 2005 | | 12/18/2020 | | 31 |
Isle Casino Bettendorf (4) | | Bettendorf, IA | | 0 | | | 29,636 | | | 85,150 | | | | | 0 | | | 29,636 | | | 85,150 | | | 114,786 | | | 114 | | | 2015 | | 12/18/2020 | | 31 |
Lumiere Place (1) | | St Louis, MO | | 0 | | | 26,930 | | | 219,070 | | | | | 0 | | | 26,930 | | | 219,070 | | | 246,000 | | | 2,151 | | | 2005 | | 10/1/2020 | | 31 |
Hollywood Casino Morgantown (3) | | Morgantown, PA | | 0 | | | 30,253 | | | 0 | | | | | 0 | | | 30,253 | | | 0 | | | 30,253 | | | 0 | | | 2020 | | 10/1/2020 | | N/A |
| | | | 0 | | | 2,711,300 | | | 6,001,589 | | | | | (30,888) | | | 2,660,070 | | | 6,021,930 | | | 8,682,000 | | | 1,409,505 | | | | | | | |
Headquarters Property: | | | | | | | | | | | | | | | | | | | | | | | | | | |
GLPI Corporate Office (4) | | Wyomissing, PA | | 0 | | | 750 | | | 8,465 | | | | | 85 | | | 750 | | | 8,550 | | | 9,300 | | | 1,435 | | | 2014/2015 | | 9/19/2014 | | 31 |
Other Properties | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other owned land (5) | | various | | 0 | | | 6,798 | | | 0 | | | | | 0 | | | 6,798 | | | 0 | | | 6,798 | | | 0 | | | | | | | |
| | | | $ | 0 | | | $ | 2,718,848 | | | $ | 6,010,054 | | | | | $ | (30,803) | | | $ | 2,667,618 | | | $ | 6,030,480 | | | $ | 8,698,098 | | | $ | 1,410,940 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ameristar Council Bluffs (1) | | Council Bluffs, IA | | — |
| | 84,009 |
| | 109,027 |
| | — |
| | 84,009 |
| | 109,027 |
| | 193,036 |
| | 919 |
| | 1996 | | 4/28/2016 | | 31 |
L'Auberge Baton Rouge (1) | | Baton Rouge, LA | | — |
| | 205,274 |
| | 178,426 |
| | — |
| | 205,274 |
| | 178,426 |
| | 383,700 |
| | 1,336 |
| | 2012 | | 4/28/2016 | | 31 |
Boomtown Bossier City (1) | | Bossier City, LA | | — |
| | 79,022 |
| | 107,067 |
| | — |
| | 79,022 |
| | 107,067 |
| | 186,089 |
| | 833 |
| | 2002 | | 4/28/2016 | | 31 |
L'Auberge Lake Charles (1) | | Lake Charles, LA | | — |
| | 14,831 |
| | 310,877 |
| | — |
| | 14,831 |
| | 310,877 |
| | 325,708 |
| | 2,657 |
| | 2005 | | 4/28/2016 | | 31 |
Boomtown New Orleans (1) | | Boomtown, LA | | — |
| | 46,019 |
| | 58,258 |
| | — |
| | 46,019 |
| | 58,258 |
| | 104,277 |
| | 494 |
| | 1994 | | 4/28/2016 | | 31 |
Ameristar Vicksburg (1) | | Vicksburg, MS | | — |
| | 128,068 |
| | 96,106 |
|
| — |
|
| 128,068 |
|
| 96,106 |
|
| 224,174 |
|
| 971 |
| | 1994 | | 4/28/2016 | | 31 |
River City Casino & Hotel (1) | | St Louis, MO | | — |
| | 8,117 |
| | 221,038 |
| | — |
| | 8,117 |
| | 221,038 |
| | 229,155 |
| | 1,711 |
| | 2010 | | 4/28/2016 | | 31 |
Ameristar Kansas City (1) | | Kansas City, MO | | — |
| | 239,111 |
| | 271,598 |
| | — |
| | 239,111 |
| | 271,598 |
| | 510,709 |
| | 2,356 |
| | 1997 | | 4/28/2016 | | 31 |
Ameristar St. Charles (1) | | St. Charles, MO | | — |
| | 375,597 |
| | 437,908 |
| | — |
| | 375,596 |
| | 437,908 |
| | 813,504 |
| | 3,141 |
| | 1994 | | 4/28/2016 | | 31 |
Jackpot Properties (1) | | Jackpot, NV | | — |
| | 48,785 |
| | 61,550 |
| | — |
| | 48,785 |
| | 61,550 |
| | 110,335 |
| | 1,669 |
| | 1954 | | 4/28/2016 | | 31 |
Plainridge Park Casino | | Plainridge, MA | | — |
| | 127,068 |
| | 123,850 |
| | — |
| | 127,068 |
| | 123,850 |
| | 250,918 |
| | 832 |
| | 2015 | | 10/15/2018 | | 31 |
The Meadows Racetrack and Casino | | Washington, PA | | — |
| | 181,532 |
| | 141,370 |
| | 386 |
| | 181,918 |
| | 141,370 |
| | 323,288 |
| | 12,971 |
| | 2006 | | 9/9/2016 | | 31 |
Casino Queen | | East St. Louis, IL | | — |
| | 70,716 |
| | 70,014 |
| | — |
| | 70,716 |
| | 70,014 |
| | 140,730 |
| | 14,348 |
| | 1999 | | 1/23/2014 | | 31 |
Tropicana Atlantic City | | Atlantic City, NJ | | — |
| | 166,974 |
| | 392,923 |
| | — |
| | 166,974 |
| | 392,923 |
| | 559,897 |
| | 2,711 |
| | 1981 | | 10/1/2018 | | 31 |
Tropicana Evansville | | Evansville, IN | | — |
| | 47,439 |
| | 146,930 |
| | — |
| | 47,439 |
| | 146,930 |
| | 194,369 |
| | 987 |
| | 1995 | | 10/1/2018 | | 31 |
Tropicana Laughlin | | Laughlin, NV | | — |
| | 20,671 |
| | 80,530 |
| | — |
| | 20,671 |
| | 80,530 |
| | 101,201 |
| | 606 |
| | 1988 | | 10/1/2018 | | 27 |
Trop Casino Greenville | | Greenville, MS | | — |
| | — |
| | 21,680 |
| | — |
| | — |
| | 21,680 |
| | 21,680 |
| | 146 |
| | 2012 | | 10/1/2018 | | 31 |
Belle of Baton Rouge | | Baton Rouge, LA | | — |
| | 11,873 |
| | 52,400 |
| | — |
| | 11,873 |
| | 52,400 |
| | 64,273 |
| | 545 |
| | 1994 | | 10/1/2018 | | 31 |
| | | | $ | — |
| | $ | 2,548,529 |
| | $ | 5,573,416 |
| | $ | 176,531 |
| | $ | 2,544,928 |
| | $ | 5,753,547 |
| | $ | 8,298,475 |
| | $ | 982,203 |
| | | | | | |
Headquarters Property: | | | | | | | | | | | | | | | | | | | | | | | | |
GLPI Corporate Office (3) | | Wyomissing, PA | | $ | — |
| | $ | 750 |
| | $ | 8,465 |
| | $ | 58 |
| | $ | 750 |
| | $ | 8,523 |
| | $ | 9,273 |
| | $ | 883 |
| | 2014/2015 | | 9/19/2014 | | 31 |
Other Properties | | | | | | | | | | | | | | | | | | | | | | | | |
Other owned land (4) | | various | | $ | — |
| | $ | 6,798 |
| | $ | — |
| | $ | — |
| | $ | 6,798 |
| | $ | — |
| | $ | 6,798 |
| | $ | — |
| | | | 10/1/18 | | N/A |
| | | | $ | — |
| | $ | 2,556,077 |
|
| $ | 5,581,881 |
|
| $ | 176,589 |
|
| $ | 2,552,476 |
|
| $ | 5,762,070 |
|
| $ | 8,314,546 |
|
| $ | 983,086 |
| | | | | | |
(1)During April 2016,2020, the Company acquired substantially all of the real estate assets of Pinnacleboth of these properties in satisfaction of previously outstanding loans, subject to the Belterra Park Lease and subsequently leased the assetsLumiere Place Lease, respectively.
(2) On December 18, 2020 Caesar's elected to replace Tropicana Evansville with Isle Casino Bettendorf and Isle Casino Waterloo as allowed under the Amended and Restated Caesars Master Lease.
(3) On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to Pinnacle. As discussed further in the footnotesan affiliate of Penn pursuant to the consolidated financial statements, the Pinnacle MasterMorgantown Lease was originally bifurcated betweenfor an operating lease and a direct financing lease, resulting in the land that wasinitial annual rent of $3.0 million, subject to operating lease treatment being recorded as a real estate asset onescalation provisions following the Company's consolidated balance sheet, while the building assets that triggered direct financing lease treatment were recorded as an investment in direct financing lease on the Company's consolidated balance sheet.
In conjunction with the Penn-Pinnacle Merger, on October 15, 2018, the Pinnacle Master Lease was amended via the fourth amendment to such lease to allow for the saleopening of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASCproperty.
840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety and the building assets previously recorded as an investment in direct financing lease on the Company's consolidated balance sheet were recorded as real estate assets on the Company's consolidated balance sheet.
(2) Hollywood Casino at Dayton Raceway and Hollywood Casino at Mahoning Valley Race Course were jointly developed with Penn National Gaming, Inc. The costs capitalized subsequent to acquisition represent the capital expenditures incurred by the Company subsequent to the transfer of the development properties at Spin-Off. Both properties commenced operations and began paying rent during the year ended December 31, 2014.
(3) (4) The Company's corporate headquarters building was completed in October 2015. The land was purchased on September 19, 2014 and construction on the building occurred through October 2015.
(4) (5) This includes undeveloped land the Company owns at locations other than its tenant occupied properties.
(5) (6) The aggregate cost for federal income tax purposes of the properties listed above was $7.96$8.34 billion at December 31, 2018.2020. This amount includes the tax basis of all real property assets acquired from Pinnacle, including building assets. The table above excludes the real estate assets of Tropicana Las Vegas which as described in Note 7 is in our TRS Segment and was acquired for $307.5 million ($226.2 million of Land and improvements and $81.3 million in Building and Improvements) in April 2020 with accumulated depreciation at December 31, 2020 totaling $2.7 million.
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Real Estate: | (in thousands) |
Balance at the beginning of the period | $ | 8,301,496 | | | $ | 8,314,546 | | | $ | 4,519,501 | |
Acquisitions | 590,971 | | | 0 | | | 1,199,135 | |
| | | | | |
Capital expenditures and assets placed in service | 0 | | | 0 | | 0 | |
Dispositions | (194,369) | | | (13,050) | | | (3,270) | |
Balance at the end of the period | $ | 8,698,098 | | | $ | 8,301,496 | | | $ | 8,314,546 | |
Accumulated Depreciation: | | | | | |
Balance at the beginning of the period | $ | (1,200,941) | | | $ | (983,086) | | | $ | (857,456) | |
Depreciation expense | (220,069) | | | (230,716) | | | (125,630) | |
Dispositions | 10,070 | | | 12,861 | | | 0 | |
Balance at the end of the period | $ | (1,410,940) | | | $ | (1,200,941) | | | $ | (983,086) | |
4
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Real Estate: | (in thousands) |
Balance at the beginning of the period | $ | 4,519,501 |
| | $ | 4,495,972 |
| | $ | 2,750,867 |
|
Acquisitions | 1,199,135 |
| | 23,507 |
| | 1,745,449 |
|
Reclass of assets from investment in direct financing lease to real estate investments (1) | 2,599,180 |
| | — |
| | — |
|
Capital expenditures and assets placed in service | — |
| | 32 |
| | 82 |
|
Dispositions | (3,270 | ) | | (10 | ) | | (426 | ) |
Balance at the end of the period | $ | 8,314,546 |
| | $ | 4,519,501 |
| | $ | 4,495,972 |
|
Accumulated Depreciation: | | | | | |
Balance at the beginning of the period | $ | (857,456 | ) | | $ | (756,881 | ) | | $ | (660,808 | ) |
Depreciation expense | (125,630 | ) | | (100,576 | ) | | (96,073 | ) |
Dispositions | — |
| | 1 |
| | — |
|
Balance at the end of the period | $ | (983,086 | ) | | $ | (857,456 | ) | | $ | (756,881 | ) |
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 2018 | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 | | | | |
| (in thousands) | | | | |
Mortgage Loans: | | | | | | | |
Balance at the beginning of the period | $ | 57,684 | | | $ | 303,684 | | | | | |
Additions during the period: | | | | | | | |
New mortgage loans | 0 | | | 0 | | | | | |
Deductions during the period: | | | | | | | |
Collections of principal | 0 | | | 0 | | | | | |
Other deductions (1) | (57,684) | | | (246,000) | | | | | |
Balance at the end of the period | $ | 0 | | | $ | 57,684 | | | | | |
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
Description | | Interest Rate | | Final Maturity Date | | Periodic Payment Terms | | Prior Liens | | Face Amount of Mortgage | | Carrying Amount of Mortgage (3) | | Principal Amount of Loans Subject to Delinquent Principal or Interest |
Lumière Place Loan | | 9.09% | | 10/1/2020 (1) | | interest paid monthly | | — |
| | $ | 246,000 |
| | $ | 246,000 |
| | — |
|
Belterra Park Loan | | 11.11% | | 4/3/2051 (2) | | interest paid monthly | | — |
| | 57,684 |
| | 57,684 |
| | — |
|
| | | | | | | | | | $ | 303,684 |
| | $ | 303,684 |
| | — |
|
(1)The Lumière Loan has a final maturity date of On October 1, 2020, however,2019, the one-year anniversary of the CZR Loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan may be extinguished prior to this date.became unsecured.
(2)The In May 2020, the Company acquired the real estate of Belterra Park Loan matures in connection with the expirationsatisfaction of the loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd Master Lease (as may be extended ataffiliate operating the tenant's option to April 30, 2051).
(3) The aggregate cost for federal income tax purposes of the mortgage loans listed above was approximately $304 million at December 31, 2018.property.
|
| | | |
| Year Ended December 31, 2018 |
| (in thousands) |
Mortgage Loans: | |
Balance at the beginning of the period | $ | — |
|
Additions during the period: | |
New mortgage loans | 303,684 |
|
Deductions during the period: | |
Collections of principal | — |
|
Balance at the end of the period | $ | 303,684 |
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, under the supervision and with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2018,2020, which is the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 20182020 the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's management conducted an assessment of the Company's internal control over financial reporting and concluded it was effective as of December 31, 2018.2020. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).
Deloitte & Touche LLP, the Company's independent registered accounting firm, issued an audit report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2018,2020, which is included on the following page of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2018,2020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. During the year ended December 31, 2018, we implemented controls to ensure we had identified all of the Company's lease agreements and properly assessed the impact of ASU 2016-02 on our financial statements to facilitate the adoption of this new guidance on January 1, 2019. We do not expect significant changes to our internal control over financial reporting due to the adoption of the new standard.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersShareholders and the Board of Directors of
Gaming and Leisure Properties, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Gaming and Leisure Properties, Inc. and Subsidiaries (the "Company") as of December 31, 2018,2020, based on criteria established in Internal Control - -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - -- Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2018,2020, of the Company and our report dated February 13, 2019,19, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/DELOITTE Deloitte & TOUCHE LLPTouche
New York, New York
February 13, 201919, 2021
ITEM 9B. OTHER INFORMATION
NoneNone.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item concerning directors is hereby incorporated by reference to the Company's definitive proxy statement for its 20192021 Annual Meeting of Shareholders (the "2019"2021 Proxy Statement"), to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2018,2020, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Information required by this item concerning executive officers is included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for in this item is hereby incorporated by reference to the 20192021 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The information called for in this item is hereby incorporated by reference to the 20192021 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information called for in this item is hereby incorporated by reference to the 20192021 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for in this item is hereby incorporated by reference to the 20192021 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements. The following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data filed as part of Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 20182020 and 20172019
Consolidated Statements of Income for the years ended December 31, 2018, 20172020, 2019 and 20162018
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the years ended December 31, 2018, 20172020, 2019 and 20162018
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172020, 2019 and 20162018
2. Financial Statement Schedules:
Schedule III. Real Estate and Accumulated Depreciation as of December 31, 20182020
Schedule IV. Mortgage Loans on Real Estate as of December 31, 20182020
3. Exhibits, Including Those Incorporated by Reference.
The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this annual report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
|
| | | | | | | |
Exhibit | | Description of Exhibit |
2.1 |
| | |
| | |
2.2 |
| | |
| | |
2.3 |
| | Amendment No. 1, dated as of March 25, 2016, to Agreement and Plan of Merger, dated as of July 20, 2015, by and among Pinnacle Entertainment, Inc., Gaming and Leisure Properties, Inc. and GolderGold Merger Sub, LLC. (Incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K filed on March 28, 2016). |
| | |
2.4 |
| | Separation and Distribution Agreement, dated April 28, 2016, by and between PNK Entertainment, Inc., Gold Merger Sub, LLC (as successor to Pinnacle Entertainment, Inc.) and solely with respect to Article VIII, Gaming and Leisure Properties, Inc. (Incorporated by reference to Exhibit 2.4 to the Company's current report on Form 8-K filed on April 28, 2016). |
| | |
2.5 |
| | Agreement and Plan of Merger, dated as of April 15, 2018, by and among Eldorado Resorts, Inc., Delta Merger Sub, Inc., GLP Capital, L.P. and Tropicana Entertainment Inc. (Incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K, filed on April 16, 2018). |
| | |
2.6 |
| | |
| | |
2.7 |
| | |
| | |
3.1 |
| | |
| | |
3.2 |
| | |
| | |
4.1 |
| | Indenture, dated as of October 30, 2013, among GLP Capital, L.P. and GLP Financing II, Inc., as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on November 1, 2013). |
| | |
4.2 |
| | First Supplemental Indenture, dated as of March 28, 2016, by and among GLP Capital, L.P., and GLP Financing II, Inc., as Issuers and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on March 28, 2016). |
| | |
4.3 |
| | Second Supplemental Indenture, dated as of April 28, 2016, by and among GLP Capital, L.P., and GLP Financing II, Inc. as Issuers and Gaming and Leisure Properties, Inc, as Parent Guarantor and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.3 to the Company's current report on Form 8-K filed on April 28, 2016). |
| | |
4.4 |
| | Third Supplemental Indenture, dated as of April 28, 2016, by and among GLP Capital, L.P., and GLP Financing II, Inc. as Issuers and Gaming and Leisure Properties, Inc. as Parent Guarantor and Wells Fargo Bank, National Association, as Trustee. (Incorporated by reference to Exhibit 4.4 to the Company's current report on Form 8-K filed on April 28, 2016). |
| | |
4.5 |
| | Fourth Supplemental Indenture, dated May 21, 2018, by and among GLP Capital, L.P. and GLP Financing II, Inc. as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee, relating to the Issuers' 4.375% Senior Notes due 2018. (Incorporated by reference to Exhibit 4.3 to the Company's current report on Form 8-K, filed on May 22, 2018). |
| | |
|
| | | | | | | |
Exhibit | | Description of Exhibit |
4.6 |
| | Fifth Supplemental Indenture, dated May 21, 2018, among GLP Capital, L.P. and GLP Financing II, Inc. as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee, relating to the Issuers' 5.250% Senior Notes due 2025. (Incorporated by reference to Exhibit 4.4 to the Company's current report on Form 8-K, filed on May 22, 2018). |
| | |
4.7 |
| | Sixth Supplemental Indenture, dated May 21, 2018, by and among GLP Capital, L.P. and GLP Financing II, Inc. as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee, relating to the Issuers' 5.750% Senior Notes due 2028. (Incorporated by reference to Exhibit 4.5 to the Company's current report on Form 8-K, filed on May 22, 2018). |
| | |
4.8 |
| | Seventh Supplemental Indenture, dated as of September 26, 2018, by and among GLP Capital, L.P. and GLP Financing II, Inc. as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee, relating to the Issuers' 5.300% Senior Notes due 2029. (Incorporated by reference to Exhibit 4.4 to the Company's current report on Form 8-K, filed on September 26, 2018). |
| | |
4.9 |
| | Eighth Supplemental Indenture, dated August 29, 2019, among GLP Capital, L.P. and GLP Financing II, Inc., as issuers, Gaming and Leisure Properties, Inc., as parent guarantor, and Wells Fargo Bank, National Association, as trustee, relating to the issuers’ 3.350% Senior Notes due 2024. (Incorporated by reference to Exhibit 4.3 of the Company's current report on Form 8-K, filed on September 5, 2019). |
| | |
4.10 | | | Ninth Supplemental Indenture, dated August 29, 2019, among GLP Capital, L.P. and GLP Financing II, Inc., as issuers, Gaming and Leisure Properties, Inc., as parent guarantor, and Wells Fargo Bank, National Association, as trustee, relating to the issuers’ 4.000% Senior Notes due 2030. (Incorporated by reference to Exhibit 4.4 of the Company's current report on Form 8-K, filed on September 5, 2019). |
| | |
4.11 | | | Tenth Supplemental Indenture, dated as of June 25, 2020, among GLP Capital, L.P. and GLP Financing II, Inc., as Issuers, Gaming and Leisure Properties, Inc., as Parent Guarantor, and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference to Exhibit 4.3 of the Company's current report on Form 8-K filed on July 1, 2020). |
| | |
4.12 | | | |
| | |
4.104.13 |
| | |
| | |
4.114.14 |
| | |
| | |
4.124.15 |
| | |
| | |
4.134.16 |
| | |
| | |
4.144.17 |
| | |
| | |
4.154.18 |
| | |
| | |
10.14.19 |
| | |
| | |
4.20 | | | |
| | | | | | | | |
| | |
4.21 | | | |
| | |
4.22* | | |
| | |
10.1 | | | Registration Rights Agreement, dated as of October 30, 2013, by and among GLP Capital, L.P., GLP Financing II, Inc., Gaming and Leisure Properties, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other initial purchasers named therein, with respect to the 2018 Notes. (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on November 1, 2013). |
| | |
10.2 |
| | Registration Rights Agreement, dated as of October 30, 2013, by and among GLP Capital, L.P., GLP Financing II, Inc., Gaming and Leisure Properties, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other initial purchasers named therein, with respect to the 2023 Notes. (Incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on November 1, 2013). |
| | |
10.3 |
| | Registration Rights Agreement, dated as of October 31, 2013, by and among GLP Capital, L.P., GLP Financing II, Inc., Gaming and Leisure Properties, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other initial purchasers named therein, with respect to the 2020 Notes. (Incorporated by reference to Exhibit 10.3 to the Company's current report on Form 8-K filed on November 1, 2013). |
| | |
10.4 |
| | Credit Agreement, dated as of October 28, 2013, among GLP Capital, L.P., as successor-by-merger to GLP Financing, LLC, each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.4 to the Company's current report on Form 8-K filed on November 1, 2013). |
| | |
10.5 |
| | Amendment No. 1, dated as of July 31, 2015, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the various other parties thereto. (Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on S-4 filed on August 28, 2015). |
| | |
|
| | | |
Exhibit10.6 | | Description of Exhibit |
10.6 |
| | First Amendment, dated as of March 25, 2016, to Amendment No. 1, dated as of July 31, 2015, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the various other parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on March 28, 2016). |
| | |
10.7 |
| | Amendment No. 2, dated as of May 21, 2018, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the various other parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K, filed on May 22, 2018). |
| | |
10.8 |
| | Amendment No. 3, dated as of October 10, 2018, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the various other parties thereto. (Incorporated by reference to Exhibit 10.5 to the Company's quarterly report on Form 10-Q filed on November 1, 2018). |
| | |
10.9 |
| | Amendment No. 5, dated as of March 30, 2020, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the various other parties thereto (Incorporated by reference to Exhibit 4.1 to the Company's quarterly report on Form 10-Q filed on May 1, 2020). |
| | |
10.10 | | | Amendment No. 6, dated as of June 25, 2020, to the Credit Agreement dated as of October 28, 2013 among GLP Capital, L.P., the several banks and other financial institutions party thereto, JPMorgan Chase Bank, N.A., as administrative agent, as further amended (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on July 1, 2020). |
| | |
10.11 | | | |
| | |
| | | | | | | | |
10.1010.12 |
| | |
| | |
10.1110.13 |
| | |
| | |
10.1210.14 |
| | |
| | |
10.1310.15 |
| | |
| | |
10.1410.16 |
| | |
| | |
10.1510.17 |
| | |
| | |
10.16*10.18 |
| | |
| | |
10.17*10.19 |
| | |
| | |
10.1810.20 |
| | |
| | |
10.1910.21 |
| | |
| | |
10.2010.22 |
| | |
| | |
10.2110.23 |
| | |
|
| | | |
Exhibit10.24 | | Description of Exhibit |
10.22 |
| | |
| | |
10.2310.25 |
| | |
| | |
10.2410.26 |
| | |
| | |
| | | | | | | | |
10.27 | | | |
| | |
10.2510.28 |
| | Consent Agreement by and among Gaming and Leisure Properties, Inc., Gold Merger Sub, LLC, PA Meadows, LLC, WTA II, Inc., CCR Pennsylvania Racing, Inc., Penn National Gaming, Inc., Pinnacle Entertainment, Inc., PNK Development 33, LLC and Pinnacle MLS, LLC dated December 17, 2017. (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on December 19, 2017). |
| | |
10.2610.29 |
| | |
| | |
10.2710.30 |
| | |
| | |
10.2810.31 |
| | |
| | |
10.2910.32 |
| | |
| | |
10.3010.33 # |
| | |
| | |
10.31#10.34# |
| | |
| | |
10.3210.35 # |
| | |
| | |
10.3310.36 # |
| | |
| | |
10.3410.37 # |
| | |
| | |
10.3510.38 # |
| | |
| | |
10.3610.39 # * |
| | |
| | |
|
| | |
10.40 # | | |
| | |
Exhibit10.41 # | | Description of Exhibit |
10.37 # |
| | |
| | |
| | | | | | | | |
10.3810.42 |
| | Amended and Restated Membership Interest Purchase Agreement, dated as of December 15, 2015, by and among Gaming and Leisure Properties, Inc., GLP Capital, L.P., PA Meadows LLC, PA Mezzco LLC and Cannery Casino Resorts, LLC. (Incorporated by reference to Exhibit 10.14 to the Company's annual report on Form 10-K filed on February 22, 2016). |
| | |
21*10.43 |
| | |
| | |
10.44 | | | |
| | |
21* | | |
| | |
23*22.1* |
| | |
| | |
23* | | |
| | |
31.1* |
| | |
| | |
31.2*32.1* |
| | |
| | |
32.1* |
| | |
| | |
32.2*101 |
| | |
| | |
101* |
| | Interactive data files pursuant to Rule 405 of Regulation S-T:following financial information from Gaming and Leisure Properties, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, at December 31, 2018 and 2017, (ii) theii) Consolidated Statements of Income, for the years ended December 31, 2018, 2017 and 2016, (iii) the Consolidated Statements of Changes in Shareholders'Shareholders’ Equity, (Deficit) for the years ended December 31, 2018, 2017 and 2016, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, and (v) the notesNotes to the Consolidated Financial Statements. |
| | |
104 |
| | The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL and contained in Exhibit 101. |
# Compensation plans and arrangements for executives and others.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | |
| | GAMING AND LEISURE PROPERTIES, INC. |
| | By: | | /s/ PETER M. CARLINO |
| | | | Peter M. Carlino Chairman of the Board and Chief Executive Officer |
Dated: February 13, 201919, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | | | | | | | | | | |
Signature | | Title | | Date |
| | | | |
/s/ PETER M. CARLINO | | Chairman of the Board and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) | | February 13, 201919, 2021 |
Peter M. Carlino | | | | |
| | | | |
/s/ STEVEN T. SNYDER | | Interim Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) | | February 13, 2019 |
Steven T. Snyder | | | | |
| | | | |
/s/ DESIREE A. BURKE | | Senior Vice President, and Chief Accounting Officer and Treasurer (Principal Accounting Officer) | | February 13, 201919, 2021 |
Desiree A. Burke | | | | |
| | | | |
/s/ DAVID A. HANDLERCAROL LYNTON | | Director | | February 13, 201919, 2021 |
David A. HandlerCarol Lynton | | | | |
| | | | |
/s/ JOSEPH W. MARSHALL | | Director | | February 13, 201919, 2021 |
Joseph W. Marshall | | | | |
| | | | |
/s/ JAMES B. PERRY | | Director | | February 13, 201919, 2021 |
James B. Perry | | | | |
| | | | |
/s/ BARRY F. SCHWARTZ | | Director | | February 13, 201919, 2021 |
Barry F. Schwartz | | | | |
| | | | |
/s/ EARL C. SHANKS | | Director | | February 13, 201919, 2021 |
Earl C. Shanks | | | | |
| | | | |
/s/ E. SCOTT URDANG | | Director | | February 13, 201919, 2021 |
E. Scott Urdang | | | | |
| | | | |